Twitter icon Email alerts icon Latest News RSS icon Magazine icon Stay connected:

View the article online at http://citywire.co.uk/wealth-manager/article/a506275

IT Insider: Playing the death of Invista European Real Estate

by James Carthew on Jul 13, 2011 at 00:01

IT Insider: Playing the death of Invista European Real Estate

The European property sector is set to shrink further with the announcement that Invista European Real Estate will move to a realisation strategy.

The fund was listed at the end of 2006 and raised £160 million from investors, allowing investors Uberior and Chelsfield to sell down their interests in an existing fund and providing fresh capital to make new investments. The opening net asset value (NAV) was estimated to be €2.64 or 179p and they were supposed to generate a yield of about 6%.

Fast forward a few years and the falls in property prices and lack of available credit meant the fund was already in trouble. The dividend was suspended and it had been forced to renegotiate its debt on more restrictive terms.

The portfolio had, in retrospect, been acquired too expensively and using too much leverage, but it was of reasonably quality – most assets were in France or Germany, rather than in the periphery of Europe, it had a diverse tenant base, the buildings were close to fully let and it had minimal rent arrears.

The investment management fee was too high, though, at 1% of gross assets and marking its interest rate swaps to market was hurting NAV. The share price fell below €0.10.

By the middle of 2009, the fund was struggling; further falls in property values were pushing it close to its loan-to-value (LTV) limits, the investment management fee was cut to 2% of net assets and the focus was on selling assets to shore up the balance sheet. It was forced to raise £53 million with an issue of new shares and preference shares but this diluted the asset value down to €0.595.

The first quarter of 2010 saw a slight rise in property values and marked the nadir in the NAV but Lloyds Bank terminated its asset management contracts with Invista Real Estate Management and threw the future of the fund manager into doubt.

The fund proposed internalising its fund management but when this was rejected it had, after consulting shareholders, to come up with a new idea and the shift to a realisation strategy is the result.

It is unsurprising, given the turbulent history and the wide discount to asset value the fund was trading on, that it decided to give up. I wonder, though, whether the fund – which seemed to be making real progress in managing its LTV covenants, was generating an attractive yield on its investments and making noises about reinstating dividends – should be carrying on? Are we seeing the classic investment company story of raising a fund at the top of the market and winding it up at the bottom?

The European office market has been improving for some time. Average yields peaked just over 6% in mid 2009, but have been falling since and are now about 5.25%. The credit crisis depressed the new build market and so very little new space is becoming available.

Sign in / register to view full article on one page

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Long time coming: is the recovery here to stay?


Ian McVeigh and Steve Davies, managers of Jupiter's UK Growth fund, talk about their predictions for the UK equity space. Click here to watch a series of sponsored interviews with Jupiter's fund managers on the UK equity market.

Today's top headlines

The Citywire guide to investment trusts

Investment trusts have proved to be a highly effective way to invest in the market. Citywire has interviewed the experts to find out more.

More about this:

Look up the shares

  • Invista European Real Estate Trust Sicaf SA
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Lloyds Banking Group PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Invesco Property Income Trust Ld
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Treveria Plc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Nordic Land PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the investment trusts

  • Matrix European Real Estate (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Tamar European Industrial (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Sirius Real Estate (Ordinary Share)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

On the road

Click here to find out more from the Audience Development team.

Sorry, this link is not
quite ready yet