Net Asset Value(s)

RNS Number : 3557A

UK Commercial Property Trust Ltd

01 February 2011

 



Net Asset Value and Interim Management Statement

For the three month period from 1 October 2010 to 31 December 2010

UK Commercial Property Trust Limited (LSE: UKCM), the largest UK focused commercial property trust, today provides its Interim Management Statement for the three months to 31 December 2010 and unaudited quarterly Net Asset Valuation ("NAV") as at 31 December 2010.

§ NAV per share* as at 31 December 2010 was 77.0p, representing an increase of 0.5% compared to 76.6p as at 30 September 2010 and 4.6% compared to 73.6p at 31 December 2009. Further details on the movement in the NAV per share are shown in the table on the following page.

§ Property portfolio as at 31 December 2010 was valued at £898.8 million up 1.2% compared to £888.1 million at 30 September 2010 on a like for like basis, having benefited from active asset management initiatives (equivalent IPD monthly benchmark was 0.5%). Compared to 31 December 2009 the property portfolio increased 7.9% from £711.3 million on a like for like basis.

§ Since 1 January 2010 the property portfolio has increased 26.5% from £710.5 million with three retail acquisitions totalling £128 million and an overall valuation increase of 7.4%.

§ The Company intends to declare a fifth interim dividend, in respect of the period from 1 October 2010 to 31 December 2010, of 1.3125p per Ordinary Share (2009: 1.3125p per Ordinary Share), with expected ex-dividend and payment dates of 9 February 2011 and 28 February 2011 respectively.

§ The total adjusted NAV per share, after deducting the above 1.3125p interim dividend, is 75.7p, representing an increase of 0.5% from the equivalent NAV per share as at 30 September 2010.

§ Annualised Net Rental income as at 31 December was £61.5 million (compared to £62.0 million and £54.5 million in September 2010 and December 2009 respectively) aided by ongoing progress with active asset management which secured nine lettings during the period.  These will provide £1.3 million of rental income (after rent free periods) with an average lease length of nine years and eight months.

§ Void rate (excluding pre-lets) as a percentage of income was 3.6% at 31 December 2010 (30 September 2010: 4.1%), significantly less than the industry average of 8.9%.

*The net asset value per share is calculated under International Financial Reporting Standards ("IFRS") and is unaudited.  It includes all current period income and is calculated after the deduction of all dividends paid prior to 31 December 2010.  It does not include provision for any unpaid dividends for the periods prior to 31 December 2010, including the dividend for the period to 31 December 2010.

At the start of the period, the Company had 1,197,348,858 Ordinary Shares of 25p each in issue (excluding 41,445,142 shares held in treasury).

The NAV per share at 31 December 2010 is based on 1,197,348,858 shares of 25p each, being the total number of shares in issue at that time (excluding 41,445,142 shares held in treasury).

Breakdown of NAV movement

Set out below is a breakdown of the change to the unaudited net asset value per share calculated under IFRS over the period from 1 October 2010 to 31 December 2010.

UK Commercial Property Trust Limited	Per  Share (p)	Attributable Assets (£m)
Net assets as at 30 September 2010	76.6	917.2
Unrealised increase in valuation of property portfolio	0.9	10.7
Capital expenditure during the period	(0.4)	(4.2)
Income earned for the period	1.4	16.7
Expenses for the period	(0.3)	(3.7)
Dividends paid on 30 November 2010	(1.3)	(15.7)
Interest rate swap mark to market revaluation	0.1	1.0
Net assets as at 31 December 2010	77.0	922.0

UK Commercial Property Trust Limited
Net Asset Analysis	31 Dec 2010 £m	31 Dec 2010       %	30 Sept 2010 £m	31 Dec 2009 £m
Property Portfolio
Retail	505.7	54.9	496.3	335.2
Office	258.3	28.0	257.2	245.0
Industrial	134.8	14.6	134.6	130.3
Total Property	898.8	97.5	888.1	710.5
Other Net Assets	23.2	2.5	29.1	18.1
Total Net Assets as at 31 December 2010	922.0	100.0	917.2	728.6

Total Expense Ratio ("TER")

The total expense ratio of the Company for the period ended 31 December 2010, based on average net assets and on the basis of annualised expenses, was 0.86%, identical to that of September 2010 and marginally up on the 0.84% in December 2009. We expect the current level of TER to be maintained for the immediate future. (For the purposes of this calculation, "expenses" includes the costs of running the Group, including the investment management fee, administration fees, Directors' fees, insurance costs, Board costs, registrar costs and any irrecoverable VAT, but excludes capital expenditure and refurbishment and irrecoverable property running costs).

