Invista Share Discussion Threads

[alanji] 28/10/2009 12:28

Nick,
Surely any management co worth their salt would have sounded holders out before selling property and incurring all the expense of an offer? Although, it was probably necessary to sell some property to preserve covenants.
Quotes, regarding the dividend:
2008 finals - "the Board's objective is to have the quarterly dividend fully covered by earnings by the end of the year"
2009 interims - "Good progress made towards the reduced quarterly dividend of 0.88 pence per share being fully covered by earnings from the end of the current financial year"
2009 finals - no mention of dividend cover
I have posted here before that I did not think the dividend cover would be achieved. As you are well aware there are many companies well positioned (cash or good loan facilities) to benefit from a sustained upturn - I am not currently a holder (admittedly sold out too early!) and consider there is better value elsewhere at present.

[nickcduk] 28/10/2009 10:51

Alan,

I agree the dividend being uncovered isn't good. I did speak to IFD and they said the reason why the bondholders didn't give approval was because a lot of them still were pricing the bonds at book value rather than at market. If a tender went through they would be forced to write down their investments. Im not sure I would give them too much flack on trying to tender. IRET also had a few postponed bondholder meetings before they got approval as well.

They said they were holding back from deploying cash because they wanted to be certain the recent recovery wasn't a blip. Apparently in the early 90's recession there was a blip before prices starting falling again. Hopefully they should be able to get it working again shortly.

Management fees are too high. I think they will be forced to reduce them as they have done elsewhere. There is a 12 month notice period so if they don't fancy playing ball they could always be threatened with losing their contract.

[alanji] 28/10/2009 10:17

Hi Nick,
I thought the property boards had gone to sleep for half term!
Agree with your comments - nav encouraging, but they have now admitted the dividend is not fully covered. I think it could be as low as 2p. Of course, if that £80m pot of cash was used to buy high yielding property (as implied in the rns). Doesn't say much for the management, though. Having sold property to pay of the loan, which is turned down by noteholders, they decide to buy property back - and meanwhile have been collecting their juicy 0.95% for managing the cash - what are the directors paid to do - not negotiate the manager's fees apparently!

[nickcduk] 28/10/2009 09:39

Decent NAV statement today. Underlying performance seems to be at the top end of that being reported by the various property trusts. They now need to get their cash balances put to work to boost their underlying earnings. Still the cheapest of the plays in terms of discount to NAV. With UKCM, FCPT and SLI trading on 10%+ premiums it wouldn't be unfair for IFD to trade closer to NAV. That would be another 20% or so from where we are at present.

[envirovision] 19/10/2009 16:34

IRP is the best place imo, should hit 90p by end of week plus divi yeilds around 10% and yeild safe now you dont get that in many plays do you!

[skyship] 02/9/2009 15:40

Looking to buy back into some of the PICs as they retreat to more attractive levels again. IFD look to me to be a buy when they hit the rising 50day MA @ c.34.5p - coinciding with a 50% FIB retracement of the most recent rise from 27p; though a more serious sell-off could perhaps retrace all of that recent rise and take us back to the high 20s.

Will wait & watch awhile...

[nickcduk] 04/8/2009 16:56

Giving it a little thought I am not sure the bond tender really makes a huge difference here. Still trading on a chunky discount compared to the REITS which are now trading on premiums. In some cases quite chunky ones. On an earnings multiple IFD would still be cheaper than the REITs. Even UKCM is trading above NAV now. The focus could be changing from yield to NAV discount going forward.

[nickcduk] 04/8/2009 15:27

Toe Rag bondholders kiboshed IFD best plans. Would expect them to try and placate them with something else. Maybe they will break the swaps in order to shore up the income position. Would expect the dividend to be maintained. Discount to NAV is in excess of peers so think the shares are around fair value and will continue to mark time.

[alanji] 04/8/2009 15:21

Tender offer has failed.
Good sale Skyship. I nearly sold yesterday (only had a small holding) and have now sold at a small profit, including dividend.

[nickcduk] 20/7/2009 16:13

Have read somewhere that IFD bonds are currently trading around 65p. Would suggest a successful tender would be between 65-70p. Should help NAV to around 55p

[skyship] 17/7/2009 09:11

PW's report on this week's news:

[skyship] 16/7/2009 07:50

NAV & DIVI ANNOUNCEMENT - DIVI HELD @ 0.88p

[alanji] 13/7/2009 19:41

Nick,
They will save £4.35m a year less loss of interest of 1.3m (I assumed 2% in my post 47, above). Revised net profit of £9m = 2.8pps. However I think the current dividend will be maintained - at least for this quarter to see if the bond offer is taken up.
Bondholders are giving up a return of 4.2% at £75% (6.4% at £65%) to redemption in 2016. I agree the current interest rate is 0.7% but look at 7 year fixed rates and add them and you are approaching 10% possible loss.
It would be interesting to see who the holders are.
By the way I calculate that a purchase at £75% will increase the ltv headroom to about 35% (31 March value)

[nickcduk] 13/7/2009 18:10

Alan - Your dividend calculations are wrong. They will save circa £4m a year in interest payments by buying in bonds. The bond holders are also not giving up 10% a year through to 2016. Bondholders are currently receiving 0.7% a year.

[skyship] 13/7/2009 16:20

Hi ALAN - Yes, I suspect Invista have the sellers already verbally committed. A 2.8p divi would put us pretty much on a 9.7% yield @ 29p. Disappointing, but could live with that....

