18 Aug 2010 07:00
18 August 2010
INVISTA EUROPEAN REAL ESTATE TRUST SICAF
(the "Company"/ "Group")
ANNOUNCEMENT OF NAV AND INTERIM MANAGEMENT STATEMENT FOR THE QUARTER ENDED 30 JUNE 2010
Net Asset Value
As at 30 June 2010, the Company's unaudited Net Asset Value ('NAV'), calculated using International Financial Reporting Standards and adjusted to add back the change in fair value of the warrants and deferred tax, was €0.536 (43.4p) per share, reflecting a decrease of €0.019 or -3.4% over the quarter. The unaudited Net Asset Value, calculated under International Financial Reporting Standards, was €0.510 per share.
A breakdown of the unaudited Net Asset Value is set out below:
| € million | As at 30 June 10 | As at 31 Mar 10 | 3 month change | 3 month change (%) |
| Property portfolio |
|
|
|
|
| Independent valuation (including sales) | 510.4 | 514.8 | -4.4 | -0.9 |
| Valuation of properties sold | - | 8.0 | -8.0 | - |
| Like for like property portfolio | 510.4 | 506.8 | +3.6 | +0.7 |
| Net current assets | 37.8 | 35.0 | +2.8 | +8.3 |
| Market value of swaps | (32.8) | (30.5) | -2.3 | -7.5 |
| Senior debt | (341.9) | (344.5) | +2.6 | +0.8 |
| Preference shares | (32.1) | (29.4) | -2.7 | -9.2 |
| Market value of warrants | (2.3) | (3.1) | +0.8 | +25.8 |
| Net deferred tax liabilities | (6.5) | (6.0) | -0.5 | -8.3 |
| Net Asset Value | 132.6 | 136.3 | -3.7 | -2.7 |
| Adjusted Net Asset Value1 | 139.4 | 144.3 | -4.9 | -3.4 |
| Adjusted Net Asset Value per Ordinary share €1 | 0.536 | 0.555 | -0.019 | -3.4 |
| Adjusted Net Asset Value per Ordinary share on a fully diluted basis €1, 2 | 0.518 | 0.532 | -0.014 | -2.6 |
| Net Asset Value per Preference share €3 | 1.24 | 1.14 | +0.098 | +8.6 |
| Number of Ordinary shares4 | 259,976,943 | 259,948,949 | +27,994 |
|
1 NAV adjusted to add back deferred tax (both current and non-current liabilities) and change in fair value of the warrants from book value
2 Assumes all warrants are exercised at 29p per share and that the fully diluted number of Ordinary shares is 289,086,083
3 The NAV for Preference shares is equal to the nominal value plus accrued interest divided by the total number of Preference shares
4 The number of Ordinary shares increased due to 27,994 warrants exercised in the quarter
The unaudited NAV incorporates a number of events and key factors during the quarter ended 30 June 2010 including:
§ The like for like property portfolio valuation increased by €3.6 million, or €0.01 per share;
§ The adverse movement in the mark-to-market valuation of the Company's interest rate and foreign exchange swaps contributed to a decrease in NAV of €2.3 million, equating to €0.01 per share;
§ After having deducted the foreign exchange gain of €1.8 million on the GBP cash balance, the net effect of the increase in preference share liability due to GBP:EUR exchange rate fluctuations and amortization is €0.9 million, equating to €0.01 per share.
§ A decrease in senior debt of €2.6 million, or €0.01 per share, due to a net repayment made in the quarter.
The Company's unaudited NAV figure incorporates the external property portfolio valuation as at 30 June 2010. The property portfolio will next be valued by an external valuer as at 30 September 2010.
Figures converted into Sterling assume a GBP:EUR exchange rate of 1.2341 as at 30 June 2010 (1.1198 as at 31 March 2010).
Property Portfolio
As at 30 June 2010, the Company's property portfolio was valued at €510.4 million and comprised 43 assets (excluding one asset conditionally committed to acquire in Girona, Spain). This compares with the property portfolio as at 31 March 2010, which comprised 44 assets valued at €514.8 million. The like-for-like increase in the property valuation over the quarter (excluding the committed asset and disposals over the three month period to 30 June 2010) was 0.7%, an increase of €3.6 million. The Company sold one office property in Brussels, Belgium for €7.7 million during the quarter, with net proceeds from the sale used to pay down senior debt.
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As at 30 June 2010, the Group's portfolio generated gross income of €42.5 million per annum, representing a Gross Income Yield ("GIY") of 8.20% and a Net Initial Yield ("NIY") of 7.56%. This excludes vacant accommodation which, as at 30 June, stood at 7.79% by income. Should this vacancy be leased the NIY would rise to 8.26%.
The portfolio's credit rating as measured by Experian in December 2009 was 61 out of 100, which is classified as "normal creditworthiness".