Balance sheet strength

As at 31 December 2010, the Company had borrowings of £42.1 million with Lloyds Banking Group ("Lloyds"). On 4 March 2010 the Company entered into an interest rate swap agreement with Lloyds which set the interest rate at 3.55%.  This is part of the £80 million seven year loan facility currently in place.

The Company's cash position as at 31 December 2010 was £80.9 million (before dividend commitment of £15.7 million) with an unused debt facility of a further £38 million, providing total cash resources, assuming debt and working capital, of around £94 million.

Income

Annualised Net Rental Income as at 31 December 2010 was £61.5 million, down marginally from £62.0 million on 30 September 2010, reflecting a small number of individual lease expiries in the period, and an increase from £58.5 million from 31 December 2009. During the quarter there were no rental administrations, with bad debt provisions amounting to £231,842 or 0.4% of the rental income. Throughout the year the average rent collection rate (after 28 days) was 98.4%.

Market Review

The coldest December in more than 100 years only added to the ongoing concerns over the sustainability of the economic recovery.  As businesses were affected by the bad weather, many analysts downgraded their forecasts for GDP growth in the fourth quarter with expectations between 0.4% - 0.5%. In the event, this was not sufficiently pessimistic, as the figure was -0.5%. The current tightening of fiscal policy suggests that growth will be difficult to achieve and interest rates are therefore likely to remain low, despite a short term increase in inflation resulting from tax increases and higher commodity prices.

The bad weather seems to have slowed any positive momentum there had been in retail sales where the positive growth of October and November stalled in December, as the British Retail Consortium announced a fall in sales of 0.3%. That said, there were a number of retailers who reported strong results, in particular, Sainsbury's, Marks & Spencer, JD Sports and Outdoor Group, amongst others.

In terms of the property market, the final quarter of 2010 finished strongly, with increased investment activity resulting in capital growth for the quarter of 0.5% according to the IPD Monthly Index contributing to capital growth of 6.9% for the year.  The fourth quarter saw the strongest period of activity in three years with £9.7 billion transacted resulting in a total for 2010 of £32.9 billion, 30% higher than the previous year. Overseas investors continue to be the largest contributor to this total.  As ever, London and the South East remain the main focus for this investment which shows no signs of abating.  Additionally, a number of key Sovereign Wealth transactions, including the Regent Street Partnership (Norwegian Pension Fund) and 40 Portman Square (Malaysian Pension Fund), boosted the overall figures.

Retail assets were also subject to increased investment activity from institutions, REITs and property companies during the final quarter with a number of shopping centre and retail warehouse transactions e.g. Drake Circus, Plymouth (British Land), Overgate, Dundee (Land Securities) Dolphin Centre, Poole (Wereldhave) together with Aintree Retail Park (The Crown Estate ) all completing in the final quarter.

Investment activity in industrial assets remains subdued, with any available stock arising from a re-balance of portfolios, with the most notable being Hansteen's purchase of Treforest Industrial Estate near Cardiff and Saltley Industrial Estate, West Midlands, together with the Hermes purchase of The Westcore Portfolio from SEGRO. 

Prime yields appear to have stabilised and this area continues to remain attractive compared to other asset classes. There remains a shortage of prime stock, with strong and selectively competitive demand for quality income producing assets with asset management potential, particularly in central London.

There is, however, a concern for the prospects of secondary yields. The possibility of more sales from bank disposals and re-structuring and a growing concern that there will be further administrations, particularly in the retail sector, may be a portent for further falls in the secondary market.

All property rental values were flat over the quarter and, as has been the case for most of the year, the stronger growth in Central London has offset declines elsewhere. While headline rents are bottoming out on prime accommodation across all sectors, secondary markets still remain under pressure, in particular the regional office markets where the public sector austerity measures are likely to impact most. Although a feature of Central London for some time, there is evidence in certain South East office locations to suggest that many tenants are relocating in the knowledge that the opportunity to secure a good deal at the bottom of the market is coming to an end. The same can be said for Grade A office accommodation in the "Big 6" office locations (Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Manchester) as well as distribution warehouses in the certain South East and Midlands locations.  

Property Portfolio

For the fourth quarter 2010, UKCPT's property portfolio saw an increase of 1.2% in value, comfortably ahead of the market. Over the full year, the value of the portfolio increased 7.9% to £898.75 million

The Company's retail properties showed the strongest performance over the quarter with a 1.90% capital uplift, contributing to a 9.27% increase over the full year.

