Net Asset Value(s) / Interim
UK Commercial Property Trust Limited ("UKCPT" / "Company")
Net Asset Value / Interim Management Statement
for the three month period from 1 January 2010 to 31 March 2010
Highlights
· Unaudited net asset value per share of 76.2p, up 3.5% (31 December 2009: 73.6p)
· Property portfolio rose in value to £859.3m at 31 March 2010 (31 December 2009: £710.5m), including acquisitions totalling £117.1m in the period
· Underlying like for like capital value for the Company's portfolio continues to outperform the market, with an uplift of 4.5% during the period under review, compared to the 3.9% capital growth recorded by the IPD Monthly Index
· First interim dividend declared in respect of the period from 1 January 2010 to 10 February 2010, of 0.5979p per Ordinary Share, In addition, the Company intends to declare a second interim dividend in respect of the period from 11 February 2010 to 31 March 2010, of 0.7146p per Ordinary Share
· As announced on 23 April 2010, the Company's Board is currently reviewing a proposal from Ignis Investment Services Limited, UKCPT's investment manager, regarding a proposed merger of UKCPT and F&C Commercial Property Trust Limited ("FCPT"). There can be no certainty as to whether or not the proposal will result in any scheme being implemented and any further announcements on this matter will be made by the Board of UKCPT as and when appropriate.
Investment Objective
The investment objective of the Company is to provide Ordinary Shareholders with an attractive level of income together with the potential for capital and income growth from investing in a diversified UK commercial property portfolio.
Net asset value
The unaudited net asset value per share of UKCPT as at 31 March 2010 was 76.2p. This represents an increase of 3.5 per cent.from the net asset value per share as at 31 December 2009.
The net asset value per share is based on the external valuation of the property portfolio prepared by CB Richard Ellis Limited as at 31 March 2010 of £859.3m. The Company's total net assets as at 31 March 2010 were £902.5m.
The net asset value per share is calculated under International Financial Reporting Standards ("IFRS").
The net asset value per share includes all current period income and is calculated after deduction of all dividends paid prior to 31 March 2010. It does not include provision for any unpaid dividends for the periods prior to 31 March 2010 including the dividend for the period to 31 March 2010.
In accordance with the announcement made on 26 January 2010, the Company has declared a first interim dividend in respect of the period from 1 January 2010 to 10 February 2010, of 0.5979p per Ordinary Share, with an ex dividend date of 3 February 2010, which will be paid to shareholders on 28 May 2010.
The Company intends to declare a second interim dividend in respect of the period from 11 February 2010 to 31 March 2010, of 0.7146p per Ordinary Share, with an expected ex dividend date of 12 May 2010, which will also be paid to shareholders on 28 May 2010.
At the start of the period, the Company had 990,098,858 Ordinary Shares of 25p each in issue (excluding 41,445,142 shares held in treasury). On 11 February 2010, the Company issued 195,000,000 additional Ordinary Shares of 25p each following the successful completion of the Company's Placing and Offer raising gross proceeds of £150m.
The adjusted net asset value per share, after deducting the above first and second interim dividends, totalling 1.3125p on the 990,098,858 Ordinary Shares, which have been in issue since 1 January 2010, and the dividend of 0.7146p on the additional 195,000,000 Ordinary Shares, which were issued on 11 February 2010, is 75.0p. This represents an increase of 3.7 per cent. from the equivalent net asset value per share as at 31 December 2009.
NAV per share at 31 March 2010 is therefore based on 1,185,098,858 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 January 2010 to 31 March 2010.
|
UK Commercial Property Trust Limited |
Per Share* (p) |
Attributable Assets (£m) |
|
Net assets as at 31 December 2009 |
73.6 |
728.6 |
|
Unrealised increase in valuation of property portfolio |
2.5 |
25.7 |
|
Capital expenditure during the period |
- |
(0.5) |
|
Income earned for the period |
1.1 |
11.9
|
|
Expenses for the period |
(0.2) |
(2.4) |
|
Dividend paid on 26 February 2010 |
(0.8) |
(8.9) |
|
Issue of Ordinary Shares on 11 February 2010 |
- |
148.1 |
|
Net assets as at 31 March 2010 |
76.2 |
902.5 |
* Movements in NAV above are based on the average number of shares in issue during the period. Opening and Closing NAVs are based on actual shares in issue at the reporting dates.
|
UK Commercial Property Trust Limited |
|
|
|
Net Asset Analysis as at 31 March 2010 |
£m |
% |
|
Property Portfolio |
|
|
|
Retail |
471.9 |
52.3 |
|
Office |
253.6 |
28.1 |
|
Industrial |
133.8 |
14.8 |
|
Total Property |
859.3 |
95.2 |
|
Net Current Assets |
43.2 |
4.8 |
|
Total Net Assets as at 31 March 2010 |
902.5 |
100.0 |
The total expense ratio of the Company for the period ended 31 March 2010, based on total assets as at 31 March 2010 and on the basis of annualised expenses, was 0.83%. 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.
