FIRM PLACING AND PLACING AND OPEN OFFER

16th Nov 2009 07:00



THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE INCLUDING IN THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND OR SOUTH AFRICA.

16 November 2009

INVISTA EUROPEAN REAL ESTATE TRUST SICAF

("IERET" or the "Company")

PROPOSED FIRM PLACING, PLACING AND OPEN OFFER

AND REFINANCING OF SENIOR DEBT 

IERET today announces plans for a capital raising of approximately £58.27 million (£53.51 million net of expenses), by way of a Firm Placing and a Placing and Open Offer of both New Ordinary Shares and a new class of Preference Shares with Warrants attached (the "Capital Raising"). Firm Placees have committed to subscribe for all Open Offer Securities at the relevant Issue Prices subject to clawback to satisfy valid applications by existing Shareholders under the Open Offer. 

IERET will shortly be publishing a Prospectus and Circular in connection with the Firm Placing and the Placing and Open Offer.  

In order to effect the Capital Raising, the Company will need to make changes to its existing capital structure by way of a capital reorganisation and amendment to its Articles. The Capital Raising is conditional on the required Resolutions being passed either at the First Extraordinary General Meeting or at the Second Extraordinary General Meeting (if required).

In addition, the Company has agreed revised terms in respect of its senior debt facility with Bank of Scotland. The terms are conditional on a pay down of €40 million of debt from proceeds from the Capital Raising.

Summary 

The Company intends to raise £58.27 million (£53.51 million net of expenses), by way of a Firm Placing and a Placing and Open Offer of both New Ordinary Shares and a  new class of Preference Shares with Warrants attached

The Company intends to apply €40 million of the net proceeds of the Capital Raising primarily to reduce debt under the Bank of Scotland Bank Facility. The Company will retain any excess proceeds as working capital and will consider applying any excess proceeds to reduce debt and debt costs in the future, or, if appropriate, for further investment in property in line with the Company's investment policy. 

The Company has agreed revised terms for the BoS Bank Facility to become effective on the satisfactory receipt by BoS of documents and other evidence and prepayment of €40 million from the proceeds of the Capital Raising. Such revised terms include an extension of the maturity date under the BoS Bank Facility by two years and an alteration of certain financial terms and covenants 

In order to effect the  Capital Raising , the Company will need to make changes to its existing capital structure by way of a capital reorganisation and amendment to its Articles

The Capital Raising follows a number of measures undertaken by the Company to strengthen its financial position, including:

realising approximately €70 million since September 2008 through asset sales (with further assets amounting to approximately €30 million currently under offer); 

actively extending leases to provide greater security over future income, successfully taking the weighted average unexpired lease length to 6.16 years from 6.06 years as at 30 June 2009; and

reducing operating costs by approximately €3.1 million per annum (on an annualised basis) 

Despite these measures, the Company has been affected by the ongoing deterioration in the Continental European real estate market and has experienced value falls totalling  23.4 per cent from December 2007 to September 2009 

The BoS Bank Facility contains an LTV Covenant which, if breached, would lead to an event of default allowing Bank of Scotland to foreclose on the loan and take control of the Company in order to exercise its security and seek to recoup the loan amount . As at 30 June 2009, the Company had real estate assets valued at €538.7 million and drawn down loan facilities of €400.5 million giving an effective LTV of 74.4 per cent against the LTV Covenant requirement of 75.0 per cent in 2009 and 65.0 per cent in 2010

The Company has obtained a waiver from Bank of Scotland until 15 January 2010 in relation to, inter alia, the testing of the LTV Covenant as at 31 December 2009 and the right of Bank of Scotland to request a valuation at any time from announcement of the Offer to 15 January 2010. In the event that the Offer does not proceed, the Board would seek to negotiate alternative terms with Bank of Scotland but the Board anticipates that such terms, if they are available at all, would be substantially less favourable to the Company and this may result in materially adverse consequences for the Company

