I.M.S. NAV and Dividend
For release 24 January 2013
Schroder Real Estate Investment Trust Limited
(the 'Company' / 'Group')
INTERIM MANAGEMENT STATEMENT, ANNOUNCEMENT OF NAV AND INTERIM DIVIDEND
Net Asset Value
Schroder Real Estate Investment Trust Limited announces an unaudited net asset value ('NAV') of £165.6 million or 46.5 pence per share ('pps') as at 31 December 2012. This reflects a decrease of 3.8% compared with the NAV as at 30 September 2012 of £172.1 million. This resulted in an unaudited NAV total return for the 2012 calendar year of 5.7%.
A breakdown of the NAV movement over the quarter to 31 December 2012 is set out below:
|
|
£m |
pps |
Comments |
|
NAV as at 31 September 2012 |
172.1 |
48.3 |
NAV announced 24 October 2012 |
|
Unrealised change in valuation of direct property portfolio |
(7.2) |
(2.0) |
Like for like direct portfolio decline before capital expenditure of approximately 2.7% |
|
Realised gain on disposal of investment property |
0.5 |
0.2 |
Disposal of Minerva House on 17 December at a premium of 2.6% to the September valuation |
|
Capital expenditure during period |
(0.3) |
(0.1) |
Principally relating to Reynards planning costs and on-going refurbishments |
|
Unrealised change in valuation of joint ventures |
(0.1) |
0.0 |
Increase in value of Merchant Property Unit Trust offset by a decline in Crendon Industrial Partnership Limited |
|
Movement in interest rate swap |
1.6 |
0.4 |
Mark to market movement |
|
Pre-tax net revenue |
2.1 |
0.6 |
Improvement over the quarter created by debt repayments and dilapidations proceeds |
|
Dividends paid |
(3.1) |
(0.9) |
Dividends paid during the quarter |
|
NAV as at 31 December 2012 |
165.6 |
46.5 |
|
Dividend
The Company announces an interim dividend of 0.88 pps for the period 1 October 2012 to 31 December 2012. The dividend payment will be made on 22 February 2013 to shareholders on the register on 8 February 2013. The ex-dividend date will be 6 February 2013. Pre-tax dividend cover over the quarter to 31 December 2012 was 69% which compared with pre-tax dividend cover of 60% for the nine months to 30 September 2012. The Board continues to keep dividend policy under close review with a view to ensuring the Company can deliver a sustainable level of cover whilst having due regard to current and anticipated future market conditions, rental values and the outcome of any future debt refinancing.
Strategy and debt repayment
The Company's strategy remains focused on improving net income and reducing debt to optimise potential refinancing terms ahead of the current loan maturity in July 2014. As a result, over the quarter, the Company sold its 50% share of Minerva House in London for £30 million, reflecting a net initial yield of 5.37%. This transaction increased total sales since March 2012 to £66.8 million, reflecting an average premium to the March 2012 valuation of 5.8% and an average net initial yield of 4.1%. Following the Minerva House sale a further £20 million of debt was repaid on 15 January 2013. As a condition of the repayment, a pro-rata proportion of the interest rate swaps has been broken, crystallising a payment of £2.8 million that was already reflected in the net asset value of the Company as of 30 September 2012.
This debt repayment increases the total debt repaid since April 2012 to £59 million, reducing loan interest from £9.9 million to £6.5 million per annum. Details of the Company's remaining debt and swaps as at 15 January 2013 are set out below:
|
|
Amount (£m) |
Swap rate (%) |
Margin (%) |
Total interest rate (%) |
Swap maturity |
M2M at 15 January 2013* (£m) |
M2M at 31 December 2012 (£m) |
|
Loan |
36.8 |
5.099 fixed |
0.2 |
5.299 |
15/07/2014 |
(2.5) |
(3.0) |
|
Loan |
77.7 |
5.713 fixed |
0.2 |
5.913 |
15/07/2016 |
(13.3) |
(16.1) |
|
Loan total |
114.5 |
5.52 fixed |
0.2 |
5.72 |
N/A |
(15.8) |
(19.1) |
|
Liquidity facility** |
11.2 |
0.51 *** |
0.662 |
1.172 |
N/A |
N/A |
N/A |
* M2M or marked to market value of interest rate swaps
** Securitised debt facility has a Liquidity Facility of £11.2 million provided by Lloyds Banking Group ('Lloyds'). Liquidity Facility Agreement requires the provider to have a minimum Standard & Poor's ('S&P') credit rating of A-1+, which Lloyds breached in March 2009 when they were downgraded by S&P to A-1. The breach required the Liquidity Facility to be drawn down in full and placed in a blocked deposit account or alternatively a new provider put in place. Accordingly, on the 23 September 2009 the Liquidity Facility was drawn down.
