Net Asset Values and Interim

RNS Number : 4737B

Invista Foundation Property Tst Ltd

28 October 2009

 



28 October 2009

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  £138.9 million or 42.9 pence per share ('pps') as at 30 September 2009.  This reflects a 0.2 pps or 0.5% decline compared with NAV as at 30 June 2009.  This decline was despite the fact that the underlying property portfolio increased on a like for like basis by £6.8 million or 2.3% over the quarter which was off-set by a £4.4 million decrease in the marked to market value of the Company's interest rate swaps, together with the effect of a partially uncovered dividend and fees relating to the debt buy-back proposal that was withdrawn. 

The Company also announces an interim dividend of 0.88 pps in respect of the period 1 July 2009  to 30 September 2009.  The dividend payment will be made on 20 November 2009 to shareholders on the register on 6 November 2009. The ex-dividend date will be 4 November 2009.

A summary of the NAV movement over the period is set out below:

	30/09/2009 (£m)	30/06/2009 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation	297.9	296.1	1.8	0.6
Valuation of sales		(7.2)
Capital expenditure during the quarter		2.2
Like for like direct property	297.9	291.1	6.8	2.3
Joint venture investments	0	0	-	-
Market value of interest rate swap	(26.5)	(22.1)	(4.4)	(19.9)
Net current assets	89.21	75.8	13.4	17.7
On-balance sheet loan	(221.7)1	(210.4)	(11.3)	(5.4)
Net Asset Value	138.9	139.4	(0.5)	(0.4)
Net Asset Value per share (pps)	42.9	43.1	(0.2)	(0.5)
Net Asset Value per share excluding swaps (pps)	51.1	49.9	1.2	2.4

1 Both net current assets and on-balance sheet loan increased by £11.2 million following draw down of the Liquidity Facility - see note below under Finance

Property Portfolio and Performance

As at 30 September 2009 the Company's direct property portfolio was independently valued at £303.5 million, prior to disposals. Following a sale that exchanged prior to the quarter end and completed following the quarter end, the Company's directly held portfolio is valued at £297.9 million comprising 58 assets with an average lot size of £5.14 million.  Following disposals,  the property portfolio produces rent of £22.3 million per annum which, based on the independent valuation, reflects a net initial yield of 7.6%, increasing to 8.1% following expiry of rent free periods over the next 12 months.  The net reversionary yield of the portfolio based on the independent valuation is 9.3%.  The Group's three joint venture investments continue to be carried at nil value.

The following tables reflect the position based on the 30 September 2009 valuation but after disposals, referred to above, following the quarter end:

Sector weightings

Sector	Weighting
Retail	24.8%
Offices	46.2%
Industrial	24.8%
Other	4.2%
Total	100%

Regional weightings

Region	Weighting
Central London	14.3%
South East excl. Central London	47.5%
Rest of South	13.0%
Midlands and Wales	15.9%
North and Scotland	9.3%
Total	100%

Top ten properties 

		Value (£)	%
1	Minerva House, Montague Close, London  SE1 (50% share)	22,650,000	7.6%
2	Portman Square House, 43/45 Portman Square, London W1 (21.6% share)	19,980,000	6.7%
3	Victory House, Trafalgar Place, Brighton	16,500,000	5.5%
4	The Galaxy, Luton	12,500,000	4.2%
5	106 Oxford Road, Uxbridge	12,450,000	4.2%
6	Reynard Business Park, Brentford	11,650,000	3.9%
7	Retail Park, Churchill Way West, Salisbury, Wiltshire	11,400,000	3.8%
8	Olympic Office Centre, Fulton Road, Wembley	9,650,000	3.2%
9	The Gate Centre, Syon Gate Way, Brentford	9,300,000	3.1%
10	Churchill Way, Basingstoke	9,000,000	3.0%
	Total as at 30 September 2009	135,080,000	45.2%

Top ten tenants

		Rent per annum (£)	%
1	Cushman & Wakefield Finance Limited	1,183,617	4.9%
2	Wickes Building Supplies Limited	1,092,250	4.6%
3	Synovate Limited1	950,000	4.0%
4	Mott MacDonald Ltd2	940,000	3.9%
5	The British Broadcasting Corporation	918,250	3.8%
6	The Buckinghamshire New University3	900,000	3.8%
7	Recticel SA	713,538	3.0%
8	Winkworth Sherwood LLP4	663,095	2.8%
9	Partners of Irwin Mitchell LLP	555,000	2.3%
10	Booker Limited	550,000	2.3%
	Total as at 30 September 2009	8,465,750	35.4%

1     Aegis Group plc are guarantor. Figures based on 50% ownership of Minerva House

2    Currently paying £235,000 per annum following recent lease restructuring. Increases to £940,000 on 25 December 2009. Mott MacDonald Group Limited are guarantor

3    The Buckinghamshire New University began paying 50% of their rent equating to £450,000 per annum from March 2009 and will increase to £900,000 per annum in June 2012

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

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 30 June 2009 the Company's portfolio produced a total return of -23.4% compared with the Benchmark of -25.3%. The Company's active approach to asset management continues to reduce the impact of declining rents relative to the Benchmark, with the rental value movement contributing -4.6% towards capital growth compared with the Benchmark of -7.4%.

