IMS, NAV and Interim Dividend

RNS Number : 0663A

Invista Foundation Property Tst Ltd

26 January 2011

 



26 January 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 a net asset value ('NAV') of £177.4 million or 49.9 pence per share ('pps') as at 31 December 2010.  This reflects an increase of 1.3 pps or 2.7% compared with 30 September 2010.

The directly held property portfolio increased in value by £1.1 million or 0.3% over the quarter, with an additional increase of £0.16 million in the NAV of the Company's joint ventures. 

The largest contributor to the positive quarterly movement was a £5.6 million decline in the negative marked to market value of the Group's interest rate swaps.  The total negative marked to market value of these swaps has reduced to -£26.9 million, now representing 7.6 pps or 15.1% of the total NAV. 

The Company is also today announcing an interim dividend of 0.88 pps for the period 1 October 2010 to 31 December 2010.  The dividend payment will be made on 18 February 2011 to shareholders on the register on 4 February 2011.  The ex-dividend date will be 2 February 2011.

	31/12/2010 (£m)	30/09/2010 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation	329.7	320.5	9.2	2.9
Rent incentive adjustment	(5.5)	(5.1)	(0.4)	(7.8)
Valuation of purchase		8.0
Capital expenditure during the quarter		0.5
Like for like direct property	329.7	329.0	0.7	0.2
Joint venture investments	3.6	3.4	0.2	5.9
Market value of interest rate swap	(26.9)	(32.5)	5.6	17.2
Net current assets1	59.0	68.9	(9.9)	(14.4)
On-balance sheet loan1	(182.5)	(182.3)	(0.2)	0.1
Net Asset Value	177.4	172.9	4.5	2.6
Net Asset Value per share (pps)	49.9	48.6	1.3	2.6
Net Asset Value per share excluding swaps (pps)	57.4	57.7	(0.3)	(0.5)

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

Investment Manager

On 12 October 2010 the Company issued a statement advising that discussions were ongoing with Invista Real Estate Investment Management Limited ('IREIM' / the 'Investment Manager') and its parent company, Invista Real Estate Investment Management Holdings plc ('Invista PLC'), concerning the termination of third party client contracts and related options for ensuring the continuity and stability of the team.  Following these discussions, on 20 January 2011 the Company announced that it is in exclusive negotiations, jointly with Invista European Real Estate Trust SICAF and the Investment Management team, to acquire the business of IREIM from Invista PLC.  The Investment management team is led by Duncan Owen, who continues to be CEO of IREIM, and other senior team members Nick Montgomery, Tony Smedley, Chris Ludlam and Melinda Knatchbull. 

While the commercial terms of the transaction have been agreed in principle, legal contracts have not yet been signed and regulatory approvals have not yet been obtained.  It is expected that the Company's share of the consideration for the proposed acquisition will be funded from existing cash resources.  The Company will make further announcements when developments occur that are material to Shareholders.

Property Portfolio and Performance

As at 31 December 2010, the Company's direct property portfolio comprised 57 properties independently valued at £329.72 million.  Following the acquisition of Keith House in Edinburgh during the quarter, the Company's direct property portfolio produces a rent of £22.73 million per annum which, based on the independent valuation, reflects a net initial yield of 6.52%. There are rent free periods expiring over 2011 totalling £0.5 million, and an additional £1.5 million by June 2012.  The reversionary yield of the portfolio based on the independent valuation is 7.8%. 

The latest available data for the Company's quarterly Investment Property Databank ('IPD') Benchmark shows that over the 12 months to 30 September 2010, the Company's underlying directly held portfolio produced a total return of 19.1%, compared with the Benchmark of 20.4%.  Although the inclusion of indirect investments increases the Company's total return to being in line with the IPD Benchmark, the direct portfolio performed less well on a relative basis due to a lower exposure to prime Central London office assets, which materially outperformed the rest of the UK market.  The Company continues to outperform the Benchmark over three and five years with a relative total return of 1.8% and 1.6% per annum, above the Benchmark respectively.  Importantly, the Company's portfolio generated significantly more rental value growth than the Benchmark over one, three and five years.

The following tables reflect the position based on the 31 December 2010 valuation:

Sector weightings

Sector	Weighting
Retail	24%
Offices	47%
Industrial	25%
Other	4%
Total	100%

Regional weightings

Region	Weighting
Central London	8%
South East excl. Central London	47%
Rest of South	14%
Midlands and Wales	16%
North and Scotland	15%
Total	100%

Top ten properties 

		Value (£)	%
1	Minerva House, Montague Close, London  SE1 (50% share)	27,000,000	8.2%
2	Victory House, Trafalgar Place, Brighton	23,800,000	7.2%
3	Retail Park, Churchill Way West, Salisbury, Wiltshire	15,100,000	4.6%
4	106 Oxford Road, Uxbridge	14,300,000	4.3%
5	The Galaxy, Luton	14,250,000	4.3%
6	Olympic Office Centre, Fulton Road, Wembley	12,250,000	3.7%
7	Reynard Business Park, Brentford	11,850,000	3.6%
8	Churchill Way, Basingstoke	10,650,000	3.2%
9	The Gate Centre, Syon Gate Way, Brentford	10,500,000	3.2%
10	The Portergate, Sheffield	10,000,000	3.0%
	Total as at 31 December 2010	149,700,000	45.4%

Top ten tenants

The table below sets out the top ten tenants.  The table does not include the acquisition of West Bromwich which will only be acquired by the Group on successful completion of the development, which is scheduled for August 2011.  On completion, the property will be let to BT plc who will become the Group's largest tenant, paying £1.2 million per annum on a 15 year lease.  The lease has annual uplifts of 3% which will add to income and dividend cover.  The agreed price of £14.9 million reflects an attractive net initial yield of 7.6%.  The void rate across the portfolio increased slightly over the period to 11.6% as at 31 December 2010, from 10.9% in September.