As at 31 March 2010, the Company had borrowings of £42.1m with Lloyds Bank Group. 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 £80m seven year loan facility currently in place.
Review of the period
Although the official GDP figures have yet to be confirmed, the upward revision of the GDP figures for the last quarter of 2009 (from 0.1% to 0.4%) together with the recent survey of indices by British Chamber of Commerce suggest that the economy continued to grow in the first three months of this year. Although encouraging, central forecasts for the economy do however remain "fragile and sluggish" not only for previously cited reasons of a budget deficit, lack of consumer spending and prospects of public sector cuts but also due to businesses continuing to be unable to find sufficient finance despite the unprecedented quantitative easing poured into the banking system by the Bank of England. All these factors have been compounded by the ongoing uncertainty as to the outcome of the impending General Election.
Whilst unemployment has fallen in recent months, forecasts of further increases predominate, particularly as the effect of potential public sector cuts are still to be felt.
Inflation seems to be peaking, supporting the Bank of England's view that it is unlikely to be a major issue during 2010. For this reason, interest rates are expected to remain unchanged for the rest of the year though the composition of the next government may change this dynamic in the near term.
In many ways the first three months for the property market in 2010 were similar to that for the end of 2009, with capital growth, yield shift, shortage of stock and stabilisation in rental values remaining the key themes.
Although the IPD Monthly Index recorded 3.9% capital growth for the first quarter of 2010 which was much lower than the 7.4% for Quarter 4 2009, this is still a very strong return and has only once been bettered during the last boom cycle between 2004 and mid 2007.
The top performing market sector yet again was retail, recording a 6.4% total return over the quarter. Although the retail warehousing sub-sector remains a strong contributor to this overall performance, it was shopping centres which proved to be the strongest performing sub-sector, buoyed by an improvement in yields.
Retail rental values continue to decline, albeit at a reducing rate, as retail trading gradually improves but remains fragile. Despite the level of administrations over the past three months reducing slightly, potential CVAs remain an issue to be considered.
Offices were the next best performing sector, with a return of 5% over the quarter. Central London continues to push ahead of the rest of the country, though there is evidence of inward yield shift across the UK with prime yields in the West End now 4.25%, the City 5.50% and the Regions 5.75%. A 10 bps increase in rental value growth in March, the first in 18 months, was purely driven by Central London as rents in the rest of the country continued to decline.
Demand continues to improve in Central London against a backdrop of limited supply, particularly for larger requirements. The regional picture is mixed, but overall is improving again against a limited supply of Grade A space though even this is not enough to ensure rental growth in the regions for some time to come.
Total Return for the industrial sector improved but continues to lag the others at 4.2% over the quarter. Although this sector fared better during the downturn, the combination of more moderate improvement in capital growth, greater overall falls in rental value during the quarter and tentative signs of recovery has resulted in the poorest performance of the three main sectors.
UK institutions (particularly retail funds) and overseas investors continue to be the most active in the domestic property market with strong demand for prime property still the most dominant theme. Although there remains evidence of some buyers relaxing their criteria, particularly to encompass weaker covenants and shorter income, some market commentators are speculating that yields for prime defensive stock are beginning to stabilise in the face of potential rises in gilt yields and the end of quantitative easing. On the other hand, yields on good secondary stocks ("the next best thing") are beginning to firm, with the gap to the prime end of the market narrowing, though it is questionable how sustainable this is without the re-emergence of wider debt availability and rental growth to the market.
There remains uncertainty over the future supply of stock and, although there is continued evidence of the banks hiring both internal and external property teams to formulate work-out strategies, the common perception is that whilst the recent improvement in values will increase the level of stock coming to the market, it will still only be done in a measured way.
In summary, for the moment it seems the market has paused for breath although is still showing a strong appetite for prime property where total return prospects remain strongest over the medium term.
Against the above backdrop, the underlying capital value of the Company's portfolio continues to outperform the market, recording an uplift of 4.47% during the period.
For the fourth consecutive quarter, the main driver of this capital growth was the Company's retail holdings which increased overall by 5.84% in the three months to the end of March 2010. On this occasion, however, it was the performance of the shopping centres, rather than the retail warehouses, that was the main contributor, with a 8.87% capital value uplift primarily due to the positive performance of the Parade, Swindon, where the yield shift generated by the pre-lets achieved within the BHS development helped push up capital values.