The Investment Manager believes that the Continental European commercial real estate market will continue to experience value falls during the remainder of 2009 and in early 2010 meaning that, in the absence of an injection of share capital to reduce leverage, the Company would risk breaching the LTV Covenant 

The Board believes that the Capital Raising will result in a number of benefits for the Company. The Company intends to utilise the net proceeds of the Capital Raising primarily to reduce debt and this reduction will lower the Group's LTV ratio, strengthen the position of the Company and provide a platform for growth in the future. It should also enable the Company to withstand further significant falls in the Continental European commercial real estate market both in terms of rental income and property valuation without breaching the revised LTV Covenant

Invista intends to subscribe for New Ordinary Shares under the Offer and accordingly its interests will continue to be aligned with those of the Shareholders.

Details of the proposed Firm Placing and Placing and Open Offer:

The Company is proposing to issue the following securities under the Capital Raising:

145,685,674 New Ordinary Shares priced at £0.20 per New Ordinary Share, (representing a discount to the current share price and a discount to the NAV as at 30 June 2009) which rank pari passu with the Existing Ordinary Shares in all respects including ranking for dividends; 

29,137,134 Preference Shares priced at £1 per Preference Share, with a seven year term. In accordance with Luxembourg Company law, the Preference Shares have attributed to them the Preference Dividend. The Company will enter into hedging arrangements in respect of the first four semi-annual payments of the Preference Dividend Sterling Equivalent;

one Warrant per Preference Share, each giving the right to subscribe for a New Ordinary Share exercisable at 29 pence in May and November of each year of the four year life of the Warrants (the Warrants will trade separately from the Preference Shares from inception)

The Board believes that the Capital Raising balances appropriately the interests of existing Shareholders with those of new investors. The Board believes that the structure of the Offer and the nature of the New Securities are beneficial to existing Shareholders as the dilution to existing Shareholders will be less than if the Offer solely comprised the issue of New Ordinary Shares. The Board further believes that the issue of New Ordinary Shares at the Issue Price of 20p per New Ordinary Share and the issue of new Preference Shares at the Issue Price of £1 per Preference Share with a coupon of 9.0 per cent per annum (with a Warrant attached) represent an attractive investment opportunity to both existing Shareholders and new investors. In particular, it believes that there is the potential for capital appreciation as the Company's financial position is stabilised, that the right to the preferential dividend of the Preference Shares will appeal to certain investors and that there will be renewed appeal to the market as a result of the Company's stabilised structure and the potential for the resumption of dividend payments on the Ordinary Shares 

The New Securities will be issued pursuant to the terms of the Revised Articles and the terms of Luxembourg Company law but the Warrant Instrument will be governed by English law. The Preference Shares and Warrants (neither of which carry any voting rights save in relation to matters altering their own terms and, in respect of the Preference Shares, in respect of certain additional matters set out in the Prospectus) are fully detachable and will be listed separately on the Official List and admitted to trading separately on the London Stock Exchange. Details of the exact terms for the Warrants and the Preference Shares will be set out in the Prospectus

The Company has placed a portion of the New Securities on a Firm Placing basis to a combination of new investors and existing Shareholders. Existing Shareholders and DI Holders not participating in the Firm Placing will not therefore have the right to subscribe for the Firm Placed Securities. The firm element equates to only one third of the Offer. The Capital Raising is subject to the passing of the Resolutions at the First or Second Extraordinary General Meeting by existing Shareholders and DI Holders. The remaining two thirds of the New Securities are being offered pre-emptively on a pro rata basis to existing Shareholders and DI Holders by way of an Open Offer; Shareholders and DI Holders will not be entitled to subscribe for an amount in excess of their pro rata entitlement. Subject to the conditions of the Placing and Open Offer, the Placees have committed to subscribe for all Open Offer Securities at the relevant Issue Prices subject to clawback to satisfy valid applications by existing Shareholders and DI holders under the Open Offer. 

