Invista EUR Prf Discussion Threads

[kenny] 27/9/2013 11:46

rat attack

You may well be correct but whatever the reason it's now very historical. In fact, if they do have a rights issue of some size, in conjunction with a refinancing, then they may be able to pay small dividends on the ordinaries in future. This is on the basis that Europe is improving, leading to some of the vacant stuff being let; or sold to reduce interest costs.

The company were obviously planning ahead!!

[rat attack] 27/9/2013 11:31

Kenny

I think the reasons quoted for the change in payment dates are tenuous at best. It is highly unlikely that there will be any savings in admin costs - payment costs will be the same whether made 3 weeks earlier or 3 weeks later. The only variable here would be payments made or received for interest. Given the consistent losses ordinary dividends are off the agenda. So given the situation this is just a management team that are desperate to save cash/enhance income and therefore the rationale stinks!!

[marlint111] 27/9/2013 11:11

Thanks Kenny.

[kenny] 27/9/2013 10:55

This old announcement provides payment dates (ex-div is normally early June and December):

27 August 2010
Invista European Real Estate Trust SICAF(the "Company")
Preference Dividend Payment Dates

The Company announces that the Payment Dates for all future payments of dividends relating to the Preference Shares will be changed from 31 May and 30 November to the third week of June and the third week of December respectively. Precise dates will be communicated to Shareholders in advance of each payment.

The changes will allow the Company:

· to reduce administration costs in respect of the Preference Dividend payment process

· to coincide the payment dates of the Preference Dividend with any dividend payable in respect of the Ordinary shares.

The Preference Dividend is calculated in respect of the time period between one Payment Date and the next. Accordingly, the next Preference Dividend payment due in the third week of December (the "December Payment Date") will be increased pro rata to reflect the additional time period from 30 November to the December Payment Date.

[marlint111] 27/9/2013 10:01

Anyone know when these are likely to go ex-div (from prospects I can only glean that dividend pay date is November)

[kenny] 26/9/2013 14:43

There does seem to be a consensus emerging among the 'experts' - see for example the above article - that European commercial property seems to be turning the corner albeit some countries will lag others. Some points from my current research:

1. At the risk of stating the obvious, if IERE's portfolio valuation stabilises, which is surveyors speak for stops going down, then either; a) refinancing is going to look much better to potential lenders, or b) a sale of properties during the course of a liquidation is going to produce enough to guarantee that the preference shares are paid all interest and capital.

2. France (49% of the portfolio) does not need a commercial property boom to achieve the above. If it stabilised, then we have Germany (37.8%), Spain (5%) and Netherlands (3.8%) - a total of 46.6% - to produce some gains to add further to the current safety margin on IERP. We also have the fact that an improving market will allow some of the vacant properties to be either let or sold.

3. Based upon the back of this emerging view about European commercial property, currently, not a day seems to go by without another fund being launched e.g. Blackrock with a new European Property fund which has raised $2bn on its way to its target of $5bn and numerous European property debt funds being launched. I imagine just the weight of money being raised to invest in European property debt and property could prove self fulfilling.

[kenny] 26/9/2013 10:35

An interesting article:

European property bounce begins, core yields already responding - C&W

25 September 2013, 10:49 PM

The real estate bounce has begun in Europe, with consumers, businesses and financial markets paving the way for stronger activity, says realtor Cushman & Wakefield. Prices in the best areas are already responding, with core yields falling.
The fall in yields over the summer is both reinforcing the market's positive mood and encouraging new buyers and sellers to emerge. While core favourites are still in high demand, prime supply is limited, forcing investors to consider alternative strategies to find stock. "Some are chasing diversification to enhance portfolio returns while others are ready to take on risk as they seek out higher incomes or enhanced performance," C&W said. "Many however are opting to target new markets – resulting in a notable upturn in the selection of non-core locations." While volumes in Europe fell 1.7% in second quarter from 1Q13, southern Europe activity rose 94% and Benelux was up 61%. In the first half overall, property investment in central Europe posted the biggest gains and had the fastest growth.
"The market bounce has begun and we are starting to see the rediscovery of a whole range of markets which had been overlooked for some time, said Jan Willem Bastijn, head of capital markets at Cushman & Wakefield, EMEA. "What's more, with sentiment firmer in most areas, debt and equity increasingly available and buyers getting comfortable with more risk, the outlook is for a stronger rise in demand and activity in 2014."
Property trends are following on where other investment markets have led, according to David Hutchings, C&W head of European research. "With measures of macro risk stabilising or declining, the door has opened for investors to look more broadly around Europe, albeit still in a measured way, to reflect where they see value." The premium in 10-year yields between core and non-core has come down markedly in the past year. "Some of the changes we are seeing in risk premiums are justified in light of a truer reflection of macro risk and the fact that past averages reflected an overtly tolerant attitude to risk," Hutchings said. "However, it is hard to deny that the real estate market is now sailing through calmer waters than for some years and the increased interest we are seeing is still more a vote of confidence." Investors are looking at big cities and quality real estate, with first tier cities like Milan or Madrid winning out.
Bastijn added that interest is growing across Europe where the price is right, with Italy leading and the Netherlands not far behind. "We're not there yet in Spain or Portugal thanks to the slower recovery in lending in particular, but interest is definitely up and alongside Poland. I also see Spain as a key market for activity in 2014." Italy saw a 54% increase in activity in the first half of the year and recent major deals such as AIG/Lincoln's sale of the De Vinci centre mark the beginning of a real improvement. pie

