RNS Number : 6291W
UK Commercial Property Trust Ltd
02 February 2012
UK Commercial Property Trust Limited ("UKCPT" or the "Company")
Net Asset Value/ Interim Management Statement
for the three month period from 1 October 2011 to 31 December 2011
Values maintained through successful asset management initiatives
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 2011 and unaudited quarterly Net Asset Value ("NAV") as at 31 December 2011.
-- NAV per share* as at 31 December 2011 was 75.5p (30 September 2011: 75.9p);
-- The portfolio is now valued at GBP1,016.4million. This represents a like-for-like increase of 0.1% in the quarter before capital expenditure, marginally ahead of the capital return component of the IPD Monthly funds index of 0.0%. This increase was offset by movements in swap valuations and working capital in the quarter;
-- The Company intends to declare a fourth interim dividend, in respect of the period from 1 October 2011 to 31 December 2011, of 1.3125p per Ordinary Share, with ex-dividend and payment dates of 8 February 2012 and 28 February 2012 respectively;
-- As at 31 December 2011 the Company had cash balances totalling GBP60.9 million. In addition, the Company has GBP90 million of the Barclays loan facility still available for drawdown and investment;
-- Based on an annual dividend of 5.25p and the share price as at 31 December 2011 of 69.15p, the Company's shares yield 7.6%, which compares favourably to the IPD Monthly All Property Initial Yield of 6.2% and the FTSE All-Share Index yield of 3.5%;
-- Over five years to the end of December 2011, the Company has produced a NAV total return of 2.6%. This compares favourably to the -7.4% total return on the IPD Monthly Index and -17.1% total return on the FTSE Real Estate Investment Trusts Index over the same period.
-- Successful asset management initiatives include :
o Lease restructure with Next and Costa at Kew Retail Park, Richmond;
o Pre-let agreed with Pizza Express for 3,600 sq ft A3 Restaurant at Junction 27 Retail Park, Leeds;
o Restructure of Sainsbury`s supermarket lease at West St, Marlow;
o Letting of 38,000 sq.ft industrial unit following refurbishment at Dolphin Estate, Sunbury;
-- Income maintained despite difficult retail occupier markets with 13 new lettings in the quarter;
-- The void position of the portfolio as at 31 December 2011 was 3.4% (30 September 2011: 3.5%) which compares favourably to the monthly IPD equivalent of 10.0% underlining the quality nature of the portfolio.
Christopher Hill, Chairman of UKCPT, commented:
"Our results for the fourth quarter of 2011 represent a good performance in the context of continued challenges in the UK economy, and in the retail sector in particular. In spite of the adverse market conditions, our skilled team of specialist asset managers has worked closely with tenants to maintain income and occupancy and maximise values at our properties, securing an increase in the overall portfolio valuation.
I am confident that we will be able to continue to generate value from our existing properties in 2012, and will seek to grow our portfolio through selective acquisitions where we see opportunities to acquire good quality assets with potential for value growth through hands on asset management"
*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 31 December 2011. It does not include provision for any unpaid dividends for the periods prior to 31 December 2011 i.e. the proposed dividend for the period to 31 December 2011.
The NAV per share at 31 December 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 October 2011 to 31 December 2011.
