Net Asset Value and Interim Management Statement
Net Asset Value/ Interim Management Statement
For the three month period from 1 April 2011 to 30 June 2011
Values maintained through successful active management in challenging market conditions
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 30 June 2011 and unaudited quarterly Net Asset Value ("NAV") as at 30 June 2011.
Financial Highlights
§ NAV per share* as at 30 June 2011 was 76.9p (31 March 2011: 77.0p)
§ The portfolio is now valued at £1,013.5 million. This represents a like-for-like increase of 0.9% in the quarter compared to an IPD Monthly funds index return of 0.4%. This increase was offset by movements in swap values and transaction costs relating to the new Barclays loan facility and costs associated with the purchase of the Rotunda leisure complex in Kingston upon Thames;
§ The Company intends to declare a second interim dividend, in respect of the period from 1 April 2011 to 30 June 2011, of 1.3125p per Ordinary Share, with expected ex-dividend and payment dates of 10 August 2011 and 31 August 2011 respectively;
§ Based on an annual dividend of 5.25p and the share price as at 30 June 2011 of 82.15p, the Company's shares yield 6.4%, which compares favourably to 3.0% for the FTSE All Share Index and 5.9% for the AIC High Income sector;
§ On 19 May 2011 the Company entered into a £150 million 7 year loan facility with Barclays Bank Plc for future acquisitions and portfolio asset management initiatives; to date the Company has drawn down £25 million of this facility resulting in total gearing being 10.2% as at 30 June 2011, which is still the lowest in the sector;
§ Over three years the Company, from the low point in the economic cycle, has produced a NAV total return of 10.7% and share price total return of 52.4%, both considerably ahead of the 0.6% total return on the IPD Balanced Monthly Funds Index over the same period.
Property Highlights
§ In May the Company purchased the Rotunda leisure complex in Kingston upon Thames, a well located, prime asset with potential to create rental growth through active management, for £50.7 million representing a net income yield of 6.5%;
§ Strong performance in retail properties was underpinned by recent strategic investments in shopping centres whose values increased by 3.5% in this quarter alone. This increase compensated for reductions in valuations elsewhere.
§ Adjusted annualised Net Rental Income as at 30 June 2011 was £68.1 million (31 March 2011 - £64.2 million) improved by the above acquisition and ongoing asset management.
§ The void position of the portfolio as at 30 June 2011 was 3.6% (31 March 2011 - 3.9%). This decrease is due to the low void rate in the Rotunda and compares favourably to the monthly IPD equivalent of 9.7%
Christopher Hill, Chairman of UKCPT, commented:
"The past quarter has seen continued challenges in the broader UK economy, with the overall recovery proving somewhat muted and confined to certain areas and sectors. Against this backdrop, our Investment Manager's specialist asset management teams have been working hard to maintain rental income, and the flat NAV performance represents a notable achievement particularly when bearing in mind the transaction costs incurred. We acquired the Rotunda leisure complex in Kingston upon Thames in the period and will continue to seek good quality assets with strong rental income and drive for valuation gains through the application of specialist asset management skills."
*The NAV 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 30 June 2011. It does not include provision for any unpaid dividends for the periods prior to 30 June 2011, including the proposed dividend for the period to 30 June 2011.
The NAV per share at 30 June 2011 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 April 2011 to 30 June 2011.
|
UK Commercial Property Trust Limited |
Per Share (p) |
Attributable Assets (£m) |
|
Net assets as at 1 April 2011 |
77.0 |
922.2 |
|
Unrealised increase in valuation of property portfolio |
0.3 |
3.3 |
|
Income earned for the period |
1.5 |
17.9
|
|
Expenses for the period |
(0.4) |
(3.8) |
|
Dividend paid on 31 May 2011 |
(1.3) |
(15.7) |
|
Interest rate swaps mark to market revaluation |
(0.2) |
(2.6) |
|
Net assets as at 30 June 2011 |
76.9 |
921.3 |
|
UK Commercial Property Trust Limited |
|
|
|
Net Asset Analysis as at 30 June 2011 |
£m |
% |
|
Property Portfolio |
|
|
|
Retail |
567.5 |
61.6 |
|
Office |
261.0 |
28.3 |
|
Industrial |
135.0 |
14.7 |
|
Leisure |
50.0 |
5.4 |
|
Total Property Market Value |
1,013.5 |
110.0 |
|
Adjustment for lease incentives |
(4.2) |
(0.5) |
|
Fair Value of Property Portfolio |
1,009.3 |
109.5 |
|
Net Current Assets |
18.1 |
2.0 |
|
Net Long Term Liabilities |
(106.1) |
(11.5) |
|
Total Net Assets as at 30 June 2011 |
921.3 |
100.0 |
Total Expense Ratio ("TER")
The TER of the Company for the period ended 30 June 2011, based on the average total assets less current liabilities as at 30 June 2011 and on the basis of annualised expenses, was 0.84%. 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 finance costs, capital expenditure and refurbishment and irrecoverable property running costs.
