27 Nov 2008 07:00
INVISTA EUROPEAN REAL ESTATE TRUST SICAF (the "Company"/"Group")
ANNOUNCEMENT OF NAV AND DIVIDEND AND UPDATE ON REFINANCING
27 November 2008
Invista European Real Estate SICAF today announces its 30 September 2008 NAV together with an update for shareholders on the outcome of its recent refinancing and subsequent change to its dividend policy.
Commenting, Tom Chandos, Chairman of the Invista European Real Estate Trust, said:
"The last 12 months have seen unprecedented disruption in the capital markets which has inevitably impacted on real estate markets worldwide. Against this background we are pleased to have agreed terms with the Bank of Scotland for the extension of our existing senior debt facility for three years.
"Despite ongoing progress with the portfolio and the agreement on terms of our refinancing, we have decided to adopt a very cautious approach and preserve the Company's cash by suspending dividend payments from now until the end of the financial year. We believe that these measures, combined with the Group's active management initiatives, will support the business until markets recover."
Net Asset Value
A breakdown of the unaudited Net Asset Value is set out below:
| In EURm | 30/09/2008 | 30/06/2008 | 3 month change |
| Direct property independent valuation* | 687.4 | 728.8 | (41.4) |
| Market value of interest rate swaps | 9.0 | 17.5 | (8.5) |
| Net current assets | 14.5 | 14.7 | (0.2) |
| Interest bearing loans and liabilities | (444.2) | (443.2) | (1.0) |
| Net deferred tax liabilities** | (19.5) | (27.4) | 7.9 |
| Net Asset Value | 247.2 | 290.4 | (43.2) |
| Adjusted Net Asset Value*** | 266.7 | 317.9 | (51.2) |
| Adjusted Net Asset Value*** per share (EUR) | 2.33 | 2.78 | (0.45) |
* Direct property independent valuation includes EUR55.8m in respect of Ecully & Villeurbanne, Lyon, France sold in October 2008
** Net deferred tax liabilities includes EUR2.4m in respect of Ecully & Villeurbanne, Lyon, France sold in October 2008
***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 30 September 2008 including:
The existing portfolio decreased in value on a like-for-like basis by 5.7% in the quarter, equating to EUR41.4 million or EUR0.36 per share;
A decrease in the mark-to-market valuation of the Company's interest rate swaps of EUR8.5 million, equating to EUR0.07 per share;
The Company's unaudited Net Asset Value figure incorporates the external property portfolio valuation as at 30 September 2008. The property portfolio will next be valued by an external valuer as at 31 December 2008 and the next quarterly Net Asset Value per share is expected to be published in February 2009.
Finance
Following the reporting period, the Company has agreed terms with its existing lender, the Bank of Scotland, for an extension of its existing senior debt facility. The extension is in respect of EUR416.5 million senior debt for a three year term expiring on 31 December 2011 and the margin is 2.75% pa over three month EURIBOR. All debt is fully hedged against changes in European interest rates until January 2013 at a weighted average swap rate of 4.055% therefore giving a fixed interest cost of 6.805% pa. The facility is subject to an upfront arrangement fee of 1.5% of the facility amount and an exit fee payable on expiry of the loan term or subsequent refinancing date of between 1.5 to 3.0% of the facility amount. The terms provide for an interest cover covenant of 1.30x and a LTV covenant of 75% in year 1 and 65% in years 2 and 3. The Company has signed an Amendment Agreement with Bank of Scotland to extend the existing debt facility and the parties intend to finalise legal documentation and customary conditions precedent in the next few days. Following completion, drawn down debt is expected to be EUR410.0 million with the remainder reserved for part funding the outstanding committed asset at Girona in Spain. The Company will make a further announcement once completion has taken place.
This extension will provide the Company with certainty of debt funding and a fixed cost of financing for a further three years. It is the Board's intention to refinance this debt to a lower cost of longer term financing once financial markets improve.
Dividend
The completion of negotiations with respect to the refinancing of the Company's debt facility has provided the Directors with a greater level of clarity as to the Company's ongoing financial position. In an environment of higher financing costs and weakening property valuations the Board considers it prudent to conserve cash as far as possible with a view to de-gearing the Company and reducing debt through the application of excess cash flow and proceeds from sales. Against this background the Board has decided to suspend dividend payments in respect of the second interim dividend for the financial year ended 30 September 2008 and for the entire financial year ending 30 September 2009. The Board will review this dividend policy regularly.
Property Portfolio
The value of the property portfolio as at 30 September 2008 was EUR697.9 million (EUR740.2 million as at 30 June 2008) and comprised 52 properties including one committed property. The Company's portfolio, on a like-for-like basis, decreased in value over the quarter by 5.7%.
The property portfolio is diversified across three commercial property sectors and seven countries, with the majority located in France and Germany and an emphasis on the larger mature and established markets of Western Europe.
The Group's portfolio generates a net income of EUR49.8 million (Source: DTZ Valuation 30 September 2008) per annum from 171 tenants, has 6.3 years weighted average lease length to expiry and produces a net initial yield of 6.70% on valuation. The credit rating of the tenants within the portfolio is 69/100 which is classified as "low to medium risk" (Source: Experian July 2008).