hxxp://www.pie-mag.com/articles/6109/european-property-bounce-begins-core-yields-already-responding-c-amp-w/

[kenny] 24/9/2013 14:14

Project Indie loan sold today.

The important part of the announcement is that the new owner of the loan is to work with the property manager to, first, improve the value of the properties and then "sales when stabilised". There is no daft quick fire sale of the properties. In the event IERE does not refinance, I imagine much the same will occur here.
hxxp://www.costar.co.uk/en/assets/news/2013/September/Cerberus-beats-Deutsche-Bank-to-win-Lloyds-Project-Indie-for-312m/#

[kenny] 24/9/2013 11:11

Thanks flyfisher.

That is UK property whereas IERE is concerned with European property. Here is an extract from an article from yesterday which indicates 75% LTV finance could be available on commercial property in France:

Banks dominate 2013 French financing as bonds wane - JLL
23 September 2013, 11:22 PM
Bank funding accounts for the bulk of French real estate financing so far this year, with bond issuance declining and alternative lenders only occupying a small market niche, says realtor Jones Lang LaSalle.
Banks continue to pay very close attention to lettings in the underlying asset, mainly financing secure assets or restructuring operations, and while loan-to-value ratios have increased slightly to as much as 75%, loan maturities remain relatively short at around five years on average, JLL said. At the start of the year JLL reckoned that €12bn-€13bn was available for French property operations from different lenders this year, and therefore envisaged little problem meeting refinancing needs and new lending requirements.

hxxp://www.pie-mag.com/articles/6092/banks-dominate-2013-french-financing-as-bonds-wane-jll/

[flyfisher] 24/9/2013 10:51

Indication of a good refinancing market.

hxxp://costarfinance.com/2013/09/17/barclays-bank-wins-175m-iq-winnersh-whole-loan-financing-mandate/

[stupidboypike] 23/9/2013 07:24

Thanks Kenny, Best regards SBP

[kenny] 22/9/2013 09:31

If they are going to go for a wind up then they may get a new 70% loan and be allowed to retain their cash balance (which equals the 5% difference to take LTV down to a, net, 65%). This is one possible scenario for a buyer of the existing loan.

However, the company's last statement was that they were going to seek a refinancing to enable the company to continue – continuation is probably more beneficial for ordinary shareholders. One hopes, they have already consulted the big shareholders who have indicated they will support a rights issue; otherwise it is a pointless announcement. If the company wishes to continue rather than go into wind up, then they do need a capital raise of some amount. In a continuation scenario, the ordinary shareholders probably have more to gain by retention of the properties for some years (even annual dividends!) but, I believe, they will need to dig deep to enable this to happen.

[flyfisher] 22/9/2013 07:56

Kenny , forum partners have just raised some cash .

hxxp://costarfinance.com/2013/09/11/forum-partners-secures-600m-la-francaise-mandate-in-wider-alliance-and-share-sell/

[stupidboypike] 21/9/2013 11:17

Kenny, do you think there is any realistic chance of them getting a replacement loan at 65% ltv and not having to have a fund raise?

Best regards SBP

[kenny] 21/9/2013 10:19

Here is my 'back of an envelope' estimate of how the company could solve it's refinancing in combination with a rights issue:

Assume new loan is at 60% of Loan to Value. (A loan at 60% LTV should be easily obtained)

Reduce LTV to 60% from current 65% €16.6m
Company's operating cash float €5m
Existing loan exit fee, estimated, €5m

Sub-total €26.6m
Cost of capital raise, say, 5% €1.33m

Total, say: €28m

At, say: 0.847c= £23.72m

About 260m shares currently in issue

Rights price of, say, 5.5p (against NAV of 21.6p at 30.06.13)

Equals a 5:3 rights issue - about 433m new shares.

