Interim Management Statement, NAV and Dividend

RNS Number : 7413Q

Invista Foundation Property Tst Ltd

25 October 2011

 



25 October 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 £168.4 million or 47.3 pence per share ('pps') as at 30 September 2011.  This reflects a decrease of 2.3 pps or 4.6% compared with the NAV as at 30 June 2011 of £176.5 million.

The directly held property portfolio fell in value by £0.8 million or -0.2% on a like for like basis over the quarter, increasing to -£1.4 million or -0.4% after taking account of capital expenditure but before acquisition costs.

The negative movement of the Group's interest rate swaps of £4.1 million over the quarter accounted for approximately half of the total decrease in NAV.  As at 30 September 2011 the total negative marked to market value of these swaps is -£30.64 million, representing 8.6 pps or 18% of the total NAV. 

The Company will shortly be completing the acquisition of the BT Building in West Bromwich at a price of £14.9 million.  The property will be independently valued at £18.9 million which should make a positive net contribution, after all acquisition costs, of £3.1 million or 1 pps to the Company's NAV in future.  Further details are provided below. 

Pre-tax dividend cover over the quarter was 53%. This reflected the benefit of a lease surrender of £0.5 million in the quarter, offset by a £0.4 million provision reflecting current project costs relating to the merger proposal indicated by Picton Property Income Limited.  The imminent acquisition in West Bromwich noted above will add £1.2 million per annum to the Company's cash rental income, which should increase IFRS dividend cover by 11.9%.

The Company is also today announcing an interim dividend of 0.88 pps for the period 1 October 2011 to 31 December 2011.  The dividend payment will be made on 25 November 2011 to shareholders on the register on 11 November 2011.  The ex-dividend date will be 9 November 2011.

	30/09/2011 (£m)	30/06/2011 (£m)	3 month change (£m)	3 month change (%)
Direct property independent valuation	331.5	326.8	4.7	1.4
Rent incentive adjustment	(7.0)	(6.5)	(0.5)	(7.7)
Valuation of acquisition*		5.6
Capital expenditure and acquisition costs during the quarter**		1.0
Direct portfolio after capital expenditure and acquisition costs	331.5	333.4	(1.9)	(0.6)
Joint venture investments	4.1	4.0	0.1	2.5
Market value of interest rate swap	(30.6)	(26.5)	(4.1)	(15.5)
Net current assets***	53.3	61.5	(8.2)	(13.3)
On-balance sheet loan***	(182.9)	(182.8)	(0.1)	(0.1)
Net Asset Value	168.4	176.5	(8.1)	(4.6)
Net Asset Value per share (pps)	47.3	49.6	(2.3)	(4.5)
Net Asset Value per share excluding swaps (pps)	55.9	57.0	(1.1)	(2.0)

*  Previously announced acquisition of Church Street, Liverpool that completed on 22 July 2011

** Also includes acquisition costs associated with Church Street, Liverpool

^***  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

Possible Offer and Management Arrangements

The Company has announced that Picton Property Income Limited has requested more time to consider further the terms that it might be able to offer IFPT's shareholders. In the meantime the Board is in advanced negotiations with Schroder Property Investment Management ('Schroders') to take over the role of Investment Manager. If Schroders is appointed, the Company will benefit from a reduction in its management fees of £1.8 million per annum from the date of appointment, which would increase dividend cover by 14.4%. 

Property Portfolio and Performance

As at 30 September 2011, and prior to the acquisition of West Bromwich, the Company's direct property portfolio comprised 57 properties independently valued at £331.55 million.  The direct property portfolio produces a rent of £22.35 million per annum which, based on the Knight Frank independent valuation, reflects an actual net initial income yield of 6.4%.  The portfolio rental value is £26.8 million per annum, resulting in a reversionary income yield of 7.6%.

As noted above, the Company will shortly be  completing the acquisition of the BT building in West Bromwich for £14.9 million, which will be valued by the independent valuer, Knight Frank, at £18.9 million.  The tenant, British Telecommunications Plc, will become the Company's largest tenant paying £1.2 million per annum.