Economic and Property Market Review
Concerns over the strength of the UK economic recovery have escalated over the course of the last quarter. Although somewhat better than some of the Eurozone countries, the UK economy continues to face an uphill struggle as consumer confidence remains low, hampering any growth in servicing or manufacturing with the indices for both reversing over the period. As a consequence the lacklustre GDP growth figure of 0.2% for the second quarter was not a surprise following the disappointing 0.5% for the first quarter of 2011.
Given this weak outlook for the economy and the recent easing of inflation, there remains the expectation that the Bank of England will hold interest rates at their current level of 0.5% for the rest of the year, with some commentators raising the possibility of further quantitative easing.
In relation to the commercial property market, the continued investment in Central London and the search for strong income return across all sectors has kept the performance of property on track over the last quarter. Although capital values remain positive, with IPD announcing growth of 0.4% for the quarter, it is nevertheless a decrease from the previous quarter's growth of 0.6% and highlights the nervousness that surrounds the secondary market as a result of the weak economic outlook. As long as this remains the case, capital and rental growth for all but prime properties outside Central London will be under pressure.
Overall rental performance continues to be pedestrian with the growth in office rents of 0.4% contrasting with the decline in rents in both retail and industrial sectors (-0.1% and -0.2% respectively).
Within each sector there continues to be a divergence in performance. For offices, Central London continues to dominate the rest of the country whilst resilience in the retail warehouse and shopping centres contrasts with the disappointing performance from the High Street where an increase in retail administrations such as TJ Hughes, Jane Norman and Oddbins has had a negative impact.
In the industrial sector, distribution warehouses remain reasonably stable driven by network optimisation, particularly within the retail sector.
Portfolio Review
Capital Review
Despite the challenging economic conditions, UKCPT's portfolio performed relatively well, with a valuation of £1,013.5 million reflecting a like-for-like increase of 0.9%.
The Company`s retail properties showed the strongest performance over the quarter returning a 1.1% capital uplift with the greatest contribution in this sector coming from shopping centres with a 3.5% increase. This was mainly driven by the handover and opening of the BHS department store at Swindon, where the Company has seen the benefit of earlier capital expenditure. It also partly reflects the continued strong investment demand for centres with strong fundamentals and asset management potential.
The other retail sub-sectors contributed positively to capital growth, albeit marginally, with retail warehouses increasing by 0.1% and high street retail by 0.1%, mainly through improved yields.
Compared to the strong performance of the Company`s retail properties, the performance of the Company's office portfolio has been muted. While continued investor focus on Central London offices, coupled with ERV growth and limited supply, resulted in a 4.3% valuation uplift in this sub-sector, this performance was offset by the fall in values elsewhere in the office sector. South East office valuations, where shorter income dominates, fell by 1.6%. In addition, regional offices, where the more challenging outlook continues to undermine investment demand for all but prime property, fell by 0.6%. Overall, office values increased marginally in the quarter by 0.8%, broadly similar to Q1.
The capital value of UKCPT`s industrial holdings increased over the quarter by 0.3%. This increase was positively influenced by the strong investment demand that has been evident for South East industrials. However, performance was held back by the fall in value of one of the Company`s shorter income distribution warehouses.
Income Review
Income increased over the quarter following the acquisition of the Rotunda leisure complex at Kingston upon Thames (£3.3million annual rent). Overall the portfolio produced an annualised income of £68.1 million, resulting in an attractive net income yield of 6.7%.
Although there was some encouraging evidence of letting activity within the portfolio, particularly in shopping centres, the approval of the company voluntary arrangement of JJB and the expiry of a small number of leases, again mainly in shopping centres, has resulted in around £75,000 of lost income on a like-for-like basis over the quarter, representing 0.1% of annualised rental income. The increased frequency of administrations, particularly in the retail sector, remains an ongoing concern and there is a feeling that it may get worse before it gets better. It is in this area that active asset management will be critical to the retention of income for the Company.