The above figures can be tweaked endlessly - importantly the price at which new shares are issued determines the extent of dilution for the existing shares. However, the most important point is whether the current big investors, or new investors, can be persuaded to come up with about £24m; which is a little over 100% of current market capitalisation.

I believe there will be demand from new/existing investors because buying at 5.5p for a - diluted – 10.75p per share of NAV is a pretty good deal. Also, it is a cheap way into European commercial property which is predicted to recover over the next couple of years.

Incidentally, the company's balance sheet and LTV will improve by €7.1m between the 30.06.13 figures and the year-end, due to expiry of the swaps. The above figures do not allow for this substantial credit albeit some of it may be, effectively, absorbed by further NAV write downs between June and December. Also, if the company can achieve the sale of some of it's vacant property before the year end, that would help considerably.

[scburbs] 19/9/2013 08:05

Kenny,

Agreed, but the secured loan holder will be in a strong position to make an offer and the liquidator is firstly representing the needs of creditors not shareholders (of which the lender would be the most important). We know IERE is struggling to sell properties quickly and, therefore, a portfolio offer from an associate of the secured lender (for instance another fund managed by the same manager) could find itself with a lack of competition. At this point the liquidator would just be selling the properties for the highest offer.

However, as you have pointed out there are significant other players involved like Forum who might be able to make a competing offer, but this would significantly up their exposure.

All I was saying was that it is difficult to know what a buyer might do and it is preferable to negotiate with LBG (extend or take out at a discount via new loans etc.) than whoever the buyer might be.

[kenny] 18/9/2013 23:29

Scburbs/Valhamos – I agree that the potential outcomes following Lloyds putting the IERE loan up for sale have multiplied – perhaps to where the actual outcome is unpredictable at this point in time.

Scburbs, one important point to highlight – a loan holder cannot get "hold of the properties" they can only try to recover their loan. If they put a company in liquidation to recover the loan, the liquidator is required to sell the properties to third parties to recover the loan. They cannot, for example, obtain a property valuation and say "OK we are taking that property in satisfaction of a part of the loan equal to the valuation" – a liquidator is required to sell the property to a third party. Hence I repeat; a buyer of the loan is in effect advancing a longer term loan than the expiry at the end of this year.

Despite the unknowns, I would speculate that a sale to a buyer who "works out" the portfolio holds little concern for IERP holders. The interest rate swap expires in December and not having another of those in place will bring interest costs down very materially. Meanwhile, the higher rent through new lettings and sale of vacant properties that are currently under offer, will increase the margin of safety for IERP holders.

Finally, in all of this, let's not forget the ordinary shareholders. Ironsides increased their holding to about 24% as recently as June - and they must have done that knowing, from the company's own announcements, that they were likely to have to put up more money in order to exit the situation, eventually, with a profit on their shares.

[scburbs] 18/9/2013 22:17

Kenny,

Why would it be clear that a purchaser of a past due loan or a nearly expired loan would be prepared to extend a new loan? I would have thought this type of loan is equally likely to attract someone who may have an interest in getting hold of the properties and may consider that holding a secured loan which is in default might provide a cheaper way in.

A purchaser of a loan is also more likely to negotiate aggressively with IERE. LBG just want out, so IERE should be negotiating to acquire the LBG loans at a discount funded by new loans/rights issue if achievable (or to extend them prior to the sale). A much better result is likely for IERE/IERP from a deal with LBG (who just want out) compared to an acquirer of the loan who will be looking to make a significant profit from the loan.

On balance a sale by LBG to a third party is likely to be bad news for IERE/IERP and a missed opportunity to enhance NAV to the benefit to both IERE and IERP

[valhamos] 18/9/2013 22:01

Cheers Kenny. I think the fact that that the majority of the Project Hampton loans are past maturity explains why Lloyds were keen to include the IERE loans. They don't want to run the risk of IERE not finding another lender after December and want to get shot of the loan along with the whole portfolio of past maturity or non-performing loans. I think there are a number of different outcomes here, the favourites being a buyer for the Project Hampton loans or someone like Forum Partners stepping in. I have added today.

