27 Feb 2012 07:00
INVISTA EUROPEAN REAL ESTATE TRUST SICAF ("IERET" or the "Company")
ANNOUNCEMENT OF NAV AND INTERIM MANAGEMENT STATEMENT
FOR THE QUARTER ENDED 31 DECEMBER 2011
27 February 2012
Net Asset Value
As at 31 December 2011, 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 €0.483 (40.5p) per share, reflecting a decrease of €0.040 or 7.7% over the quarter and 5.0p or 11.0% in Sterling.
As at 31 December 2011, the unaudited Net Asset Value, calculated under International Financial Reporting Standards, was €0.471 per share.
A breakdown of the unaudited Net Asset Value is set out below:
In € million | As at31 Dec 11 | As at30 Sept 11 | 3 month change | 3 month change (%) |
Property portfolio |
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|
|
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Independent valuation | 441.1 | 451.1 | -10.0 | -2.2% |
Valuation of assets sold | - | - | - | - |
Like for like direct property | 441.1 | 451.1 | -10.0 | -2.2% |
Net current assets | 33.7 | 33.0 | +0.7 | +2.1% |
Market value of swaps/FX | (19.5) | (20.1) | +0.6 | -3.0% |
Interest bearing loans and liabilities | (296.2) | (295.9) | -0.3 | +0.1% |
Preference shares | (31.7) | (30.3) | -1.4 | +4.6% |
Market value of warrants | (1.1) | (2.3) | +1.2 | -52.2% |
Net deferred tax liabilities | (3.7) | (4.3) | +0.6 | -14.0% |
Net Asset Value | 122.6 | 131.2 | -8.6 | -6.6% |
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Adjusted Net Asset Value1,4 | 125.7 | 136.1 | -10.4 | -7.6% |
Adjusted Net Asset Value1,4 per ordinary share € | 0.483 | 0.523 | -0.040 | -7.7% |
Adjusted Net Asset Value per ordinary share fully diluted €1, 2 | 0.470 | 0.504 | -0.034 | -6.8% |
Net Asset Value per preferenceshare €3,4 | 1.20 | 1.18 | +0.02 | +1.7% |
Number of ordinary shares | 259,980,909 | 259,980,739 | +170 |
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1 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
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 As at 30 September 2011, deferred tax liabilities of €24.9 million, based upon temporary difference at the time of initial recognition arising from transactions treated as asset acquisitions have not been recognised in accordance with IAS 12. The Group as deferred tax assets of €14.2 million which also have not been recognised.
The unaudited Net Asset Value incorporates a number of events and key factors during the quarter ended 31 December 2011 including:
·; The property valuation has decreased by €10.0 million or €0.04 per share. This reflects the change in value of the existing portfolio, as there have been no property transactions in the quarter.
·; A reduction in the marked-to-market valuation of the Company's interest rate swaps of €0.6 million.
·; A reduction in the fair value of the Company's warrants of €1.2 million.
·; An increase in the value of the Company's preference shares of €1.4 million, largely due to foreign currency difference, partially offset by a 0.6 million gain on sterling cash balances.
The Company's unaudited Net Asset Value figure incorporates the independent property portfolio valuation as at 31 December 2011. The property portfolio will next be valued on 31 March 2012.
Figures converted into sterling assume a EUR per STG exchange rate of 1.1933 as at 31 December 2011.
Property Portfolio
As at 31 December 2011, the Company's property portfolio was valued at €441.1 million and comprised 39 assets across 6 countries. This compares with the property portfolio as at 30 September 2011, which comprised 39 assets valued at €451.1 million in 6 countries. The like-for-like decrease in the property valuation over the quarter was 2.2%, a decrease of €10.0 million which reflects tightened liquidity and negative sentiment in Eurozone markets since June 2011.
As at 31 December 2011, the Company's portfolio generated gross income of €36.9 million per annum, representing a gross income yield of 8.38% and a net income yield of 7.41%. The portfolio void level remained stable over the quarter at 10.2% as at 31 December 2011.
