Interim Results
Invista Foundation Property Tst Ltd
26 November 2007
26 November 2007
Invista Foundation Property Trust Limited ("IFPT"/ the "Company"/ "Group")
REPORT FOR THE SIX MONTH PERIOD ENDING 30 SEPTEMBER 2007
The Invista Foundation Property Trust has today announced its results for the
period ended six months to 30 September 2007.
Financial highlights
• Net Asset Value per share of 137.2 pence (31 March 2007: 142.2 pence)
• Property assets of £673.2 million (31 March 2007: £717.4 million) and
net assets of £484.9 million (31 March 2007: £502.7 million)
• Cash and cash equivalents of £78.8 million (31 March 2007: £24.6
million)
• Borrowings as a percentage of total assets less current liabilities of
34.8% (31 March 2007: 30.7%). Consolidated borrowings as a percentage of
total assets less current liabilities of 45% (31 March 2007: 45%)
• Total dividend for the six months to 30 September 2007 of 3.375 pence
per share
Operational and strategic highlights
• Income-oriented asset management strategy has been implemented focussing
on increasing average lease length and tenant credit quality
• During the period the Company reduced its weighting to Central London
offices with the disposal of its 19.73% stake in MidCity Place, WC1 for
£21.5 million, generating a return of 100%
• Remaining Central London offices and asset management generating
significantly more rental value growth than the Benchmark
• Over the past 18 months the Company has taken advantage of strong market
conditions to dispose of underperforming properties, particularly in the
retail sector.
Commenting, Andrew Sykes, Chairman of the Board, said:
"The Company's portfolio is well diversified with a robust income stream backed
by an above average tenant covenant quality. This should enable the Company to
maintain and grow income to increase the distributed dividend cover and, over
the medium term, supplement the attractive income return with capital growth.
The cash held by the Group provides valuable liquidity and operational
flexibility. Asset management will be more critical than ever and we are well
placed to direct our considerable resources to maximise returns."
For further information:
Duncan Owen
Invista Real Estate Investment Management 020 7153 9345
Stephanie Highett / Dido Laurimore / Nicole Marino
Financial Dynamics 020 7831 3113
CHAIRMAN'S STATEMENT
Results
The widely reported dislocation in credit markets over the last few months has
had, and continues to have, negative consequences for the UK commercial property
market. As a result of the consequent downward pressure on valuations, over the
six months to September 2007, the unaudited NAV of Invista Foundation Property
Trust ("the Company") has fallen by 5 pence per share ('pps') or 3.52%, from
142.2 pps to 137.2 pps. Shareholders have received total dividends of 3.375 pps
over this period, making a NAV total return of -1.16% over the six months. Over
the last twelve months, however the NAV total return has amounted to 8.5%.
The underlying property portfolio owned by the Company and its subsidiaries
("the Group"), which had performed well until June 2007, fell in value for the
first time over the quarter to September. Over the six month period however the
total return from the portfolio was 1.2%, marginally ahead of the IPD Benchmark
return of 1%.
UK Property Market
The Board is monitoring the current weakness in the UK commercial property
sector closely. Although a slowdown over 2007 and 2008 was widely anticipated,
with our Manager taking defensive measures, the timing, speed and sharpness of
such corrections can never be predicted precisely in advance. The UK economy
appears to be robust at present, but there are clear risks to growth both in the
UK and globally if the credit crunch we have seen in wholesale markets spreads
to the personal sector.
Portfolio Performance
In contrast to previous UK commercial property downturns, the occupational
market remains robust with our Manager reporting good tenant interest and
average rental growth of 4.0% across the market as a whole. There is a wide
divergence in rental growth between the sub-sectors across the market in line
with the Manager's expectations, ranging from +2.2% in retail to +18% in West
End offices over the 12 months to September 2007. From this perspective the
Company has benefited from its exposure to Central London.
Average UK property yields have increased by 0.16% to 5.56% between June and
September. In contrast with rental growth, so far there has been less
differentiation between the sectors although secondary property is expected to
underperform prime assets if yields continue to rise. Rising interest rates have
been a key factor behind the increase in property yields, together with a
reduction in the availability of bank finance against the security of UK
commercial property, in the wake of the recent dislocation in credit markets.
The Central London Office market warrants a specific mention given the Group's
relatively high exposure. We have benefited significantly from capital growth in
Central London, and whilst this is slowing, the Group is yet to benefit fully
from market rental growth through an increase in rents received. Our Central
London offices have significant rent reviews over the next 18 months and this,
combined with strong tenant covenants and long unexpired lease terms, should
mean they support valuations over the medium term.
On a brighter note, it is pleasing to note that in August our Manager completed
the disposal of the Group's interest in MidCity Place for £21.5 million. Whilst
this was at a 5.5% discount to the NAV at the start of the period, the disposal
was well timed and, combined with the proceeds of the re-financing in 2006, has
generated an exceptionally strong return of £30 million on an initial investment
of £9.8 million.
The Manager continues to focus on the active asset management of the underlying
property portfolio in order to build a portfolio that should perform better on a
relative basis in a slowing market. Significant steps are being taken to
maintain a low vacancy rate, enhance tenant quality and increase the average
lease length. The Manager is also considering the options for two major projects
at Hinckley and Uxbridge where significant value has been added in securing
planning consents for alternative uses.