[kenny] 18/9/2013 15:39

This article confirms that Lloyds are indeed cleaning up their balance sheet - the Project Hampton portfolio is where the IERE loan is bundled. I have added some comment after the article.
================================================
Lloyds readying flurry of year-end loan portfolio sales
Posted on September 16, 2013 3:49 pm by James Wallace

Lloyds Banking Group is preparing to shift as many as another five commercial property loan portfolios before the end of the year, as part of a wider effort by the bank to reduce its total non-core legacy loan book to under £70bn by year end.

António Horta Osório, the group chief executive of Lloyds Banking Group, has approved an increased budget for the Business Support Unit (BSU), the division which manages both core and non-core distressed loans, enabling the bank to appoint the necessary external advisers, such as loan portfolio sales brokers, advisers, and lawyers to complete the accelerated year end de-leveraging.
The motives for the end of year push are two-fold.

A reduction of Lloyds' non-core balance sheet from its end of June £82.6bn to below £70bn would enable Lloyds to suspend separate reporting of its non-core balance sheet externally, under the terms of the £20.3bn government bailout over three-tranches in 2009.

Secondly, the reduction of Lloyds' non-core book to below £70bn, which would be 12 months ahead of originally envisaged, is also seen as a key milestone in the "normalisation" of the bank ahead of a widely-anticipated, imminent major share sale of part of the government's 43.4% stake.

Two loan portfolio sales are underway, projects Indie and Hampton (outlined below), while the remaining three portfolios are being prepared by Lloyds.

Final bids tonight for €450m Project Indie.

First up for Lloyds' commercial real estate BSU team, headed by managing director Richard Dakin, is the sale of Project Indie, a €450m outstanding senior loan secured by German Aktiv Property Fund Limited Partnership (GAF), for which final bids are due tonight.

The four finalists expected to lodge bids include Angelo Gordon, Deutsche Bank, Cerberus Capital Management, as well as a Middle Eastern sovereign wealth fund.
GAF was assembled by Scarborough, a real estate firm formerly majority-owned by Kevin McCabe, the part owner of Sheffield United football club, and Bank of Scotland (BoS), through Uberior Europe, during 2005 and 2006 for around €790m.
The legacy GAF portfolio forms part of the wider Diversified UK and European (DUKE) fund, which was assembled in July 2009, as a 50/50 joint venture between Valad Europe, through Valad Capital Limited, and Lloyds Banking Group, through Uberior Europe, a subsidiary of Uberior Investments, Lloyds' legacy HBOS private equity arm.

The remaining DUKE assets and debt are not for sale.
UBS, which is selling Project Indie, has been mandated to accept bids for either the Lloyds senior loan on its own, or as part of a joint venture retaining Valad Europe in place as asset manager.
Since GAF's acquisition of the 57-strong seed portfolio for €790m in April 2007, 10 assets have been sold, including several in the last 12 months.
Six years later, the portfolio has dramatically fallen in value, which asset disposals fail to disguise.

The GAF portfolio, recently valued at €406m, has total liabilities of the €450m outstanding senior loan balance plus a circa €25m mark-to-market interest rate swap liability of €475m.

Against which, final bids are expected to come in between €350m and €375m.
First round bids for €1.5bn

Project Hampton due 3 October

Lloyds has also called for first round bids for its first multi-jurisdictional commercial property loan portfolio, the €1.5bn Project Hampton, for 3 October.
Project Hampton is comprised of just over 20 separate loans, with an unpaid outstanding loan balance of €1.5bn, and only a marginal interest rate swap liability of between €40m and €50m.

The loans are secured by commercial property, in descending order by value, in Germany, Sweden, France and Spain.

Project Hampton's cross jurisdictional loan pool, including loans secured by cross border portfolios, presents a new form of complexity for bidders in having to net present value for a loan secured by properties with considerably different economic and property outlooks.

The loan pool is broadly 50:50 split between performing and non-performing, with the majority of loans passed maturity.

Project Hampton, which is being sold by Deloitte, comprises an almost even split of office, retail and industrial commercial properties, with around 30% to each, and the balance in various less traditional property types.

Lloyds Banking Group declined to comment.
================================================================

Comment:

Looking at the Project Indie figures (there are no indicative bid figures for Project Hamilton), this provides considerable reassurance that the IERE loan will get refinanced.

Project Indie has €406m of assets less a €25 swap liability gives a net value of €381m. The article states that the potential bid prices of between €350 (92% of NAV) and €375m (98% of NAV). This seems very reassuring in the context of IERE's loan which is €235m on €335m of assets; a LTV of 70.15%.

