Interim Management Statement,

RNS Number : 4383P

Invista Foundation Property Tst Ltd

16 July 2010

 



16 July 2010

Invista Foundation Property Trust Limited 

(the 'Company' / 'Group')

INTERIM MANAGEMENT STATEMENT, ANNOUNCEMENT OF NAV AND INTERIM DIVIDEND 

Net Asset Value

Invista Foundation Property Trust Limited today announces a Net Asset Value ('NAV') of £165.5 million or 51.2 pence per share ('pps') as at 30 June 2010. This reflects a decline of -1.2 pps or -2.32% compared with the NAV as at 31 March 2010 of 52.4 pps.  

The main contributor to the decline in the NAV was a -£3.9 million or -1.2 pps further adverse movement in the marked to market value of the Group's interest rate swaps.  In addition to the adverse swap movement, the NAV was reduced over the quarter by acquisition costs associated with the office in Sheffield, capital expenditure and the dividend shortfall.  However, in contrast to this, the directly held property portfolio increased in value by £4 million or 1.31% over the quarter and the NAV in the Company's two joint ventures increased by £0.3 million or 11%. 

The Company is also today announcing an interim dividend of 0.88 pps in respect of the period 1 April 2010 to 30 June 2010.  The dividend payment will be made on 20 August 2010 to shareholders on the register on 6 August 2010.  The ex-dividend date will be 4 August 2010.

	30/06/2010 (£m)	31/03/2010 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation	318.9	304.7	14.2	5
Rent incentive adjustment	(4.9)	(4.7)	(0.2)	(4)
Valuation of purchase		10.2
Capital expenditure during the quarter		0.97
Like for like direct property	318.9	315.9	3.0	1
Joint venture investments	3.1	2.8	0.3	11
Market value of interest rate swap	(30.2)	(26.3)	(3.9)	(15)
Net current assets1	60.7	75.0	(14.3)	(19)
On-balance sheet loan1	(182.1)	(182.0)	(0.1)	0
Net Asset Value	165.5	169.5	(4)	(2.3)
Net Asset Value per share (pps)	51.2	52.4	(1.2)	(2.3)
Net Asset Value per share excluding swaps (pps)	60.5	60.5	0	0

¹          Both net current assets and on-balance sheet loan include £11.2 million following draw down of the Liquidity Facility (see Finance below).  The Liquidity Facility cash is held in a blocked account and the loan is excluded from related securitised financial covenants

Placing of Ordinary Shares

On 13 July 2010 the Company announced a conditional placing, or a 'tap issue', of 32,327,062 new ordinary shares raising gross proceeds of £12.3 million.  The new ordinary shares represent 9.99% of the shares in issue at a price of 38 pence per share, representing a discount of 5% to the market price on 13 July 2010 of 40 pps.  The shares have been placed with a small number of institutional investors and on listing will rank pari passu with existing ordinary shares.  As the proposed placing is at a discount to NAV, the Listing Rules require the placing to be subject to Shareholder approval. A Circular has been sent to Shareholders to give further explanation of the rationale for the placing and to convene the necessary Extraordinary General Meeting, where the consent of existing Shareholders will be sought.

The placing follows a volatile three years in the UK commercial property market, during which average UK values fell 44% followed by a sharp recovery with values increasing 14% between July 2009 and May 2010.  During this period the Company has successfully implemented a strategy to reduce risk and strengthen the balance sheet, whilst also maintaining good out-performance from the underlying property portfolio relative to the Investment Property Databank ('IPD') Benchmark, as confirmed in the Company's final results, which were announced earlier this week.

The Company's strategy now is to focus on increasing income and dividend cover to generate sustained performance.  The recent acquisitions at West Bromwich and Sheffield (see transactions below) are a key part of this strategy together with ongoing key asset management initiatives (see asset management below), which prior to the proposed placing result in current cash resources being substantially allocated.  There are additional accretive acquisitions and asset management initiatives within the existing portfolio that could enhance dividend cover and NAV total returns further, and the proposed placing will enable these opportunities to be exploited.

Property Portfolio and Performance

As at 30 June 2010, the Company's direct property portfolio comprised 56 properties independently valued at £318.91 million, including the new office acquisition in Sheffield.  The direct property portfolio produces a rent of £21.8 million per annum which, based on the independent valuation, reflects a net initial yield of 6.5%, increasing to 6.6% by December 2010 following expiry of contracted rent free periods totalling £0.4 million per annum. The reversionary yield of the portfolio based on the independent valuation is 7.75%. 

In addition to the rent free periods expiring over calendar 2010, the Company has £3 million per annum of additional rent receivable by the end of 2012 which will materially add to income and dividend cover.  This is rent that is currently subject to rent free or where refurbishment works are ongoing under an Agreement for Lease.