[alanji] 13/7/2009 12:24

Back from a few days away and trying to understand the proposal. Looks like I made a mistake selling!
Thanks to Nick for the explanations. There are two points I have been unable to find the answer to:
Is it possible to discover at what price the loan notes are trading? Although listed on the Irish Exchange they do not appear to be traded.
What is the relationship between the 266.5, the 250 and the 213.5, although it is probably only the latter figure which matters?
By my calculations div cover will increase to 2.8p for the current year.
The big question is how much will be taken up? At 75p bondholders are giving up approaching 10% pa to 2016 (more if the bonds were to be repaid in 2014) so I would guess that it will only be those strapped for cash who take up the offer. Of course if Invista have done their homework they will already have lined up sufficient holders.

[nickcduk] 12/7/2009 19:47

You would add it back to the higher figure. I have a rough figure of about 58p to reflect both gains from debt being purchased below par and the reduction in swap liability since March. The new swap liability would be about 5 or 6p. Key points are we have a high dividend yield and a large discount to NAV. LTV would probably be below 40%. Should be trading much closer to NAV like SLI and UCKM are.

[skyship] 12/7/2009 16:46

NICK - the last NAV statement for 31/03/09 was as below. Would we add back to the lower figure of 43.8p or the higher of 53.3p - both in any event about to be reduced for valuation to 30/06/09!!

All will come out in the wash & I suspect that we will end up with a figure still North of 40p.

+--------------------------+------------++
| Net Asset Value per | 43.8 ||
| share (pps) | |
+--------------------------+------------++
| Net Asset Value per | 53.3 ||
| share excluding swaps | |
| (pps) | | |
+--------------------------+------------++

[sommet2] 11/7/2009 13:56

Nick,
Thank you.It now makes sense.

[skyship] 11/7/2009 13:08

As ever - thnx NICK. Looks as though you made a good trade with that 100k @ 27.25p!

[nickcduk] 11/7/2009 12:50

Just to clarify a couple of points. The rate IFD is paying on borrowings is around 5.5%. This is because of the interest rate hedges it has taken on board. By paying off between £75-£85m of debt they will save around £4.5m a year in interest payments. This is offset by the reduced income earnt on cash balances (About 500k). The cost will be the break fees they will have to pay to cancel the hedges on that part of the borrowing. The M2M value of the swaps had fallen to around £22m at end June. They will have to crystalise around £8m in losses. This is more than made up for by the £20-£30m in debt reduction as a result of the debt being tendered below par.

Increase in NAV will be between £12m-£20m if the tender is fully subscribed for. That is taking into account swap fee costs. So those numbers should be added to the 52p or so NAV that IFD last reported.

You are correct that IFD were showing notes at nominal value rather than mark to market. Its a bit murky putting through reductions in debt values as it isn't always possible to trade entire position at the market price. Think the market has missed a trick here. I certainly wasn't aware that the debt was trading on such a huge discount.

I doubt bondholders were the instigators behind IFD making their move. IFD are receiving less than 1% on cash balances and paying 5.5% on borrowings. Equates to about £4m a year difference. Bond holders will be keen to tender as they would rather have cash than be earning a pittance on their position. The margin of 0.2% is very low as well. Recent pricing would probably be nearer 2.5%. That would explain why bonds are trading on a large discount and why we are likely to get a lot of interest in the tender. Win-win position all around. IFD have a covered dividend, much lower LTV and a bigger discount to NAV.

[sommet2] 11/7/2009 12:43

skyship.
I had not considered the Interest Rate Swap.From memory they paid about £16m in finance costs during the last financial year.I am only speculating but it appears that some or most of this related to the fixed rate swap.So £75m of this swap could be crystallised and a loss taken.Before I buy in I would like to understand more about the financial implications of what they are doing

[skyship] 11/7/2009 12:06

All depends upon the Interest Rate swaps position. At 31 Mar'09 they had a negative value of £30.8m; and if you ignored them as a mere M2M absurdity, the NAV rose to 53.3p. Does the current tender give us a capital gain AND crytallise a M2M write-back. I don't know I'm afraid - but I suspect both Nick & Alan might be able to shed some light...

[sommet2] 11/7/2009 11:52

SKYSHIP,
I am struggling with this as well.If the Notes were fixed and paying a coupon of say 6% I could understand the rationale.But they are Floating Rate Notes and assuming nick is correct IFD almost has the use of this money for free so why use cash to repay some of it?.If by using £55m to repay £75m nominal of notes they save approx £1m per year in interest payments but lose almost the same in credit interest where is the benefit.

I should have looked at their last balance sheet before typing this note but I assume they are showing the debt at nominal value and not market value and by repaying below par they will boost NAV by approx £20m.I find this strage because I thought most investment companies showed the market value of their debt.The banks certainly do which is one reason why many have reported profits when at operating level they make a loss.Obviously this "gain " has to be reversed at some point but hopefully operating profits will have returned by then.

There must be good reason to do this otherwise the directors would have kept the cash.Personally I think the bondholders have put pressure on them because some want out and are concerned they might use the cash to buy new properties etc.I am not sure the buyback will give a big boost to NAV but it will offset the decline in property values which is still a positive for the balance sheet.When they reported at the end of March I think the share price was 23p with an NAV of 48p.What do you guys think the NAV will be at their next report?