The Offer is conditional, amongst other things, on Admission of the New Securities to listing and trading on the London Stock Exchange and the passing of the relevant Resolutions at the First Extraordinary General Meeting or, if required, the Second Extraordinary General Meeting

Shareholders are entitled to subscribe for such number of Preference Shares (with Warrants attached) and/or New Ordinary Shares as they wish, up to their pro rata entitlement under the Open Offer. Shareholders are not required to take up their entitlements for both Preference Shares (with Warrants attached) and New Ordinary Shares under the Open Offer

Under the terms of the Open Offer:

Subject to the terms and conditions set out in the Prospectus (and, in the case of Qualifying Shareholders, in the Application Form) Qualifying Shareholders and Qualifying DI Holders are being given the opportunity to apply to subscribe for a number of New Ordinary Shares and/or Preference Shares (with Warrants attached) in the proportions detailed below at the relevant Offer Prices (payable in full on application) on the following basis:

85 New Ordinary Shares at £0.20 per New Ordinary Share for every 100 existing Ordinary Shares; and/or 

17 Preference Shares at £1.00 per Preference Share (with 17 Warrants attached) for every 100 Existing Ordinary Shares

registered in the name of Qualifying Shareholders or in respect of which Qualifying DI Holders are registered in the DI register at the Record Date and so in proportion for any other number of Existing Ordinary Shares or DIs then registered 

The Open Offer is conditional on the passing of the Resolutions at the First or, if convened, a Second Extraordinary General Meeting

Applications will be made for the New Ordinary Shares, Preference Shares and Warrants to be listed on the Official List and to be admitted to trading on the London Stock Exchange's main market for listed securities. Admission is expected to occur on 30 December 2009, when dealings in the Preference Shares and Warrants on the London Stock Exchange are expected to begin

Further details of the Capital Raising are set out in the Prospectus and Circular which will be sent to shareholders shortly and will also be made available on IERET's website, www.ieret.eu  

Tom Chandos, Chairman of the Invista European Real Estate Trust, said:

"The Board, together with the Investment Manager, has given considerable thought as to how best to structure the proposed Capital Raising in order to reinforce the balance sheet and reset the capital structure to position the business for growth. This has been achieved through a three tier structure comprising New Ordinary, Preference Shares and Warrants to minimise the dilutive effects on existing shareholders compared to an Offer solely comprising the issue of New Ordinary Shares. The Board has concluded that the Firm Placing and Placing and Open Offer is the most attractive option for the Group and its shareholders which will provide timely and guaranteed receipt of the necessary funds to effect the refinancing and provide a platform for the future growth of the business. 

"On completion of the Capital Raising and the subsequent amendment to the terms of the Bank of Scotland Facility, the Company should be  placed on a more stable financial footing and be well positioned  to create and enhance future value for all our shareholders."

-ENDS-

A meeting will be held for analysts and institutional investors today at 11.15 a.m. Please contact Dido Laurimore or Olivia Goodall at Financial Dynamics on +44 (0)20 7831 3113 to obtain further details. 

A dial-in facility is also available and copies of the presentation can be obtained from Financial Dynamics.

Dial in details:

Conference ID number: 41670826

UK dial in number: 0845 146 2004

International dial in number: +44 1452 569 393

For further information:

This announcement is an advertisement and is not a prospectus. Accordingly, investors should not subscribe for securities except on the basis of information in the Prospectus itself.

Neither this document nor anything contained herein shall form the basis of, or be relied upon in connection with, any offer or commitment whatsoever in any jurisdiction. Any offer to acquire securities pursuant to the Capital Raising will be made, and any investor should make his investment, solely on the basis of information that is contained in the Prospectus. Once published, copies of the Prospectus may be obtained at no cost from the Company's website (www.ieret.eu).

