12 Feb 2009 07:00
INVISTA EUROPEAN REAL ESTATE TRUST SICAF (the "Company"/"Group")
ANNOUNCEMENT OF NAV AND INTERIM MANAGEMENT STATEMENT
FOR THE QUARTER ENDED 31 DECEMBER 2008
12 February 2009
Net Asset Value
As at 31 December 2008, the Company's unaudited Net Asset Value (adjusted to add back deferred taxation) was EUR1.83 (179p) per share, reflecting a decrease from EUR2.34 (a difference of EUR0.51) in Euro terms and a decrease from 186p (a difference of 7p) in Sterling terms. The unaudited Net Asset Value, calculated under International Financial Reporting Standards, was EUR1.71 per share. Over the 12 months to 31 December 2008, the Company's NAV has decreased by EUR1.15 per share or 38.5%. Including dividend payments, the total NAV return over the last 12 months has been -16.1% in sterling terms.
A breakdown of the unaudited Net Asset Value is set out below:
| In EURm | 31/12/2008 | 30/09/2008 | 3 month change |
| Direct property independent valuation | 601.1 | 631.6 | (30.5) |
| Market value of interest rate swaps | (16.6) | 9.0 | (25.6) |
| Net current assets | 34.9 | 38.7 | (3.8) |
| Interest bearing loans and borrowings | (410.0) | (411.6) | 1.6 |
| Net deferred tax liabilities | (14.2) | (19.5) | 5.3 |
| Net Asset Value | 195.2 | 248.2 | (53.0) |
| Adjusted Net Asset Value* | 209.4 | 267.7 | (58.3) |
| Adjusted Net Asset Value* per share (EUR) | 1.83 | 2.34 | (0.51) |
* Net Asset Value adjusted to add back deferred tax
The unaudited Net Asset Value incorporates a number of events and key factors during the quarter ended 31 December 2008 including:
the existing portfolio decreased in value on a like-for-like basis by 4.8% in the quarter, equating to EUR30.5 million or EUR0.27 per share;
a decrease in the mark-to-market valuation of the Company's interest rate swaps of EUR25.6 million, equating to EUR0.22 per share.
The Company's unaudited Net Asset Value figure is calculated using the external property portfolio valuation as at 31 December 2008. The property portfolio will next be valued by an external valuer as at 31 March 2009 and the next quarterly Net Asset Value per share is expected to be published in May 2009.
Figures converted into sterling assume a EUR per STG exchange rate of 1.0267 as at 31 December 2008.
Property Portfolio
The value of the property portfolio as at 31 December 2008 was EUR611 million (30 September 2008: EUR 642 million) and comprised 50 properties including one committed property. The Company's portfolio, on a like-for-like basis, decreased in value over the quarter by 4.8%.
The property portfolio remains balanced across three commercial property sectors spread across seven countries, with the majority located in France and Germany. The portfolio has been created to provide diversified exposure to Continental European commercial property investment.
The Group's portfolio currently generates a net income of EUR45.7 million per annum from 188 individual leases let to 170 different tenants, producing a net initial yield of 6.88% on valuation and a gross initial yield of 7.46%. The portfolio credit rating was updated by Experian in December 2008 and remains unchanged from July 2008 at 69/100 which is classified as "below-average" risk. The portfolio benefits from income security of 6.4 years weighted average lease length to expiry (4.0 years to next break).
The current vacancy level within the portfolio is 5.6% which has increased from 3.8%. This was fully anticipated in the financial statements and is a result of two logistics properties being vacated in France. The Company is in negotiations to sell one of the assets to an owner occupier. Furthermore the sale of the vacant Brussels office building announced on 5 February 2009 has further mitigated the impact of this increased vacancy.
Sector Weightings ¹
¹ Valuation as at 31 December 2008 (including a committed asset)
Top Ten Properties ²
| Address | Sector | % | |
| 1 | Heusenstamm, Frankfurt, Germany | Office | 12.3% |
| 2 | Riesa, Germany | Retail | 8.7% |
| 3 | Lutterberg, Germany | Logistics | 4.9% |
| 4 | Cergy, France | Offices | 4.7% |
| 5 | Madrid, Spain | Logistics | 3.9% |
| 6 | Monteaux , France | Logistics | 3.3% |
| 7 | Grenoble, France | Offices | 3.1% |
| 8 | Marseille, France | Logistics | 3.1% |
| 9 | Roth, Germany | Retail | 3.0% |
| 10 | Marseille, France | Logistics | 2.8% |
| Total as at 31 December 2008 | 49.8% |
² Calculated as percentage of aggregate asset value plus cash (including a committed asset).