Transactions and Asset Management

During the period the Company exchanged and completed on two disposals in Sharston and  Cannock for combined proceeds of £7.53 million. This compared to a combined valuation as at 30 June 2009 of £7.16 million resulting in a premium of £365,000 or 5.1%. Sharston was vacant and sold to a special purchaser.  Cannock was sold to the tenant, a privately owned car dealership and the Company's ninth largest tenant, which has been paying rent of £570,000 per annum. Further selective disposals will be considered where asset management business plans have been completed or where there are concerns over longer term performance.  

Following the disposal of National Magazine House, London W1 in April 2009, the outstanding rent review which may trigger a possible second part payment is now likely to go to a third party for a determination and this could take up to a further six months to resolve. The maximum possible payment to the Company is £2 million but due to the uncertainty around the third party process no accrual has been included in the NAV of the Company.  

Significant asset management activity is ongoing across the portfolio with the objective of maintaining and, where possible, enhancing income.  To illustrate, the Company has exchanged or completed lease agreements that are subject to rent free periods which should generate additional contracted rental income of £2 million per annum over the next twelve months.  

The portfolio void rate as a percentage of the independently assessed rental value is currently 9.2% which compares with the IPD Benchmark of 11.1% as at 30 September 2009. This increases to 10.2% if tenants in administration but paying rent are taken into account.  

Due to the stabilisation in market values the Company is actively considering new property acquisitions to increase income and long term net asset value total returns.  

Market Background

The UK commercial property market now appears to have reached an inflection point and the direction of valuation movement has changed.  Following the 44.2% decline in capital values between June 2007 and July 2009, the IPD Monthly Index reports that average capital values increased by 1.4% between August and September.  However, averages can be misleading as the market is polarising with transactional activity focusing on prime, well-located properties that are let to tenants with strong covenants on long leases. This has driven prices on these properties up above the level suggested by the IPD data which can be contrasted with some secondary property values that are still declining.

Rental values are increasingly the focus for investors and although there are encouraging signs that rental value falls are beginning to ease in some parts of the market, this positive outlook needs must be contrasted with weak occupier demand in most sectors.  This environment will mean that stock selection and delivering income enhancement through effective asset management will be critical to achieving returns from property investment over the next few years.

Finance

On 10 July 2009, the Company announced that it was proposing to make a one-off tender offer to repurchase and cancel a portion of its existing listed, securitised borrowings (the 'Notes') which currently have a total face value of £213.5 million.  A possible opportunity arose from the dislocation in credit markets which resulted in the listed debt trading at a discount to face value. The Company committed up to £55 million towards the repayment of these notes and associated costs.  A number of Noteholders responded negatively to the proposal meaning that is was unlikely to have been passed and the proposal was therefore withdrawn on 4 August 2009.  The Company is reviewing options to reduce gross debt levels, taking account of the associated costs of terminating the related interest rate swap contracts.

The Group's securitised debt facility has a Liquidity Facility of £11.2 million provided by Lloyds Banking Group ('Lloyds') attached to it. This is a standard feature designed as an on-demand loan to cover short-term income shortfalls as against payments due under the loan. The 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. The 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.

This has a neutral impact on the Group's NAV with the increase in loan off-set by an increase in cash.  However, as a result, interest costs will rise by a nominal amount with an estimated net increase of approximately £50,000 per annum. The securitisation loan covenants exclude any amount drawn under the Liquidity Facility. In the event that Lloyd's credit rating reverts back to A-1+, the Liquidity Facility will be repaid.

The Group has two interest rate swaps that fully hedge interest payments for the duration of the principal securitised loan term that matures in July 2014. Details of the Company's debt and two swaps are set out in the table below:

	Amount (£m)	Interest Rate	Margin (%)	Total interest rate (%)	Expiry	Mark to Market 30/09/2009 (£m)	Mark to Market 30/06/2009 (£m)
Loan	102.5	5.099% Fixed	0.20	5.299	15/07/2014	(10.1)	(8.2)
Loan	111	5.713% Fixed	0.20	5.913	15/07/2016	(16.4)	(13.9)
Loan total	213.5	5.420% Fixed	0.20	5.622		(26.5)	(22.1)
Liquidity facility	11.2	0.54 Libor*	0.662	1.202*		N/A	N/A

* Libor as at 30 September 2009 

As at 30 September 2009, ignoring the Liquidity Facility and after disposals completed since the quarter end, the Company had a loan to value ratio, net of all cash, of 43.6% against a loan to value ratio covenant of 60%. 

-ENDS-

For further information:

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

 

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