*** Three month Libor as at 15 January 2013
Following this debt repayment and related swap break costs the Company has total cash of approximately £30.7 million, of which approximately £10.1 million remains outside the security pool. The Company's net loan-to-value ratio following the debt repayment is 31% which compares with the net loan to value covenant ratio of 60%. If the current marked to market value of interest rate swaps totalling -£15.8 million were treated as a liability the net loan-to-value ratio would increase to 37.8%.
Market Background
The latest Investment Property Data ('IPD') Monthly Index to 31 December 2012 confirmed a quarterly total return for all commercial property of 0.5% (quarter to 30 September 2012 0.6%) with an average income return of 1.7% (1.7%) off-set by a capital value decline of -1.1% (-1.1%). This resulted in a total return for the 2012 calendar year of 2.4%, with an average income return of 6.8% off-set by a capital value decline of -4.2%.
Offices were the best performing sector over 2012, producing a total return of 4.2% with capital values falling -2.2%. The retail sector was the worst performing sector, producing a total return of 0.4% with negative capital growth of -5.8%. The industrial sector also produced negative capital growth of -3.8%, but had the highest income return of all IPD sectors of 7.8%, resulting in a total return of 3.7%.
Performance versus Investment Property Databank ('IPD') Index
The Company's IPD performance data for the quarter to December 2012 will be available later in January. The latest IPD performance data for the quarter to 30 September 2012 confirmed that the Company's property portfolio produced a total return of 1.2%. This compared with 0.3% for the IPD peer group Quarterly Version of Balanced Monthly Index Funds (the "IPD Index") on a like-for-like basis. Over the nine months to 30 September 2012 the Company's property portfolio produced a total return of 3.0% compared with the IPD Index of 1.2% on a like-for-like basis.
Property Portfolio
As at 31 December 2012, the Company's direct property portfolio comprised 53 properties independently valued at £263.17 million. At the same date the direct property portfolio produced a rent of £19.46 million per annum which, based on the Knight Frank independent valuation, reflected a net initial yield of 7%. Excluding the reduction in rental income following the disposal of Minerva House, like-for-like annual rental income declined by £0.3 million, with £0.28 million attributable to the failure of the retailer Comet at the Company's retail warehouse investment in Salisbury. The portfolio's rental value is £21.1 million per annum, resulting in a reversionary yield of 7.6%. Contracted fixed rental uplifts increased over the quarter from £1.1 million to £1.3 million per annum, due by the end of 2014. As at 31 December 2012, and following the failure of Comet, the portfolio void rate increased from 11.2% to 12%, of which 1.3% is currently under offer to let. The average unexpired lease term, assuming all tenants vacate at the earliest opportunity, was 7.2 years.
The tables below summarise the key portfolio information as at 31 December 2012:
|
Sector weightings |
Weighting % |
|
|
|
SREIT |
IPD Index* |
|
Retail |
25.4 |
44.6 |
|
Offices |
40.8 |
28.5 |
|
Industrial |
24.8 |
17.4 |
|
Other |
9.0 |
9.4 |
* Latest available IPD data as at 30 September 2012
|
Regional weightings |
Weighting % |
|
|
|
SREIT |
IPD Index* |
|
Central London |
0 |
17.4 |
|
South East excl. Central London |
54.3 |
32.2 |
|
Rest of South |
11.4 |
6.8 |
|
Midlands and Wales |
15.1 |
27.6 |
|
North and Scotland |
19.0 |
15.9 |
* Latest available IPD data as at 30 September 2012
|
Top ten properties |
Value (£) |
(%) |
|
|
1 |
Brighton, Victory House |
24,500,000 |
9.3 |
|
2 |
Brentford, Reynards Business Park |
16,000,000 |
6.1 |
|
3 |
Uxbridge, 106 Oxford Road |
14,800,000 |
5.6 |
|
4 |
Luton, The Galaxy |
14,250,000 |
5.4 |
|
5 |
Salisbury, Churchill Way West |
13,100,000 |
5.0 |
|
6 |
Wembley, Olympic Office Centre |
13,000,000 |
4.9 |
|
7 |
Basingstoke, Churchill Way |
10,650,000 |
4.0 |
|
8 |
Alfreton, Recticel Unit |
9,000,000 |
3.4 |
|
9 |
Norwich, Union Park |
9,000,000 |
3.4 |
|
10 |
Sheffield, The Portergate |
8,500,000 |
3.2 |