UK Commercial Property Trust Per Attributable
Limited Share Assets
Net assets as at 1 October 2011 75.9 909.2
Unrealised increase in valuation
of property portfolio 0.1 0.6
Capital expenditure during the
period (0.2) (2.2)
Income earned for the period 1.5 18.5
Expenses for the period (0.4) (5.5)
Dividend paid on 30 November
2011 (1.3) (15.7)
Interest rate swaps mark to market
revaluation (0.1) (1.0)
Net assets as at 31 December
2011 75.5 903.9
UK Commercial Property Trust
Net Asset Analysis as at 31 December GBPm %
Retail 568.3 62.9
Office 260.8 28.8
Industrial 137.3 15.2
Leisure 50.0 5.5
Total Property Market Value 1,016.4 112.4
Adjustment for lease incentives (4.7) (0.5)
Fair Value of Property Portfolio 1,011.7 111.9
Net Current Assets 43.4 4.8
Net Long Term Liabilities (151.2) (16.7)
Total Net Assets as at 31 December
2011 903.9 100.0
Total Expense Ratio ("TER")
The total expense ratio of the Company for the period ended 31 December 2011, based on the average net assets as at 31 December 2011 and on the basis of annualised expenses, was 0.84% (2010 - 0.85%). 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
The UK economy recovery is failing to achieve any significant momentum with the final quarter's GDP figures showing a retraction of 0.2% compared to growth of 0.6% in the previous quarter. The economy continues to be affected by the Eurozone sovereign debt crisis which threatens the UK banking sector and continues to undermine investor and consumer confidence, creating renewed uncertainty.
The retail economy is suffering from a decline in real disposable incomes. Even with inflationary pressures expected to subside, confidence has taken a buffeting as the economy is failing to expand at a rate sufficient to generate employment that replaces all the redundant public sector jobs resulting from the implementation of the government's austerity package. Unemployment is now at a higher level than experienced in the recent recession.
Against such a backdrop, headline interest rates were held at 0.5% and seem set to remain at that level over the course of 2012 and into 2013. The consensus is now that 2012 will be a challenging year and the debate centres on the extent of the trouble the UK faces. However, the expected fall in inflation should ease pressure on consumers and, as a corollary, on retailers, as the year progresses.
The property market experienced a muted final quarter, with the uncertainty of the UK economy and the Eurozone crisis resulting in flat capital values with slight reductions in investment volumes and rental growth.
The IPD Monthly Index recorded flat capital growth, producing a total return of 1.6%, resulting in a total return of 8.1% for 2011. Lambert Smith Hampton reported a 16% quarter on quarter fall in investment volumes from GBP8.1bn to GBP6.8bn, with overseas investors continuing to be the lead investor type.
Prime property yields continued to remain stable, whilst weaker secondary stock is beginning to see signs of a marked outward shift. This gap between prime and secondary will be a source of opportunity; however, for the time being, risk aversion remains the theme in the market. Retail has been the main focus for this re-pricing with secondary shopping centres and high street yields moving out, whilst retail warehouse yields have generally been maintained. The impact of tenant default and falling rental values has been felt most in shopping centres and the high street with a number of retailers entering administration before the year end and others looking likely to follow suit in early 2012. Meanwhile London continues to be insulated from most of these challenges to the retail market.
As has been the case for some time, the office sector finished the quarter the strongest and was the only sector to see positive rental growth, driven by Central London. However, towards the year end, it did see a fall in investment and occupier demand in the City's market.
Generally occupier markets for offices throughout the rest of the UK continue to be weak, with further falls in rental values, although there has been evidence of investment activity from both UK and overseas investors in prime properties, resulting in yields holding firm for this segment of the market.
Attracted by the secure income stream, there was some significant investment activity in the distribution warehouse market in the final quarter with a resultant improvement in yields. Outside the South East, demand for smaller scale multi-let industrial units remains low and, as a result, this area has not been attractive to investors, although value can still be found as yields remain substantially above 2007 levels.
The portfolio valuation over the quarter showed a modest and resilient increase of 0.1% (before capital expenditure) with a valuation of GBP1,016.4m.
The Company's Central London offices, retail warehouse and industrial properties delivered the strongest performance in capital terms, supported in many cases by asset management initiatives, whilst ERV growth and yield compression remain the drivers for increased growth in Central London capital values.
Retail warehouses recorded a 1.2% increase in value over the quarter, with income accretive asset management deals at Kew Retail Park, Richmond and Junction 27 Retail Park, Leeds representing the principal generators of value.