Top Ten Tenants ³
| Tenant | % | |
| 1 | Norbert Dentressangle | 19.2% |
| 2 | Deutsche Telekom | 12.0% |
| 3 | DHL | 7.7% |
| 4 | Tech Data España | 4.2% |
| 5 | Valeo | 3.9% |
| 6 | Bax Global | 3.7% |
| 7 | Carrefour | 3.1% |
| 8 | AVA Marktkauf | 2.6% |
| 9 | Real SB-Warenhaus | 2.3% |
| 10 | Strauss Innovation | 2.3% |
| Total as at 31 December 2008 | 61.0% |
³ Calculated as percentage of aggregate gross rent (including a committed asset).
Market Context
In the final months of 2008, the impact of the global financial crisis on Europe's economy began to emerge as many countries experienced negative growth in economic output. European property markets entered a period of downward adjustment, initially through the capital markets as property yields increased, and more latterly through weaker leasing activity and even rental declines in some markets. Invista expects that capital values in Continental European commercial property markets fell by around 15% in 2008* and forecasts a similar figure for 2009 although individual country and sector performance is expected to vary considerably.
Having risen sharply during 2008, European property yields are now at a substantial premium to the risk-free rate (long-term bond yields) and forecast to rise further in 2009 before stabilising in 2010. In some markets property yields may over correct and surpass historical peak levels. With inflation now falling rapidly, bond yields are expected to remain under downward pressure in 2009 which could support the relative pricing of property in more stable markets. Rental declines are expected to be most notable in volatile CBD office markets, in contrast to more defensive retail and logistics markets.
*Data showing property performance across Continental Europe will be published by IPD (Investment Property Databank - the leading global provider of independent property performance benchmarks) over the next few months.
Active Asset Management
The Company remains in active negotiations to extend leases and preserve the income performance of the property portfolio. In an environment where capital performance of the portfolio is likely to remain weak, it is important that the quality and duration of income is preserved as far as possible.
In Brussels, Belgium, a 2,638 sqm office asset was sold on 5 February 2009 for €5.83 million which equated to a 45% uplift on the 31 December 2008 valuation. The asset was sold to the Regie Fonciere, a department of the Brussels Government who intend to occupy the asset.
The sale of the office property in Brussels is consistent with the strategy to realise assets in order to retire debt and pay down further financing with surplus equity proceeds. This was an exceptional result for the Company given the profit on valuation, however the transactional market remains challenging and execution risk is high. The Company is in active discussions on other potential disposals and expects to make further announcements in due course.
Good progress is being made on asset management initiatives across the portfolio, with a number of lease re-negotiations taking place. The timely implementation of the asset level business plans remains a key factor affecting performance.
Finance
As at 31 December 2008, the Company had drawn down EUR410.0 million of senior debt in respect of its EUR416.5 million facility with the Bank of Scotland; in addition the Company had cash balances of EUR34.9 million (excluding tenant deposits of EUR6.0 million) at that date giving a net debt amount of EUR375.1 million. The Company's gross LTV (gross debt divided by market value of properties) at that date under the Finance Documents with Bank of Scotland - which is based on the 30 September 2008 valuation - was 65.4%; the LTV covenant under these documents is 75%. Using the 31 December 2008 valuation - which for the avoidance of doubt is not used under the Finance Documents - the LTV would have been 68.2%. All debt is fully hedged against changes in European interest rates until January 2013 at a weighted average swap rate of 4.0585%.
For further information, please contact:
Investment Manager
Tony Smedley / Chris Ludlam +44 20 7153 9433
Invista Real Estate Investment Management Limited
Brokers
Richard Cotton / Angus Gordon Lennox +44 20 7588 2828
JPMorgan Cazenove
Alex Carter +44 20 7986 0520
Citi
Financial PR
Stephanie Highett / Dido Laurimore / Rachel Drysdale +44 20 7831 3113
Financial Dynamics