Debt
As at 30 September 2006 the Group had total on-balance sheet borrowings of
£263.5 million representing 34.8% of total assets less current liabilities. The
increase in the Group's securitised debt from £152.5 million to £263.5 million
followed the issuance of £111 million of additional securitised debt in May at a
low margin of 25 basis points above LIBOR. This was well timed and the proceeds
were used to repay existing more expensive debt with the balance allocated
towards NAV enhancing asset management initiatives and increased cash reserves.
All of the Group's on-balance sheet debt is fully hedged against interest rates
until 2014 at a total cost of funds of 5.58%.
The impact of marking the Group's interest rate swaps to market has added
volatility to the quarterly NAV as interest rates have fluctuated. The September
NAV includes a positive valuation of £1.7 million for the swap hedging the
principal securitised loan, compared to a valuation of £10.1 million as at June
2007 and £3.2 million as at March 2007. These fluctuations have also had an
impact on the Group's largest joint venture investment, Plantation Place. The
NAV of this investment benefits from a positive mark to market valuation on the
swap related to the joint venture's debt of £5.2 million (the Group's share),
down from £8.9 million in June and £5.3 million in March.
The Group has off-balance sheet, non-recourse borrowings totalling £142.9
million secured against the individual investments at Plantation Place EC3,
Crendon Industrial Estate and Merchant Property Unit Trust. The on and off-balan
ce sheet borrowings as at September 2007 total £407.1 million, representing
45.3% of total assets less current liabilities, and the Board has set a limit on
the Group's total gearing (including on- and off-balance sheet borrowings) of
50%. The disposal of MidCity place in August, noted above helped to reduce total
gross debt by £41 million.
The Company currently has free cash of approximately £65 million representing
13% of the NAV and 9% of total assets less current liabilities. These funds
provide important operational flexibility in more challenging market conditions.
Share price
The Company's share price continues to be affected by negative sentiment and as
at 23 November is 75.25 pence per share, a 45% discount to the September NAV.
This is the largest discount since inception and compares with a 12% discount at
the time of the Annual Report issued in June 2007. The Board is monitoring the
discount and reviews regularly whether share buybacks are appropriate. In doing
so, it takes into account other potential calls on the Group's cash resources
and the potential returns from further investment in developing our property
portfolio. Recent buybacks, following sharp falls in the Company's share price,
have reflected this approach.
Outlook
In these more challenging market conditions, the Manager is seeking to offset
further declines in the value of UK commercial property over the coming months
through a continued focus on asset management and other initiatives that will
increase income and performance relative to the market. An active approach to
asset management, together with the financial flexibility afforded by the
Group's cash resources, should ensure that the Company is as well positioned as
possible to create longer term value for shareholders.
Andrew Sykes
Chairman
Invista Foundation Property Trust Limited
23 November 2007
INVESTMENT MANAGER'S REPORT
As at 30 September 2007, Invista Foundation Property Trust Limited ('the
Company') and its subsidiaries (together 'the Group') owned a property portfolio
valued at £673.2 million comprising 71 assets. Including the gross share of
joint venture assets, this provides the Group with exposure to a larger
portfolio valued at £816.13 million.
The property portfolio has approximately 255 individual leases to 224 different
tenants which are well diversified by sector and geography with an above average
weighting to Central London offices. The property portfolio, excluding joint
ventures, has a weighted average lease length of 8.2 years assuming the earlier
of lease expiry or break option.
Over the period and in anticipation of the slowdown in the UK commercial
property market, a more defensive and income-oriented strategy has been
implemented focusing on increasing average lease length and tenant credit
quality. This approach is proving successful and, based on independent tenant
credit covenant analysis, compared to its IPD peer group Benchmark, the Company
has increased its weighting to tenants with a 'negligible' risk and reduced its
weighting to tenants with a 'medium-high' or 'high' risk.
The income focused strategy is complemented by a number of significant NAV
enhancing development and refurbishment projects at varying stages of
implementation.
Top 10 investments Value 09/07 %
Minerva House, Montague Close, London,SE1 £59,300,000 8.8%
National Magazine House, Broadwick Street, London W1 £58,700,000 8.7%
Plantation Place, London EC3 (28.08% share*) £49,430,196 7.3%
Portman Square House, London W1 (21.06% share) £35,170,000 5.2%
6 - 9,Tokenhouse Yard, London EC2 £24,500,000 3.6%
The Galaxy, Luton £22,100,000 3.3%
Reynard Business Park, Brentford £19,400,000 2.9%
Victory House, Trafalgar Place, Brighton £18,700,000 2.8%
Churchill Way West, Salisbury £17,350,000 2.6%
Union Park, Fifers Lane, Norwich £17,200,000 2.5%
TOTAL £321,850,196 47.7%
*Share of the NAV of the joint venture
Top 10 direct tenancies* Annual Rent %
The National Magazine Co Limited £2,305,100 7.0%
Synovate Limited (Guarantor Aegis Group Plc)** £1,900,000 5.8%
Reed Smith Services Limited £1,326,190 4.0%
Mott MacDonald Limited £1,307,148 4.0%
Wickes Building Supplies Limited*** £1,092,250 3.3%
The British Broadcasting Corporation £850,100 2.7%
Recticel SA £713,538 2.2%
Partners of Cushman & Wakefield £574,128 1.8%
Motorhouse 2000 Limited £570,150 1.7%
Partners of Irwin Mitchell lawyers £555,000 1.7%
TOTAL £11,193,604 34.2%
* Excludes joint ventures
** Income will commence on expiry of 18 month rent free period
*** Includes new lease at Basingstoke £692,500 with effect from 24 December 2007
As at 30 September 2007 the current portfolio rent was £29.27 million,
increasing to £32.72 million on completion of outstanding rent free periods.
