Invista EUR Prf Discussion Threads

[scburbs] 02/12/2013 08:05

Interesting that IERE were in the running, albeit it is clear they were not in a position to settle the liabilities in full.

However, they must have some debt offers on the table. Unfortunately now the offer has been rejected they are perhaps 30% short of what they need.

They are no closer to a solution, but the good news is that Lloyds need something from them. This means they have a hand to play and some time to buy. I suspect Lloyds have alternative ways of transferring the loan, so it may be a weak hand and they might be limited to getting 4 months, but it is much better than being in default come 1 January!

[stupidboypike] 02/12/2013 07:51

The bullish thing is that IERE were in a position to settle the liabilities in full. It seems to me that the only question was how much discount. I'm pretty sure that IERP should reward the patient. Happy to hold.

Best regards SBP

[valhamos] 02/12/2013 07:46

Intriguing - I wonder what level of loan waiver IERE were asking for compared with the discount that Cerberus achieved in acquiring the loans from Lloyds.

[scburbs] 29/11/2013 13:07

Kenny,

I don't believe things are necessarily that bleak but they are very uncertain. IERE/IERP are not quite in the lap of the gods, but are at the gates of hell!

It is difficult to see a refinancing being done by IERE before the loan expiry so it seems to be up to Cerberus. If Cerberus play ball and agree to extend the loan or let IERE refinance and repay in tranches over an extended period then IERP could do very well (with Cerberus also doing very well - IERE could probably give Cerberus their money back quite quickly (assuming discount is c.25%) which would then makes their IRR very good as the rest came through). All I am saying is that it is difficult to tell at the moment which way things are going to go.

[kenny] 29/11/2013 12:12

Thanks scburbs for your alternative view. Things cannot be as bleak as you believe because the company has today announced the next interest payment on the preference shares (about €1.5m on 20 December).

[scburbs] 29/11/2013 11:03

Thanks Kenny, interesting news. Cerberus certainly appear to be a preferred bidder on these portfolios as they have won a few from Lloyds.

Lloyds will look like idiots if IERE refinance the loan before expiry (as they will have just handed a substantial profit to Cerberus). Also if IERE were able to refinance they should have been able to outbid Cerberus as this was their best move (especially if the discount on those loans was anywhere close to 25%!). ERET did a deal with Lloyds to avoid their loans falling into the hands of Cerberus or another bidder, but it looks like IERE were not in a position to close a similar deal.

A loan default looks increasingly likely (is there a punitive default rate of interest?), so the action that Cerberus will take is key. Still looking a bit too binary to be able to work out whether IERP is good value or not.

A haircut of as high as 25% (could have been lower on the IERE loans) would not bode well for a read across valuation of the prefs, but I suspect that Cerberus have got a good deal.

[kenny] 29/11/2013 10:38

Cerberus Capital Management is the buyer of the loan portfolio's which include IERE's debt:

hxxp://costarfinance.com/2013/11/29/cerberus-pays-e1bn-for-lloyds-projects-bravo-and-charlie/

I think the following paragraph indicates what will happen, namely a refinancing of the debt (no fire sale of properties as some people feared);

"Cerberus' double-win now also spawns a substantial loan financing mandate post close of the two NPLs, which will likely be keenly competed in a market ever widening in willing financiers and ever narrowing in financiers' margins."

I wonder if IERE will issue an announcement about this in the next few days. On the other hand, there may be nothing to announce if IERE are still confident of achieving a refinancing on their own via a capital raise. Following various lettings IERE have achieved over the last few months, I am reducing my estimate of the amount they need to raise via a rights issue/placing to about £18m (previously about £23m). So roughly a two for one on the current ordinary share capital if at 3.5p.

[kenny] 27/11/2013 17:53

EDIT; post withdrawn because I got my figures wrong. Will recompute!

[kenny] 17/11/2013 11:37

.....also the letting a) eliminates void costs on this property going forward and b)it's market value will rise materially on the next valuation date.

[kenny] 16/11/2013 23:42

Thanks everyone. Around €500k per annum of extra income and, presumably, just as material a fall in the overall vacancy level of the portfolio. This is exactly what we need in terms of assisting refinancing talks. Also, from the comment by the tenant (research posted by flyfisher - "the company is going to establish itself for the long term at this location"), it sounds like a long lease.

I am trying not to get too excited because IERE seems to have an in-built (historical?) ability to disappoint. For example, I wish they had sooner started concentrating on letting voids and selling voids – rather than sales of some of their better rented properties. However, this really is very, very good news for us IERP holders.

As always, the above comments are my own opinion, which could prove to be wrong, so do your own research and do not invest based solely on something you read on a bulletin board.

[flyfisher] 16/11/2013 17:12

Good find Kenny , JLL were marketing the property as of 01/10/2011 at a price of 60 euro/sq mtr p.a. , so it looks like a new letting , with an income of around euro 500k p.a.

from a storage website link.

