Interim Management Statement,

RNS Number : 9116K

Invista Foundation Property Tst Ltd

28 April 2010

 



28 April 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 £169.5 million or 52.4 pence per share ('pps') as at 31 March 2010. This reflects a 2.9 pps or 5.9% increase compared with the NAV as at 31 December 2009 of 49.5 pps. The uplift follows a £15.1 million or 5.2% like for like increase in the underlying property portfolio.  

The Company also announces an interim dividend of 0.88 pps in respect of the period 1 January 2010 to 31 March 2010.  The dividend payment will be made on 19 May 2010 to shareholders on the register on 7 May 2010.  The ex-dividend date will be 5 May 2010.

A summary of the NAV movement over the period is set out below.  Over the period the Company exchanged unconditional contracts to sell a retail property in Kingston-upon-Thames for £4.7 million which completed on 9 April 2010.  Consequently in the table below, the Kingston-upon-Thames asset is not included in the direct property independent valuation, but is instead shown as a receivable in net current assets.  

	31/03/2010 (£m)	31/12/2009 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation (excluding Kingston)	304.7	293.3	11.4	3.9
Valuation of sales		(4.3)
Capital expenditure during the quarter		1.0
Like for like direct property (Excluding Kingston)	304.7	290.0	14.7	5.1
Joint venture investments	2.8	1.7	1.1	64.7
Market value of interest rate swap	(26.3)	(25.2)	(1.1)	(4.4)
Net current assets (including Kingston)	70.3	112.4	(42.1)	(37.5)
On-balance sheet loan	(182.0)	(221.9)	39.9	18.0
Net Asset Value	169.5	160.3	9.2	5.9
Net Asset Value per share (pps)	52.4	49.5	2.9	5.9
Net Asset Value per share excluding swaps (pps)	60.5	57.3	3.2	5.6

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

Property Portfolio and Performance

As at 31 March 2010 the Company's direct property portfolio comprised 56 properties independently valued at £309.43 million, including the Kingston-upon-Thames retail property.  The direct property portfolio produces a rent of £21.6 million per annum which, based on the independent valuation, reflects a net initial yield of 6.63%, increasing to 6.78% by December 2010 following expiry of rent free periods. The reversionary yield of the portfolio based on the independent valuation is 7.9%.  The following tables reflect the position based on the 31 March 2010 valuation and prior to the disposal of the Kingston-upon-Thames asset:

Sector weightings

Sector	Weighting
Retail	27.6%
Offices	42.4%
Industrial	25.6%
Other	4.4%
Total	100%

Regional weightings

Region	Weighting
Central London	8.2%
South East excl. Central London	50.7%
Rest of South	14.4%
Midlands and Wales	16.7%
North and Scotland	10.0%
Total	100%

Top ten properties 

		Value (£)	%
1	Minerva House, Montague Close, London  SE1 (50% share)	24,500,000	8.2%
2	Victory House, Trafalgar Place, Brighton	20,000,000	6.5%
3	Retail Park, Churchill Way West, Salisbury, Wiltshire	15,100,000	4.9%
4	106 Oxford Road, Uxbridge	14,000,000	4.5%
5	The Galaxy, Luton	13,640,000	4.4%
6	Olympic Office Centre, Fulton Road, Wembley	12,350,000	4.0%
7	Reynard Business Park, Brentford	11,250,000	3.7%
8	Churchill Way, Basingstoke	11,200,000	3.6%
9	The Gate Centre, Syon Gate Way, Brentford	10,000,000	3.2%
10	Union Park, Fifers Lane, Norwich	8,450,000	2.7%
	Total as at 31 March 2010	141,490,000	45.7%

Top ten tenants

		Rent per annum (£)	%
1	Wickes Building Supplies Limited	1,092,250	4.7%
2	BUPA Insurance Services Limited1	965,000	4.1%
3	Synovate Limited2	950,000	4.1%
4	The Buckinghamshire New University3	900,000	3.8%
5	Mott MacDonald Ltd4	790,000	3.4%
6	Recticel SA	713,538	3.0%
7	The British Broadcasting Corporation	701,750	3.0%
8	Winkworth Sherwood LLP5	663,095	2.8%
9	Partners of Irwin Mitchell LLP	555,000	2.4%
10	Booker Limited6	550,000	2.4%
	Total as at 31 March 2010	7,880,633	33.7%

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 b completed by July 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 Investment Property Databank ('IPD') Benchmark.  The latest available data prepared by IPD shows that over the 12 months to 31 December 2009 the Company's directly held portfolio produced a total return of 5.1% compared with the Benchmark of 1.4%.  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 -5.1% towards capital growth compared with the Benchmark of -8.4%. 