This announcement and the information contained herein is not for publication, release or distribution, directly or indirectly, in or into the United States, Australia, Canada, Japan, New Zealand, South Africa or any jurisdiction in which the same would be unlawful. This announcement does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire shares in the capital of the Company in the United States, Australia, Canada, Japan, New Zealand, South Africa or any jurisdiction in which such an offer or solicitation is unlawful.

Any offering will only be made in any jurisdiction in compliance with local laws. In any Relevant Member State, this communication is only addressed to and is only directed at qualified investors in that Member State within the meaning of the Prospectus Directive (and it is only so addressed or directed to the extent permitted by all other applicable laws and regulations).

This communication is directed only at (i) persons outside the United Kingdom, or (ii) persons having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (iii) high net worth companies, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2) (a) to (d) of the Order. Persons within the United Kingdom who receive this communication (other than persons falling within (ii) and (iii) above) should not rely on or act upon this communication.

No representation or warranty, express or implied, is made or given by, or on behalf of J.P. Morgan Cazenove or Liberum Capital or any of their respective members, directors, officers, employees or advisers or any other person as to the accuracy or completeness of the information or opinions contained in this communication and no responsibility or liability is accepted by any of them for any such information or opinions. You should note that, in connection with the proposed Capital Raising, J.P. Morgan Cazenove and Liberum Capital, each of which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for the Company and are neither advising nor treating as a client any other person and will not be responsible to anyone other than the Company for providing the protections afforded to clients of J.P. Morgan Cazenove and Liberum Capital or for providing advice in relation to the proposed Capital Raising.

Neither this communication nor any copy of it, may be taken, transmitted or distributed, directly or indirectly, into the United States of America, its territories or possessions or passed to United States residents, corporations or other entities organised under the laws of the United States or any State thereof or any US branch, agency or affiliate of any such corporation or entity, wherever located except pursuant to applicable exemptions. Neither this communication nor any copy hereof may be distributed in the Excluded Territories or in any other jurisdiction where its distribution may be restricted by law and persons into whose possession this communication comes should inform themselves about, and observe, any such restrictions. Distribution of this communication in the United States, or any such other jurisdictions, except in accordance with applicable exemptions may constitute a violation of United States securities laws, or the law of any such other jurisdictions.

The Offer Shares and Warrants have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States. The Offer Shares and Warrants are being offered and sold only outside the United States to investors that are not US Persons in "offshore transactions" in accordance with and in reliance on the exemption from registration provided by Regulation S. The Offer Shares and Warrants may not be offered or sold within the United States or to, or for the account or benefit of, US Persons. The Company will not be registered under the US Investment Company Act and investors will not be entitled to the benefits of such Act. The Offer Shares and Warrants have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the United States or any other regulatory authority, nor have or will any of the foregoing authorities passed upon or endorsed the merits of the offering of Offer Shares and Warrants or the accuracy or adequacy of the Prospectus. Any representation to the contrary is a criminal offence in the United States.

PROPOSED FIRM PLACING AND PLACING AND OPEN OFFER

Background to the Proposals

The Continental European commercial real estate market has experienced rapid and significant value falls since December 2007 due to sharp declines in investment property liquidity and negative investor sentiment triggered by the global credit crunch, and latterly weak performance in the underlying economy. The Company has not been immune to these changes in value and has therefore experienced value falls totalling 23.4 per cent from December 2007 to September 2009 in respect of properties still forming part of its Total Property Portfolio. Such value falls have continued since 31 March 2009, the end of the last financial period for which interim audited financial information has been published, until the date of this announcement.

The BoS Bank Facility contains an LTV Covenant which, if breached, would constitute an event of default allowing Bank of Scotland to foreclose on the loan and take control of the Company in order to exercise its security and seek to recoup the amount outstanding under the loan. As at 30 June 2009, the Company had real estate assets valued at €538.7 million and drawn down loan facilities of €400.5 million giving an effective LTV of 74.4 per cent against the LTV Covenant requirement of 75.0 per cent in 2009 and 65 per cent in 2010. 

