Invista European Real Estate Trst Scf SA : Announcement of NAV and IMS

21 February 2014

As at 31 December 2013, the Company's unaudited Net Asset Value calculated using International Financial Reporting Standards and adjusted to add back deferred tax was €0.234 (19.4p) per share, reflecting a decrease of €0.012 or 4.88% over the quarter and 1.2p or 5.83% in Sterling. The unaudited Net Asset Value, calculated under International Financial Reporting Standards, was €0.230 per share.

A breakdown of the unaudited Net Asset Value is set out below:

1      Net Asset Value adjusted to add back deferred tax (both current and non-current liabilities).

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 31 December 2013, deferred tax liabilities of €17.2 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 €17.1 million which also have not been recognised.

The unaudited Net Asset Value incorporates a number of events and key factors during the quarter including:

·      The property valuation has decreased on a like-for-like basis by €7.2 million or €0.03 per share and by
€2.2million or €0.01 per share following to the disposal of Amiens C properties in France.

·      A decrease of the market value of the swap by €4.2 million or €0.02 per share as all interest rate swaps expired at
31 December 2013.

·      A decrease of the senior debt amount of €2.9 million or €0.01 per share is due to debt repayment from existing
cash balances and disposal of the Amiens C properties in France in November 2013.

The Company's unaudited Net Asset Value figure incorporates the independent property portfolio valuation as at 31 December 2013. The property portfolio will next be valued on 31 March 2014.

Figures converted into sterling assume a EUR per GBP exchange rate of 1.20453 as at 31 December 2013.

Key management events over the quarter and post quarter end

·      The maturity of the Company's existing debt facility with Bank of Scotland PLC (the "Loan") was extended from 31 December 2013 to 30 April 2014.

·      Portfolio valuation decreased by 2.9% over the quarter (2.2% on a like for like basis) to €316.1 million.

·      Sold three assets in France during the quarter, generating €1.1 million of net sale proceeds.

·      Post quarter end sold the Modletice asset in Czech Republic for €6.5million at a 3.9% discount to the latest
valuation.

·      Vacancy rate decreased to 16.64% as at quarter end, following two new lettings, as well as the sale of three
assets of which 64.4% of their total space represented long term vacancy. Following the subsequent sale of the Modletice asset, 100% vacant, the overall void rate is now 14.8%.

·      Utilised €1.1 million of cash in October to over-amortise the debt and achieve an LTV below the covenant of
70.0%, followed by a further repayment of €5.5 million from cash post quarter end.

Property Portfolio

As at 31 December 2013, the Company's property portfolio was valued at €316.1 million and comprised 32 assets located in six countries. The portfolio value decreased over the quarter on a like-for-like basis by 2.24% or €7.23 million as a result of value readjustments based on continuing poor market conditions and vacancy in some areas.

As at 31 December 2013, the Company's portfolio generated gross income of €28.5 million per annum, representing a gross income yield of 9.03% and a net income yield of 8.32%. The portfolio weighted average lease term to break is 3.8 years and 5.6 years to expiry. The portfolio void level by income as at 31 December 2013 decreased over the quarter to 16.6% as a result of selling vacant assets and new lettings, particularly in Germany and the Netherlands.

The portfolio's credit rating as measured by the Investment Property Databank's M-IRIS credit analysis system in January 2014 was 66 out of 100, which is classified in the "low-medium risk" band. 

As at 31 December 2013 the portfolio composition was as follows:

Sector Weightings

*Percentage of aggregate asset value as at 31 December 2013

Country Weightings

*Percentage of aggregate asset value as at 31 December 2013

Top 10 Properties

*Percentage of aggregate asset value plus cash as at 31 December 2013

Top 10 Tenants

* Percentage of aggregate gross rent as at 31 December 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

The outlook for the global economy remains positive with leading indicators for global trade rising and  forecasters revising growth expectations upwards for many of the world's largest economies including the US, Japan, UK, Germany and Spain. The Eurozone economy has entered 2014 with some momentum, with business and consumer confidence improving and private sector output surveys pointing toward continued expansion. However, threats to the recovery remain with the avoidance of a deflationary trap being one of the main priorities for the European Central Bank, which cut the main refinancing rate to 0.25% in November in an effort to stimulate the real economy and reduce the painfully high levels of unemployment that persist for many countries in the single currency. In contrast, the tapering of quantitative easing by the Federal Reserve recently triggered a correction in equity prices and a capital flight from emerging economies with several countries raising interest rates to combat the exodus. This could impact on demand from emerging economies that now account for close to 50% of world GDP and illustrates the difficulty in tightening monetary policy without stalling a nascent economic recovery.      

Following a slow start to the year, occupier activity finished 2013 strongly with annual take-up for French logistics totalling 2.5m sqft, an increase of 12% y/y (BNP Paribas). The increase in activity was driven by owner-occupier transactions that experienced growth of 48% y/y with several large operators rationalising regional operations (BNP Paribas). However, availability of logistics space increased by 3% y/y since the start of 2013 with 3.7m sq m of total space now available. The majority of space released onto the market is of Grades B and C specification with Grade A stock continuing to experience a decline.