Asset management was again the primary driver supporting the 1.1% increase in the Company's South East retail portfolio with the completion of a restructure of a lease with Sainsbury's at the Marlow supermarket. This good work was sufficient to offset the falls in shopping centre holdings where loss of income through tenant default, although minimal in overall portfolio terms, continued to impact value adversely. Overall the Company's retail holdings increased marginally by 0.1%.
The Company's industrial holdings were the next strongest performer in capital terms, with an overall increase of just below 1%, generated exclusively by the positive letting and lease restructuring activity at Dolphin Park Industrial Estate, Sunbury.
The continued divergence of performance between the Company's Central London office holdings and those in the rest of the UK remains evident in the capital performance of that sector for the quarter. On this occasion though, the 2.1% increase in Central London values was not sufficient to offset the 1.7% fall for the rest of the UK, mainly caused by South East assets where shorter term income dominates. The Company's regional offices remain broadly flat in capital terms, reflecting the relatively prime nature of these assets. Overall office values fell by 0.4% for the quarter.
In summary, the quality and diversified nature of the portfolio has enabled valuation gains to be made at a time when portfolios that are more secondary in nature are under pressure.
Rental income held firm over the quarter, with annualised income of GBP68.3m which represents a 6.7% income yield before costs.
Overall, thirteen lettings during the quarter produced in the region of GBP558,000 p.a. of additional rental income. Whilst a number of these were seasonal short term lettings, the largest letting, involving a 38,000 sq ft industrial unit at Dolphin Park, Sunbury on a new five year lease, will produce a rental of circa GBP370,000 p.a. post rental incentives.
This positive letting activity was offset by the expiry of a number of leases in shopping centres and industrial holdings, and this was further exacerbated by retail administrations, in particular Jane Norman at a rent of GBP100,000 p.a. Although there is potential re-letting interest for this unit, the challenges that continue to face retailers mean that the loss of income through retail administrations remains a continued threat to the portfolio as with any institutional landlord.
The Company's void position as at end of the quarter was 3.4% of annualised income (3.5% in Sept 2011) or 4.2% including units held in administration. This low figure again emphasises the quality nature of the portfolio.
We continue to believe that property will remain an attractive asset class for investors due to its ability to offer comparatively stable returns. Our most recent forecast for all property total returns in 2012 is 5.2% with annualised total returns for the next three years (2012-2014) of 7.1% p.a. which represents a solid real return in this challenging environment. Our forecasts for 2012 primarily reflect continuing weakness in the retail sector, with further falls in rental value as retailers struggle due to consumers facing limited real income growth and rising unemployment.
Commercial property total returns will be driven by income with outward pressure on capital values most prevalent in the secondary markets where occupation prospects are weaker. Tenant retention and maintaining levels of income through effective asset management initiatives will prove the key to delivering performance in this market.
as at Value GBPm
31 Dec Shift
External Valuation at
1 Oct 2011 1015.5
Retail 55.9 0.1 0.5
High St - South East 9.3 1.1 1.0
High St- Rest of UK 4.2 (0.3) 0.0
Shopping Centres 16.2 (2.1) (3.7)
Retail Warehouses 26.2 1.2 3.2
Offices 25.7 (0.4) (1.0)
West End 9.0 2.1 1.9
South East 5.9 (4.5) (2.8)
Rest of UK 10.8 (0.1) (0.1)
Industrial 13.5 1.0 1.4
South East 9.0 2.4 2.2
Rest of UK 4.5 (1.6) (0.8)
Leisure 4.9 0.0 0.0
External valuation at
31 Dec 2011 100.0 0.1 1016.4
The Board is not aware of any further significant events or transactions which have occurred between 31 December 2011 and the date of publication of this statement which would have a material impact on the financial position of the Company.
Robert Boag / Graeme McDonald, Ignis Investment Services Limited
Tel: 0141 222 8000
Stephanie Highett / Richard Sunderland/Will Henderson, FTI Consulting,
Tel: 020 7831 3113
The above information is unaudited and has been calculated by Ignis Investment Services Limited.
2 February 2012
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