The Investment Manager believes that the Continental European commercial real estate market will continue to experience value falls in the remainder of 2009 and in early 2010 meaning that, in the absence of an injection of share capital to reduce leverage, the Company would risk breaching the LTV Covenant.

In light of these value falls, the Investment Manager has been proactively seeking to reposition the Company to suit the current environment. As well as selling properties, the Investment Manager has been actively extending leases to provide greater security over future income, successfully taking the weighted average unexpired lease length to 6.16 years from 6.06 years as at 30 June 2009. In addition, operating costs have been reduced by approximately €3.1 million per annum (on an annualised basis).

The Company has obtained a waiver from Bank of Scotland until 15 January 2010 in relation to, inter alia, the testing of the LTV Covenant as at 31 December 2009 and the right of Bank of Scotland to request a valuation at any time from announcement of the Offer to 15 January 2010. In the event that the Offer does not proceed, the Board would seek to negotiate alternative terms with Bank of Scotland but the Board anticipates that such terms, if they are available at all, would be substantially less favourable to the Company and this may result in materially adverse consequences for the Company. The directors believe that the Company will not have sufficient time to renegotiate the BoS Bank facility between the second EGM and 15 January 2010.

Details of the Capital Raising

The Company is proposing to issue the following securities under the Capital Raising:

145,685,674 New Ordinary Shares priced at £0.20 per New Ordinary Share, (representing a discount to the current share price and a discount to the NAV as at 30 June 2009) which rank pari passu with the Existing Ordinary Shares in all respects including ranking for dividends; 

29,137,134 Preference Shares priced at £1 per Preference Share, with a seven year term. In accordance with Luxembourg company law, the Preference Shares have attributed to them the Preference Dividend. The Company will enter into hedging arrangements in respect of the first four semi-annual payments of the Preference Dividend Sterling Equivalent;

one Warrant per Preference Share, each giving the right to subscribe for a New Ordinary Share exercisable at £0.29 in May and November of each year of the four year life of the Warrants (the Warrants will trade separately from the Preference Shares from inception).

The Company will place a portion of the New Securities on a Firm Placing basis to a combination of new investors and existing Shareholders. Existing Shareholders and DI Holders not participating in the Firm Placing will not therefore have the right to subscribe for the Firm Placed Securities. The firm element equates to only one third of the Offer. The Capital Raising is subject to the passing of the Resolutions at the First or Second Extraordinary General Meeting by existing Shareholders. The remaining two thirds of the New Securities are being offered pre-emptively on a pro rata basis to existing Shareholders by way of an Open Offer; Shareholders will not be entitled to subscribe for an amount in excess of their pro rata entitlement. Subject to the conditions of the Placing and Open Offer, the Placees have committed to subscribe for all Open Offer Securities at the relevant Issue Prices subject to clawback to satisfy valid applications by existing Shareholders under the Open Offer. Placees who have committed to subscribe under the Placing and Open Offer, subject to clawback, will be entitled to receive a commission of 1.75 per cent of the value of their commitment at the relevant Offer Prices if the Resolutions are passed at the First Extraordinary General Meeting. In the event that the First Extraordinary General Meeting is not quorate and the Resolutions are subsequently passed at the Second Extraordinary General Meeting, the commission payable by the Company will be increased by 1.25 per cent to a total of 3 per cent.

The Offer is conditional, amongst other things, on Admission of the New Securities to listing and trading on the London Stock Exchange and the passing of the relevant Resolutions at the First Extraordinary General Meeting or, if required, the Second Extraordinary General Meeting.

The Company has entered into a foreign exchange forward with BoS as at the date of the Prospectus so as to fix the Sterling Euro Exchange rate that will be receivable on Placees' Sterling commitments and the Euro proceeds payable to the Company on completion of the Placing and Open Offer.

