Interim Management Statement, NAV and Dividend

RNS Number : 1161W

Invista Foundation Property Tst Ltd

25 January 2012

 





25 January 2012

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 £168.9 million or 47.5 pence per share ('pps') as at 31 December 2011.  This reflects an increase of 0.2 pps or 0.3% compared with the NAV as at 30 September 2011 of £168.4 million.

On a like for like basis and allowing for capital expenditure, the directly held property portfolio fell in value by £1 million or -0.3%.  However, the completion of the acquisition of the BT Building in West Bromwich on 24 October 2011 led to a total uplift, allowing for capital expenditure and all acquisition costs, of £2.1 million or 0.6% across the entire portfolio.

As at 31 December 2011, the negative mark-to-market of the Group's interest rate swaps was -£29.8 million, a reduction of £0.8 million or 2.7%.  This represents 8.4 pps or 17.6% of the Company's NAV. 

Over the quarter the Company incurred the balance of costs arising from Picton Property Income Limited's merger proposal and the process to appoint Schroder Property Investment Management Limited as Investment Manager totalling £0.9 million.  This was partially offset by a lease surrender payment of £0.3 million.  Excluding these exceptional items, pre-tax dividend cover of 68% was achieved over the quarter.

The Company is also today announcing an interim dividend of 0.88 pps for the period 1 January 2012 to 31 March 2012.  The dividend payment will be made on 17 February 2012 to shareholders on the register on 3 February 2012.  The ex-dividend date will be 1 February 2012.

	31/12/2011 (£m)	30/09/2011 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation	349.8	331.5	18.3	5.6
Rent incentive adjustment	(7.6)	(7.0)	(0.6)	(8.6)
Valuation of acquisition*		18.9
Capital expenditure and acquisition costs during the quarter**		1.5
Direct portfolio after capital expenditure and acquisition costs	349.8	351.8	2.1	0.6
Joint venture investments	4.2	4.1	0.1	2.5
Market value of interest rate swap	(29.8)	(30.6)	0.8	2.7
Net current assets***	35.4	53.3	(17.9)	(33.6)
On-balance sheet loan***	(183.1)	(182.9)	(0.2)	(0.1)
Net Asset Value	168.9	168.4	0.5	0.3
Net Asset Value per share (pps)	47.5	47.3	0.2	0.3
Net Asset Value per share excluding swaps (pps)	55.8	55.9	(0.1)	(0.2)

* Previously announced acquisition of the BT Building in West Bromwich that completed on 24 October 2011

** Also includes acquisition costs associated with the BT Building in West Bromwich

^*** 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

On 13 January 2012 the Company announced completion of an Investment Management Agreement with Schroder Property Investment Management Limited ('Schroders') to manage the Company's portfolio.  Schroders is providing investment management and accounting services and will receive a fee of 1.1% per annum of the Company's NAV.  As previously reported, Schroders' appointment is expected to give the Company future annual cost savings in the region of £1.8 million.  As a result of the termination of the existing contract with Invista Real Estate Investment Management ('IREIM'), a termination fee of £0.3 million was paid to IREIM in lieu of fees outstanding under their agreement which totalled £0.7 million.  Although paid in January, the termination fee has been accrued and is part of the £0.9 million costs referred to in the Net Asset Value section above.

Following the appointment of Schroders, shareholder approval will be sought to change the name of the Company to Schroder Real Estate Investment Trust Limited.

Property Portfolio and Performance

As at 31 December 2011 the Company's direct property portfolio comprised 58 properties independently valued at £349.8 million.  The direct property portfolio produces a rent of £23.72 million per annum which, based on the Knight Frank independent valuation, reflects a net initial income yield of 6.4%.  The portfolio rental value is £27.8 million per annum, resulting in a reversionary yield of 7.5%.

As noted above, on 24 October 2011 the Company completed the acquisition of the BT building in West Bromwich for £14.9 million.  The property was re-valued at £18.9 million as at 31 December 2011 which compares to the gross acquisition cost of £15.8 million.  British Telecommunications Plc is now the Company's largest tenant, paying £1.2 million per annum.