This reflects a net initial income yield of 5.5% excluding the Group's
development sites and joint venture investments where surplus income supports
separate, off-balance sheet financing. The market rental value of the Group's
portfolio is £36.96 million reflecting an income yield of 6.3%, excluding
development sites and joint ventures. The Company's active approach to asset
management is being applied across the whole portfolio and results in a low void
rate of approximately 5% by rental income.
The slowdown in parts of the UK commercial property market highlighted in our
last Annual Report and Accounts has accelerated and the market has experienced a
sharp, yield-led correction in capital values over the period that has continued
into the final quarter of 2007. There was a stark contrast in the Company's
quarterly movements in NAV over the period under review, with a Net Asset Value
('NAV') uplift of 4.70% over the quarter to June followed by a fall in the NAV
over the quarter to September of 7.8%. A breakdown of what contributed to these
returns is set out below:
31/03/2007 30/06/2007 3 month 30/09/2007 3 month
Change (%) Change
(£'000) (£'000) (£'000) (%)
Investment
properties at
market value 717,388 722,143 0.7 673,197 (6.8)
Like-for-like
uplift in:
Wholly owned
portfolio - 11.5 2.5 (15.0) (2.4)
Joint venture
portfolio - 6.2 7.5 (9.3) (14.0)
Current assets 32,483 82,366 154 86,235 4.7
Current
liabilities (32,094) (29,117) (9.3) (16,931) (42)
On-balance
sheet
borrowings (218,288) (259,236) 18.8 (259,298) -
Off-balance
sheet
borrowings (186,060) (185,344) - (142,925) (22.9)
Market value
of principal
interest rate
swap 3,163 10,137 226 1,734 (82.9)
Net Asset Value 502,652 526,293 4.7 484,936 (7.9)
Net Asset
Value per
share (pps) 142.2 148.9 4.7 137.2 (7.9)
Combined with the dividend of 3.375 pence per share, over the six month period
to September 2007 the Company generated a NAV total return of -1.16%, with the
NAV falling 5.0 pence per share or 3.52% to 137.2 pence per share. This is the
first fall in the NAV over any period since the launch of the Company in July
2004 at 100 pence per share. The above table also illustrates the volatile
impact of marking to market the Company's interest rate swaps, which is
unrelated to the fundamental performance of the property portfolio. This impact
is accentuated by separate interest rate swaps included in calculating the NAV
of the Group's joint venture investments.
The Company's objective is to provide a total NAV return of 8% per annum or more
over the longer term through holding a diversified portfolio of UK commercial
properties, mainly invested in the three UK commercial property sectors of
offices, industrial and retail. Since launch in July 2004 the objective has been
materially exceeded with an annualised NAV total return of approximately 18% per
annum. The strategy to invest in the Central London office markets has
contributed significantly to the out performance relative to the original
objective and its IPD peer group, demonstrating that it can respond quickly to
changing market conditions.
We are now returning to more normal historic market conditions with a material
differential between the performance of sectors and regions at different times
in the cycle. The Company's active approach and track record of gaining exposure
to growth markets increases the potential for relative out performance in this
more challenging environment, and this approach is evidenced by the performance
of the underlying property portfolio.
Over the six months to September 2007 IPD calculate that the Group's underlying
property portfolio produced a total return of 1.2% compared with the Benchmark
of 1%, placing the Company on the 23rd percentile. Over the 12 months to
September 2007 IPD calculate that the Group's underlying property portfolio
produced a total return of 10.2% compared with the Benchmark of 6.9%, placing
the Company on the 3rd percentile. On the same basis IPD calculate that over
three years the Group's portfolio produced a total return of 17.7% compared with
the Benchmark of 14%, placing the Company in the 4th percentile. The IPD
analysis takes account of all the property related transaction costs incurred
through implementing the active strategy.
IPD also provide an attribution analysis of the underlying property portfolio
over 12 months that highlights two positive features. Firstly, rental value
growth in the Company's directly held property portfolio contributed 8.2%
towards capital value growth over the 12 months to September, compared with the
Benchmark of 3.9%. It is also encouraging to note that on the same basis average
rental value growth was realised across all three main sectors with retail and
offices materially exceeding the Benchmark (6.3% vs. 2.2% and 13.4% vs. 8%
respectively) and industrial just ahead (1.4% vs. 1.2%). This level of out
performance was relatively constant over three, six and 12 months.
Rental value growth is of fundamental importance to long term performance and
can be attributed to an exposure to growth markets, good quality properties and
active asset management. The Group's principal joint venture investment,
Plantation Place, is also performing well in terms of rental growth, with the
rental value increasing by 10% over the year from an average headline office
rent of £52.50 per sq ft to £57.75 per sq ft as at September 2007.
As evidenced above, the key driver of capital growth has been rental value
growth rather than the impact of falling yields. Falling yields can be
influenced by wider market factors such as low borrowing rates and investor
sentiment which can be short term and disconnected from property fundamentals.
It is worth noting therefore that yield impact contributed significantly less to
capital growth relative to the peer group.
Including the Group's joint venture properties, IPD calculate that the income
return of 5.1% for the 12 months to September 2007 exceeded the Benchmark of 5%.
