11 Aug 2009 07:00
INVISTA EUROPEAN REAL ESTATE TRUST SICAF (the "Company"/ "Group")
ANNOUNCEMENT OF NAV AND INTERIM MANAGEMENT STATEMENT
FOR THE QUARTER ENDED 30 JUNE 2009
11 August 2009
Net Asset Value
As at 30 June 2009, the Company's unaudited Net Asset Value (adjusted to add back deferred taxation) was EUR 1.25 per share (106p), reflecting a decrease of EUR0.18 (27p) equating to 12.6% over the quarter. The unaudited Net Asset Value, calculated under International Financial Reporting Standards, was EUR1.16 per share.
A breakdown of the unaudited Net Asset Value is set out below:
| In EURm | 30/06/09 | 31/03/09 | 3 month change | 3 month change (%) |
| Direct property independent valuation | 538.7 | 554.9 | (16.3) | (2.9) |
| Net current assets | 27.5 | 29.6 | (2.1) | (7.0) |
| Market value of swaps | (26.3) | (27.3) | 1.0 | 3.7 |
| Non current liabilities | (12.5) | 0 | (12.5) | - |
| Interest bearing loans and borrowings | (384.3) | (394.2) | 9.9 | 2.5 |
| Net deferred tax liabilities | (10.7) | (11.1) | 0.4 | 3.6 |
| Net Asset Value | 132.4 | 151.9 | (19.5) | (12.8) |
| Adjusted Net Asset Value* | 143.1 | 163.0 | (19.9) | (12.2) |
| Adjusted Net Asset Value* per share (EUR) | 1.25 | 1.43 | (0.18) | (12.6) |
* Net Asset Value adjusted to add back deferred tax (both current and non-current liabilities)
The unaudited Net Asset Value incorporates a number of events and key factors during the quarter ended 30 June 2009 including:
The portfolio decreased in value on a like-for-like basis by 2.9% in the quarter, equating to EUR16.3 million or EUR 0.14 per share;
The non current liabilities of EUR12.5 million represent the senior debt exit fees maturing on 31 December 2011
Interest bearing loans and borrowings have been reduced by EUR9.9 million which reflects the deferred senior debt exit fees less debt fees amortised in the period
A decrease in the mark-to-market valuation of the Company's interest rate swaps of EUR1.0 million, equating to EUR0.01 per share;
The Company's unaudited Net Asset Value figure incorporates the external property portfolio valuation as at 30 June 2009. The property portfolio will next be valued by an external valuer as at 30 September 2009 and the next quarterly Net Asset Value per share is expected to be published in November 2009.
Figures converted into sterling assume a EUR per STG exchange rate of 1.1760 as at 30 June 2009.
Property Portfolio
As at 30 June 2009, the property portfolio was valued at EUR547.6 million comprising 47 assets (including one asset conditionally committed to acquire in Girona, Spain). This compares with a property portfolio as at 31 March 2009 valued at EUR564.2 million. The like-for-like decrease in property valuations excluding committed assets over the three month period to 30 June 2009 was 2.9%, a fall of EUR16.3 million.
The Group's portfolio generates a gross income of EUR44.3 million per annum representing a Gross Income Yield of 8.26% (7.46% Net Initial Yield).
As a result of the Company's active asset management strategy, the weighted average lease term until expiry has improved from 6.06 to 6.16 years (4.19 to 4.37 years to first break). The portfolio credit rating as measured by Experian in July 2009 is 65/100 or "below average risk".
As at 30 June 2009 the portfolio had a vacancy level of 7.3% by income, an increase of 1.5% since 31 March 2009 which has largely been as a result of occupiers reducing space commitments in order to reduce costs. It is however reassuring that the Company's portfolio has very limited exposure to financial services or motor industry tenants and to date the portfolio has been unaffected by tenant default or administration - which is traditionally a far greater threat to vacancy levels and income security - however the Company is cognisant of this risk and closely monitors occupational trends, tenant behaviour and any rent arrears. Despite the rise in vacancy, the Company is continuing to make solid progress in reletting and renegotiation of space. During the last nine months it has secured 188,000 sqm of new or renegotiated lettings and has a further 100,000 sqm under active negotiation, the combined effect of which, if successful, will increase the weighted average lease term to expiry from 5.9 to 6.5 years.