The acquisition of West Bromwich and other completed activity over the quarter increased the portfolio rental by £0.2 million per annum and reduced the void rate slightly to 11.8%.  Asset management and transactional activity also increased the total future contracted rental uplifts to £2.73 million by the end of 2014.  These increases are fixed and mainly follow the expiry of rent free periods and fixed rental increases.  The two most significant of these contracted rental increases are the BUPA letting in Brighton, generating £0.96 million per annum, and the Buckinghamshire New University in Uxbridge, generating £0.45 million per annum, commencing with effect from April and May 2012 respectively.

The tables below reflect the position based on the 31 December 2012 valuation, prior to the acquisition of West Bromwich:

Sector weightings

Sector	Weighting %
Retail	22.2
Offices	49.4
Industrial	24.3
Other	4.1

Regional weightings

Region	Weighting %
Central London	7.9
South East excl. Central London	45.9
Rest of South	12.7
Midlands and Wales	20.2
North and Scotland	13.3

Top ten properties

		Value (£m)	%
1	London SE1, Minerva House	27.8	7.9
2	Brighton, Victory House	25.0	7.2
3	West Bromwich, BT Building	18.9	5.4
4	Salisbury, Churchill Way West	15.2	4.4
5	Uxbridge, 106 Oxford Road	14.7	4.2
6	Luton, The Galaxy	14.3	4.1
7	Wembley, Olympic Office Centre	12.8	3.7
8	Brentford, Reynards Business Park	12.3	3.5
9	Brentford, The Gate Centre	11.7	3.3
10	Basingstoke, Churchill Way	10.7	3.0
	Total as at 31 December 2011	163.4	46.7

Top ten tenants

		Rent per annum (£)	%
1	British Telecommunications PLC1	1,200,000	12.8
2	Wickes Building Supplies Limited	1,092,250	11.7
3	Norwich Union Life and Pensions Ltd	1,039,191	11.1
4	Lloyds TSB Bank PLC2	1,024,000	11.0
5	BUPA Insurance Services Limited3	960,555	10.3
6	Synovate Limited4	950,000	10.2
7	The Buckinghamshire New University5	900,000	9.6
8	Mott MacDonald Ltd6	790,000	8.5
9	Recticel SA7	731,038	7.8
10	Winkworth Sherwood LLP8	663,095	7.1
	Total as at 31 December 2011	163,250,000	39.4

¹  Acquisition completed 24 October 2011.  Lease benefits from annual fixed uplifts of 3% p.a.

² Lloyds Bank on Church Street Liverpool and Bank of Scotland PLC at Keith House, Edinburgh

³ Currently subject to rent free period that expires April 2012

⁴ Aegis Group plc is guarantor. Figures based on 50% ownership of Minerva House.  The lease is in the process of being assigned to MORI UK Limited

⁵ 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

⁶ Mott MacDonald Group Limited are Guarantor

⁷ 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

⁸ On assignment from Reed Smith Ramboud Charot LLP. Figures based on 50% ownership of Minerva House

Transactions and Asset Management

At Reynards Business Park in Brentford, a revised planning application has been submitted for a residential scheme of 275 units totalling 224,000 sq ft.  From our discussion with Council officers, we understand that a residential scheme is acceptable in principle and a decision is expected over the coming months.  Assuming a planning consent is received for the higher-value use, the property will be sold. 

At Kingsland Trading Estate in Bristol, the Company has received £0.3 million as a dilapidations settlement in connection with a 44,000 sq ft warehouse unit that became vacant in early 2011.  The unit is being refurbished at a total cost of £470,000, of which £153,000 was incurred over the quarter.  Terms have been agreed to let the property at a rent of £0.19 million per annum and legal negotiations are progressing.

Market Background

The latest Investment Property Databank ('IPD') Monthly Index for the three months to 31 December 2011 confirmed that average UK commercial property capital values fell slightly by -0.03%, in comparison with a small increase of 0.21% over the previous quarter.  For 2011 as a whole, the IPD Monthly Index produced a total return of 8.1%, with capital value growth of 1.2% and an income return of 6.8%.  Average rental growth over the period was marginally positive at 0.1%.  Between the sectors, offices produced the highest return of 9.3%, and were the only sector to produce positive rental value growth of 2%.  The industrial and retail sector lagged behind with total returns of 7.7% and 7.2% respectively, and negative rental value growth of -1% and -0.9% respectively.   

