IMS, NAV and Interim Dividend

RNS Number : 9013K

Invista Foundation Property Tst Ltd

22 July 2011

 



22 July 2011

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 (the 'Company') today announces an unaudited net asset value ('NAV') of £176.5 million or 49.6 pence per share ('pps') as at 30 June 2011.  Despite ongoing improvement in the value of the portfolio, this reflects a decrease of 1.3 pps or 2.6% compared with the NAV as at 31 March 2011 of £181 million or 50.9 pps.

The directly held property portfolio increased in value by £1.2 million or 0.4% on a like for like basis over the quarter and the Company benefited from a small increase of £0.1 million in the NAV of two of its joint ventures. 

The largest contributor to the negative quarterly movement was a negative movement of £3.3 million in the marked to market value of the Group's interest rate swaps, meaning that the total negative marked to market value of these swaps as at 30 June 2011 is -£26.5 million, representing 7.4 pps or 15% of the total NAV. 

The Company is also today announcing an interim dividend of 0.88 pps for the period 1 April 2011 to 30 June 2011.  The dividend payment will be made on 19 August 2011 to shareholders on the register on 5 August 2011.  The ex-dividend date will be 3 August 2011.

	30/06/2011 (£m)	31/03/2011 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation	326.8	331.4	(4.6)	(1.4)
Rent incentive adjustment	(6.5)	(6.0)	(0.5)	(8.3)
Valuation of disposal		(5.8)
Capital expenditure / (rebate) during the quarter		(0.1)
Like for like direct property	326.8	325.6	1.2	0.4
Joint venture investments	4.0	3.9	0.1	2.6
Market value of interest rate swap	(26.5)	(23.2)	(3.3)	14.2
Net current assets1	61.5	57.5	4.0	7.0
On-balance sheet loan1	(182.8)	(182.6)	(0.2)	0.1
Net Asset Value	176.5	181.0	(4.5)	(2.5)
Net Asset Value per share (pps)	49.6	50.9	(1.3)	(2.5)
Net Asset Value per share excluding swaps (pps)	57.0	57.4	(0.4)	(0.6)

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

Management Arrangements

Following the Company's announcement on 22 March 2011 that it had given notice of termination to Invista Real Estate Investment Management ('Invista'), the Board has conducted a process to select a new Investment Manager.  The Board is currently seeking to finalise the terms of new management arrangements, and hopes to make an announcement in the near future.

Property Portfolio and Performance

As at 30 June 2011, the Company's direct property portfolio comprised 56 properties independently valued at £326.78 million.  At the same date the Company's direct property portfolio produced a rent of £21.98 million per annum which, based on the independent valuation, reflected a net initial yield of 6.4%.  

Since the quarter end the Company has completed the acquisition of a retail property in Liverpool for £5.55 million, which, when combined with other activity since the quarter end, increases the portfolio rental to £22.81 million per annum, reflecting a net initial yield of 6.5%.  According to the independent valuer, Knight Frank LLP, the portfolio rental value following the acquisition of Liverpool is £26.72 million per annum, resulting in a reversionary yield of 7.6%.

In addition to the new acquisition in Liverpool above, new letting and other asset management activity already completed will produce additional contracted rental income of £2.55 million per annum by September 2014, resulting from rent frees expiring and fixed rental uplifts.  This analysis excludes the committed pre-let office development in West Bromwich which will produce an additional £1.2 million per annum from completion which is scheduled for October 2011.  This is described in further detail below.