The portfolio's credit rating as measured by the Investment Property Databank's M-IRIS credit analysis system in December 2011 was 73 out of 100, which is classified in the "low to medium risk band".
As at 31 December 2011 the portfolio composition was as follows:
Sector Weightings
Sector | %* |
Office | 31.3% |
Logistics | 50.6% |
Retail | 18.1% |
Total | 100.0% |
*Percentage of aggregate asset value as at 31 December 2011
Country Weightings
Country | %* |
France | 43.5% |
Germany | 42.9% |
Spain | 4.8% |
Netherlands | 3.4% |
Belgium | 3.3% |
Czech Republic | 2.1% |
Total | 100.0% |
*Percentage of aggregate asset value as at 31 December 2011
Top 10 Properties
Property Location | Sector | %* |
Heusenstamm, Frankfurt, Germany | Office | 14.2% |
Riesa, Germany | Retail | 10.1% |
Cergy, Paris, France | Office | 6.2% |
Lutterberg, Germany | Logistics | 6.1% |
Grenoble, France | Office | 3.8% |
Roth, Germany | Retail | 3.5% |
Miramas, France | Logistics | 3.5% |
Monteux, France | Logistics | 3.5% |
Marseille, France | Logistics | 3.2% |
Madrid, Spain | Logistics | 3.1% |
Total |
| 57.2% |
*Percentage of aggregate asset value plus cash as at 31 December 2011
Top 10 Tenants
Tenant Name | %* |
Deutsche Telekom | 15.6% |
Norbert Dentressangle | 12.0% |
DHL | 10.0% |
Valeo | 5.8% |
Schenker Logistics | 4.8% |
Carrefour | 4.3 % |
AVA Marktkauf | 3.3% |
SDV Logistique | 2.9% |
Tech Data | 2.8% |
Real SB-Warenhaus | 2.8% |
Total | 64.3% |
* Percentage of aggregate gross rent as at 31 December 2011
Market Context
In Q4, the GDP of both the EU-27 and EA-17 contracted by 0.3%, QoQ. In Germany, the economy contracted by 0.2% with France experiencing low growth of 0.2%. The ongoing sovereign debt crisis has kept consumer and producer confidence subdued and this has been reflected in a decline of the annual growth rate in retail sales, industrial production and international trade.
With the economic outlook remaining uncertain, occupiers are likely to remain risk adverse with many businesses postponing expansion plans. Where there is demand, it is focused on modern space in core markets. In the French logistic market demand for prime modern stock remained healthy in H2 2011, with much of the activity focused on the North-South axis of Lille, Lyon, Marseille & Paris with the Ile-de-France region accounting for 42% of total annual take-up in 2011 (CBRE). However, demand for secondary/tertiary space remains weak.
The same trend is evident in the German retail market with demand focused on the prime locations. Tenants in good locations are negotiating lease extensions with large national retailers retaining much of the bargaining power in lease negotiations as landlords seek security. Secondary and tertiary assets in poor locations are seeing lower level of demand with retailers becoming increasingly discerning in locations where catchment areas are deemed not to provide sufficient demand to drive sales.
Investment increased 15% QoQ during Q4, with a total of €31.9bn of transactions completed in Europe (CBRE). However, with Q4 typically seeing higher levels of activity, a comparison with Q4 2010 shows that in all markets except France, the quarterly investment figures were down on the previous year, reflecting increased uncertainty and a tightening in lending conditions.
Asset Management Results
Over the quarter, the Company transitioned to a new investment manager, Internos Real Investors ("Internos") on 15 December 2011. With the transition, the Company has preserved a quality standard of asset management and generated new momentum in executing asset management initiatives. Over the quarter and post quarter end, 2,000 sqm of vacant retail and office space was let to existing tenants in Germany and France and will result in an additional €221,000 pa of rental income. In addition, three tenants representing 11.6% of portfolio income have agreed heads of terms on lease extensions for an average weighted lease length to break of 7.9 years. Securing these leases will result in reducing the risk to portfolio income over the next 12 months as well as positioning assets for future disposal.