As at 30 September 2008, the portfolio vacancy level was 3.8%, remaining broadly stable over the past six months (March 2008: 3.9%). This stability reflects the success of the Investment Manager's active asset management strategy which has included the negotiation of a number of new leases that have been signed during the period.
Against the background of a worsening European economy, we would expect occupiers to become more selective about the quality of the properties they occupy, the rent they pay and the duration of their occupational leases. The Company benefits from a relatively long weighted average lease length which should provide an effective hedge against significant changes to the income performance of the Company. To date, the Group has not experienced any material change in the activity of the main tenants in the portfolio, the leasing potential of its properties or the level of arrears. This is encouraging, although the situation will be monitored closely because of potential downside risks to the economic outlook.
Sector Weightings ¹
Sector Weighting
Logistics 50.5%
Office 35.8%
Retail 13.8%
Country Weightings ¹
Country Weighting
France 49.4%
Germany 32.3%
Belgium 6.8%
Spain 5.4%
Netherlands 3.4%
Czech Republic 1.6%
Poland 1.2%
¹ Valuation as at 30 September 2008 (including a committed asset)
Top Ten Properties ²
| Address | Sector | % | |
| 1 | Heusenstamm, Frankfurt, Germany | Office | 11.4% |
| 2 | Riesa, Germany | Retail | 7.9% |
| 3 | Ecully, Lyon, France | Office | 4.7% |
| 4 | Cergy, Paris, France | Office | 4.5% |
| 5 | Lutterberg, Germany | Logistics | 4.4% |
| 6 | Madrid, Spain | Logistics | 3.7% |
| 7 | Monteux, France | Logistics | 3.1% |
| 8 | Villeurbanne, Lyon, France | Office | 3.0% |
| 9 | Grenoble, France | Office | 3.0% |
| 10 | Marseille, France | Logistics | 2.9% |
| Total | 48.5% |
² Calculated as percentage of aggregate asset value plus cash (including committed asset) as at 30 September 2008.
Top Ten Tenants ³
| Tenant | % | |
| 1 | Norbert Dentressangle 4 | 19.0% |
| 2 | Deutsche Telekom | 10.9% |
| 3 | DHL | 7.1% |
| 4 | Tech Data España | 3.7% |
| 5 | Valeo | 3.6% |
| 6 | Bax Global | 3.4% |
| 7 | Merial | 3.0% |
| 8 | Carrefour | 2.8% |
| 9 | AVA Marktkauf | 2.4% |
| 10 | Real SB-Warenhaus GmbH | 2.1% |
| Total | 57.9% |
³ Calculated as percentage of aggregate gross rent (including a committed asset) as at 30 September 2008.
4 Increased from 15.4% as at 30 June 2008 as a result of Norbert Dentressangle's acquisition of Copal Logistics and Christian Salvesen
Market Context
Sentiment towards the European property sector worsened in Q3 2008 as investors digested the impact of the global financial crisis and weaker economic growth on the property leasing market. The European economy is moving into a period of flat or even negative growth and under these circumstances leasing markets are expected to soften in 2009, with the potential for rental declines in the weakest economies such as Ireland, Norway and Spain.
IPD (Investment Property Databank) is also reporting that property investment performance in Continental Europe has fallen far below the peak levels of 2007, principally as a result of declining capital values. Property investment volumes remain low and pricing is under pressure across all markets. We expect performance to become more divergent, favouring well-located properties with quality tenants in lower volatility markets such as Benelux, Germany and France. With inflation now falling across Europe, central banks have been able to respond to the weaker economic outlook by reducing interest rates (in October and November), which may provide greater support to property markets in the medium-term. In the short term however we anticipate further price corrections across most Continental European markets.
Transactional and Asset Management
Disposals continue to be considered where asset management plans have been successfully implemented, or where there are concerns over future performance. Post 30 September 2008 two sales were completed in Lyon, France for a total consideration of EUR56 million. These were achieved at 0.36% above September valuation. The fully let properties comprised three office assets leased to IBM, Scotts and BASF in Ecully and an office building of 6,372 sqm, let on a long term basis to Merial.
Positive progress is being made on asset management initiatives in the portfolio, with a number of lease re-negotiations taking place across assets in various countries and sectors. The Investment Manager is focused on leasing vacant space and lengthening existing leases where this is beneficial to future performance.
Some examples of activity in the portfolio over the last quarter are summarised below:
In Brussels, Belgium, the Company signed a new 3/6/9 lease on the remaining office space at Rue Luxembourg at a rent 9% above expected market level;
The asset acquired in Waterloo Business Park, Brussels is now fully let after having signed a 6/9 year lease on the vacant accommodation;
In Amsterdam, The Netherlands, the lease to Christian Salvesen (now Norbert Dentressangle) was extended by two years until 2011 which is consistent with the Company's strategy of lengthening leases on key assets in the portfolio;
In Trappes, SW Paris, the Company has successfully completed the pre-letting of a brand new warehouse development on a long term basis (6/9 year lease);
In Amiens, France, an active marketing strategy has resulted in the signing of a new lease with a large French manufacturer and agreed Heads of Terms in respect of additional space, thereby reducing vacant space at the property by 57%.
There is a conference call for analysts and investors at 8.30 am this morning. Please contact Georgina Turner at Financial Dynamics on 0207 269 7136 for the dial in details.
For further information:
http://www.ieret.eu
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