Transactions

There has been significant activity over the quarter in terms of acquisition, disposals and asset management. 

In February the Company entered into a forward commitment to purchase a pre-let office development in West Bromwich, near Birmingham, for £14.96 million.  On completion of the property BT plc will take a new 15 year lease, without tenant options to break, at an initial rent of £1.2 million per annum.  BT will become the Company's largest tenant and the lease will benefit from fixed uplifts of 3% per annum throughout the term.  The price reflects a net initial yield of 7.6%, after normal purchaser's costs, and completion of the development is expected in August 2011.  The Manager is currently in negotiations concerning other suitable acquisitions on behalf of the Company. 

As planned on 25 March the Company sold its 21.6% share in the joint venture that owns Portman Square House, London W1 for £23.11 million.  As reported previously the price reflected an uplift of £3.13 million or 16% compared with the independent valuation as at 30 September 2009 of £19.98 million.

As previously mentioned, prior to the quarter end the Company exchanged contracts to sell its retail property in Kingston-upon-Thames for £4.7 million.  This reflected a low yield of 4.5%.  The disposal followed the conclusion of a successful asset management strategy where the lease to Monsoon was extended from 6 years to 15 years at a 14% higher rent.  The disposal completed on 9 April and the price achieved reflected an uplift of 11% above the December 2009 valuation.

Asset management

In March the Company exchanged a major agreement for a new lease with Bupa Insurance Services Limited ('Bupa') at Victory House, Brighton.  Bupa is taking 45,000 sq ft of office space on a new 15 year lease with a break at year 10, at a rent of £960,754 per annum, equating to £21.50 per sq ft.  The current tenant, Mott MacDonald, will remain in the balance of the space totalling 36,688 sq ft on a new fifteen year lease with no breaks paying £790,000 per annum.  The Agreement for Lease with Bupa is conditional on the Company refurbishing the offices to Bupa's specification, at a cost of approximately £2.9 million.  These works have commenced and should be completed in July 2010.  Upon expiry of the Bupa rent free period of nineteen months, the total rent produced by the building will be £1.75 million per annum up from £1.3 million per annum before the two new lettings to Mott MacDonald and Bupa International had been completed. 

Following the letting to Bupa and other activity the vacancy rate of the underlying property portfolio has fallen from 11.7% in January 2010 to 9.8%.  This compared with the IPD Benchmark of 12%.

Progress continues to be made on other key asset management initiatives across the portfolio.  At Hinckley, where the Company secured a 100,000 sq ft outline retail warehouse planning consent in 2007, detailed consent for a first phase of 37,000 sq ft has been secured.  Detailed negotiations are ongoing to secure a pre-let for a first phase of 21,500 sq ft following which other pre-let tenant interest will be progressed prior to the Company undertaking the development.  The current estimated total cost of the development is £4.1 million with a potential rental of approximately £500,000 per annum.

Income profile

Following the disposal of Kingston the direct property portfolio produces income of £21.37 million per annum.  Recent transactions and asset management activity mean that there is additional income above this figure where tenants are contractually committed but where the leases are subject to a rent free period or conditional on refurbishment.  The table below sets out the income that is contracted over the remainder of 2010 together with the major contractually committed items to 2012 which would further increase rental income by over another 15%.