|
|
Total as at 31 December 2012 |
132,800,000 |
50.5 |
|
Top ten tenants |
Rent p.a. (£) |
% of portfolio |
|
|
1 |
Wickes Building Supplies Limited |
1,092,250 |
5.6 |
|
2 |
Norwich Union Life and Pensions Ltd |
1,039,191 |
5.3 |
|
3 |
Lloyds TSB Bank PLC |
1,024,000 |
5.3 |
|
4 |
BUPA Insurance Services Limited |
960,755 |
4.9 |
|
5 |
The Buckinghamshire New University1 |
900,000 |
4.6 |
|
6 |
Mott MacDonald Ltd2 |
790,000 |
4.0 |
|
7 |
Recticel SA3 |
731,038 |
3.8 |
|
8 |
Irwin Mitchell LLP |
555,000 |
2.9 |
|
9 |
Booker Limited |
550,000 |
2.8 |
|
10 |
Network Housing Group Limited |
539,386 |
2.8 |
|
|
Total as at 31 December 2012 |
8,181,620 |
42.0 |
1 Fixed uplift to £1.02 million per annum in May 2014
2 Mott MacDonald Group Limited are Guarantor
3 The tenant is currently benefiting from a half rent period equating to £365,519 per annum which will increase to £731,038 per annum in January 2014
Transactions
As referred to previously, on 17 December 2012 the completed the disposal of its largest asset, a 50% interest in Minerva House, London SE1, for £30 million. The disposal reflected a net initial yield of 5.37% and compared to a value as at 30 September 2012 of £29.25 million, a premium to valuation of £0.75 million or 2.6%. Both the Company and its joint venture partner sold their entire holding. Minerva House comprises a 91,748 sq ft office building located on the south bank of the River Thames. The property is let to Winckworth Sherwood LLP and Ipsos Mori UK Limited, and the Company's 50% share of rental income amounted to £1.7 million per annum.
The disposal was consistent with the Company's strategy of selling low yielding property where value created through asset management initiatives has been crystallised. In this case, over the seven years of ownership the Company undertook a number of value enhancing activities including refurbishing the property and restructuring the leases, increasing like-for-like rent over the life of its investment from £1.37 million to £1.7 million per annum. Over the same period Minerva House produced an annualised total return of 8.2% per annum, compared to the IPD Benchmark of 2.1% per annum on a like-for-like basis.
Asset management
At Reynards Business Park in Brentford, the planning appeal inquiry for the 275 unit, 220,000 sq ft residential planning application took place in November 2012. The appeal has been called-in by the Secretary of State and we have received notification that a decision will be communicated before 25 March 2013. If a positive decision is received there will be a further 50 day statutory challenge period where the decision can be challenged on a point of law. In parallel with this appeal process, a smaller 229 unit, 190,000 sq ft residential planning application has been made to the Local Planning Authority and may be determined following the outcome of the appeal.
At the Company's 9.4 acre development site at Coventry Road in Hinckley, a planning application has been made for a residential scheme comprising 122 houses totalling 100,000 sq ft. The brownfield site is currently non-income producing and, should planning be secured, the site will be sold. The site benefits from a historic retail warehouse consent which is currently unviable.
As noted above, over the period the electrical retailer Comet went into administration, affecting the Company's retail warehouse property in Salisbury. Comet were paying £0.28 million on a lease expiring in 2022, and comprised 30% of the income from the terrace of three retail warehouse units adjoining a Waitrose supermarket. Comet's failure was anticipated by the Company and discussions are already on-going with potential alternative retailers. The Company continues to have a strategically low weighting to the retail sector of 25% compared with the IPD Benchmark weighting of 45%. This has benefitted the Company as the UK retail sector has experienced greater levels of tenant failure and rental value declines.
-ENDS-
For further information:
|
Schroder Property Investment Management Limited: |
020 7658 6000 |
|
Northern Trust: David Sauvarin |
01481 745529 |
|
FTI Consulting: Dido Laurimore / Daniel O'Donnell |
020 7831 3113 |
This information is provided by RNS
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