The second important indicator this article provides is in relation to Project Hampton itself. Note that most of the loans in that portfolio have passed maturity. Therefore, it is clear that any purchaser has to be willing to provide a new loan to replace Lloyds to the property owner (IERE's loan expires on 31.12.13).

Finally and thinking laterally, either this loan is a) going to be sold to someone who is willing to provide a loan of at least a long enough period that European property recovers enough to enable an orderly wind-up, or, b) if Lloyds is not offered enough in the pound to sell the loan they will likely grant a new loan. The costs and unknown aspects of a liquidation are just too great for Lloyds or a new provider to seriously consider that as the best route. Especially, in a situation where LTV is 70% and could be brought down further through a rights issue.

[stupidboypike] 14/9/2013 13:09

Kenny, thanks for all the work on these. I have joined you in a small way.

Best regards SBP

[kenny] 14/9/2013 10:50

Excellent find Valhamos. Very reassuring in relation to whether or not a refinancing is going to get done. I imagine Forum is looking into the detail of the €1.5bn of European commercial real estate loans that Lloyds have put up for sale; the teaser document that has been put out. They could well offer to buy some loans and as the IERE loan is one of the pick of the bunch, that loan could be in their sights. It would be rather strange if Forum end up with 100% of the IERE loan to add to their 41% of preference shares but ultimately, I guess, they will be driven by where they see value.

Things are certainly moving at a pace. I am hoping that the next news, will be IERE announcing it has sold the "six other vacant assets under offer" mentioned in the 05.08.13 announcement. Selling vacant properties - even at a loss - to bring cash in the door is going to considerably help the refinancing and getting a rights issue away.

[valhamos] 13/9/2013 19:56

There is a short CNBC video of an interview with Russell Platter of Forum Partners (see Kenny's last post) about opportunities in Europe. Interestingly he specifically mentions the Lloyds planned disposal of £1.5m portfolio of commercial property loans discussed above.



And having had a quick browse around their website Forum Partners do seem a quality outfit.

The relevance of all this is that it should reduce refinance risk thereby enhancing the attraction of the preference shares.

[badtime] 12/9/2013 11:00

Kenny thnx for your comments re LSR..but i have considered most angles b4 buying...and at this stage its a nibble...nothing is without risk is it :)

[kenny] 12/9/2013 10:09

As mentioned in my post number 61 above, Forum Partners owns £12m of the preference shares and no ordinaries. As previously highlighted, I think they will be crucial in ensuring that the rights of preference shareholders are not trampled.

Interesting article below from yesterday - it certainly appears that Forum Partners have the clout to refinance IERE, either partly or wholly, through its existing funds or the senior debt fund it is launching before the year end:


La Française takes 25% strategic stake in UK's Forum, invests €600m
11 September 2013, 10:12 PM

La Française, the $50bn fund manager of French bank Crédit Mutuel Nord Europe, is to take a 24.9% stake in private real estate group Forum Partners in a strategic tie-up that will also see it allocate over $600m to Forum's investment funds.

Under the terms of the deal unveiled Wednesday, La Française will acquire the minority stake in Forum, which has offices in London, New York and Santa Fe, as well as outposts extensively across Asia, through the issue of new shares. As part of the deal, Crédit Mutuel Nord Europe and La Française will commit over $600m to Forum across its main investment strategies, starting with over $200m into the firm's European debt platform that targets mezzanine and senior debt investments. Established in 2002 by Russell Platt, Andrew Walker, and Caroline McBride, Forum invests in European equity and debt, Asian equity and debt, as well as global real estate securities, and manages $5.7bn in capital globally.

Xavier Lepine, president of La Française, said Forum's expertise and reach met the asset manager's objective to expand its property investment portfolio internationally. "Through our strategic partnership with Forum we are confident that we can create a global platform that can successfully take on the exciting opportunities in real estate," he said. La Française currently has €7.8bn in direct real estate and property funds.

As well as giving La Française access to investments in new regions, the deal secures significant investment for Forum at a time when many private equity groups are fighting fiercely to raise capital from investors. It will give Forum and La Française access to each others institutional and retail distribution contacts. "This new strategic partnership comes at an important time in the growth of Forum as well as the evolution of the real estate investment management industry," Russell Platt, CEO of Forum Partners said. The partners plan to launch a senior debt fund targeting deals principally in the UK and Germany before the end of the year, according to media reports.