There was strong performance from shopping centres (2.98%), in part reflecting the investment demand evident in that sector over the quarter, but also due to the fact that completion of the works at Swindon is imminent with the pre-let units being handed over to tenants. That strong investment demand has also featured in the retail warehouse sector, primarily for prime bulky goods and Open A1 parks and as a result, UKCPT's holdings in the sector saw a 1.86% capital uplift over the quarter.

The strong performance in the Company's London office properties has more than offset the negative impact of the fall in capital values for the regional office sector. Overall the office sector recorded 0.4% capital uplift (5.39% for the year). Whilst Central London continued to see strong uplifts (3.67%), driven by ERV growth and yield shift, overall performance in this sector has been muted by the fall in values in the South East (-1.96%) where short income dominates and further yield shift for everything other than prime in the Regional offices which has produced a fall in values of -0.56%.

UKCPT's industrial holdings increased marginally over the quarter by 0.19% (2.88% for the year) with the fall in value of one of the Company's shorter income distribution warehouses being more than offset with the asset management driven capital uplift in one of the multi-let estates (letting activity in Dolphin Industrial Estate, Sunbury).

The current income yield for the portfolio is 6.77% (6.53% after acquisition costs). As at 30 September 2010 the corresponding figure was 6.98% (6.57% after costs).

Over the quarter the Company completed nine letting transactions involving a total rental income over £1.3m and with an average lease length of nine years and eight months.  The majority of these lettings were in the Company's retail holdings where there continues to be strong demand in Central London and the South East. Whilst occupational demand is not as pronounced outside the South East, there are nevertheless tentative signs of an improving position, particularly in the Company's shopping centres.

On 25 November 2010 Top Shop opened its 9,900 sq ft flagship store in The Parade, Swindon and is understood to be very happy with trading over the festive period.  BHS and River Island are in the process of fitting out their stores and are expected to open in time for Easter trading.  There continue to be positive discussions with a number of other retailers which may lead to further lettings in the development in the forthcoming months.

Elsewhere, there were further lettings to Blue Inc and Past Times totalling £102,000 of annual rental income in the Sovereign Centre, Weston-super-Mare, and Pandora at The Darwin Centre, Shrewsbury, providing £65,000 additional income after rent free period.

The Company's void position improved to 3.6% of income (4.1% September 2010) (excluding pre-lets).

Encouragingly, there are a number of income enhancing asset management initiatives in solicitors' hands which will provide ongoing momentum within the portfolio and offer the potential for capital growth in the relevant properties.

Outlook

The relative short supply coupled with the continued strong demand for prime stocks is likely to maintain prime yields but concerns remain over the secondary market. The potential for more "distressed stock" sales from bank disposals and restructuring, together with the possibility of further (retail) administrations does point to further softening in secondary property yields. Rental growth is expected to remain restricted to only a few select sectors with total returns dominated by income.

Notwithstanding the increased investment activity over recent months, suitable income producing stock that would complement the existing portfolio is still limited and, where available, is much in demand. Having said that, we remain confident in our ability to acquire suitable income and capital creating investments that will improve and support dividend cover.

UK Commercial Property Trust Limited	Exposure % as at 31 Dec 2010	Capital Value Shift ( %)	£m
External Valuation at  1 October 2010			888.08
Sub-sector Analysis
Retail	56.27	1.90	9.42
High St - South East High St- Rest of UK	10.36           4.67	0.96 0.12	0.89 0.05
Shopping Centres	17.91	2.98	4.65
Retail Warehouses	23.33	1.86	3.83
Offices	28.73	0.39	1.00
West End	9.20	3.67	2.92
South East	7.24	(1.96)	(1.30)
Rest of UK	12.29	(0.56)	(0.62)
Industrial	15.00	0.19	0.25
South East	9.79	0.86	0.75
Rest of UK	5.21	(1.06)	(0.50)
External valuation at 31 December 2010	100.00	1.20	898.75

Material Events

The Board is not aware of any significant events or transactions which have occurred between 31 December 2010 and the date of publication of this statement which would have a material impact on the financial position of the Company.

Enquiries

The Company Secretary, Northern Trust International Fund Administration Services (Guernsey) Limited

Tel: [phone]

Robert Boag/Gerry Brady, Ignis Investment Services Limited

Tel: [phone]

Stephanie Highett/Richard Sunderland/Will Henderson/Olivia Goodall, Financial Dynamics,

Tel: [phone]

Important Note

The above information is unaudited and has been calculated by Ignis Investment Services Limited.

 

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