Asset management activity undertaken to date will deliver further increases in the aggregate rental income received by the Company of approximately £2.8 million per annum by September 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 30 September 2011 valuation, prior to the acquisition of West Bromwich:

Sector weightings

Sector	Weighting %
Retail	23.9
Offices	46.3
Industrial	25.5
Other	4.3

Regional weightings

Region	Weighting %
Central London	8.4
South East excl. Central London	48.5
Rest of South	13.4
Midlands and Wales	15.7
North and Scotland	14.0

Top ten properties

		Value (£m)	%
1	London SE1, Minerva House	27.75	7.9
2	Brighton, Victory House	24.60	7.0
3	Salisbury, Churchill Way West	15.20	4.3
4	Uxbridge, 106 Oxford Road	14.60	4.2
5	Luton, The Galaxy	14.25	4.1
6	Wembley, Olympic Office Centre	12.65	3.6
7	Brentford, Reynards Business Park	12.25	3.5
8	Brentford, The Gate Centre	11.30	3.2
9	Basingstoke, Churchill Way	10.65	3.0
10	The Portergate, Sheffield	9.65	2.9
	Total as at 30 September 2011	152.90	46.1

Top ten tenants

		Rent per annum (£)	%
1	Wickes Building Supplies Limited	1,092,250	4.3
2	Norwich Union Life and Pensions Ltd	1,039,191	4.1
3	BUPA Insurance Services Limited1	960,755	3.8
4	Synovate Limited2	950,000	3.7
5	The Buckinghamshire New University3	900,000	3.5
6	Mott MacDonald Ltd4	790,000	3.1
7	Recticel SA5	731,038	2.9
8	Lloyds TSB Bank PLC	664,000	2.6
9	Winkworth Sherwood LLP6	663,095	2.6
10	Irwin Mitchell LLP	550,000	2.3
	Total as at 30 September 2011	8,345,329	34.4

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 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

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

Transactions and Asset Management

The pre-let development funding of the BT building in West Bromwich will complete shortly at a price of £14.86 million, reflecting a net initial yield of 7.63%.  The Company has paid a deposit of £0.75 million and at completion will make a balancing payment of £14.11 million.  The property will be let to British Telecommunications plc for 15 years without break options. The initial rent is £1.2 million per annum and will be payable immediately from completion as there is no rent free period.  The lease benefits from annual fixed rental uplifts of 3% per annum, thereby increasing the rent every year of the lease term.  Knight Frank have valued the property at £18.9 million which reflects a net initial yield of 6%, reflecting a 27% increase relative to the agreed purchase price.  Following completion the valuation of the property should increase the Company's NAV, after all acquisition costs, by approximately £3.1 million.  

In addition to the £1.2 million per annum of rental income to be generated shortly by West Bromwich, over the quarter, the Company exchanged or completed new lease contracts generating additional new rental income of £472,000 per annum.  This activity contributed to a reduction in the void rate to 12.06%, of which another 1.96% or approximately £550,000 is under offer to be let to new tenants.  Significant asset management activity is still ongoing to let other vacant space, and, where appropriate, capital investment in being made to maximise letting prospects and rents.  For example, since June, the Company has completed the refurbishment of the Gate Centre in Brentford, a prime and well-located multi-let industrial estate.  This resulted in a new letting to Berry BMW with a further three units totalling 21,675 sq ft available to let with a rental value of approximately £220,000 per annum. 

At Reynards Business Park in Brentford, the planning application submitted for residential use on the six acre site in June was withdrawn in August.  This was to enable more detailed discussions to take place with Hounslow Council and local residents, some of whom had raised concerns over the scale of the previously proposed development.  Following these discussions, a revised application is being prepared including a reduction in the total number of dwellings which now total approximately 215,000 sq ft.  From our discussions with the Council and local residents we now understand that a residential scheme is acceptable in principle and a decision on the application is expected close to the end of 2011.  Currently the property is valued at £12.25 million and generates £153,000 per annum.  It is the Manager's intention to sell the property on receipt of the higher value planning consent with the intention to deploy proceeds of the disposal into materially higher yielding assets in order to further enhance dividend cover.        

