5 Aug 2013 07:00
INVISTA EUROPEAN REAL ESTATE TRUST SICAF ("IERET" or the "Company")
ANNOUNCEMENT OF NAV AND INTERIM MANAGEMENT STATEMENT
FOR THE QUARTER ENDED 30 June 2013
05 August
Net Asset Value
As at 30 June 2013, the Company's unaudited Net Asset Value calculated using International Financial Reporting Standards and adjusted to add back the change in fair value of the warrants and deferred tax was €0.256 (21.9p) per share, reflecting an increase of €0.001 or 0.4% over the quarter and £0.004 or 1.97% in Sterling.
A breakdown of the unaudited Net Asset Value is set out below:
As at30 June 13 (€m) | As at31 March 13 (€m) | 3 month change (€m) | 3 month change (%) | |
Property portfolio | ||||
Like for like direct property | 332.5 | 341.6 | (9.1) | (2.66%) |
Valuation of assets held for sale or sold | 3.6 | 10.7 | (7.1) | (66.36%) |
Independent valuation | 328.9 | 330.9 | (2.0) | (0.60%) |
Net current assets1 | 23.3 | 24.9 | (1.57) | (6.31%) |
Market value of swaps/FX | (7.1) | (9.7) | 2.6 | (26.80%) |
Senior debt2 | (243.7) | (244.7) | 1 | (0.41%) |
Preference shares | (33.0) | (33.4) | 0.4 | (1.20%) |
Market value of warrants | (0.2) | (0.1) | (0.1) | 100.00% |
Net deferred tax liabilities | (1.5) | (1.9) | 0.4 | (21.05%) |
Net Asset Value | 66.7 | 66.0 | 0.73 | 1.11% |
Adjusted Net Asset Value3 | 66.7 | 66.3 | 0.4 | 0.60% |
Adjusted Net Asset Value3 per ordinary share € | 0.256 | 0.255 | 0.001 | 0.39% |
Adjusted Net Asset Value per ordinary share fully diluted (€) 3,4 | 0.265 | 0.264 | 0.001 | 0.38% |
Net Asset Value per preferenceshare (€)5 | 1.17 | 1.21 | (0.044) | (3.65%) |
Number of ordinary shares6 | 259,980,909 | 259,980,909 | 0 | 0.00% |
1 Net assets include reclassification of an asset held for sale and liabilities attributable to it.
2 Senior debt decreased quarter on quarter due to reclassification of liabilities attributable to the asset held for sale of which senior debt amounts to €1.0 million.
3 Net Asset Value adjusted to add back deferred tax (both current and non-current liabilities) and change in fair value of the warrants from book value.
4 Assumes all warrants are exercised at 29p per share and that the fully diluted number of ordinary shares is 289,086,083.
5 The NAV for preference shares is equal to the nominal value plus accrued interest divided by the total number of preference shares.
6 As at 30 June 2013, deferred tax liabilities of €18.9 million, based upon temporary differences at the time of initial recognition arising from transactions treated as asset acquisitions have not been recognised in accordance with IAS 12. The Group has deferred tax assets of €18.4 million which also have not been recognised.
The unaudited Net Asset Value incorporates a number of events and key factors during the quarter ended 30 June 2013 including:
·; The property valuation has decreased on a like-for-like basis by €2.1 million or €0.01 per share.
·; The office asset at Rue Royale in Brussels, Belgium has been sold through a share deal this quarter for gross sale proceeds of €7.2 million.
·; A decrease of the market value of the swap by €2.6 million or €0.01 per share.
·; A decrease of the senior debt amount of €1.0 million or €0.004 per share is mainly due to the reclassification of loan related to Châteuneuf-de-Gadagne as liability attributable to the asset held-for-sale.
The Company's unaudited Net Asset Value figure incorporates the independent property portfolio valuation as at 30 June 2013. The property portfolio will next be valued on 30 September 2013.
Figures converted into sterling assume a EUR per GBP exchange rate of 1.1693 as at 30 June 2013.
Key management events over the quarter and post quarter end
·; Two leases were signed during the quarter and post quarter end with new tenants on 18,929 sqm of vacant logistics space, with a further 3,392 sqm of vacant space under agreed heads of terms.
·; Post quarter end one lease was re-geared on an office asset in Boechoutlaan, Belgium, fixing nine years of rental income from August 2013 at €0.4m p.a. as well as expanding the rented space to make the asset fully occupied.
·; New lettings and regears over the quarter and post quarter end have contributed an additional €0.97m to total annual income. Active asset management has produced leasing results during H1 2013 amounting to the addition of a total €2.1m in rent.
·; Portfolio vacancy calculated as ERV on vacant space taken as a percentage of total potential rent has fallen from 24.6% as at 31 December 2012 to 22.3% as at 30 June 2013, on a like for like basis. As at 05 August 2013, portfolio vacancy has reduced even further due to: the sale of one fully vacant asset in Châteuneuf-de-Gadagne, France; the office lease extension in Boechoutlaan, Belgium; as well as a new letting at Monteux, France; bringing the level to 19.6%.
