16 Jul 2009 07:05
Treveria plc
("Treveria" or the "Group")
16 July 2009
Trading update
Treveria plc (AIM: TRV), the German retail focused real estate investment company, today provides a trading update ahead of its unaudited results for the six months ended 30 June 2009 which it intends to announce on 29 September.
This announcement is intended to provide investors with an update on the Group's latest position as well as an update on activities following a period in which there have been a number of well publicised corporate failures on the German High Street and where trading conditions have become increasingly difficult.
Property Acquisitions, Sales and Valuation
The Group made no new property acquisitions during the first half of 2009.
In the first half of 2009 the Group notarised contracts to sell three properties located in Duisburg, Köln and Oldenburg for a gross consideration of EUR6.2 million.
In accordance with the Group's standard policies, DTZ Debenham Tie Leung is carrying out a valuation of the portfolio as at 30 June 2009 and this will be reflected in the Group's unaudited results. Early indications during the first half of the year are that secondary retail values in Germany have fallen at a faster rate in 2009 than in 2008.
Cash Balances
As at 30 June 2009, approximately EUR85 million of cash was held at parent company level by Treveria plc to which the subsidiaries have no recourse. At the same date, the Group had overall cash balances, including amounts in blocked accounts for the payment of interest, totalling about EUR132million. Equivalent cash balances at the end of 2008 were EUR81 million and EUR146 million, respectively.
Banking Facilities
As previously reported, the Group's first Deutsche/Citibank facility and its EuroHypo facility remain in cash trap as at 15 July 2009, whereby surplus cash from the underlying assets after the payment of interest remains within each ring-fenced facility and is not available for other Group purposes. The debt service cover ratio on a third bank facility has fallen below the required level on a twelve month 'look forward' test following notice from C&A that they will not be extending their lease options at six stores. Please see the asset management section for more details. The remaining two facilities are not in cash trap as at 15 July 2009.
Interest cover/debt service cover ratios have declined during the first half as the tenant failures noted below take effect and also reflect an increase in tenant arrears and irrecoverable costs. In addition, agreement has been reached in relation to a number of existing leases to charge lower rents to avoid losing the tenant altogether. The level of cover reported was between 121% and 152% in each debt silo according to the most recent quarterly reports, compared to hard breach covenants of between 110% and 125% and 'cash trap' covenants of between 125% and 145%. The overall expected loss of income per annum resulting from tenant failures during the first half of 2009 is circa EUR5.9 million, representing about 3.9% of the rent roll. Of this decrease, approximately EUR2.5 million has been reflected in the annualised rental income as at 30 June 2009 reported below with the balance expected to take effect in the second half of 2009.
Discussions have been held with representatives of the banks from the cash trapped property silos in order to minimise the cost to Treveria plc of supporting them, and these discussions continue. A further update will be provided to shareholders in September.
The Group's total bank loans, before adjusting for capitalised finance charges, have been reduced to EUR1,719 million as at 30 June 2009 from EUR1,737 million as at 31 December 2008. This reduction was due mainly to sales completing during the period as well as amortisation.
The current weighted average interest rate inclusive of margin on the Group's loan facilities is now approximately 4.9 percent, down from around 5.1 per cent at the end of 2008. This reduction is due to lower floating rates on the circa 6 per cent of loans that are at floating rates with interest rate caps.
Asset Management
During the first half of 2009, the asset management team made progress in securing 144 new leases and lease extensions across the portfolio attracting an annual rental income of EUR5.4 million. This represents a decrease in overall rental income of approximately EUR0.2 million when compared to the previous leases in place. The total annualised gross rental income from the portfolio was circa EUR150.4 million as at 30 June 2009 compared to EUR152.7 million at the end of 2008.
In addition to the insolvencies of Hertie and Sinn Leffers in 2008, Deutsche Woolworth and Arcandor have both fallen into administration in the first half of 2009. Treveria has a rent roll exposure of, in aggregate, EUR2.5 million spread across eight locations to these two tenants. Further, C&A have given notice that they will not take lease extension options at six stores within the Group. The leases will end between December 2009 and July 2010 with a consequent further loss of rent of EUR3.1 million per annum.
Treveria Asset Management GmbH (TAMG) has taken over all responsibility for new lettings and lease renewals from Cushman & Wakefield. To resource these new responsibilities, TAMG has recruited an additional six senior asset managers who will operate out of offices in Hamburg, Düsseldorf and Munich. The internalisation of this function removes the obligation for the Group to pay fees to a third party for lettings. The asset management team's main priorities are to defend and enhance the rental income and to minimise the irrecoverable costs within the portfolio.
Outlook
While the asset management team is agreeing new lettings in the portfolio, tough trading conditions continue and management remains cautious for the second half of 2009, both in respect to the risk of tenant failures and to absolute rent levels. In addition, void levels are likely to increase within the portfolio over the next 12 months as tenants opt to reduce their overall space requirements or to move to competing schemes.
The strengthened internal management team is focused on the active management of the portfolio as well as the ongoing negotiations with the Group's financing banks to ensure shareholder value is optimised.
Enquiries:
Treveria Asset Management Limited +44 20 7960 6525
Damian Wisniewski / Chris Kingham
Numis Securities Limited (NOMAD to the Company) +44 20 7260 1000
Nick Westlake / Hugh Jonathan
Financial Dynamics +44 20 7831 3113
Stephanie Highett / Richard Sunderland / Laurence Jones