Despite positive results with some tenants, other occupiers in the portfolio continue to confront challenges in the market and this has resulted in a few tenants serving notice to vacate on upcoming lease break. Vacancy increased post quarter end to 12.5% following the lease break on 26,965 sqm logistics space in France. Other tenants in logistics and retail have served notice to break their leases, which could potentially impact portfolio revenue in the next six months. Despite these challenges, the Company is still in negotiations with tenants to agree new lease terms as well as actively approach existing tenants ahead of notice period in order to secure longer lease terms and support portfolio stability. As a result, a further 6.6% of portfolio income is in advance negotiations with existing tenants and 10,877 sqm of vacant space is in discussion with both existing and potential occupiers.
The Company continues to pursue a proactive programme of disposals and is in advance discussions with a number of potential purchasers on assets in Germany, France and Belgium.
Borrowings
As at 31 December 2011, the Company had drawn down a total of €298.0 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 €33.9 million (excluding tenant deposits of €4.2 million and escrow accounts of €3.8 million) at that date, giving a net debt position of €264.1 million.
The Company's gross Loan To Value ("LTV") ratio as at 31 December 2011 was 67.6% and the net debt LTV was 59.9%.
On 25 January, the Company used €11.3 million of existing cash balances to make a further repayment of the senior debt facility with the Bank of Scotland. The interest rate on senior loan facility with Bank of Scotland was set on 25 January 2011 and tested on the Company's LTV ratio based on the back dated 31 December 2011 valuation. With LTV above 65% on the 31 December 2011 valuation, the debt repayment executed on 25 January 2011 reduces the Company's LTV ratio below 65% for the purposes of the test and will thereby continue to benefit from a reduced margin and resultant lower interest charges.
All debt is fully hedged against changes in European interest rates until December 2013, giving a total interest cost of 6.45% per annum at current LTV levels.
Investment Manager
The Board appointed Internos to execute the proposed new investment objective and policy pursuant to an Investment Advisory Agreement dated 22 September 2011. The appointment of Internos was approved by the Commission de Surveillance due Secteur Financier ("CSSF") as the Company's regulator (in relation to Internos acting as manager and promoter of the Company); and Bank of Scotland in its capacity as facility agent in connection with the credit facility provided by it to the Company. Following both approvals on the change of manager, the Company announced on 15 December 2011 that Internos has taken over the role of Investment Manager with effect from 15 December 2011.
Strategy
On 14 October 2011, an Extraordinary General Meeting ("EGM") of the Company's shareholders was held to approve a proposed new investment objective to realise the existing property portfolio owned by the Group and return capital to shareholders. This resolution was approved by shareholders subject to approval by the Commission de Surveillance due Secteur Financier ("CSSF"). The CSSF has approved the appointment of Internos as Investment Manager and promoter and discussions continue with the CSSF regarding the investment objective and policy.
In the meantime, in line with the shareholder approval the Company will continue to pursue an accelerated, proactive programme of disposals in order to reduce the level of borrowings where this is beneficial to the Group, to maximise returns and to enhance NAV performance. This will include regular reviews of the relative performance of the countries, regions and sectors in which the Company has invested and managing asset, country and sector allocation. The Board believes that the proposed new investment strategy is the most appropriate course of action for the Company.
The Company remains focused on actively managing the existing property portfolio to generate investment performance and maximise return on disposals. This approach will involve the implementation of initiatives set out in asset level business plans such as re-negotiating leases, maximising net rent receivable from tenants, extending lease duration to preserve income security, letting up current vacancy and stabilising rent.
For further information, please contact:
Internos Real Investors
Ludovic Bernard +44 20 7355 8800
Citco REIF Services (Luxembourg) SA
Marta Kozinska +352 47 23 23 267
Hudson Sandler
Michael Sandler +44 20 7796 4133