Market Background

The latest Investment Property Databank ('IPD') Monthly Index for the three months to 30 September 2011 confirmed that average UK commercial property capital values increased by 0.21%%.  This compares to 0.28% for the quarter to 30 June 2011 and is the lowest increase since the market recovery in mid 2009.  The positive movement in capital values was led by the office sector at +0.82%, with the retail and industrial sectors both negative at -0.18% and -0.03% respectively.  The office sector was also the only sector to generate positive rental value growth of 0.77% over the quarter, in contrast with retail and industrial at -0.39% and -0.19% respectively.

Over the recent quarter, sentiment towards UK commercial property has weakened in the face of significant volatility across equity and debt markets.  This has coincided with more property investments being offered for sale, particularly by banks and forced sellers, and reduced demand for all property types.  There is still selective demand for prime assets at current prices, particularly in Central London and the South East, and this should be maintained given low interest rates and the further round of quantitative easing.  Relative pricing between prime and poor secondary / tertiary property has increased further, led by concerns over tenant default, falling rental values and voids, and consequently we expect poor secondary and tertiary values to fall further.  We continue to believe that there is value in small parts of the market for good secondary property offering good fundamentals and an attractive income return.

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 30 September 2011 increased by £60,000 to £2.81 million.  The value of the underlying portfolio increased to £40.98 million over the quarter, an increase of £0.2 million or 0.5%.  The loan to value ratio is 60% compared to a covenant of 100% which tapers down to 75% at loan maturity in 2013 and the interest cover ratio is 144% compared to a covenant of 125%.  As at 30 September 2011 the total negative marked to market value of the interest rate swap is -£1.81 million, split between a current swap of -£268,184 and a forward starting swap of -£1.55 million, meaning that the Company's share of NAV is diluted by approximately -£0.35 million.

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

The NAV of the Company's 50% share in CIPL as at 30 September 2011 was unchanged over the quarter at £1.27 million.  The underlying property valuation also remained unchanged at £24.75 million.  The loan against the property totals £26.05 million reflecting a net loan to value, after taking account of £2.6 million of cash, of 95%.  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%.

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

The valuation of OPPUT's underlying property, Plantation Place, London, EC3 increased to £495.6 million over the quarter, an uplift of £1.5 million or 0.5%, reflecting a net initial yield of 5.5%.  As at 30 September 2011, OPPUT's net debt is £431.34 million, resulting in a net loan to value of 87% 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, fell by £1.8 million to -£33.2 million over the quarter. The property continues to be well let and covers interest payments.  The improvement in the property value, swap value and adjusting for net current assets results in an estimated value for the Company's investment in OPPUT of £8 million.  However, in view of continuing breach of the loan to value covenant the Company continues to hold this investment at nil. 

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 30/09/2011	M2M 30/06/2011
AAA	62.5	5.099% Fixed	0.20	5.299	15/07/2014	(7.47)	(7.1)
AAA	111	5.713% Fixed	0.20	5.913	15/07/2016	(23.16)	(19.4)
Loan total	173.5	5.420% Fixed	0.20	5.692	N/A	(30.63)	(26.5)
Liquidity facility**	11.2	0.55 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 12 October 2011 

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 30 September 2011 the Company's on-balance sheet loan to value ratio, net of cash, is 40.3% against a net loan to value ratio covenant of 60%. The Company continues to have significant headroom on its Interest Cover Ratio of 226% compared with the covenant of 150%, calculated on a simplified basis of rental income as a proportion of interest cost.

-ENDS-

For further information:

Invista Real Estate Investment Management Limited Duncan Owen / Nick Montgomery	020 7153 9300
Northern Trust David Sauvarin	01481 745529
FTI Consulting Stephanie Highett / Olivia Goodall	020 7831 3113

 

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