No longer lagging, the Company's office holdings were the next best performer, with an average 3.55% capital value uplift. This was led by the improved conditions in Central London occupational and investment markets, where value has increased by 5.4%, although encouragingly there still remains an increase in value within UKCPT's Regional Office portfolio where the long leases of the Company's properties have offset the laboured recovery witnessed in these occupational markets.
It appears as though the yield compression which for so long underpinned the very strong performance in the Company's industrial assets is approaching its end as this sector recorded a capital value uplift of only 2.69% in the period. However the relatively high and stable income return within that sector will help support rental returns.
In common with the market, the overall level of ERV movement for the portfolio is stabilising with ERV falling by only an approximate 0.25% over the quarter.
As at 31 March 2010, voids (excluding pre-lets) represented 4.76% of portfolio ERV (2.45% as at 31st Dec).
At the end of March 2010, the Company announced two major retail investment purchases for a total consideration of £117.07m (before costs) at an overall net initial yield of 6.42%.
The first acquisition was the Darwin, Pride Hill and Riverside Mall Shopping Centres in Shrewsbury for a total consideration of £61.0m. These three shopping centres within a town which benefits from a strong catchment and attractive retail environment do provide a number of asset management initiatives from which the Company will be able to enhance returns over the medium term.
The second acquisition at Junction 27 Retail Park, Leeds for £56.6m, also offers opportunities for income and capital growth through asset management.
Both acquisitions represent an investment of the proceeds raised from the Company's equity raising in February this year.
The cautious outlook for the economy and UK property sector does point to a varied performance between sub-sector and asset. It is acquisitions such as Shrewsbury and Leeds, together with the ongoing asset management within the Company's portfolio, which will help maintain and support the Company's income stream.
Set out below is a breakdown of the movement in the external valuation of the property portfolio over the period from 1 January 2010 to 31 March 2010.
|
UK Commercial Property Trust Limited
|
Exposure % as at 31 Mar 2010 |
Capital Value Shift ( %) |
£m
|
|
External Valuation at 1 January 2010
|
|
|
710.49 |
|
Sub-sector Analysis
|
|
|
|
|
Retail |
47.80 |
5.84 |
19.59 |
|
High St - South East High St- Rest of UK |
11.75 4.00 |
4.49 4.39 |
3.75 1.25 |
|
Shopping Centres |
12.31 |
8.87 |
7.45 |
|
Retail Warehouses |
19.73 |
5.12 |
7.14 |
|
|
|
|
|
|
Offices |
34.17 |
3.55 |
8.69 |
|
|
|
|
|
|
West End |
10.01 |
5.39 |
3.80 |
|
South East |
9.26 |
1.03 |
0.70 |
|
Rest of UK |
14.90 |
3.94 |
4.19 |
|
|
|
|
|
|
Industrial |
18.03 |
2.69 |
3.51 |
|
South East |
11.64 |
2.80 |
2.36 |
|
Rest of UK |
6.38 |
2.49 |
1.15 |
|
|
|
|
|
|
Adjustment for disposals
|
|
|
0.00 |
|
Adjustment for acquisitions |
|
|
117.07 |
|
External valuation at 31 March 2010 |
|
4.47 |
859.35 |
Material Events
As announced on 1 April 2010, the Company has agreed to an extension of the longstop date to 30 June 2010 in relation to the conditions of the proposed purchase of 122-132 Argyle Street Glasgow.
On 23 April 2010, the Company's Board confirmed that it is currently reviewing a proposal from Ignis Investment Services Limited ("Ignis"), the investment manager of UKCPT, regarding a proposed merger of UKCPT and F&C Commercial Property Trust Limited ("FCPT") (the "Transaction").
The Board, which is being advised by Execution Noble & Company Limited, will consider this proposal carefully and undertake appropriate due diligence, taking into account the best interests of all shareholders. There can be no certainty as to whether or not the proposal will result in any scheme being implemented. The proposed merger will also be subject to approval by UKCPT and FCPT shareholders.
Any further announcements on this matter will be made by the Board of UKCPT as and when appropriate.
Other than these events, the Board is not aware of any significant events or transactions which have occurred between 31 March 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: 01481 745432
Robert Boag/Gerry Brady, Ignis Investment Services Limited
Tel: 0141 222 8000
Nigel Russell/Graeme Caton/Graham Reaves, G&N Collective Funds Services Limited
Tel: 0131 226 4411
John Llewellyn-Lloyd/Peter Tracey, Execution Noble & Co. Limited, Financial Adviser to UKCPT for the Transaction
Tel: 020 7456 9191
Stephanie Highett/Richard Sunderland/Rachel Drysdale/Olivia Goodall, Financial Dynamics, Financial PR Adviser to UKCPT
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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