This is positive as the rental income generated by the joint venture investments
pays interest on the separate off-balance sheet borrowings.
Sector Spread
30 September 2007 (%)
Office 54%
Industrial 22%
Retail 16%
Retail Warehouse 5%
Other 3%
30 September 2007 (% grossed up*)
Office 60%
Industrial 20%
Retail 13%
Retail Warehouse 4%
Other 3%
Regional Spread
30 September 2007 (%)
Central London 33%
South East excl. CL 34%
Rest of South 11%
Midlands and Wales 13%
North and Scotland 9%
30 September 2007 (% grossed up*)
Central London 43%
South East excl. CL 30%
Rest of South 9%
Midlands and Wales 11%
North and Scotland 7%
* The grossed up portfolio analysis includes the Group's share of the
off-balance sheet, non-recourse debt secured against the Joint Venture
investments at Plantation Place, Crendon and Merchant Property Unit Trust.
The tables above and on the previous page show that the Company still has a
relatively high weighting to Central London of 33% on a net basis, increasing to
43% on a grossed up basis. This compares with the position in March 2007 of 34%
and 46% respectively.
During the period the Group reduced its weighting to Central London offices with
the disposal of its 19.73% equity stake in MidCity Place, WC1, acquired for £9.8
million in August 2005. This was based on an underlying property acquisition
price of £215 million. Upon acquisition the property was let at an average
rental of £38 per sq ft with the assumption that rents would exceed £50 per sq
ft over five years. Following the successful implementation of several asset
management initiatives generating headline rental evidence of £60 per sq ft the
property was sold in August for £325 million, realising net disposal proceeds of
£21.5 million for the Group. The net disposal proceeds compared to a valuation
at the start of the period of £22.75 million, principally due to writing off
unamortised finance arrangement fees. Including the re-financing proceeds of
£8.2 million received in October 2006, the initial investment of £9.8 million
generated a return of £30 million.
During the period the Company also sold three small High Street retail
properties in York, Northampton and Lancaster for a total consideration of
£6.325 million. The properties produced £275,850 per annum and were let for an
average lease length of 7.8 years. In each case asset management initiatives had
been successfully implemented and on the basis of the properties' limited scope
for future income and capital growth, a decision was made to dispose of the
assets at an average initial yield of 4.1%. Over the last 18 months the Company
has taken advantage of very strong market conditions to sell 10 small retail
properties at premium prices to realise significant profits.
No new acquisitions were completed during the quarter, although the contracted
development of the prime retail warehouse development in Basingstoke was
completed in October. The property is let to Wickes Building Supplies Limited
for 25 years producing £692,250 per annum, and is located in a prominent
position with good rental growth prospects. Upon completion in October the
property was valued at £13 million compared with the cost of £11.9 million.
The period under review has again been characterised by significant asset
management activity. At the retail warehouse investment in Salisbury, the new
lease to Smyths Toys has been completed at £20 per sq ft, 20% ahead of the
assumption at acquisition. This provides excellent rental evidence for
forthcoming reviews that should result in a yield on cost by the end of 2008 of
6.0%. The value increased over the period from the purchase price in January
2007 of £15.02 million to £17.35 million, an increase of 15.5%.
The Company's directly held Central London office investments have some
important rent reviews over the next 18 months with the potential to exceed the
current independent valuation rental value. The four largest directly held
properties are all in Central London and have a rental value of £9.7 million
compared to the current rent of £7.9 million. By the end of 2009 the properties
have the potential to generate additional rent of £1 million per annum
reflecting an uplift of 12%. These were acquired following the C Share issue in
2005 and illustrate the importance of the C Share strategy from both a capital
and an income growth perspective.
The table below summarises larger, more capital intensive asset management
projects being pursued by the Company, together with the budgeted costs and
potential profit:
Property Objective Status
(Sector / 30
Sept 2007
val)
Coventry Change of use from industrial to Outline planning secured for
Road, retail warehousing and trade 100,000 sq ft retail warehousing
Hinckley (RUK counter units. Commence and 21,000 sq ft trade counter.
Ind £8m) development when 50% pre-let. Advancing pre-let negotiations.
Oxford Road, Extend and substantially Detailed planning consent for
Uxbridge (SE refurbish 1980's, 39,000 sq ft 71,000 sq ft Grade A building
offices office building to Grade A spec. achieved. Considering options.
£10.5m)
Victoria Convert upper parts to retail. Works currently on-site with
Plaza, Bolton Pre-let to JJB Sports. Planning good interest in remaining
(High St and all lease agreements in vacant unit.
retail £11m) place.
Minerva Following new agreement for lease Carrying out Synovate Grade A
House, London to Synovate, pursuing major lease refurbishment works. In
SE1 (CL surrender and possibility of surrender negotiations on
Offices adding an additional floor. remaining space.
£59.3m)
Gate Centre, Following the opening of BMW In negotiations with VW for new
Brentford dealership, potential to showroom premises at a
(London ind materially enhance rents through materially higher rent.
£15.5m) re-branding.
Reynards West London industrial complex Considering mixed use
Business Park close to A40. Potential mixed use redevelopment options on expiry
(London ind development site. of current leases in 2010.
£19.4m)
Albion Working with Local Authority to In exclusive negotiations over a
Centre, agree a Masterplan for a mixed formal development agreement. In
Ilkeston use redevelopment project centred discussion with three major
(Shop Centre on the Albion Centre. supermarkets as an anchor
£14.75m) pre-let.