Sector Weightings
| Sector | %* |
| Office | 29.7% |
| Logistics | 54.8% |
| Retail | 15.5% |
| Total | 100.0% |
*Percentage of aggregate asset value (including committed asset) as at 30 June 2009
Country Weightings
| Country | % * |
| France | 44.6% |
| Germany | 36.2% |
| Belgium | 6.9% |
| Spain | 5.7% |
| Netherlands | 3.6% |
| Czech Republic | 1.8% |
| Poland | 1.2% |
| Total | 100.0% |
*Percentage of aggregate asset value (including committed asset) as at 30 June 2009
Top 10 Properties
| Property Location | Sector | %* |
| Heusenstamm, Frankfurt, Germany | Office | 12.4% |
| Riesa, Germany | Retail | 8.9% |
| Lutterberg, Germany | Logistics | 4.9% |
| Cergy, Paris, France | Office | 4.6% |
| Madrid, Spain | Logistics | 3.9% |
| Monteux, France | Logistics | 3.2% |
| Marseille, France | Logistics | 3.2% |
| Grenoble, France | Office | 3.1% |
| Roth, Germany | Retail | 3.1% |
| Miramas, Aix-en-Provence, France | Logistics | 2.9% |
| Total | 50.2% |
*Percentage of aggregate asset value plus cash (including committed asset) as at 30 June 2009
Top 10 Tenants
| Tenant Name | %* |
| Norbert Dentressangle | 19.8% |
| Deutsche Telekom | 12.6% |
| DHL | 8.3% |
| Valeo | 4.1% |
| Bax Global | 3.9% |
| Carrefour | 3.5% |
| AVA Marktkauf | 2.8% |
| Real SB-Warenhaus | 2.4% |
| Strauss Innovation | 2.3% |
| Tech Data | 2.2% |
| Total | 61.9% |
*Percentage of aggregate gross rent (including committed asset) as at 30 June 2009
Market Context
Recent forecasts of medium-term economic performance in Europe have shown tentative signs of stabilisation. Despite the more encouraging outlook, such performance remains at levels substantially below long-run historical averages. It is hoped that efforts by central banks to support global financial markets and bank lending will provide some further impetus to European economic growth by the end of 2009.
Conditions in European property capital markets have also begun to stabilise at low levels in recent months. According to CBRE, European property investment turnover increased by 12% to EUR13 billion between Q1 and Q2 2009, while prime property yields in the Eurozone rose only very slightly by 3 basis points to 6.11%, representing the smallest increase since the onset of the pricing correction in Q4 2007. The weakest performing markets continue to be those with highly volatile economies, particularly Ireland, Spain and parts of Eastern Europe. At the other end of the spectrum are the largest, most liquid and transparent Eurozone markets such as France and Germany. We expect these markets to reach 'fair value' ahead of the rest of the Europe, albeit some 6-9 months after the UK.
The emphasis in the property market is now tending to move away from the capital market towards income related performance, thereby raising the importance of local leasing market knowledge and capability. Whilst leasing demand is generally subdued across Europe and rents are under downward pressure, there are important differences between countries, cities and sectors. The most substantial rent falls have been experienced in the volatile prime office sub-sector and the weaker economies mentioned above. Rents in the industrial and retail sectors have generally held up better so far but tenant demand has fallen in tandem with the weaker economy and active asset management remains key to performance. On the other hand we expect property development to fall to record low levels (largely as a result of bank financing and pre-lets remaining scarce) which should constrain the supply pipeline in the short term. This in turn could provide a floor to the rental market once economic growth is more firmly established during 2010.
Active Asset Management
As reported in our interim results, the Investment Manager's emphasis is on initiatives which add value at both a corporate and a property level. In a weak capital market environment this has meant a greater degree of focus on improving income security. The Company is actively pursuing negotiations with a number of tenants to extend, renew or stabilise existing leases with a view to improving income performance.
During the quarter, the Company has agreed new lease terms with two of the top ten tenants representing 5.3% of the portfolio income which has had the effect of extending income duration for a weighted average of 4.3 years. This is accretive to the portfolio's overall weighted average lease length to first break. In addition, a number of additional negotiations are ongoing with tenants across the portfolio to re-gear leases. We would expect some of these to conclude during the next quarter. As part of the active strategy to reduce specific tenant risk, the Company has agreed heads of terms on a sub-letting which would reduce exposure to the portfolio's largest tenant Norbert Dentressangle by 1.3%.
In the third quarter, the portfolio's current passing rent will rise by EUR975,000 per annum due to the completion and letting of the 16,558 sqm logistics development in Trappes, South West Paris. The property produces an income return of 7.95% which is accretive to the current portfolio yield of 7.46%. In addition the new lease to Nature et Decouvertes has a minimum duration of six years which is in excess of the current weighted average lease length to first break and is fully consistent with the management strategy to maximise income.
The Company is in negotiations to sell two properties totalling approximately EUR15 million.
Finance
As at 30 June 2009 the Company had drawn down EUR400.5 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 EUR34.5 million (excluding tenant deposits of EUR4.9 million) at that date giving a net debt of EUR366.0 million.
The Company's gross LTV (gross debt divided by market value of properties) as at 30 June 2009 under the Finance Documents with Bank of Scotland - which is based on the 30 September 2008 valuation - was 65.2%; the LTV covenant under these documents is 75%. Using the 30 June 2009 valuation - which for the avoidance of doubt is not used under the Finance Documents - the LTV would have been 74.4%.
All debt is fully hedged against changes in European interest rates until January 2013 at a weighted average swap rate of 4.13%. The Board, together with the Investment Manager, are continuing to negotiate changes to the debt facility which would increase flexibility and resilience in the current climate.
For further information, please contact:
Invista Real Estate
Tony Smedley/Chris Ludlam +44 20 7153 9369
Financial Dynamics
Dido Laurimore/Rachel Drysdale +44 20 7831 3113