The tables below reflect the position based on the 30 June 2011 valuation, adjusted for the Liverpool acquisition which completed following the quarter end:

Sector weightings

Sector	Weighting %
Retail	24.1
Offices	46.5
Industrial	25.1
Other	4.3

Regional weightings

Region	Weighting %
Central London	8.4
South East excl. Central London	48.2
Rest of South	13.3
Midlands and Wales	15.8
North and Scotland	14.3

Top ten properties

		Value (£m)	%
1	London SE1, Minerva House	27.75	8.4
2	Brighton, Victory House	24.5	7.4
3	Salisbury, Churchill Way West	15.20	4.6
4	Uxbridge, 106 Oxford Road	14.50	4.4
5	Luton, The Galaxy	14.25	4.3
6	Wembley, Olympic Office Centre	12.65	3.8
7	Brentford, Reynards Business Park	12.25	3.7
8	Brentford, The Gate Centre	10.85	3.3
9	Basingstoke, Churchill Way	10.65	3.2
10	Sheffield, The Portergate	9.85	3.0
	Total as at 30 June 2011	152.45	45.9

Top ten tenants

The table below sets out the top ten tenants.  As noted above, the table does not include the acquisition of West Bromwich which will be acquired on completion of the development, scheduled for October 2011.  Once completed, the property will be let to BT plc who will then become the Group's largest tenant, paying £1.2 million per annum on a 15 year lease with annual fixed uplifts of 3%.  The agreed price of £14.9 million reflects a net initial yield of 7.6%, which is attractive when compared to the market for comparable properties where materially higher prices are being achieved.

		Rent per annum (£)	%
1	Wickes Building Supplies Limited	1,092,250	4.5%
2	Norwich Union Life and Pensions Ltd	1,039,191	4.3%
3	BUPA Insurance Services Limited1	965,000	4.0%
4	Synovate Limited2	950,000	3.9%
5	The Buckinghamshire New University3	900,000	3.7%
6	Mott MacDonald Ltd4	790,000	3.2%
7	Recticel SA5	731,038	3.0%
8	Lloyds TSB Bank PLC6	664,000	2.7%
9	Winkworth Sherwood LLP7	663,095	2.7%
10	Partners of Irwin Mitchell LLP	555,000	2.3%
	Total as at 30 June 2011	8,349,574	34.2%

¹ Currently subject to rent free that expires April 2012

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

³ The Buckinghamshire New University is 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.  The lease benefits from a further fixed uplift to £1.02 million per annum in May 2014

⁴ Mott MacDonald Group Limited are Guarantor

⁵ The tenant is currently benefiting from a half rent period equating to £365,519 per annum which will increase to £731,038 per annum in January 2014

⁶ Acquisition completed since the quarter ending 30^th June 2011.

⁷ On assignment from Reed Smith Ramboud Charot LLP. Figures based on 50% ownership of Minerva House

Transactions and Asset Management

The Company is continuing to look for opportunities to recycle capital into higher yielding assets which demonstrate strong fundamentals.  During the quarter the Company completed the disposal of a retail property on Market Street in York for £5.48 million, reflecting a low net initial yield of 5%.  The property is let to Superdrug until 2027 at £290,000 per annum and was sold following the successful extension of the lease by five years.  The price achieved was £1.2 million, or 27%, above the value immediately prior to the lease extension.

As mentioned previously, the Company also completed the acquisition of a shop at 88-94 Church Street, Liverpool for £5.55 million, reflecting a net initial yield of 11.3%.  This is a prominent retail and office property at the junction of Hanover Street and the pedestrianised Church Street, Liverpool's prime retail pitch.  The entire property is let to Lloyds TSB Bank plc at £0.664 million per annum, on a full repairing and insuring basis, for a term of 25 years expiring on 24 December 2014. 

As well as offering an attractive initial yield, the property offers scope for asset management, including the potential for a lease extension with the tenant.  Furthermore, although the rent paid currently exceeds the market rent, the prominent position and the permitted use for a bank should assist future letting prospects and rental value.

At Reynards Business Park in Brentford, following the BBC lease expiry in April 2011 and a review of strategy, a planning application for residential use has been submitted for the entire six acre site.  The application for 315 dwellings totalling approximately 250,000 sq ft has been prepared in accordance with detailed pre-application discussions with the London Borough of Hounslow, the relevant planning authority, and the Greater London Authority.  Detailed discussions now continue between the Company's planning advisors and Hounslow and a decision on the application is expected later in 2011.