Olympic Reviewing development options for Discussions ongoing with a
Office the development site following number of parties.
Centre, the opening of Wembley.
Wembley (site
£7.6m)
Booker, Acton Secondary industrial premises in Discussions ongoing with a
(London ind an area benefiting from higher number of parties.
£7.15m) value uses being developed
nearby. Pursuing site assembly
strategy.
Following recent disposals the Group currently has approximately £65 million of
free cash, and we and the Board are acutely aware of the benefits of this
liquidity in more challenging market conditions. The use of these funds will to
a large extent be determined by the performance of the investment and
occupational markets over the short to medium term. The value already added
through securing higher value planning consents in locations such as Hinckley
and Uxbridge provides the Company with the alternative of crystallising profit
now or potentially generating future income and profits by implementing the
developments. The longer term profitability of these and other initiatives will
be measured against the investment returns realised through the more short term
strategy of acquiring and cancelling the Company's shares.
Finance
In May and as planned the Company issued £111 million of additional securitised
debt at a margin of 25 basis points over a fixed interest rate, increasing and
consolidating all of the Company's on-balance sheet debt in a single securitised
facility of £263.5 million. This is a very efficient form of financing with the
proceeds used to repay more expensive off-balance sheet debt and to provide
general liquidity. The on-balance sheet loans are set out below:
Grade (completion Amount (£) Expiry Fixed rate Margin Cost of funds
date) (%) (%) (%)
AAA (2005) 139,000,000 2014 5.10 0.20 5.31
AA (2005) 13,500,000 2014 5.10 0.29
AAA (2007) 111,000,000 2014 5.71 0.25 5.96
Total 263,500,000 5.58
The securitised debt set out in the table above is secured against assets of
£597 million, reflecting a loan to value of 44% ratio compared with a bank
covenant of 60%. The interest cover ratio is 200% relative to the bank covenant
of 150%. In addition to the £597 million of on-balance sheet assets, the Group
has £24.5 million of direct property assets with no debt. It is worth noting
that the Company can reduce the securitised loan at any time with no pre-payment
fees, or alternatively inject property or cash to reduce the loan to value.
The disposal of MidCity Place during the period reduced the off-balance sheet
borrowings by £41 million and the current Company's off-balance sheet loans are
set out below.
Description (% Amount (£) Expiry Fixed rate Margin Cost of funds
ownership) (%) (%) (%)
Plantation
Place,
(28.08%) 129,168,000* 2013 4.74 0.45 5.19
Crendon IPL
(50.00%) 10,440,000 2009 5.22 1.05 6.27
Merchant PUT
(19.40%) 4,033,260 2011 5.10 0.53 5.63
Total 143,641,260 5.28
*as at 22 October 2007
Plantation Place is the most significant loan, representing 90% of the total
off-balance sheet loans. This loan is non-recourse and is securitised with the
interest rate fixed until 2013. The total loan is £457 million relative to an
underlying property valuation of £602 million as at 30 September 2007,
reflecting a loan to value ratio of 76%. The loan can be re-paid in full or in
part at any time with zero pre-payment fees.
In summary the Group's on balance borrowings amount to 34.8% of total assets
less current liabilities, increasing to 45.3% on a fully consolidated basis when
off-balance sheet assets and liabilities are included.
Outlook
The yield-led correction in the UK commercial property market has been sharper
than anticipated and the long term impact of the wider financial market turmoil
is uncertain. This has led to a fall in capital values that is likely to result
in an ungeared return of 0% for the UK commercial property for calendar 2007.
Compared with previous downturns, there is sustained occupational demand and
good levels of rental growth in parts of the market. Whilst the Company has an
overweight exposure to growth markets, and specifically Central London, there is
a risk to future performance if the financial market problems contaminate the
wider UK economy. We have prudently begun to position the portfolio defensively
and have started to crystallise the strong performance enjoyed in Central London
over the last two years. Further London disposals could be considered at
appropriate pricing levels.
The Company's portfolio is well diversified with a robust income stream backed
by an above average tenant covenant quality. This should enable the Company to
maintain and grow income to increase the distributed dividend cover and, over
the medium term, supplement the attractive income return with capital growth.
The cash held by the Group provides valuable liquidity and operational
flexibility. Asset management will be more critical than ever and we are well
placed to direct our considerable resources to maximise returns.
Looking forward, these challenging conditions are likely to create opportunities
during 2008 to acquire assets for good value and we remain positive about the
Group's prospects.
