Interim Management Statement,

RNS Number : 2445G

Invista Foundation Property Tst Ltd

28 January 2010

 



28 January 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 £160.29 million or 49.5 pence per share ('pps') as at 31 December 2009. This reflects a 6.6 pps or 15.4% increase compared with the NAV as at 30 September 2009. A number of factors contributed to the increase including a like for like uplift in the underlying property portfolio valuation of 6.4%, a successful restructuring of one of the Company's joint ventures and an overage payment relating to a prior disposal.  

The Company also announces an interim dividend of 0.88 pps in respect of the period 1 October 2009 to 31 December 2009.  The dividend payment will be made on 20 February 2010 to shareholders on the register on 5 February 2010.  The ex-dividend date will be 3 February 2010.

A summary of the NAV movement over the period is set out below. As noted under Transactions and Asset management below, over the period the Company exchanged unconditional contracts to sell Portman Square House, London W1 for £23.11 million with completion on 24 March 2010. Consequently in the table below Portman Square House is not included in the direct property independent valuation but is instead shown as a receivable in net current assets.  

	31/12/2009 (£m)	30/09/2009 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation (Excluding Portman)	293.3	297.9	(4.6)	(1.5)
		-
Valuation of sales		(20.5)
Capital expenditure during the quarter		1.1
Like for like direct property (Excluding Portman)	293.3	278.5	14.8	5.3
Joint venture investments	1.7	0	1.7	100.0
Market value of interest rate swap	(25.2)	(26.5)	1.3	4.9
Net current assets (Including Portman)	112.4	89.2	23.2	26.0
On-balance sheet loan	(221.9)	(221.7)	(0.2)	(0.1)
Net Asset Value	160.3	138.9	21.4	15.4
Net Asset Value per share (pps)	49.5	42.9	6.6	15.4
Net Asset Value per share excluding swaps (pps)	57.3	51.1	6.2	12.1

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 December 2009 the Company's direct property portfolio comprised 57 properties independently valued at £316.5 million, including Portman Square House. The direct property portfolio produces a rent of £23.12 million per annum which, based on the independent valuation, reflects a net initial yield of 6.91%, increasing to 7.24% following expiry of rent free periods over the next 12 months. The reversionary yield of the portfolio based on the independent valuation is 8.1%.  

The following tables reflect the position based on the 31 December 2009 valuation and prior to the disposal of Portman Square House, London W1:

Sector weightings

Sector	Weighting
Retail	25.2%
Offices	46.9%
Industrial	23.9%
Other	4.0%
Total	100%

Regional weightings

Region	Weighting
Central London	15.0%
South East excl. Central London	47.0%
Rest of South	13.1%
Midlands and Wales	15.6%
North and Scotland	9.3%
Total	100%

Top ten properties 

		Value (£)	%
1	Minerva House, Montague Close, London  SE1 (50% share)	24,500,000	7.7%
2	Portman Square House, 43/45 Portman Square, London W1 (21.6% share)	23,110,000	7.3%
3	Victory House, Trafalgar Place, Brighton	18,000,000	5.7%
4	106 Oxford Road, Uxbridge	13,250,000	4.2%
5	Retail Park, Churchill Way West, Salisbury, Wiltshire	12,900,000	4.1%
6	The Galaxy, Luton	12,600,000	4.0%
7	Olympic Office Centre, Fulton Road, Wembley	11,750,000	3.7%
8	Reynard Business Park, Brentford	11,250,000	3.6%
9	Churchill Way, Basingstoke	10,000,000	3.2%
10	The Gate Centre, Syon Gate Way, Brentford	9,300,000	2.9%
	Total as at 31 December 2009	146,660,000	46.4%

Top ten tenants

		Rent per annum (£)	%
1	Cushman & Wakefield Finance Limited	1,183,617	4.9%
2	Wickes Building Supplies Limited	1,092,250	4.5%
3	Synovate Limited1	950,000	3.9%
4	Mott MacDonald Ltd2	940,000	3.9%
5	The British Broadcasting Corporation	918,250	3.8%
6	The Buckinghamshire New University3	900,000	3.7%
7	Recticel SA	713,538	3.0%
8	Winkworth Sherwood LLP4	663,095	2.7%
9	Partners of Irwin Mitchell LLP	555,000	2.3%
10	Booker Limited	550,000	2.3%
	Total as at 31 December 2009	8,465,750	35.0%

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

2    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 Investment Property Databank ('IPD') Benchmark. The latest available data prepared by IPD shows that over the 12 months to 30 September 2009 the Company's directly held portfolio produced a total return of -14.8% compared with the Benchmark of -18.9%. 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 -6% towards capital growth compared with the Benchmark of -8.7%. 

Transactions and Asset Management

Progress is being made on key asset management initiatives across the portfolio. Most significantly negotiations are ongoing concerning new lettings which would further reduce the Company's void rate and enhance income.  At Hinckley where the Company secured a 100,000 sq ft outline retail warehouse planning consent in 2007, an initial phase of development is being considered and discussions are ongoing for a possible pre-let of approximately 30,000 sq ft.  

The Company is actively seeking new accretive acquisitions that combine an above average yield with strong property fundamentals, and hopes to be in a position to provide further updates in due course. 

During the period the Company exchanged or completed on two disposals.  Most significantly, during the quarter the Company exchanged unconditional contracts to sell its 21.6% share in the joint venture that owns Portman Square House, London W1 for £23.11 million, as part of a disposal of the entire 92 year long leasehold property interest. The price reflects an uplift of £3.13 million or 16% compared with the independent valuation as at 30 September 2009 of £19.98 million. Portman Square House is let at an average office rent of £79.34 per sq ft and has an average unexpired lease term of 5.65 years, with the Company's share of the income totalling £1.88 million per annum. Completion of the transaction is expected on 24 March 2010. The disposal follows the successful completion of a significant rent review in October 2008 which resulted in an overall rental uplift of 83% over the four year period of ownership.  

The Company also exchanged and completed a disposal of a small shop in Yeovil for £665,000 following a five year lease extension with the tenant, Ernest Jones. The price reflected a yield to the purchaser of 5.67% and an uplift of 25% compared with the independent valuation as at 30 September 2009.  As part of the Company's ongoing strategy further selective disposals will be considered where asset management business plans have been completed or where positive value can be realised which will enhance the total returns.  

Finally, following the disposal of National Magazine House, London W1 in April 2009, the outstanding rent review has now been settled which has triggered an additional payment to the Company of £1.8 million.  

Market Background

The recovery in UK commercial property values is continuing with the Investment Property Databank ('IPD') Monthly Index producing a positive total return for calendar 2009 of 2.18%.  Although calendar 2009 as a whole saw capital values fall by 5.61%, according to IPD values actually increased by 8.84% from July to December 2009.  The average IPD initial yield as at 31 December 2009 is 7.03%.  

In contrast with the rise in capital values, rental values between July and December fell by 2.32% and voids over the same period increased from 10.8% to 11.3% as a percentage of market rental value.  Furthermore, the recovery in capital value has been largely focussed on prime property and transaction volumes remain relatively low with institutional and international funds dominating activity.  

At a wider macro-economic level there are concerns over the possible impact of a reduction in quantitative easing on asset prices together with the risk of increasing interest rates. Both of these could have a negative effect on the recovery in UK commercial property values and consequently a cautious approach is being taken to new acquisitions. The outlook for the property market in 2010 will broadly as a consequence depend on whether rental levels stabilise as well as banks and other 'forced' sellers offer a significant additional supply of investments which will satisfy demand and release upward pressure on values.  

Joint ventures

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

The Company's NAV as at 31 December 2009 includes £1.75 million relating to its 19.5% share in MPUT, which comprises 32 properties let to Travis Perkins. This was previously held at nil due to banking covenants for the off-balance sheet, non-recourse debt facility. The increase in value follows a successful lease restructuring  with the tenant simultaneously with a debt restructuring and new banking terms. The lease restructuring increases the average lease term from 13 years to 21 years, with the valuation of the whole portfolio now reflecting a net initial yield of 6.6% which increases to 7.6% by 2013 through minimum fixed uplifts in the rental payable by the tenant. The loan to value following the debt restructuring is 77% compared to a covenant of 100% which tapers down to 75% at maturity in 2013.

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

The Company's NAV in CIPL continues to be held at nil, with the entire property's valuation of £22.85 million as at 31 December 2009 below the off-balance sheet, non-recourse debt of £26.06 million.  Good progress continues to be made on asset management, notably with a disposal of part of the multi-let industrial estate at a 54% increase relative to the apportioned valuation.  Following the disposal and including cash held by CIPL, the property value would need to increase by approximately 1% to produce a positive NAV. The loan has no LTV covenant prior to maturity in 2013.  

Plantation Place, London EC3 - 28.2% share

The Company's NAV in Plantation Place continues to be held at nil, with the valuation of £400 million below the off-balance sheet, non recourse loan of £433 million. There is also an interest rate swap with a negative marked to market of £33 million which means that the underlying property value would have to increase by approximately £66 million or 16% to produce a positive NAV. The property is well let and continues to cover interest. 

Finance

On 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. Following the debt repayment the Company has on-balance sheet securitised borrowings of £173.5 million at an average interest rate of 5.69% per annum. The debt repayment increases the Company's net income by approximately £2.1 million per annum and underpins the strategy of increasing income and dividend cover. 

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 (%)	Expiry	M2M* 15/01/2010 (£m) Post £40 m repayment	M2M 30/09/2009 (£m)	M2M 30/06/2009 (£m)
Loan	62.5	5.099% Fixed	0.20	5.299	15/07/2014	(5.9)	(10.1)	(8.2)
Loan	111	5.713% Fixed	0.20	5.913	15/07/2016	(15.5)	(16.4)	(13.9)
Loan total	173.5	5.420% Fixed	0.20	5.692	N/A	(21.4)	(26.5)	(22.1)
Liquidity facility**	11.2	0.54 Libor***	0.662	1.202*		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 25 January 2010 

Having repaid the £40 million bank debt the Company now has £38.4 million of cash, increasing to £61.1 million on completion of the Portman Square House disposal.

As at 15 January 2010, following the debt repayment and 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 42.7% against a loan to value ratio covenant of 60%.  Following the disposal of Portman Square House in March 2010 and assuming no further changes the Company will have a loan to value, based on the December 2009 valuation, of 38.3%.  The Company continues to have significant head room on its Interest Cover Ratio which following the disposal of Portman Square will be 210% 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

 

END

 

 

MSCLLFSALDIDFII