20 Feb 2013 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 2012
20 February 2013
Net Asset Value
As at 31 December 2012, 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 €0.265 (21.7p) per share, reflecting a decrease of €0.12 or 30.5% over the quarter and 8.6p or 28.4% in Sterling. The unaudited Net Asset Value, calculated under International Financial Reporting Standards, was €0.265 per share.
A breakdown of the unaudited Net Asset Value is set out below:
In € million | As at31 December 12 (€m) | As at30 September 12 (€m) | 3 month change (€m) | 3 month change (%) |
Property portfolio | ||||
Like for like direct property | 327.5 | 353.4 | (25.9) | (7.33%) |
Valuation of assets held for sale or sold | 25.3 | 56.2 | (30.9) | (55.04%) |
Independent valuation | 352.8 | 409.6 | (56.9) | (13.88%) |
Net current assets1 | 37.5 | 57.0 | (19.5) | (34.21%) |
Market value of swaps/FX | (13.1) | (16.8) | 3.7 | (22.02%) |
Senior debt2 | (248.2) | (259.0) | 10.8 | (4.17%) |
Preference shares | (33.1) | (33.9) | 0.8 | (2.36%) |
Market value of warrants | (0.2) | (0.2) | 0 | 0.00% |
Net deferred tax liabilities | (1.5) | (2.9) | 1.4 | (48.28%) |
Net Asset Value | 68.9 | 97.6 | (28.7) | (29.41%) |
Adjusted Net Asset Value3 | 68.9 | 99.0 | (30.1) | (30.5%) |
Adjusted Net Asset Value3 per ordinary share € | 0.265 | 0.381 | (0.116) | (30.5%) |
Adjusted Net Asset Value per ordinary share fully diluted (€) 3,4 | 0.274 | 0.379 | (0.105) | (27.70%) |
Net Asset Value per preferenceshare (€)5 | 1.22 | 1.29 | (0.07) | (5.43%) |
Number of ordinary shares6 | 259,980,909 | 259,980,909 | 0 |
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 €17.0 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 31 December 2012, deferred tax liabilities of €18.6 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 €19.6 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 2012 including:
·; The property valuation has decreased on a like-for-like basis by €25.9 million or €0.10 per share.
·; The asset Lutterberg in Germany has also been sold this quarter for sale proceeds of €29.5 million.
·; A decrease of the market value of the swap by €3.7 million or €0.01 per share.
·; A decrease of the senior debt amount of €10.8 million or €0.04 per share is mainly due to the reclassification of loan related to Nova and Rue Royal 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 31 December 2012. The property portfolio will next be valued on 31 March 2013.
Figures converted into sterling assume a EUR per GBP exchange rate of 1.22196 as at 31 December 2012.
Key management events over the quarter and post quarter end
·; Over the quarter and post quarter end, sold an asset in Lutterberg, Germany at a 3.4% discount to valuation and an asset in Grenoble, France at valuation which combined generate a total sale proceeds of €36.3 million.
·; Property portfolio valuation declined by 7.53% over the quarter and was valued by Savills who were appointed for valuation services from 10 December 2012.
·; Post quarter end, utilised €10.3 million of cash to over-amortise the outstanding debt and achieve an LTV below the current LTV covenant at 72.5%.
·; Signed two leases post quarter end with new tenants on 29,583 sqm of vacant logistics space and a further 6,335 sqm of vacant logistics space is under agreed heads of terms in France.
·; Over the quarter, re-geared leases on 2.6% of the existing portfolio income and a further 6.4% is under agreed heads of terms.
·; Appointed Citco S.A. to continue to serve as the Company's central administrator effective from 1 February 2013. The appointment and renegotiation of fees on current services should enable the Company to reduce fixed and running rate costs on a like for like basis going forward by 40%.
Property Portfolio
As at 31 December 2012, the Company's property portfolio was valued at €352.8 million and comprised 38 assets across six countries. The portfolio valuation for 31 December 2012 was undertaken by Savills, the newly appointed valuer since 10 December 2012. The portfolio value decreased over the quarter on a like-for-like basis by 7.53% or €28.7 million, a combination of value readjustments from the new valuer and the high level of vacancy on a number of assets.