Year	2010 (£m)		2011 (£m)		2012 (£m)
Item	Various	0.60	Acton, Booker - fixed uplift	0.28	Uxbridge, New Bucks University - expiry of half rent period	0.45
			West Bromwich, BT - acquisition	1.20	Brighton, BUPA - New lease	0.96
Total		0.60		1.48		1.41
Cumulative		0.60		2.08		3.49

In summary there is £3.49 million of additional annualised rent receivable by the end of 2012 which will materially add to income and dividend cover.  It is also worth noting that where possible fixed uplifts are incorporated in new leases.  For example, at Uxbridge, the rent increases from £900,000 in 2012 to a guaranteed £1.02 million per annum in 2014 and as noted above the BT lease at West Bromwich has annual 3% uplifts meaning that by 2016 the rent will be £1.4 million per annum. 

Market Background

The recovery in UK commercial property values has continued into 2010 with capital growth over the first quarter of 2010 of 3.9%, the eighth successive month of positive capital growth.  This has resulted in 13.1% capital uplift from the low point in July 2009 to the end of March 2010 (source:  IPD Monthly Index).  The recovery is being driven by strong institutional demand for well let, prime investments offering a higher yield relative to other asset classes. 

Despite the relatively positive outlook the Manager and the Board remain cautious.  Due to a shortage of good quality property investments and strong demand, prices in some market segments have risen steeply.  However, with the exception of the Central London offices and Central London retail, where rents are respectively up 1.1% and 0.8% from their low point, rents are still falling. To illustrate, as at March 2010 rental values for the market as a whole are down 10.5% from the peak in April 2008.  The other potential consequence of the recent recovery will be an increase in bank-led disposals which is likely to mean a greater supply of new investments over the second half of 2010 and 2011.  Finally the market will be affected by the consequences of the withdrawal of quantitative easing and the policies adopted by the next Government to address the deficit. 

In summary, although we do not expect average values to fall over 2010 we are expecting to see significant divergence in performance across the market and better investment opportunities to emerge for the Company to invest towards the end of year. 

Joint ventures

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

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

The Company's NAV in MPUT as at 31 March 2010 was £2.28 million, an increase of £0.52 million or 30% compared with December 2009.  The quarterly NAV uplift follows a 9% increase in the value of the underlying portfolio, which has an average unexpired lease term of 21 years with five yearly minimum rental uplifts of 3% per annum.  The valuation of the whole portfolio reflects a net initial yield of 6% increasing to a guaranteed 7% by 2013.  The loan to value ratio is now 67% compared to a covenant of 100% which tapers down to 75% at loan maturity in 2013, with all surpluses being used for debt amortisation.  Finally the Company's NAV in MPUT is diluted by £550,000 due to a negative marked to market of the interest rate swap. 

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

The Company's NAV as at 31 March 2010 includes £525,961 relating to its 50% share in CIPL, which owns a multi-let industrial estate in Crendon, near Thame in Oxfordshire.  This was previously held at nil due to the net liabilities exceeding assets.  Good progress has been made on asset management which resulted in a 6% like for like quarterly valuation increase which in turn led to the increase in the NAV.  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 in value by £25 million or 6.3% to £425 million over the quarter.  The total securitised net debt secured on Plantation Place is £433.77 million which together with the negative marked to market value of the interest rate swap of -£42.4 results in total net liabilities of £476.17 million.  The property is well let and continues to cover interest. 

Finance

As set out in the announcement dated 28 January, on the 15 January 2010 the Company repaid £40 million of its securitised debt at par.  The only cost associated with the debt repayment was a swap break cost of £3.95 million.

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)	Swap Rate (%)	Margin (%)	Total interest rate (%)	Swap Maturity	M2M* 31/03/2010 (£m)	M2M 31/12/2010 (£m)
Loan	62.5	5.099% Fixed	0.20	5.299	15/07/2014	(7.50)	(5.91)
Loan	111	5.713% Fixed	0.20	5.913	15/07/2016	(18.85)	(15.48)
Loan total	173.5	5.420% Fixed	0.20	5.692	N/A	(26.35)	(21.39)
Liquidity facility**	11.2	0.54 Libor***	0.662	1.202*		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 25 January 2010 

Having sold the Kingston-upon-Thames asset the Company now has £62.5 million of cash of which £48.8 million is in the security pool and £13.7 million outside.

As at 15 April 2010 and the Company had an on-balance sheet loan to value ratio, net of all cash, of 36.4% against a loan to value ratio covenant of 60%.  The Company continues to have significant head room on its Interest Cover Ratio of 212% 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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