The following tables reflect the position based on the 30 June 2010 valuation:

Sector weightings

Sector	Weighting
Retail	25%
Offices	46%
Industrial	25%
Other	4%
Total	100%

Regional weightings

Region	Weighting
Central London	8%
South East excl. Central London	49%
Rest of South	14%
Midlands and Wales	16%
North and Scotland	13%
Total	100%

Top ten properties 

		Value (£)	%
1	Minerva House, Montague Close, London  SE1 (50% share)	26,500,000	8.3%
2	Victory House, Trafalgar Place, Brighton	21,900,000	6.9%
3	Retail Park, Churchill Way West, Salisbury, Wiltshire	15,100,000	4.7%
4	The Galaxy, Luton	14,100,000	4.4%
5	106 Oxford Road, Uxbridge	14,000,000	4.4%
6	Olympic Office Centre, Fulton Road, Wembley	12,350,000	3.9%
7	Reynard Business Park, Brentford	11,350,000	3.6%
8	Churchill Way, Basingstoke	11,200,000	3.5%
9	The Gate Centre, Syon Gate Way, Brentford	10,250,000	3.2%
10	The Portergate, Sheffield	10,200,000	3.2%
	Total as at 30 June 2010	146,950,000	46.1%

Top ten tenants

The table below sets out the top ten tenants, including tenants that are currently subject to Agreement for Lease such as BUPA in Brighton.  The table does not include the acquisition in West Bromwich which will only be acquired by the Group on successful completion of the development.  On completion the property will be let to BT plc who will become the Group's largest tenant paying £1.2 million on a 15 year lease with 3% fixed annual rental uplifts.

		Rent per annum (£)	%
1	Wickes Building Supplies Limited	1,092,250	4.8%
2	Norwich Union Life and Pensions Ltd	1,039,191	4.6%
3	BUPA Insurance Services Limited1	965,000	4.3%
4	Synovate Limited2	950,000	4.2%
5	The Buckinghamshire New University3	900,000	4.0%
6	Mott MacDonald Ltd4	790,000	3.5%
7	Recticel SA	713,538	3.2%
8	The British Broadcasting Corporation	701,750	3.1%
9	Winkworth Sherwood LLP5	663,095	2.9%
10	Partners of Irwin Mitchell LLP	555,000	2.5%
	Total as at 30 June 2010	8,369,824	37.1%

¹ As noted below an Agreement for Lease has been exchanged with BUPA Insurance Services Limited conditional on refurbishing the property and these works are expected to be completed by August 2010.  From completion of the lease the tenant benefits from a 19 month rent free period

² Aegis Group plc is guarantor. Figures based on 50% ownership of Minerva House

³ The Buckinghamshire New University are currently benefiting from a half rent period equating to £450,000 per annum from March 2009 which will increase to £900,000 per annum in June 2012

⁴ Mott MacDonald Group Limited are Guarantor

⁵ On assignment from Reed Smith Ramboud Charot LLP. Figures based on 50% ownership of Minerva House

⁶ Booker Limited are currently benefiting from a half rent period equating to £275,000 per annum from June 2009 which will increase to £550,000 per annum in June 2011

The underlying property portfolio continues to outperform relative to its IPD Benchmark.  The latest available data prepared by IPD shows that over the 12 months to 31 March 2010 the Company's directly held portfolio produced a total return of 18.8% compared with the Benchmark of 14.7%.  The Company's active approach to asset management continues to reduce the impact of declining rents relative to the IPD Benchmark, with the negative rental value movement contributing -3.9% compared with the IPD Benchmark figure of -5.7%. 

Transactions

As noted above, in June the Company acquired The Portergate, a modern office building in Sheffield for £10.2 million.  The property is let to Norwich Union Life and Pensions Limited for nine years, without tenant options to break, at an initial rent of £1.04 million per annum.  The price reflects a relatively high yield of 9.63% and there is scope for asset management through pursuing alternative uses for the surplus area.  Further new accretive transactions are also currently being considered.

Asset Management

There are two key asset management initiatives that are currently subject to detailed negotiations. 

At Hinckley, where the Company secured a 100,000 sq ft outline retail warehouse planning consent in 2007, followed by a detailed consent for a first phase of 37,000 sq ft, lawyers have been instructed in connection with two new lease agreements totalling 27,500 sq ft.  Combined with two further potential lettings the first phase this could generate new rent of approximately £0.5 million per annum.  The current estimated cost of the first phase of development is £4.1 million with the apportioned land value as at 30 June 2010 equating to £1.25 million.