As at 31 December 2012, the Company's portfolio generated gross income of €29.9 million per annum, representing a gross income yield of 8.20% and a net income yield of 6.88%. The portfolio weighted average lease term to break is 4.7 years and 6.1 years to expiry. The portfolio void level by income as at 31 December 2012 increased over the quarter to 24.1% as a result of selling an income generating asset and tenants leaving logistics accommodation in France and Spain. The Company has however secured a number of new lettings in France which is expected on a like for like basis to reduce the portfolio void level.
The portfolio's credit rating as measured by the Investment Property Databank's M-IRIS credit analysis system in January 2013 was 71 out of 100, which is classified in the "low-medium risk" band.
As at 31 December 2012 the portfolio composition was as follows:
Sector Weightings
Sector | %* |
Office | 34.6% |
Logistics | 47.7% |
Retail | 17.7% |
Total | 100.0% |
*Percentage of aggregate asset value as at 31 December 2012
Country Weightings
Country | %* |
France | 49.0% |
Germany | 36.8% |
Spain | 5.0% |
Netherlands | 3.7% |
Belgium | 3.5% |
Czech Republic | 2.0% |
Total | 100.0% |
*Percentage of aggregate asset value as at 31 December 2012
Top 10 Properties
Property Location | Sector | %* |
Heusenstamm, Frankfurt, Germany | Office | 14.4% |
Riesa, Germany | Retail | 9.9% |
Cergy, Paris, France | Office | 7.7% |
Grenoble, France | Office | 4.4% |
Miramas, France | Logistics | 4.1% |
Monteux, France | Logistics | 4.0% |
Marseille, France | Logistics | 3.9% |
Pocking, Germany | Retail | 3.7% |
Alovera, Spain | Logistics | 3.5% |
Solingen, Germany | Logistics | 2.9% |
Total | 58.5% |
*Percentage of aggregate asset value plus cash as at 31 December 2012
Top 10 Tenants
Tenant Name | %* |
Deutsche Telekom | 20.4%1 |
Valeo | 7.7% |
Norbert Dentressangle | 7.1% |
Carrefour | 5.7% |
DHL | 4.9% |
Strauss | 3.7% |
Real SB-Warenhaus | 3.5% |
SDV Logistique | 3.5% |
Toom Baumarkt | 3.4% |
Euromaster | 3.0% |
Total | 62.9% |
* Percentage of aggregate gross rent as at 31 December 2012
1Given 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
Despite some positive news lifting market sentiment, European economic data and continuing political uncertainty in Spain and Italy provide significant reasons to remain extremely cautious regarding the outlook for the European economy. Europe's largest economy, Germany, is estimated to have contracted by 0.5% in Q4, a stark contrast to the 0.7% quarterly growth recorded in Q1 2012 and reflects the weak performance of the wider European economy over 2012. However, recent business surveys suggest that a German recession might be avoided in Q1 2013 with both Markit PMI and IFO Business Expectation surveys improving. In contrast, leading indicators for the French economy deteriorated further during the quarter and with Eurozone unemployment remained elevated at 11.7% and both industrial production and retail sales contracting further during the quarter the outlook for the wider region remains weak.
The low levels of consumer and business confidence across Europe has led to occupiers adopting a cautious attitude to real estate decisions leading to a decline in demand with take-up levels for 2012 lower than in many markets. Demand for French logistic assets was reportedly down on 2011 with total annual take-up declining by 34% y/y (CBRE). This decline in demand has meant the amount of available space increased by 5% y/y, driven by a rise in vacant Grade B and C stock. The German office market also experienced a decline in demand with annual take-up contracting by 11% y/y for the major city markets during 2012 (JLL). In general, occupier demand for additional space is focused on modern, well located assets with activity in the secondary and tertiary markets dominated by lease renewals with landlords focused on tenant retention.