There is significant letting activity ongoing across the portfolio which has brought about a small reduction in the void level to 12.85%.  For example, at Union Park Industrial Estate in Norwich, a good quality industrial estate, three lettings totalling £91,208 per annum have been contracted with a further £112,571 per annum under offer.  Combined with other activity across the portfolio, there are currently lettings under offer totalling approximately £720,000 per annum, representing 2.7% of the current void rate.  Completing these lettings is a key focus for the Investment Manager.

Market Background

The latest Investment Property Databank ('IPD') Monthly Index confirmed capital growth for the three months to 30 June 2011 of 0.4%, the slowest rate of quarterly growth since Q2 2009.  This resulted in a total return of 2.1% for the quarter, driven almost entirely by the income return.  Capital values are now 17.5% above the previous cycle low in July 2009 and on a 12 month rolling basis, capital growth has slowed to 2%.  Rents in the retail sector declined by -0.1% over the quarter, with the sector recently experiencing a spate of retailer administrations, contributing to a quarterly total return of 1.9%.  Rents in the industrial sector also declined by -0.2%, contributing to a quarterly total return of 1.8%.  Offices produced positive rental growth of 0.4%, but with the largest sector divergence, with Central London offices producing a quarterly total return of 3.7% compared with the rest of UK of 1.5%. 

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 2011 increased by £38,000 to £2.75 million.  The value of the underlying portfolio increased to £40.78 million over the quarter, an increase of £0.36 million or 1%.  The loan to value ratio is now 60% 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 -£0.36 million due to a negative marked to market value of the interest rate swap which will amortise to nil by loan maturity. 

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

The NAV of the Company's 50% share in CIPL as at 30 June 2011 increased by 7% over the quarter to £1.27 million. The underlying property valuation remained unchanged at £24.75 million over the quarter with the increase in NAV derived from surplus income after debt service and there is no loan to value covenant prior to the loan maturity in 2013.  The loan against the property totalled £26.05 million as at 30 June 2011 reflecting a net loan to value, after taking account of £3.6 million of cash in CIPL, of 91%.  There is no loan to value covenant prior to loan maturity in May 2013.

One Plantation Place Unit Trust ('OPPUT') - 29% share

The valuation of OPPUT's underlying property, Plantation Place, London, EC3 increased to £494.1 million over the quarter, an uplift of £16.1 million or 3.4%, reflecting a net initial yield of 5.54%.  The uplift follows continued positive sentiment in the Central London office market, particularly for prime, well let property.  As at 30 June 2011, the securitised net debt is £430.5 million and there has been a further increase in the negative marked to market value of the interest rate swap to -£35 million, which will amortise to nil by loan maturity in July 2013.  Adjusting for current net assets within OPPUT, these headline numbers result in a NAV for the Company's share in OPPUT of approximately £7 million.  Despite this further improvement in the NAV the Company's investment is held at nil due to the loan to value ratio of 87% exceeding the loan to value ratio covenant of 82.14%.  The property is well let and continues to cover interest payments.  The investors in OPPUT continue to seek a solution to maximising value through a disposal prior to loan maturity.

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 30/06/2011	M2M 31/03/2011 (£m)
Loan	62.5	5.099% Fixed	0.20	5.299	15/07/2014	(7.1)	(6.3)
Loan	111	5.713% Fixed	0.20	5.913	15/07/2016	(19.4)	(16.9)
Loan total	173.5	5.420% Fixed	0.20	5.692	N/A	(26.5)	(23.2)
Liquidity facility**	11.2	0.78 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 30 June 2011 

Net of cash, the Company's on-balance sheet loan to value ratio is 38% against a loan to value ratio covenant of 60%, remaining at 39% following the transactions completed since the quarter end.  The Company continues to have significant headroom on its Interest Cover Ratio of 224% compared with the covenant of 150%, calculated on a simplified basis of rental income as a proportion of interest cost.

-ENDS-

For further information:

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

 

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