At Brentford Gate Centre the Company is in advanced negotiations to let five warehouse units which were vacated over the quarter to June where the combined previous annual income totalled £0.3 million.  These units adjoin a BMW car showroom and there is the potential to secure a long lease term to a strong covenant at a higher rent.

Market Background

The UK commercial property market recovery has continued with capital values increasing 15% between July 2009 and May 2010.  The rate of positive monthly capital growth has slowed over the last six months, led by continuing negative rental value growth and concerns over macro-economic factors.  Whilst there continues to be good demand for prime assets, within the transaction market some vendors are not achieving valuation.  Given the potential for further capital market volatility the Board and Manager are cautious about the short term outlook.  Consequently new acquisitions and asset management are focussed on securing long term leases to secure tenants.

Joint Ventures

The Company has three joint ventures with separate non-recourse, off-balance sheet debt:

Merchant Property Unit Trust ('MPUT') - 19.5% share

The NAV of the Company's 19.5% share in MPUT as at 30 June 2010 was £2.48 million, an increase of £0.20 million or 9% compared with March 2010.  The quarterly NAV uplift follows a 3.25% increase in the value of the underlying portfolio which reflects a net initial yield of 5.88% increasing to a guaranteed 6.82% by 2013.  The loan to value ratio is now 65% compared to a covenant of 100% which tapers down to 75% at loan maturity in 2013.  All surpluses are used for debt amortisation and the Company's NAV in MPUT is currently diluted by -£0.49 million due to a negative marked to market value of the interest rate swap. 

Crendon Industrial Partnership Limited ('CIPL') - 50% share

The NAV of the Company's 50% share in CIPL as at 30 June 2010 was £0.67 million, an increase of £0.14 million or 26% compared with March 2010.  Good progress has been made on asset management which resulted in a 2% like for like quarterly valuation increase. The NAV was also enhanced by a small part disposal of the multi-let industrial estate at a premium to the apportioned valuation.  There is no loan to value covenant prior to the loan maturity in 2013, and all surpluses are being used for debt amortisation.

Plantation Place, London EC3 - 28.2% share

The NAV of the Company's 28.2% share in Plantation Place continues to be held at nil due to net liabilities exceeding assets.  The valuation of the underlying property went up by £25 million or 6% to £450 million over the quarter.  The total securitised net debt secured on Plantation Place is £433.71 million which together with the negative marked to market value of the interest rate swap of -£45.8 million results in total net liabilities of £479.5 million.  The property is well let and continues to cover interest. 

Finance

Details of the Company's debt and two swaps are set out in the table below:

	Amount (£m)	Swap Rate (%)	Margin (%)	Total interest rate (%)	Swap Maturity	M2M 30/06/2010 (£m)	M2M* 31/03/2010 (£m)
Loan	62.5	5.099% Fixed	0.20	5.299	15/07/2014	(8.4)	(7.5)
Loan	111	5.713% Fixed	0.20	5.913	15/07/2016	(21.8)	(18.9)
Loan total	173.5	5.420% Fixed	0.20	5.692	N/A	(30.2)	(26.4)
Liquidity facility**	11.2	0.73 Libor***	0.662	1.39*	N/A	N/A	N/A

*    M2M or marked to market

**    Securitised debt facility has a Liquidity Facility of £11.2 million provided by Lloyds Banking Group ('Lloyds'). Liquidity Facility Agreement requires the provider to have a minimum Standard & Poor's ('S&P') credit rating of A-1+, which Lloyds breached in March 2009 when they were downgraded by S&P to A-1.  Breach requires the Liquidity Facility to be drawn down in full and placed in a blocked deposit account or alternatively a new provider put in place. Accordingly, on the 23 September 2009 the Liquidity Facility was drawn down.

***    Libor as at 13 July 2010 

As noted above, the Group's interest rate swaps have continued to demonstrate significant volatility, fluctuating from £30.8 million as at 31 March 2009 to £26.4 million at 31 March 2010, increasing to £30.2 million as at 30 June 2010.  The negative impact as at 30 June 2010 is 9.33 pence per share or 18% of the value of the Company.  The marked to market value will continue to change with movements in swap rates but the positive or negative value is of course only realised if debt is repaid in part or in full before maturity otherwise they are 'wasting' assets, in that the value will always be zero at maturity.

As at 30 June 2010, the Company had an on-balance sheet loan to value ratio, net of all cash, of 38.2% against a loan to value ratio covenant of 60%.  The Company continues to have significant headroom on its Interest Cover Ratio of 217% compared with the covenant of 150%.

-ENDS-

For further information:

Invista Real Estate Investment Management Duncan Owen / Nick Montgomery	020 7153 9300
Northern Trust David Sauvarin	01481 745529
Financial Dynamics Dido Laurimore / Rachel Drysdale	020 7831 3113

 

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