In the German office market, occupier activity also picked up as the year progressed and finished with a total 2.93m sqm (for the 7 largest German cities) down just 4% on the 2012 total. This represents a steady recovery in occupier activity since the start of the year where in Q1 take-up volumes were down 21% y/y (JLL). Despite the decline in take-up the volume of vacant stock for the tier 1 cities declined by 6% during 2013 with the national vacancy rate continuing to fall and stands at 8.3% in December 2013.

With low unemployment, low interest rates and low inflation, both international and domestic retailers should remain attracted to the relative strength of German domestic demand. The retail market remains polarised with Grade A assets in dominant locations in high demand but in short supply. In contrast, assets in weak secondary locations and of poor asset specification remain difficult to let once vacant and are becoming increasingly obsolete.     

Investment into European real estate totalled €53bn in Q4 representing the highest quarterly volume since Q4 2007 and up 19% on Q4 2012. The recovery in European real estate volumes is reflected in the total volume for the year with €153bn completed in 2013 compared to €126bn transacted in 2012, representing an increase of 21% y/y. Non-European domiciled investors remained net investors in the region with a clear preference for the core western European markets, particularly central London. In 2013, the core markets of UK, Germany and France accounted for over 70% of European investment continuing the trend of the previous year. However, interest in the perceived higher risk markets of Southern Europe continued to exhibit strong growth with €4.2bn completed in Q4, an increase of 205% on Q4 2012. With pricing in the prime liquid European markets of London, Paris and tier 1 German cities appearing fully priced it is likely that investors will become increasingly attracted to assets higher up the yield curve as long as confidence in an economic recovery persists.

Asset Management Results

Strategic asset management is central to the Company's plan for improving asset liquidity as well as property incomes, assisting with the deleveraging of the portfolio and ultimately contributing to the refinancing effort. Over the quarter the Company sold three assets in Amiens, France, of which 64.4% of the total space represented long term vacancy with little opportunity for effective asset management. A further fully vacant asset in the Czech Republic was sold for €6.5million after the quarter end and thirteen other selected assets are being marketed for sale. These assets have been chosen either on the basis of their prospective long term vacancy, in which case their disposal will improve the characteristics of the remaining portfolio; or because they have recently benefitted from asset management initiatives which has placed them in a strong position for sale; or because they will be ready for disposal following the fulfilment of some additional asset management objectives in the short term.

Vacancy levels have continued their downward trend, falling from 19.8% as at 30 September 2013 (18.9% on a like for like basis) to 16.64% as at 31 December 2013 and 14.8% as at the date of this announcement. The Company signed two new leases during the quarter, at Amsterdam, Netherlands, and Montauban, France. Post quarter end an additional new lease was signed for a new anchor tenant in the retail asset located in Roth, Germany. Combined, these lettings resulted in the take up of 21,449 sqm of previously vacant space, generating €0.97 million in additional rental income and reducing void costs by €0.29 million. Post quarter end, the Company also received notice that its tenant at Nanteuil, France intended to exercise its break clause on 31 December 2014, representing €0.6 million in annual gross rent. The Manager is therefore working to secure a new tenant on this property over the next twelve months.

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 6.1% of existing income and has secured heads of terms on a further 4.0% of existing income. Combined these lease extensions have secured fixed terms for a weighted average of five years.  

Borrowings 

As at 31 December 2013, the Company had drawn down a total of €226.7 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 €12.2 million (net of tenant deposits of €2.9 million and escrow accounts of €2.8 million) at that date, giving a net debt position of €214.5 million.

The Company's gross Loan To Value ("LTV") ratio as at 31 December 2013 was 71.7% and the net debt LTV was 67.8%.

As announced in an RNS statement on 16 January 2014, the Company repaid €5.5 million in relation to its senior loan to keep the LTV below 70.0%, in compliance with the LTV covenant limit of 70% which has been in place since July 2013.

Following the expiry of the swap on 31 December 2013, the Company's cost of debt is now 3 month EURIBOR plus a margin of 250 bps.

Outlook

In order to deleverage IERET's portfolio, the Company  identified 14 assets as being ready for sale valued at €103 million as at 31 December 2013, which are currently being marketed for disposal; as reported, one of these assets, a vacant property in the Czech Republic was sold for €6.5 million after the quarter end. The assets within this portfolio have been chosen either on the basis of their prospective long term vacancy, in which case their disposal will improve the characteristics of the remaining portfolio; or because they have recently benefitted from asset management initiatives which has placed them in a strong position for sale; or because they will be ready for disposal following the fulfilment of some additional asset management objectives in the short term.

It is the view of the Manager that the remaining portfolio of 18 assets, concentrated on France and Germany and valued at €212.9 million as at 31 December 2013, will provide a mixture of opportunities for improvement through continued asset management as well as retaining some of the most attractive properties for new lenders. The combined effect of reducing both the LTV and the debt quantum, while simultaneously benefitting from the performance of this smaller portfolio is expected to assist in the structuring of a new refinancing package for the Company.

The Manager and Board are progressing negotiations with both Cerberus, as the new owner of the Loan, and a number of other potential providers of debt financing. A range of different structures is being actively explored, but it remains too early in these discussions to be able to say what the outcome will be.

For further information, please contact:

Internos Global Investors

Ludovic Bernard                                                                           +44 20 7355 8800

Citco REIF Services (Luxembourg) SA

Jorrit Crompvoets                                                                        +352 47 23 23 212

Hudson Sandler

Michael Sandler                                                                          +44 20 7796 4133