As at 30 June 2010 the portfolio composition was as:
Sector Weightings
| Sector | %* |
| Office | 27.4% |
| Logistics | 56.2% |
| Retail | 16.4% |
| Total | 100.0% |
*Percentage of aggregate asset value (including committed asset) as at 30 June 2010
Country Weightings
| Country | %* |
| France | 46.3% |
| Germany | 38.6% |
| Spain | 5.3% |
| Netherlands | 3.7% |
| Belgium | 3.0% |
| Czech Republic | 1.8% |
| Poland | 1.3% |
| Total | 100.0% |
*Percentage of aggregate asset value (including committed asset) as at 30 June 2010
Top 10 Properties
| Property Location | Sector | %* |
| Heusenstamm, Frankfurt, Germany | Office | 12.7% |
| Riesa, Germany | Retail | 9.1% |
| Lutterberg, Germany | Logistics | 5.2% |
| Cergy, Paris, France | Office | 4.9% |
| Madrid, Spain | Logistics | 3.4% |
| Roth, Germany | Retail | 3.2% |
| Grenoble, France | Office | 3.1% |
| Trappes, Paris, France | Logistics | 3.0% |
| Marseille, France | Logistics | 2.9% |
| Monteux, France | Logistics | 2.9% |
| Total |
| 50.4% |
*Percentage of aggregate asset value plus cash (including committed asset) as at 30 June 2010
Top 10 Tenants
| Tenant Name | %* |
| Norbert Dentressangle | 16.9% |
| Deutsche Telekom | 13.3% |
| DHL | 8.7% |
| Schenker Logistics | 4.1% |
| Valeo | 3.9% |
| Carrefour | 3.6% |
| AVA Marktkauf | 2.9% |
| Real SB-Warenhaus | 2.6% |
| SDV Logistique | 2.4% |
| Nature & Découvertes | 2.3% |
| Total | 60.7% |
* Percentage of aggregate gross rent (including committed asset) as at 30 June 2010
Market Context
The recovery of the Euro zone economy continued in Q2 2010, but with annualised GDP growth at only 0.6%, it remains below trend and fragile. Indicators of future economic activity have weakened suggesting that economic growth could decelerate again in the short-term. Following the turbulence in sovereign debt markets caused by Greece's unstable public finances, European governments are committing to increasingly severe austerity packages aimed at reducing fiscal deficits.
Despite concerns about the economic outlook, Continental European property capital values now appear to be stabilising and in some segments rising. Prime assets in the most liquid markets such as Paris are leading in the capital growth cycle and, while secondary markets and assets are generally stable, there is some evidence that 'near-prime' assets are now also attracting increased investor interest. Outside the 'core Euro zone' of Benelux, France and Germany, investor activity is far more patchy and, as a result, property values are in some cases still falling. Ongoing structural debt issues in Greece, Ireland, Portugal and Spain are also weighing heavily on property investor sentiment in these markets; although to an extent investors are encouraged by record low swap rates and relatively attractive returns on equity.
We expect property total returns to increase in 2010 as a result of improved investor demand and in spite of continuing weakness in rents across most segments of the market. Income returns are expected to be the principal driver of performance in the short to medium, placing increased emphasis on the capable and active asset management of portfolios and meaning that higher-yielding markets such as France and Netherlands, and the logistics sector generally, may outperform the wider market.
Active Asset Management
As reported in the half year accounts, the Company disposed of a €7.7m office asset in Brussels, Belgium in April 2010. More recently, the Company sold a logistics property in Cabries, France for a price which was 27.3% above the March 2010 valuation; this sale generated total sales proceeds of €2.75 million. Proceeds from both sales have been used to reduce senior debt, undertake further de-leveraging and return surplus equity to cash reserves.
The overriding objective of the Company continues to be a) to reduce debt and debt costs b) strengthen the balance sheet and achieve a reduction in LTV and c) to improve sustainable and recurring net cash income over the long term to enable the resumption of an ordinary dividend.
Progress continues to be made to improve the quality and duration of rental revenue across the portfolio and the weighted average lease length to expiry is again up, from 6.26 yrs in March to 6.39 yrs in June. Active negotiations to re-gear existing leases and let up vacant accommodation has also resulted in a lower portfolio vacancy rate and increased rental income this quarter.
Two new short term leases were signed on a total of 16,847 sqm logistics property in France generating an additional €0.6 million of income over the next six months with the objective of extending the leases onto a long term basis. In addition, terms have also been agreed to lease 11,651 sqm of logistics accommodation across three sites in France, generating a further €0.7 million of rental income per annum. Portfolio level vacancy fell during the quarter from 8.06% in March 2010 to 7.79% in June 2010 as a result of the short term leases signed during the period. Including the additional long term leases would further reduce portfolio vacancy to 6.22%, however these new leases will take effect during Q4 2010 and Q1 2011 and so will not be included in these calculations until the appropriate time.
Terms are now being finalised with the developer of the committed asset in Girona, Spain to complete the purchase of the 13,202 sqm logistics property. The purchase commitment was agreed in December 2005 and the strike price is therefore higher than the current valuation. As a consequence, the purchase will have a negative impact on NAV. The property is however fully income producing and generates a NIY on current valuation of 9.43%.
Finance
As at 30 June 2010, the Company had drawn down a total of €345.6 million of senior debt in respect of its €359.3 million facility with the Bank of Scotland and its €12.0 million facility with Credit Foncier. In addition, the Company had cash balances of €56.1 million (excluding tenant deposits of €4.4 million) at that date, giving a net debt position of €289.5 million.
The Company's gross Loan To Value ("LTV") ratio as at 30 June 2010 was 67.7%. The Company's gross LTV under the Finance Documents with the Bank of Scotland was 67.9% against an LTV covenant of 85% in 2010. The Company's net debt LTV was 56.7% as at 30 June 2010.
All debt is fully hedged against changes in European interest rates until December 2013, giving a total interest cost of 6.58% per annum (at current LTV levels).
For further information, please contact:
Invista Real Estate Investment Management
Tony Smedley/Chris Ludlam +44 20 7153 9369
Financial Dynamics
Dido Laurimore/Rachel Drysdale/Olivia Goodall + 44 20 7831 3113