Transactions
The Company completed the acquisition of the Rotunda leisure complex in Kingston upon Thames for £50.7 million (6.5% net income yield after costs) on 19 May 2011. The purchase price was met by drawing down the balance of the Lloyds facility of £37.9million and drawing £15.0 million of the Barclays facility referred to below. The Rotunda is a prime leisure scheme in an affluent London suburb, purchased at a compelling net income yield, and offers clear potential to build on the rental income through hands on asset management.
There have been no sales over the quarter.
The Company's void position is 3.6% of income (excluding pre-lets) which compares favourably to the IPD Balanced Monthly Funds Index of 9.7%.
Finance
On 19 May 2011 the Company entered into a £150 million 7 year term bank facility with Barclays Bank Plc. The interest rate margin is 1.85% above LIBOR which could be reduced to a minimum margin of 1.60% (assuming 25% LTV or lower) and increased to a maximum of 2.00% (assuming 45% LTV or higher). In addition to the £15.0 million referred to above for the Rotunda, a further £10.0 million was drawn down for portfolio capital expenditure.
The Company has now drawn down debt totalling £105 million (Lloyds facility - £80 million, Barclays facility - £25 million) leaving £125 million of the Barclays facility still available for investment over the next 18 months. Swap contracts have been entered into covering all of the drawn down amounts. This has resulted in an average blended cost of 3.61% on drawn down amounts.
In addition to the above, the Company has also entered into a swap arrangement for a further £75 million of the Barclays facility at a swap rate of 2.9925%, effective from 15 July 2011.
Outlook
Capital returns will continue to be modest with a strong performance in London, the South East and prime sectors being offset by weakness in the secondary and regional markets where risks still remain. Institutional and overseas interest is still strong, competing for a limited pool of prime assets in sought after locations, which should maintain upward pressure at the top end of what is a highly segmented market. In relation to secondary markets, there is increasing evidence that banks are bringing more assets to the market as they aim to reduce their exposure to property. This will be a crucial feature for the prospects of the secondary property market in the short to medium term, but may also provide some interesting acquisition opportunities.
Income is increasing in importance on overall property returns. Office and retail rents in Central London and retail rents in some of the stronger south east and provincial retail locations are expected to grow at a much faster rate compared to other locations. However, industrial rents are expected to fall back slightly against the backdrop of the weak economy. The increasing importance of income brings into sharp focus the constant need for active asset management, where the Company's Investment Managers have significant experience, to ensure that overall returns are enhanced.
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Total Return Performance Table |
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* assumes dividends are re-invested |
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Sector Analysis
|
|
Exposure % as at 30 June 2011 |
Capital Value Shift (%) |
£m
|
|
External Valuation at 1 April 2011
|
|
|
955.1 |
|
Sub-sector Analysis
|
|
|
|
|
Retail |
56.0 |
1.1 |
6.0 |
|
High St - South East High St- Rest of UK |
9.2 4.2 |
0.1 0.0 |
0.1 0.0 |
|
Shopping Centres |
16.6 |
3.5 |
5.7 |
|
Retail Warehouses |
26.0 |
0.1 |
0.2 |
|
|
|
|
|
|
Offices |
25.8 |
0.8 |
2.0 |
|
West End |
8.7 |
4.3 |
3.6 |
|
South East |
6.3 |
(1.6) |
(1.0) |
|
Rest of UK |
10.8 |
(0.5) |
(0.6) |
|
|
|
|
|
|
Industrial |
13.3 |
0.3 |
0.4 |
|
South East |
8.7 |
0.8 |
0.7 |
|
Rest of UK
|
4.6 |
(0.6) |
(0.3)
|
|
Adjustments for Acquisitions(Rotunda Leisure Complex, Kingston upon Thames)
|
4.9 |
0.00 |
50.0 |
|
External valuation at 30 June 2011 |
100.0 |
0.9 |
1013.5 |
The Board is not aware of any further significant events or transactions which have occurred between 30 June 2011 and the date of publication of this statement which would have a material impact on the financial position of the Company.
Enquiries
Robert Boag/Graeme McDonald, Ignis Investment Services Limited
Tel: 0141 222 8000
Stephanie Highett/Richard Sunderland/Will Henderson, Financial Dynamics,
Tel: 020 7831 3113
Important Note
The above information is unaudited and has been calculated by Ignis Investment Services Limited.
This information is provided by RNS
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