CBRE reported that a total of €41.5bn was transacted in European commercial real estate markets during Q4 2012, representing an increase of 48% q/q and 15% y/y. The increase in investment activity over the quarter meant annual volumes matched the €120bn completed in 2011. The UK market remained the most popular with investors but experienced a decline of 6% q/q. In contrast, transaction volumes in Q4 for German real estate increased by 110% q/q and 83% y/y with €10.6bn completed in Q4. Interestingly, several large portfolio sales were completed for secondary assets, incorporating higher levels of risk and suggesting that some investors are starting to take on moderate levels of risk in the very selective markets. With the process of bank deleveraging continuing at pace and low levels of new lending secondary capital values could be placed under more downwards pressure.
Asset Management Results
Despite a challenging quarter in terms of capital value decline and weakened portfolio income, the Company has achieved a number of successes on disposal and asset management strategy. Over the quarter and post quarter end, the Company sold two assets, a logistics platform in Lutterberg, Germany, at 3.4% below 30 September 2012 valuation and an office asset in Grenoble France at 31 December 2012 valuation. Both sales have generated €36.3 million in gross sale proceeds and enabled the Company to pay down €26.8 million in outstanding debt. A further asset in Belgium is under exclusivity and a number of other selected assets are in initial stages of marketing or discussions with potential buyers.
While vacancy levels have risen in the portfolio throughout 2012, the Company post quarter end signed two new leases and secured heads of terms on a further lease with tenants to occupy a total 35,918 sqm of vacant logistics accommodation at Monteux and Amiens, France. Combined these lettings will generate an additional €1.4 million in rental income per annum and reduce void costs by approximately €280,000. As a result, we anticipate like for like income and portfolio level vacancy to improve going forward.
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 2.6% of existing income and has secured heads of terms on a further 6.4% of existing income. Combined these lease extensions have secured fixed terms for an average three years.
Cost Reduction
Following a comprehensive appraisal process of corporate accounting and administrative services, the Board engaged Citco S.A. to continue to serve as the Company's central administrator effective from 1 February 2013. The appointment and renegotiation of fees on current services should enable the Company to reduce annual fixed and running rate costs on a like for like basis going forward by 40%.
Borrowings
As at 31 December 2012, the Company had drawn down a total of €266.0 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 €34.4 million (excluding tenant deposits of €3.4 million and escrow accounts of €2.5 million) at that date, giving a net debt position of €231.6 million.
The Company's gross Loan To Value ("LTV") ratio as at 31 December 2012 was 75.4% and the net debt LTV was 65.7%.
Prior to 25 January, the Company decided to over-amortise 10.3 million of senior loan to reduce the LTV below 72.5%, against an LTV covenant limit of 72.5% from the 1 January 2013.
On 25 January, the interest rate on senior loan facility with Bank of Scotland was set and tested on the Company's LTV ratio based on the back dated 31 December 2012 valuation. Following to the decrease in value and the 10.3 million of over amortisation of the senior debt, the LTV level was below 72.5% on the 31 December 2012 valuation.
All debt is fully hedged against changes in European interest rates until December 2013, giving a total interest cost of 6.99% per annum at current LTV levels.
As sales progress and net sales proceeds are anticipated, the Company will continue to review the use of cash and best utilisation of sale proceeds.
Strategy
The Company is pursuing a structured realisation of its assets in line with the resolution approved by the Company's shareholders at the Extraordinary General Meeting ("EGM") on 14 October 2011, as an investment strategy under the Company's original investment policy. The Company is fully committed to implement the realisation strategy and the manager is focused on active sale negotiations and repositioning the portfolio ahead of December 2013 when the Company has to refinance its senior debt facility. Initial asset sales are the first step toward deleveraging and ultimately returning cash to shareholders. Asset management remains key to maximising income and achieving the designed sales programme. While applying this strategy and making the Company stronger with repositioned assets and a leaner balance sheet, the Company will remain open to opportunities both on a portfolio basis and at a corporate level.
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