·; Over the quarter, one asset was sold at Rue Royale in Brussels, Belgium at a 1.8% premium to the 31 March 2013 valuation, generating total net sale proceeds of €1.4 million.
·; Post quarter end, an additional asset was sold in Châteuneuf-de-Gadagne, France, at a 3.4% discount to the 30 June 2013 valuation, enabling the Company to repay €3.2 million in outstanding debt and reduce the portfolio's overall void rate (calculated as ERV on vacant space as a percentage of total potential rent) by 1.4 percentage points.
·; A further six assets are under offer, which represents 22,675 sqm of vacant logistics accommodation.
·; Property portfolio valuation declined by 0.6% over the quarter or €2.1m as at 30 June 2013.
·; Post quarter end, utilised €11.9 million of cash to over-amortise the outstanding debt and achieve an LTV below the current LTV covenant of 70.0%.
·; Indicative offers have been received from third party lenders to partially refinance the portfolio at senior and mezzanine levels, and the Company is progressing with these negotiations.
Property Portfolio
As at 30 June 2013, the Company's property portfolio was valued at €332.5 million and comprised 36 assets across six countries. The portfolio value decreased over the quarter on a like-for-like basis by 0.6% or €2.1 million; resulting from a combination of shortening lease lengths on some assets, and market pressures deflating estimated rental values in some localities.
The Company's portfolio generated gross income of €27.5 million per annum as a 30 June 2013, representing a gross income yield of 8.27% and a net income yield of 6.94%. The portfolio weighted average lease term to break is 4.2 years and 6.1 years to expiry. The portfolio void level (calculated as ERV on vacant space as a percentage of total potential rent) as at 30 June 2013 decreased over the quarter to 22.3% as a result of new lettings in France, while the Company has also secured a new letting in France post quarter end, as well as a lease extension in Belgium, which will contribute further to reducing the portfolio void level. Between 31 December 2012 and 30 June 2013, the void level has reduced by 2.3 percentage points, reflecting an increase in annual gross rent of €1.0m during the same period.
The portfolio's credit rating as measured by the Investment Property Databank's M-IRIS credit analysis system in July 2013 and scored 67 out of 100, which is classified in the "low-medium risk" band.
As at 30 June 2013 the portfolio composition was as follows:
Sector Weightings
Sector | %* |
Office | 31.5% |
Logistics | 50.0% |
Retail | 18.5% |
Total | 100.0% |
*Percentage of aggregate asset value as at 30 June 2013
Country Weightings
Country | %* |
France | 49.8% |
Germany | 37.8% |
Spain | 5.0% |
Netherlands | 3.8% |
Belgium | 1.6% |
Czech Republic | 2.0% |
Total | 100.0% |
*Percentage of aggregate asset value as at 30 June 2013
Top 10 Properties
Property Location | Sector | %* |
Heusenstamm, Frankfurt, Germany | Office | 14.6% |
Riesa, Germany | Retail | 10.3% |
Cergy, Paris, France | Office | 8.3% |
Grenoble, France | Office | 4.6% |
Miramas, France | Logistics | 4.5% |
Monteux II, France | Logistics | 4.3% |
Marseille, France | Logistics | 4.2% |
Pocking, Germany | Retail | 3.9% |
Alovera, Spain | Logistics | 3.6% |
Solingen, Germany | Logistics | 3.1% |
Total | 61.4% |
*Percentage of aggregate asset value plus cash as at 30 June 2013
Top 10 Tenants
Tenant Name | %* |
Deutsche Telekom | 21.8%1 |
Valeo | 8.4% |
Norbert Dentressangle | 7.5% |
DHL | 5.2% |
Carrefour | 5.1% |
Strauss | 3.9% |
Real SB-Warenhaus | 3.7% |
SDV Logistique | 3.7% |
Euromaster | 3.2% |
Tech Data | 2.8% |
Total | 65.3% |
* Percentage of aggregate gross rent as at 30 June 2013
1 Given the current investment strategy, the UK Listing Rule restriction on limiting rental income from any one tenant to less than 20% is superseded.
Market Context
Uncertainty in Southern European politics as well as over the future direction of central bank monetary policy heightened investor anxieties during the quarter, resulting in increased levels of volatility. Asset prices in both bond and equity markets suffered from a downward correction with bond yields rising in both 'safe haven' and higher risk countries while equity market prices fell from the highs recorded in May. This correction illustrates that the current state of the underlying economy is unable to support the high equity pricing levels. Political pressures in Portugal and Greece threaten to destabilise the debt markets and remain a threat to a European economic recovery. Simultaneously, progress on establishing a European banking union appears to be postponed until after the German federal elections in September.
Despite historically high unemployment levels and low levels of domestic demand across many of the Eurozone economies, recent private sector output surveys indicated that the German manufacturing sector has returned to growth and that private sector activity has started to reverse the downward trend. Markit's Eurozone PMI reached an 18 month high in July, providing investors with the realistic prospect that the Eurozone economy may emerge from recession during H2 2013.