Duncan Owen
Chief Executive, Invista Real Estate Investment Management Limited
23 November 2007
INVISTA FOUNDATION PROPERTY TRUST LIMITED
Interim Report, unaudited as at 30 September 2007
--------------------------------------------------
Condensed Income Statement
(unaudited) for the period from 1 April 2007 to 30 September 2007
Six months Six months Year to
to to
30/09/2007 30/09/2006 31/03/2007
Notes £'000 £'000 £'000
---------------------------- ------- --------- --------- ---------
Rental income 14,799 14,760 30,701
Other income 353 1,019 1,459
Property operating expenses (810) (452) (882)
---------------------------- ------- --------- --------- ---------
Net rental and related income 14,342 15,327 31,278
---------------------------- ------- --------- --------- ---------
Profit on disposal of investment
property 1,097 1,648 6,075
---------------------------- ------- --------- --------- ---------
Net valuation (loss)/gain on
investment property (4,397) 25,116 44,267
---------------------------- ------- --------- --------- ---------
Expenses
Investment management fee (3,497) (3,175) (6,423)
Performance fee - (3,000) (11,437)
Valuers' and other professional
fees (676) (309) (525)
Administrators and accounting fee (314) (111) (261)
Audit fee (78) (86) (163)
Directors' fees (95) (74) (177)
Other expenses (108) (69)
---------------------------- ------- --------- --------- ---------
Total expenses (4,768) (6,755) (19,055)
---------------------------- ------- --------- --------- ---------
Net operating profit before net
finance costs 6,274 35,336 62,565
Interest receivable 1,041 1,041 1,767
Interest payable (7,070) (5,701) (11,355)
---------------------------- ------- --------- --------- ---------
Net finance costs (6,029) (4,660) (9,588)
Share of (loss)/profit in
associates (5,012) 26,110 44,421
Loss from sale of associate (674) - -
---------------------------- ------- --------- --------- ---------
(Loss)/profit before tax (5,441) 56,786 97,398
---------------------------- ------- --------- --------- ---------
Taxation (83) (53) (690)
---------------------------- ------- --------- --------- ---------
(Loss)/profit for the period/year attributable to the equity
holders of the parent -------
---------------------------- (5,524) 56,733 96,708
--------- --------- ---------
---------------------------- -------
Basic and diluted earnings per
share 3 (1.6p) 16.0p 27.4p
---------------------------- ------- --------- --------- ---------
All items in the above statement are derived from continuing operations.
The accompanying notes form an integral part of the financial statements.
INVISTA FOUNDATION PROPERTY TRUST LIMITED
Interim Report, unaudited as at 30 September 2007
-------------------------------------------------
Condensed Balance Sheet
(unaudited) as at 30 September 2007
30/09/2007 30/09/2006 31/03/2007
Notes £'000 £'000 £'000
Investment
property 607,850 563,211 629,380
Investment
property under
development 8,650 - 4,337
Investment in
associates and
joint ventures 5 56,697 91,062 83,671
Interest rate
swap 1,734 - 3,163
----------------------- ---- ------- --------- --------- ---------
Non-current
assets 674,931 654,273 720,551
----------------------- ---- ------- --------- --------- ---------
Trade and
other
receivables 7,477 5,066 7,935
Taxation paid
in advance - 225 -
Cash and cash
equivalents 78,758 25,404 24,548
----------------------- ---- ------- --------- --------- ---------
Current assets 86,235 30,695 32,483
----------------------- ---- ------- --------- --------- ---------
Total assets 761,166 684,968 753,034
======================= ==== ======= ========= ========= =========
Issued capital
and reserves 484,936 470,009 502,652
----------------------- ------ -------- --------- --------- ---------
Equity 484,936 470,009 502,652
----------------------- ------ -------- --------- --------- ---------
Interest-beari
ng loans and
borrowings 259,298 190,050 149,270
Interest rate
swap - 1,437 -
----------------------- ------ -------- --------- --------- ---------
Non-current
liabilities 259,298 191,487 149,270
----------------------- ------ -------- --------- --------- ---------
Interest-beari
ng loans and
borrowings - - 69,018
Trade and
other payables 16,220 19,532 31,910
Taxation
payable 712 - 184
Provisions - 3,940 -
----------------------- ------ -------- --------- --------- ---------
Current
liabilities 16,932 23,472 101,112
Total
liabilities 276,230 214,959 250,382
----------------------- ------ -------- --------- --------- ---------
Total equity
and
liabilities 761,166 684,968 753,034
======================= ====== ======== ========= ========= =========
----------------------- ------- -------- --------- --------- ---------
Net Asset
Value per
Ordinary Share 6 137.2p 132.9p 142.2p
----------------------- ------- -------- --------- --------- ---------
The financial statements were approved at a meeting of the Board of Directors held on 23 November
2007 and signed on its behalf by:
------------------------------- ---------------------------
A Sykes, Director, (Chairman) H Dick-Cleland, Director
The accompanying notes form an integral part of the financial statements.
INVISTA FOUNDATION PROPERTY TRUST LIMITED
Interim Report, unaudited as at 30 September 2007
--------------------------------------------------
Condensed Statement of Changes in Equity
(unaudited) for the period from 1 April 2006 to 30 September 2006
Notes Share Hedge Revenue Total
premium reserve reserve
£'000 £'000 £'000 £'000
------------------------------ ------ -------- ------- ------- --------
Balance as at
31 March 2006 98,356 (3,875) 328,290 422,771
Gain on cash
flow hedge - 2,438 - 2,438
Profit for the
period - - 56,733 56,733
Dividends paid - - (11,933) (11,933)
------------------------------ ------ -------- ------- -------- --------
Balance as at
30 September
2006 98,356 (1,437) 373,090 470,009
(unaudited) for the year ended 31 March 2007 and for the period from 1 April 2007 to 30
September 2007
Notes Share Hedge Revenue Total
premium reserve reserve
£'000 £'000 £'000 £'000
------------------------------ ------ -------- ------- -------- --------
Balance as at
31 March 2006 98,356 (3,875) 328,290 422,771
Gain on cash
flow hedge - 7,038 - 7,038
Profit for the
year - - 96,708 96,708
Dividends paid - - (23,865) (23,865)
------------------------------ ------ -------- ------- -------- --------
Balance as at
31 March 2007 98,356 3,163 401,133 502,652
Loss on cash
flow hedge - (1,429) - (1,429)
Loss for the
period - - (5,524) (5,524)
Unrealised
gain on
investment
property under
development - - 1,170 1,170
Dividends paid 4 - - (11,933) (11,933)
------------------------------ ------ -------- ------- -------- --------
Balance as at
30 September
2007 98,356 1,734 384,846 484,936
------------------------------ ------ -------- ------- -------- --------
The accompanying notes form an integral part of the financial statements.