12 November 2013

Grootste verhuur opslag van dit jaar

The company has Storage and archiving society Hulshoff 9.250 m2 logistic space rented. It is the largest logistics rent transaction this year. Hulshoff Storage and archiving society has the space available for hire on the Casablancaweg 11 in Amsterdam. The company is going to establish itself for the long term at this location. opslagHulshoff Storage and archiving society focuses on records management, digitisation and project moving. With the 9.250 m2 space that the company is going to hire the company expands. On the Casablanca Road will mainly storage and distribution activities.

The company has further centres in Amsterdam at the Vasumweg and in the Atlas park. The rent of the 9250 m² storage space is for the time being the largest rental transaction this year.

[chinahere] 16/11/2013 16:07

Sounds good if it was vacant and 9,250 m2 must be significant.

£1million+ per annum ?

[kenny] 16/11/2013 12:47

Here is some good news! A new letting - more research needed to establish whether this was a previously vacant property (it reads as if it was). Translated from Dutch:

Hampton hires 9.250 m2 logistics space in Amsterdam
11.11.13
Hulshoff Storage and archiving society has on the Casablancaweg 11 in Amsterdam 9.250 m2 logistic space rented. It concerns the largest logistics rental transaction this year in Amsterdam. Internos Global Investors for his Fund performed the rental transaction Invista European Real Estate Trust SICAF (IERET).
Hulshoff storage and long-term Archiving society has committed to this location. Hulshoff is active in the field of project relocation, records management and digitization. The company already is located at the Vasumweg in Amsterdam and expands when renting Casablancaweg 11 the storage and distribution capacity. The distribution centre is located on Business Park Atlas park, a new and modern business park with excellent accessibility. Schiphol Airport is a 20-minute drive away.
Industrial Real Estate Partners acted on behalf of Internos Global Investors. Jones Lang LaSalle was involved in the rental. The tenant was represented by Savills Agency.
======================================================
With the other lettings of vacant space in the last few months, net income is increasing by a meaningful amount; and this letting could be for a substantial sum.

[kenny] 15/11/2013 17:06

Scburbs,

Now I understand what you are saying.

If only we had access to and could buy and sell the loans only FSA registered persons can deal in. However, the IERP yield to redemption is quite attractive. Based upon a buy price of 80p, one is looking at a yield to redemption of just over 20% per annum. That is the annualised yield over the period to redemption on 30.12.16 and includes the half year interest which is due to be paid this December.

[scburbs] 15/11/2013 13:19

Kenny,

The preference shares are akin to an unsecured loan at between 72-81% LTV.

They provide a very strong yield to maturity, however, how would an investor work out whether that yield is commensurate with the risk being taken.

The best way of working out whether the yield is sufficient for the risk is to consider what a third party lender would charge to finance the capital structure at that level.

I am not talking about refinancing the prefs I am talking about how you might assess whether the yield on the prefs is sufficient for the risk being taken. IMV a third party lender would not accept the yield on offer as being sufficient if they were making a new loan.

[flyfisher] 15/11/2013 13:10

I see this to be in the hands of the bankers , with several solutions possible.

The company has already said that it has been offered financing at senior and mezzanine level on part of the portfolio. Which part ? It could be the core without Spanish assets. Have they been sold as part of project Hampton ? If so at what discount ?

What debt was secured against Spanish assets , they were in the books at euro 38.3m back in 2007 and have been written down heavily to 16.8 , original ltv was around 60% and it is a possibility that the debt secured on them is in excess of current valuation and that a purchaser of the Spanish loans seeking possession would actually improve overall iere ltv , what cross guarantees were given with the original loans ?

Also what of the possibility of a corporate action of iere taking over an unleveraged or lower leveraged propco , in an all share transaction , it could reduce ltv on the whole to refinancable levels . In this respect I am thinking of eret , whose assets would combine readily into the portfolio.

The bankers hold all the answers and all the cards at the moment and without more info I find it hard to value , of course , we are last in line to be told the outcome.

[kenny] 15/11/2013 12:57

Scburbs, I still don't see the relevance of a 15% interest rate because the pref's will sit behind any mezz debt that is obtained. The pref's do not redeem until 30.12.16 so their refinancing is not an issue until long into the future e.g. after IERE has accumulated a few years of higher income after refinancing the debt which expires.

Note also that if IERE do not refinance then a buyer of the loan is unlikely to "fire sale" the properties. From what I have seen, buyers of similar loans are undertaking a combination of sales and launching a CMBS as replacement debt for the lower tranches e.g. a CMBS for the first 50% of debt leaving the buyer with the rest of the debt as their remaining investment to be worked out over time.

[scburbs] 15/11/2013 12:23

Kenny,

I don't see a parallel with ALPH. Barclays were the counterparty to the swap, they are just rolling over a liability they are owed as they know ALPH can't pay.