		Rent per annum (£)	%
1	Wickes Building Supplies Limited	1,092,250	4.4%
2	Norwich Union Life and Pensions Ltd	1,039,191	4.2%
3	BUPA Insurance Services Limited1	965,000	3.9%
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	The British Broadcasting Corporation	701,750	2.8%
9	Winkworth Sherwood LLP6	663,095	2.7%
10	Partners of Irwin Mitchell LLP	555,000	2.3%
	Total as at 31 December 2010	8,387,324	34.0%

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

⁴ Mott MacDonald Group Limited are Guarantor

⁵ Currently subject to a half rent free of £365,519 per annum increasing to £731,038 per annum in January 2014

⁶ On assignment from Reed Smith Ramboud Charot LLP. Figures based on 50% ownership of Minerva House

Transactions and Asset Management

As noted above, during the quarter the Company completed the acquisition of Keith House in Edinburgh for £8.05 million, reflecting a net initial yield of 14%.  The property is a modern, multi-let, feuhold (Scottish equivalent of English Freehold) office building totalling 84,750 sq ft located on Edinburgh West Office Park, which forms part of South Gyle on the western outskirts of the City.  Close by is Edinburgh Airport, the Gyle Shopping Centre and a new tram link that is due to open in 2012.  The property produces rent of £1.2 million per annum and is let to Scottish Ministers, Bank of Scotland, Computercenter and Zurich Assurance for an average lease term, assuming all tenants exercise break options, of approximately five years.  Although the property is currently over-rented at an average office rent of £17 per sq ft, the property is 20% vacant, providing potential to increase the income yield further.

Keith House is the first acquisition following the equity issuance in August and illustrates that the Company is now able to secure new investment opportunities with good property fundamentals at very attractive pricing and income yields. 

Progress continues to be made in connection with asset management initiatives across the portfolio, although occupational market conditions mean that these can be challenging to implement.  At the proposed retail warehouse development at Hinckley in the East Midlands, the Company now has terms agreed with three retailers totalling 70,000 sq ft at a rent of approximately £0.8 million per annum.  Although the Company has an existing outline consent for 100,000 sq ft of retail warehouse space, alterations to the layout and other factors means that a revised consent is required.   An application has been made with the support of the three retailers and should be determined over the next few months.

At the Gate Centre in Brentford, a BMW franchisee has informed us that they will not be proceeding as planned with the proposed new letting, principally due to the tenant underestimating their fit-out costs.  Discussions are still ongoing concerning a smaller letting with significantly reduced capital expenditure for both the Company and the tenant.

Market Background

IPD have released the IPD Monthly Index for December 2010 which shows a total return for 2010 of 14.5%, which compares with the total return for 2009 of 2.2%. Capital values are now 16.3% above the previous cycle low in July 2009, although the pace of growth has continued to slow, with total capital value growth for the quarter to December of 0.5%.  According to IPD, rental values have now stabilised as an average across the UK, but as expected there are significant variations by region and property type.  These uncertain market conditions are contributing to weakening sentiment from institutional and retail fund investors, and provide the backdrop to an increasing number of bank and other forced disposals.  As noted previously, despite these risks, the relatively high yield generated by property compared with the other asset classes means that demand should continue for good quality, securely let assets.  However, a slowing market in 2011, and increasing supply, should generate an increasing flow of higher yielding investment opportunities in line with the Company's strategy.

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 31 December 2010 increased by 5% to £2.6 million.  The value of the underlying portfolio increased by £0.16 million over the quarter to £39.96 million, which reflects an increased net initial yield of 6% following fixed rental uplifts over the quarter.  Additional fixed uplifts increase the yield to 6.74% by 2013.  The loan to value ratio is now 62.6% 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 -£0.41 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 31 December 2010 was broadly unchanged at £1 million.  Good progress continues to be made on asset management, which resulted in a 0.6% like for like quarterly valuation increase over the quarter.  There is no loan to value covenant prior to the loan maturity in 2013, and all surpluses are trapped by the senior lender.

Plantation Place, London EC3 - 29% 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 was broadly unchanged over the quarter at £456.5 million.  The total securitised net debt secured on Plantation Place is £432.13 million which together with the negative marked to market value of the interest rate swap of -£39.4 million results in total net liabilities of £471.5 million.  The property is well let and continues to cover interest.  Over the period certain historic shareholder loans were completed, increasing the Company's share from 28.2% to 29%.

In December 2010 a proposal was made to the securitised debt holders to secure a formal waiver of the loan to value covenant ratio covenant for a period of 22 months in return for an obligation to market the building for disposal during that period and commitment to a disposal, subject to achieving a certain repayment of equity back to the Company and its co-investors.

The proposal received a very high level of support from debt holders, with 82% of votes in favour.  However, 75% of votes cast in each class of securitised debt was required to approve the proposal and whilst this was achieved in four of the five classes, in one class only 74% was achieved.  A second meeting of this class of debt has been arranged for 31 January, where the proposal will be voted on for a second time and a further update will be provided in due course.

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 31/12/2010 (£m)	M2M* 30/09/2010 (£m)
Loan	62.5	5.099% Fixed	0.20	5.299	15/07/2014	(7.4)	(8.8)
Loan	111	5.713% Fixed	0.20	5.913	15/07/2016	(19.5)	(23.7)
Loan total	173.5	5.420% Fixed	0.20	5.692	N/A	(26.9)	(32.5)
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 21 January 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%.  The Company continues to have significant headroom on its Interest Cover Ratio of 230% compared with the covenant of 150%.

-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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