INVISTA FOUNDATION PROPERTY TRUST LIMITED
Interim Report, unaudited as at 30
September 2007
--------------------------- -------- -------- --------
Condensed Statement of Cash Flows
(unaudited) for the year end 31 March 2007 and for the period from
1 April 2007 to 30 September 2007
Six months Six months Year to
to to
30/09/2007 30/09/2006 31/03/2007
Operating activities Notes £'000 £'000 £'000
---------------------- ------- --------- --------- ---------
(Loss)/profit for the period/year (5,524) 56,733 96,708
Adjustments for:
Profit on disposal of investment
property (1,097) (1,648) (6,075)
Net valuation loss/(gain) on
investment property 4,397 (25,116) (44,267)
Share of loss/(profit) of
associates 5,012 (26,110) (44,109)
Loss on sale of associate 674 - -
Net finance cost 6,029 4,660 9,588
Taxation 82 53 690
--------------------------- --------- --------- ---------
Operating profit before changes in working
capital and provisions 9,573 8,572 12,535
Decrease/(increase) in trade and
other receivables 464 768 (1,914)
(Decrease)/increase in trade and
other payables (11,887) (2,640) 5,554
---------------------- ------- --------- --------- ---------
Cash (required for)/generated
from operations (1,849) 6,700 16,175
Interest paid (5,409) (4,374) (10,500)
Interest received 1,041 1,030 1,573
Tax paid - (48) (276)
--------------------------- --------- ---------
Cash flows from operating
activities (6,217) 3,308 6,972
---------------------- ------- --------- --------- ---------
Investing Activities
Proceeds from sale of investment
property 18,880 5,080 30,394
Acquisition of investment
property (8,256) (22,450) (94,453)
Proceeds from sale of associate 21,080 - -
Acquisition of associates - (33,401) (7,675)
Loan to associate - 6,549 6,549
---------------------- ------- --------- --------- ---------
Cash flows from investing
activities 31,704 (44,222) (65,185)
---------------------- ------- --------- --------- ---------
Financing Activities
Draw down of loan facility 111,000 41,009 69,018
Payback of existing loans (69,080) - -
Finance costs paid (1,265) (366) -
Dividends paid 4 (11,933) (11,933) (23,865)
---------------------- ------- --------- --------- ---------
Cash flows from financing
activities 28,722 28,710 45,153
---------------------- ------- --------- --------- ---------
Net increase/(decrease) in cash
and cash equivalents for the -------
period/year 54,210 (12,204) (13,060)
---------------------- --------- --------- ---------
---------------------- -------
Opening cash and cash equivalents 24,548 37,608 37,608
---------------------- ------- --------- --------- ---------
Closing cash and cash equivalents 78,758 25,404 24,548
---------------------- ------- --------- --------- ---------
NOTES TO THE INTERIM REPORT
1. Significant accounting policies
The Invista Foundation Property Trust Limited ('the Company') is a closed-ended investment
company incorporated in Guernsey. The condensed financial statements of the Company for the
period ended 30 September 2007 comprise the Company, its subsidiaries and its interests in
associates (together referred to as the 'Group').
Statement of compliance
The condensed interim financial statements have been prepared in accordance with the
Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and
International Financial Reporting Standards ('IFRS') IAS 34 Interim Financial Reporting.
They do not include all of the information required for the full annual financial
statements, and should be read in conjunction with the consolidated financial statements of
the Group as at and for the year ended 31 March 2007. The financial statements have been
prepared on the basis of the accounting policies set out in the Group's annual financial
statements for the year ended 31 March 2007. The Group's annual financial statements refers
to new Standards and Interpretations none of which had a material impact on the financial
statements.
2. Material agreements
Under the terms of an appointment made by the Board on 24 June 2004, Insight Investment
Management (Global) Limited was appointed as Investment Manager to the Company.
On 31 August 2006 the Board agreed to novate the Investment Management Agreement to Invista
Real Estate Investment Management Limited. This follows the de-merger of the Investment
Manager from Insight Investment and its subsequent independent listing on the Alternative
Investment Market.
The Investment Manager is entitled to a base fee and a performance fee together with
reasonable expenses incurred by it in the performance of its duties. The base fee is equal
to one quarter of 95 basis points of the gross assets of the Group per quarter.
In addition, and subject to the conditions below, the Investment Manager is entitled to an
annual performance fee where the total return per ordinary share during the relevant
financial period exceeds an annual rate of 10 per cent (the "performance hurdle"). Where the
performance hurdle is met, a performance fee will be payable in an amount equal to 15 per
cent of any aggregate total return over and above the performance hurdle. A performance fee
will only be payable where: (i) in respect of the relevant financial period, the total
return of the underlying assets meets or exceeds the Investment Property Databank ("IPD")
Monthly Index balanced funds benchmark on a like for like basis; and (ii) the annualised
total return over the period from admission of the Company's Ordinary Shares to the end of
the relevant financial period is equal to or greater than 10 per cent per annum.