If there was a chance of Lloyds kicking the can down the road on IERE then I would see a parallel (as Lloyds would almost certainly extend rather than enforce). It is clear that Lloyds do not intend to kick the can down the road (or at least if they do they will not kick it very far, e.g. 6 month ERET extension).

The best chance for IERE/IERP is if they can refinance the loan (through new debt and equity) prior to a private equity player acquiring the loan and starting enforcement procedures or getting very lucky with a buyer who wants to refinance.

Improving debt markets mean that the prospects of IERE acheiving a refinancing appear to be much greater than they have been, but time is very short if an aggressive lender acquires the loan.

In terms of the mezz rate I was referring to what a lender would charge to refinance the capital stack at between 72-81% LTV (i.e. where the prefs sit). This should give you a guide of where the pref yield should be. Not sure if I can give you an example, but I am confident it would either be 15+% or unavailable. The reality is, until the senior position is sorted out, no mezzanine lender would lend at the 72-81% LTV position in the capital stack as it would be too risky given the potential enforcement action.

Of course if they achieve a sensible refinancing then the prefs could be very attractive.

[kenny] 15/11/2013 11:23

Scrubs - I think it is worth looking at the IMS issued by ALPH this morning. There are numerous differences between ALPH and IERE but I note:

- ALPH has a LTV of 77.7% after cash. IERE's is about 67% after cash and 69.99% before cash.

- However, for ALPH, the above percentage LTV of 77.7% excludes a hedge liability of €24.7m which they recently crystallised. ALPH's true LTV is therefore about 84.8%.

- ALPH has 92% of it's portfolio in France; IERE has about 50% in France.

- ALPH has a vacancy rate of 16%; IERE's is now 18.9%.


Despite ALPH's much worse position, Barclays are playing ball in talking to that company about financing the hedge liability. I appreciate that Barclays are the incumbent lender on most of ALPH's portfolio; so they may feel they have little choice. However, it does demonstrate that Barclays do not feel they are "throwing good money after bad" and that even upon taking the LTV up to about 85%, Barclays must believe that, eventually, they will get their money back (maturity is February 2015).

Compared to ALPH, I think IERE is in a much better situation.

Turning to your comment that any mezz lender to IERE would expect an interest rate of 15+% please could you provide some examples of such a rate being usual in this situation.

I have found one example- hxxp://www.costar.co.uk/en/assets/news/2013/June/Gagfahs-2bn-German-multi-family-agency-CMBS-to-price-on-Thursday/ - from earlier this year and that shows that the 65% LTV slice was priced at 3 month Euribor plus 350 bps. It is not directly comparable as that loan was against mostly higher quality German residential property (safer property than IERE's commercial property). However, I think it is possible to read across somewhat. I certainly believe it provides support for my view that a blended interest rate of 5%, or less, could be achieved. That does not seem to be out of line for the type of property IERE holds - the comparison is that 65% LTV on higher quality property was priced at an all in rate of about 3.75%, therefore, a 5% interest rate for commercial and all other factors in IERE's situation does not seem disproportionate.

Thanks for your input and keep posting any views or relevant research.

[scburbs] 15/11/2013 08:55

The Colony Capital article should be read closely by any IERP holders. This is not a safe high yield play. Whilst the LTV may be lower than those Spanish loans, if IERE does not find new debt/equity then come January the loan will be in default and exposed to the whims of the debt holder at that point.

It may play out well for IERP/IERE or it may not, but IERE is exceptionally high risk and IERP is relatively high risk. If a mezz lender were lending at the tranche where IERP sits in the financing structure then I suspect the market rate would be 15+% as well as having second ranking security.

[kenny] 14/11/2013 18:29

I don't know but the article hints that they are non-performing loans and being Spain, they may be well underwater.

[flyfisher] 14/11/2013 18:01

hxxp://costarfinance.com/2013/11/14/colony-capital-beats-hig-capital-to-win-e215m-project-alpha/

Kenny , would you know how much debt is secured against the Spanish assets. They seem to have been written down significantly and it could be that they carry a debt greater than the current book value .

[stupidboypike] 11/11/2013 15:44

For some reason I had missed this when looking at IERE:-

"Indicative offers have been received from third party lenders to partially refinance the portfolio at senior and mezzanine levels, and the Company is progressing with these negotiations."

So that has to be very good news for the prefs.

Best regards SBP

[kenny] 11/11/2013 11:22

You have to laugh - Lloyds are offering commercial property mortgages of LTV up to 70% - hxxp://www.lloydsbankbusiness.com/finance/commercialmortgage.asp

[kenny] 10/11/2013 19:10

Thanks flyfisher. Please also check my maths in my latest post 165. Is my maths correct albeit I appreciate you hold the view that refinancing will probably be at a higher interest rate.

In relation to euribor, I find it amazing it is trading at about half the level of libor.