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 2011 increased by £0.13 million, or 4.5%, to £2.94 million.  The value of the underlying portfolio increased to £41.33 million over the quarter, an increase of £0.35 million or 0.9%.  As previously highlighted, with effect from December 2011 the interest cover ratio covenant increased from 125% to 150%, and the loan to value ('LTV') covenant ratio fell from 100% to 85%, tapering to 75% by loan maturity by September 2013.  MPUT remains comfortably within these covenants with LTV and ICR ratios of 59.3% and 168% respectively.  As at 31 December 2011 the total negative marked to market value of the interest rate swap is -£1.52 million, meaning that the Company's share of NAV is diluted by approximately -£0.3 million.  The swap is matched to the term of the loan and will therefore erode to nil by loan maturity.

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

The NAV of the Company's 50% share in CIPL as at 31 December 2011 was unchanged over the quarter at £1.27 million.  The underlying property valuation also remained unchanged at £24.75 million.  Over the quarter £2.4 million of the loan secured against the property was repaid from CIPLs existing cash resources, reducing the loan to £23.66 million.  Following this repayment the net loan to value is approximately 94%.  There is no loan to value covenant prior to loan maturity in May 2013 and the interest cover is well within compliance at 153% compared to the covenant of 125%.  Due to the current high LTV and ongoing asset management initiatives, an approach has been made to the lender to extend the maturity of the existing loan.

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

The valuation of OPPUT's underlying property, Plantation Place, London, EC3 increased slightly to £496.50 million over the quarter, an uplift of £0.90 million or 0.18%, reflecting a net initial yield of 5.50%.  The independent valuation continues to be prepared on the basis of a disposal of the unit trust in which the property sits rather than the property itself, and therefore does not include any deduction for SDLT.  As at 31 December 2011, OPPUT's net debt is £428.7 million, resulting in a net loan to value of 86.7% compared to the net loan to value covenant of 82.14%.  The negative marked to market value of the interest rate swap, which is matched to the loan maturity in July 2013, reduced by £4.9 million to -£28.3 million over the quarter. 

Due to the uncertainty associated with the continuing LTV breach and as there is no certainty that any disposal will be of the unit trust, the Company continues to hold its interest at £nil.  The Manager continues to explore strategies to realise the investment.

Finance

Details of the Company's debt and two swaps are set out in the table below:

Rating	Loan amount (£m)	Swap Rate (%)	Margin (%)	Total interest rate (%)	Swap Maturity	M2M 31/12/2011	M2M 30/09/2011
AAA	62.5	5.099% Fixed	0.20	5.299	15/07/2014	(6.8)	(7.47)
AAA	111	5.713% Fixed	0.20	5.913	15/07/2016	(23.0)	(23.16)
Loan total	173.5	5.420% Fixed	0.20	5.692	N/A	(29.8)	(30.63)
Liquidity facility**	11.2	0.56 Libor***	0.662	1.2	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 19 January 2012 

The Company has a single on-balance sheet loan facility of £173.5 million that matures in July 2014, with no other on-balance sheet financing maturing prior to this date.  The Company is considering longer term re-finance strategies that reduce the overall interest cost and avoid crystallising swap break costs.

As at 31 December 2011, the Company's on-balance sheet loan to value ratio, net of cash, was 42.7% against a net loan to value ratio covenant of 60%. The Company continues to have significant headroom on its Interest Cover Ratio of 240% compared with the covenant of 150%, calculated on a simplified basis of rental income as a proportion of interest cost.

-ENDS-

For further information:

Schroders Property Investment Management Limited Duncan Owen / Nick Montgomery	020 7658 6000
Northern Trust David Sauvarin	01481 745529
FTI Consulting Stephanie Highett / Dido Laurimore	020 7831 3113

 

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