The NAV announced in July 2007 for the period from 1 April 2007 to 30 June 2007 included a
provision of £1.5m as an estimate of the Investment Manager's performance fee. Due to the
fall in the NAV over the quarter to 30 September 2007 the provision has been removed.
The Investment Management Agreement may be terminated by either the Company or the
Investment Manager on not less than twelve months notice in writing.
The Board appointed Invista Real Estate Investment Management Limited as the Accounting
Agent to the Company from 1 April 2007. The Accounting Agent is entitled to a fee equal to 5
basis points of net asset value subject to a minimum annual fee of £250,000.
The Board appointed Northern Trust International Fund Administration Services (Guernsey)
Limited as the Administrator to the Company from 25 July 2007. The Administrator is entitled
to an annual fee equal to £120,000.
3. Basic and diluted earnings per share
The basic and diluted earnings per share for the Group is based on the net loss for the
period of (£5,524,318), (March 2007: profit £96,708,000) (September 2006: profit
£56,733,000) and the weighted average number of Ordinary Shares in issue during the period
of 353,560,000 (March 2007: 353,560,000) (September 2006: 353,560,000).
4. Dividends paid
01/04/2007
No. of To
In respect of Ordinary Rate 30/09/2007
Shares (pence) £'000
----------------------------------- --------- -------- ---------
Quarter 31 March 2007 dividend
paid 18 May 2007 353.56 1.6875 5,967
million
Quarter 30 June 2007 dividend
paid 17 August 2007 353.56 1.6875 5,966
----------------------------------- million -------- ---------
---------
3.375 11,933
----------------------------------- --------- -------- ---------
01/04/2006
No. of To
In respect of Ordinary Rate 30/09/2006
Shares (pence) £'000
----------------------------------- --------- -------- ---------
Quarter 31 March 2006 dividend
paid 26 May 2006 353.56 1.6875 5,967
million
Quarter 30 June 2006 dividend
paid 25 August 2006 353.56 1.6875 5,966
----------------------------------- million -------- ---------
---------
3.375 11,933
----------------------------------- --------- -------- ---------
01/04/2006
No. of To
In respect of Ordinary Rate 31/03/2007
Shares (pence) £'000
----------------------------------- --------- -------- ---------
Quarter 31 March 2006 dividend
paid 26 May 2006 353.56 1.6875 5,966
million
Quarter 30 June 2006 dividend
paid 25 August 2006 353.56 1.6875 5,966
million
Quarter 30 September 2006
dividend paid 24 November 2006 353.56 1.6875 5,966
million
Quarter 31 December 2006 dividend
paid 18 February 2007 353.56 1.6875 5,967
----------------------------------- million -------- ---------
---------
6.7500 23,865
----------------------------------- --------- -------- ---------
5. Investment in Associates and Joint Ventures
Mid City Place, London WC1
In August 2005, the Group, through Invista Foundation (Mid City ) Limited, invested equity
and subordinated debt of £9,917,000 for a 19.725% shareholding in DV3 Mid City Limited, a
company incorporated in the British Virgin Islands and which owns the Mid City Place
property in London.
As at 31 March 2007 the value of the Group's investment in DV3 Mid City Limited was valued
at £22,751,000. In August 2007 the Group sold its investment in DV3 Mid City Limited for
£22,077,000. Losses in the period to sale were £799,660.
Plantation Place, London EC3
One Plantation Place Unit Trust had total assets of £644,529,175 (31 March 2007:
£651,656,207), total liabilities of £468,495,715, (31 March 2007: £464,024,645) losses for
the six month period ended 30 September 2007 were £3,256,304 (30 September 2006: profit
£1,555,000).
As at 30 September 2007 the Group's 28.08% interest in One Plantation Place Unit Trust was
valued at £49,430,196 (31 March 2007: £52,687,000), taking into account losses during the
period.
Crendon Industrial Estate
Crendon Industrial Partnership Limited had total assets of £33,568,863 (31 March 2007:
£32,552,290), total liabilities of £29,112,832 (31 March 2007: £28,281,161), losses for the
six month period ended 30 September 2007 were £630,560 (30 September 2006: £nil).
As at 30 September 2007 the Group's 50% share in a joint venture company established to
acquire Crendon Industrial Estate, near Oxford was valued at £4,602,440 (31 March 2007:
£5,233,000), taking into account losses during the period.
Merchant Properties Unit Trust
Merchant Properties Unit Trust had total assets of £34,858,655 (31 March 2007: £40,505,581),
total liabilities of £21,138,067 (31 March 2007: £25,057,589), losses for the six month
period ended 30 September 2007 were £325,990 (30 September 2006: £nil).
As at 30 September 2007 the Group's 19.42% equity investment amounts to £2,664,010 (31 March
2007: £3,000,000), taking into account losses during the period.
6. Net asset value per Ordinary Share
The net asset value per Ordinary Share is based on the net assets of £484,936,078 (March
2007: £502,652,000) (September 2006: £480,009,000) and 353,560,000 Ordinary Shares in issue
at the balance sheet date.
7. Post balance sheet events
Since 30 September 2007 the Company has purchased 2,171,048 of its own shares of nil par
value for cancellation at an average price of 82 pence per share (March 2007: 353,560,000)
(September 2006: 353,560,000).
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