14 Sep 2015 08:33
14 September 2015
INVISTA EUROPEAN REAL ESTATE TRUST SICAF
(the "Company")
Announcement of Enforcement of Security by the Company's Lenders and Interim Management Statement
The Board of the Company announces that, following the expiry of the standstill agreement in relation to certain ongoing events of default with regard to the mezzanine loan facility provided by Islay Investment S.à r.l., an affiliate of Blackstone Real Estate Debt Strategies, ("Islay" or the "Mezzanine Lender"), Islay has today called for repayment of the mezzanine loans by Invista European Real Estate Holdings S.à r.l. ("IEREH"). Since IEREH has not been able to repay the loans, Islay has called on the guarantee of the loans by the Company and, since in turn the Company has not been able to pay the amounts guaranteed, Islay has enforced its security, by way of sale to Artillery Investments S.à r.l., TTNYR Limited, TTNYR Artillery LLP and DPK Artillery LLP (together, the "Purchasers"), over the Company's entire interests in IEREH, Invista European Real Estate Finance S.à r.l. and Invista European RE Pocking PropCo S.à r.l. (the "Subsidiaries") and any other interests (including intra-group loans) held by the Company (the "Enforcement"). The Enforcement involves the transfer of the shares and all debt interests held by the Company in each Subsidiary to the Purchasers.
The Enforcement followed a process as part of the strategic review conducted by Eastdil Secured LLC through which the Company had explored the sale or refinancing of its property portfolio. All proposals received by the Company, both before and after the adverse developments in respect of prospective future rental income, implied a valuation of the Company's properties materially lower than the most recent ones made by Savills, on which the Company's reporting is based, including the unaudited Net Asset Value referred to below. This may have reflected, inter alia, factors such as contingent tax, the complexity and cost of the group's corporate structure and the circumstances of any possible sale, which may have differed from those assumed in the Savills valuation. Although the Mezzanine Lender actively supported the Company's efforts to conclude a transaction, those efforts were ultimately unsuccessful and consequently, in the light of (amongst other things) increasing projected cash shortfalls, it decided to enforce its security by way of sale in a manner which left the Company solvent, but without any value to distribute to shareholders. As a result, the Company intends to seek the approval of ordinary shareholders for a voluntary liquidation.
Following the Enforcement, although the Company has been released from any further liability under its guarantee and will remain solvent, it expects that there will be no value for distribution to either ordinary or preference shareholders. The Company therefore intends, in due course, to publish a shareholder circular convening an extraordinary general meeting at which shareholder approval will be sought for the de-listing and voluntary liquidation of the Company.
Interim Management Statement
Pursuant to the requirement under Luxembourg law to make an Interim Management Statement in respect of the period since 31 March 2015, the Company is now providing the following information. As at 30 June 2015, the Company's unaudited Net Asset Value calculated using International Financial Reporting Standards and adjusted to add back deferred tax was €0.025 (£0.018) per share, reflecting a decrease of €0.064 or 71.91% over the quarter and £0.046 or 71.88% in Sterling. The unaudited Net Asset Value, calculated under International Financial Reporting Standards, was €0.021 per share.
The unaudited Net Asset Value reflects a decrease in property valuation on a quarterly basis by €5.7 million or €0.02 per share. The Company's unaudited Net Asset Value figure incorporates the independent property portfolio valuation by Savills as at 30 June 2015.
Key events during the quarter and post quarter end were:
· Portfolio valuation decreased by 3.82% over the quarter (2.54% on a like for like basis) to €226.15 million.
· During the quarter two assets were sold: Heusenstamm in Germany and Girona in Spain, for aggregate net proceeds of €35 million.
· Post quarter end, the Pocking property in Germany was sold for €13 million.
· Post quarter end, the Company received notification of the application of default interest, which stood at a balance of €790,417.97 outstanding as at 30 June 2015 which is €0.003 per share.
· A tenant default and the unexpected exercise of lease breaks led to a material reduction, in the absence of new lettings, in forecast rental income in 2016.
· The previously announced strategic review was affected by these adverse developments and proposals received for the acquisition of the Company's property portfolio or its refinancing indicated that no material value would be left for ordinary or preference shareholders.
· The Mezzanine Lender subsequently enforced its security over the Company's property portfolio, leaving the Company solvent but without any expected value for shareholders.
As at 30 June 2015, the Company's property portfolio was valued by Savills at €226.15 million and comprised 26 assets located in three countries. The portfolio value decreased over the quarter by 2.54% or €5.90 million on a like for like basis. As at 30 June 2015, the Company's portfolio generated gross income of €18.4 million per annum, representing a gross income yield of 8.17% and a net income yield of 6.97%. The portfolio weighted average lease term to break was 3.52 years and 6.17 years to expiry. The portfolio void level by income as at 30 June 2015 was 17.3%.
Post quarter end and as announced by the Company on 13 July 2015, a tenant default as well as the unexpected exercise of lease breaks brought about a material decline in the portfolio's revenue generation, which, combined with forecast rent reductions as a result of ongoing lease negotiations and previously foreseen tenant breaks, as well as the sale of the Pocking property, led to a forecast annual gross rental income as at 1 January 2016 of €13.6 million. The forecast portfolio vacancy as at 1 January 2016 also increased to 26%.
As at 30 June 2015, the Company had drawn down a total of €181.4 million of senior and mezzanine debt, which was reduced to €168,712,132.24 post the quarter end as a result of the completion of property sales. As reported in the Announcement of Half Yearly Results and Unaudited NAV published on 29 May 2015, the Company had been in an ongoing event of default in relation to the Interest Cover and Projected Debt Yield Covenants of the Mezzanine Loan Facility. In respect of these ongoing events of default, the Mezzanine Lender issued the Company with a Standstill letter, in which the events of default were not waived, but the Mezzanine Lender stated that it would not take any action as a result of them. These standstills were renewed periodically throughout the quarter and post quarter end and expired at 23.59 p.m. BST on 13 September 2015, following which the Mezzanine Lender enforced its security by way of sale, thereby extinguishing the outstanding level of debt and leaving the Company without any borrowings and solvent, but without any expected value for shareholders.
The Enforcement followed a process as part of the strategic review conducted by Eastdil Secured LLC through which the Company had explored the sale or refinancing of its property portfolio. All proposals received by the Company, both before and after the adverse developments in respect of prospective future rental income, implied a valuation of the Company's properties materially lower than the most recent ones made by Savills, on which the Company's reporting is based, including the unaudited Net Asset Value referred to above. This may have reflected, inter alia, factors such as contingent tax, the complexity and cost of the group's corporate structure and the circumstances of any possible sale, which may have differed from those assumed in the Savills valuation. Although the Mezzanine Lender actively supported the Company's efforts to conclude a transaction, those efforts were ultimately unsuccessful and consequently, in the light of (amongst other things) increasing projected cash shortfalls, it decided to enforce its security by way of sale in a manner which left the Company solvent, but without any value to distribute to shareholders. As a result, the Company intends to seek the approval of ordinary shareholders for a voluntary liquidation.
For further information, please contact:
Tom Chandos
Chairman, Invista European Real Estate Trust SICAFc/o Internos Global Investors +44 20 7355 8800