Benefits of the Proposals

The Board believes that the Capital Raising will result in a number of benefits for the Company. The Company intends to utilise the net proceeds of the Capital Raising primarily to reduce debt and this reduction will lower the Group's LTV ratio strengthen the position of the Company and provide a platform for growth in the future. It should also enable the Company to withstand further significant falls in the Continental European commercial real estate market both in terms of rental income and property valuation without breaching the revised LTV Covenant.

Use of proceeds

The total net proceeds of the Capital Raising will be £53.51 million. The Company intends to apply the net proceeds of the Capital Raising primarily to reduce debt under the BoS Bank Facility in the amount of €40 million. The Company will retain any excess proceeds as working capital and will consider applying any residual excess proceeds to reduce debt and debt costs in the future, or, if appropriate, for further investment in property in line with the Company's investment policy. 

Alterations required to the Company's structure to implement the Capital Raising

In order to implement the Capital Raising, the Company will need to make changes to its existing capital structure by way of a capital reorganisation. This will involve the passing of the Resolutions at the Extraordinary General Meeting with the aim, among other things, of:

no longer attributing to the Existing Ordinary Shares an express par value in the Articles;

reducing the Company's share capital in order to reduce the then applicable accounting par value of the Existing Ordinary Shares and through the absorption of the Company's losses and the creation of a new non-distributable reserve so enabling the Offer Shares and Warrants to be issued at a price below the current par value of the Shares;

approving a special report which has been prepared by the Board authorising the Board to disregard or limit the pre-emption rights of the existing Shareholders when Shares are issued below the latest NAV in the Firm Placing;

authorising the Board to issue New Ordinary Shares and Preference Shares (with Warrants attached) at an issue or exercise price below the latest published NAV per Existing Ordinary Share at the time of issue or exercise on a non-pre-emptive basis for a period of 45 calendar days as from the date on which Shareholders vote in favour of the Resolutions at the Extraordinary General Meeting; and

amending and restating the Articles of Association to among other things, reflect the change in the share capital and to set out the rights of the Preference Shares and Warrants.

In addition, Invista has agreed to be a Placee and has committed to subscribe for New Ordinary Shares under the Offer, in a amount equivalent to a commitment of £4.30 million.  Invista will be paid a commission of 3 per cent of two-thirds of the total amount of its commitment satisfied under the Firm Placing and will not receive any commission to the extent that it subscribes for New Ordinary Shares under the Open Offer. This would result in Invista subscribing for 21,492,315 New Ordinary Shares. Since the Investment Manager is a related party for the purposes of the Listing Rules and Invista is the parent company of the Invista, Shareholder approval of a Related Party Resolution for that subscription and payment of commission is required. The Investment Manager currently holds 3,427,898 Existing Ordinary Shares in the Company, but has undertaken that it will not vote on the Related Party Resolution to be proposed at the Extraordinary General Meeting.

Details of amendments to the BoS Bank Facility

The Company has agreed revised terms for the BoS Bank Facility and the amendments to the BoS Bank Facility will be made by way of the BoS Bank Facility Amendment Agreement (the "Proposed Amendments"). The Proposed Amendments will become effective on the satisfactory receipt by BoS of a number of documents and other evidence, and the prepayment of €40.0 million of debt to BoS from the proceeds of the Capital Raising. The principal Proposed Amendments include (without limitation):

The interest cover ratio remains at 1.30x.

Details of amendments to the Investment Management Agreement

The Company and the Investment Manager propose to make an amendment to the terms of the Investment Management Agreement, conditional on Admission. The Investment Manager is entitled to a base management fee of 2.00 per cent. per annum of the Net Asset Value, subject to a minimum annual fee of €3 million, of the Company. The amendment will be to include the Net Asset Value attributable to the Preference Shares as well as the Ordinary Shares in this calculation. The amount of the fee will continue to be subject to an unchanged capped annual amount paid to the Investment Manager which cannot be higher than 0.95 per cent. per annum of the Adjusted Gross Assets.

Expected Timetable

Definitions

The following definitions apply throughout this announcement unless the context requires otherwise:

Related Shares: