Interim Management Statement & Dividend

RNS Number : 5945F

Invista Foundation Property Tst Ltd

28 April 2011

 



28 April 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 £181.1 million or 50.9 pence per share ('pps') as at 31 March 2011.  This reflects an increase of 1.0 pps or 2.1% compared with 31 December 2010.

The directly held property portfolio increased in value by £1.7 million or 0.5% over the quarter, and the Company benefited from an additional increase of £0.3 million in the NAV of its joint ventures. 

The largest contributor to the positive quarterly movement was a £3.7 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 -£23.2 million, now representing 6.5 pps or 12.8% of the total NAV. 

The Company is also announcing today an interim dividend of 0.88 pps for the period 1 January 2011 to 31 March 2011.  The dividend payment will be made on 27 May 2011 to shareholders on the register on 13 May 2011.  The ex-dividend date will be 11 May 2011.

	31/03/2011 (£m)	31/12/2010 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation	331.4	329.7	1.7	0.5
Rent incentive adjustment	(5.9)	(5.5)	(0.4)	(7.3)
Capital expenditure during the quarter		0.6
Like for like direct property	331.4	330.3	1.1	0.3
Joint venture investments	3.9	3.6	0.3	8.3
Market value of interest rate swap	(23.2)	(26.9)	3.7	13.8
Net current assets1	57.5	59.0	(1.5)	(2.5)
On-balance sheet loan1	(182.6)	(182.5)	(0.1)	(0.1)
Net Asset Value	181.1	177.4	3.7	2.1
Net Asset Value per share (pps)	50.9	49.9	1.0	2.1
Net Asset Value per share excluding swaps (pps)	57.4	57.4	0	0

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 that it had given notice of termination to Invista Real Estate Investment Management, the Board has received a number of approaches from a range of organisations offering their services to the Company.  The Board has considered all these approaches carefully, and has selected a short list of organisations who have been invited to submit proposals to the Company.  The deadline for the submission of proposals was 26 April, and the Board will now be reviewing these submissions in detail before inviting a selected number of organisations to make presentations to the Board in person.  The Board will then choose the proposal which offers the best prospects of enhancing the value of the Company and its investment portfolio, with due regard to potential returns, costs and risks, and with a view to reaching a conclusion during the first half of June if possible.

Property Portfolio and Performance

As at 31 March 2011, the Company's direct property portfolio comprised 57 properties independently valued at £331.42 million.  At the same date the Company's direct property portfolio produced a rent of £22.87 million per annum which, based on the independent valuation, reflected a net initial yield of 6.52%.  There are rent free periods expiring over 2011 totalling £0.6 million, together with additional unexpired rent frees and guaranteed uplifts totalling £1.93 million by May 2014.  The reversionary yield of the portfolio based on the independent valuation is 7.8%.  This analysis excludes the committed office development in West Bromwich which is expected to be completed by October 2011, and is described in further detail below.

The latest available data prepared by Investment Property Databank ('IPD') shows that over the 12 months to 31 December 2010, the Company's underlying directly held portfolio produced a total return of 12.2%, compared with the Benchmark of 13.0%.  The 12 month relative underperformance continues to be due to a lower weighting than the IPD Benchmark to prime Central London, which materially outperformed the rest of the UK market.  The Company's portfolio continues to outperform the Benchmark over three and five years with a relative total return of 0.8% and 1.5% per annum above the Benchmark respectively.  The Company's portfolio has also continued to generate materially more rental value growth than the Benchmark over the long term.

The following tables reflect the position based on the 31 March 2011 valuation:

Sector weightings

Sector	Weighting %
Retail	24.3
Offices	46.4
Industrial	25.0
Other	4.3

Regional weightings

Region	Weighting %
Central London	8.4
South East excl. Central London	47.9
Rest of South	13.5
Midlands and Wales	15.8
North and Scotland	14.4

Top ten properties

		Value (£m)	%
1	London SE1, Minerva House	27.75	8.4
2	Brighton, Victory House	23.80	7.2
3	Salisbury, Churchill Way West	15.20	4.6
4	Uxbridge, 106 Oxford Road	14.40	4.3
5	Luton, The Galaxy	14.25	4.3
6	Wembley, Olympic Office Centre	12.25	3.7
7	Brentford, Reynards Business Park	12.00	3.6
8	Brentford, The Gate Centre	10.85	3.3
9	Basingstoke, Churchill Way	10.65	3.2
10	Sheffield, The Portergate	9.90	3.0
	Total as at 31 March 2011	151.05	45.6

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 successful completion of the development, which is now 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 currently. 

		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	3.8%
5	The Buckinghamshire New University3	900,000	3.6%
6	Mott MacDonald Ltd4	790,000	3.2%
7	Recticel SA5	731,038	3.0%
8	The British Broadcasting Corporation ('BBC')6	701,750	2.8%
9	Winkworth Sherwood LLP7	663,095	2.7%
10	Partners of Irwin Mitchell LLP	555,000	2.2%
	Total as at 31 March 2011	8,387,324	33.9%

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

⁶ Leases expired on 4 April 2011

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

Transactions and Asset Management

The portfolio void rate fell from 11.5% to 10.7% of rental value between December 2010 and 31 March 2011, prior to the BBC lease expiry post the quarter end which is commented on below.  There has been encouraging progress made over the period with prospective new lettings under offer which could add £0.5 million of new income.  Separately, notable contracted new lettings over the quarter include two units at the Gate Centre, Brentford totalling £0.12 million per annum and the letting of a long-standing void in Fleet at £0.06 million per annum.   

On 4 April the lease to the British Broadcasting Corporation (the 'BBC') at Reynard's Business Park in Brentford expired.  The BBC had been paying £0.7 million per annum and this is now the Company's largest void.  An early dilapidations settlement of £1.1 million was documented prior to the quarter end and payment subsequently received post the quarter end.  Reynards is a secondary industrial location in a largely residential area comprising 173,000 sq ft on six acres.  Following expiry of this lease all alternatives will be explored, which could include higher value uses including residential.  We hope to report further on progress with this important asset management initiative in due course.

Market Background

The Investment Property Databank ('IPD') Monthly Index for March 2011 confirmed a total return for the twelve months to 31 March 2011 of 10.7%, which compares with the total return for the twelve months to 31 March 2010 of 16.3%.  Capital values are now 17.0% 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 31 March 2011 of 0.6%.  According to IPD, rental values have now largely stabilised 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 remain for good quality, securely let assets. 

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 March 2011 increased by 4% to £2.7 million.  The value of the underlying portfolio increased to £40.4 million over the quarter, an increase of £0.5 million reflecting a net initial yield of 6%.  Additional fixed uplifts increase the yield to 6.6% by 2013.  The loan to value ratio is now 61% 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 -£1.7 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 March 2011 increased by 18% over the quarter to £1.2 million, largely from rental surpluses. The valuation remained stable over the quarter and there is no loan to value covenant prior to the loan maturity in 2013.

Plantation Place, London EC3 - 29% share

The valuation of the underlying property increased to £478 million over the quarter, an uplift of £21.5 million or 4.7%.  The uplift reflected continued positive sentiment in the Central London office market combined with the rent reviews of ground floor retail units being settled ahead of the independent valuation assumptions.  Total securitised net debt is £431.34 million which together with the negative marked to market value of the interest rate swap of -£32.68 million results in total net liabilities of £464 million.  This means that over the period the total net asset value in Plantation Place has moved from being negative to approximately £14 million.  Despite this positive improvement the Company's investment will continue to be held at nil due to the loan to value ratio of 90% exceeding the loan to value ratio covenant of 82.14%.  The property is well let and continues to cover interest.  The loan to value breach and resultant uncertainty means that the investors in Plantation Place continue to seek a consensual solution to maximise value for all stakeholders through a disposal prior to the loan maturity in July 2013.

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 31/03/2011	M2M 31/12/2010 (£m)
Loan	62.5	5.099% Fixed	0.20	5.299	15/07/2014	(6.3)	(7.4)
Loan	111	5.713% Fixed	0.20	5.913	15/07/2016	(16.9)	(19.5)
Loan total	173.5	5.420% Fixed	0.20	5.692	N/A	(23.2)	(26.9)
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 31 March 2011 

Net of cash, the Company's on-balance sheet loan to value ratio is 39% against a loan to value ratio covenant of 60%.  The Company continues to have significant headroom on its Interest Cover Ratio of 224% 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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