Given the weak performance of the Eurozone economy over the past 12 months it is no surprise that occupier activity has remained subdued with take-up volumes declining. In H1 2013, take-up in the French logistics market was down 18% on H1 2012 with owner-occupier and turnkey transactions accounting for 32%; up from 13% in 2012 (BNP Paribas). Availability continues to increase for Grade B and C stock with a diminishing stock of Grade A space placing downwards pressure on rental values for lower quality assets as landlords compete to retain or attract tenants. Activity in the German office markets was also down on the first six months of 2012 with the half year comparison indicating a decline of 11%. In particular, the markets of Frankfurt and Berlin experienced declines of approximately 20% while the markets of Munich, Hamburg and Düsseldorf proved more resilient. Where there is occupier demand, activity remains focused on modern stock with a broader recovery in activity dependent on a sustainable economic recovery before occupiers commit to leases.
In contrast to the occupier markets, the European investment market has continued to show signs of increasing activity with CBRE reporting a total of €30.1bn of transaction volumes in Q2 2013, representing an increase of 13% on Q2 2012. This meant investment in H1 2013 totalled €60.4bn, 16% higher than in H1 2012 and is the highest H1 total since 2008. Interestingly, activity has increased in some of the perceived 'higher risk' markets with Italy, Spain and Ireland experiencing a significant increase in volumes during Q2; although it must be noted that this is from a low base and remains below historical levels. Investment in Germany, UK and France accounted for 60% of the quarterly total as both domestic and international investors remain attracted to the core markets. Secondary asset values remain under downward pressure as banks continue to deleverage and investors remain predominantly risk-averse. However, if the European economy starts to experience a return to growth over H2 2013 and the recovery gains sustainable momentum into 2014, some of the stronger European economies may start to experience an increase in interest for the higher quality secondary assets as investors gain in confidence and become willing to take on more risk.
Asset Management Results
In line with the cautious signs of recovery that have emerged this quarter, the Company achieved a number of successes on disposal and asset management strategy. The Company completed the sale of an office asset in Brussels, Belgium, at a premium of 1.8% on the 31 March 2013 valuation. This sale generated €7.2 million in gross sale proceeds and enabled the Company to pay down €5.0 million in outstanding debt.
Post quarter end, the Company also completed the sale of a vacant logistics asset in France. This sale produced proceeds of €3.5 million net of transfer tax, which represents a 3.4% discount to 30 June 2013 valuation; the proceeds were used to repay €3.2 million of outstanding debt and to close the associated swap contract.
Overall vacancy levels fell during the quarter on a like for like basis, largely due to a new letting at an asset in Amiens, France, where 12,594 sqm of previously vacant space was taken up. Post quarter end a further new letting was secured, covering 6,335 sqm of vacant logistics accommodation in Monteux, France; as well as an extension of a lease in Belgium which makes the Boechoutlaan asset now fully occupied. Another 2,150 sqm of vacant space is in agreed heads of terms to be let in Germany. Both the asset in Amiens and the asset in Monteux were fully vacant as at 31 December 2012, and both are now fully let. Combined, these two assets in France will generate a net additional income of €1.6m per annum.
In addition to seeking new tenants, the Company remains actively engaged with existing tenants to secure income and avoid future vacancy. Over the quarter and post quarter end, the Company re-geared and secured heads of terms on 2.5% of existing income. Combined these lease extensions have secured fixed terms for an average of ten years.
Borrowings
As at 30 June 2013, the Company had drawn down a total of €244.7 million of senior debt in respect of its €359.3 million facility with the Bank of Scotland. In addition, the Company had cash balances of €29.0 million (excluding tenant deposits of €3.4 million and escrow accounts of €2.7 million) at that date, giving a net debt position of €215.7 million.
The Company's gross Loan To Value ("LTV") ratio as at 30 June 2013 was 73.6% and the net debt LTV was 64.9%.
On 25 July, the Company decided to over amortize €11.9m of loan and to reach the level of 69.99%, below the 70% LTV covenant limit.
All debt is fully hedged against changes in European interest rates until December 2013, giving a total interest cost of 6.97% per annum at current LTV levels.
Outlook
The Company has made gradual progress in reducing the outstanding level of debt through the sale of properties, as well as through the utilisation of surplus cash. Following the recent completion of the sale of a property which had been vacant for five years, the Investment Manager has been able to put six other vacant assets under offer.
In addition to the immediate cash proceeds from such sales, there are also material savings arising from the reduction in non-recoverable and debt service costs. These both benefit the Company's operating income and enhance the overall quality of the portfolio and its attractiveness to potential lenders.
Negotiations are advancing with a number of potential providers of both senior and mezzanine debt. A full refinancing of the Company is, however, a complex task and is likely to require more than just debt finance for a successful conclusion. There can be no guarantee of success, but the Board and Investment Manager are energetically pursuing a resolution ahead of the maturity of the existing bank facility at the end of the year. Shareholders will be informed and consulted as soon as there is further news in relation to the potential debt refinancing.
For further information, please contact:
Internos Global Investors
Ludovic Bernard +44 20 7355 8800
Citco REIF Services (Luxembourg) SA
Jorrit Crompvoets +352 47 23 23 267
Hudson Sandler
Michael Sandler +44 20 7796 4133