27 Feb 2009 07:00
To: RNS
Date: 27 February 2009
From: IRP Property Investments Limited
Interim results in respect of the period ended 31 December 2008
The Chairman, Quentin Spicer, stated:
'The downturn in the property market continued apace during the six months to 31 December 2008. The Company's property portfolio recorded a capital return of -17.6 per cent for the six month period to 31 December 2008, which compares with a capital return of -19.8 per cent as measured by the Investment Property Databank ('IPD') Monthly Index. Further out-performance against IPD income returns meant that the total property return for the Company for the period was -14.8 per cent, compared with an IPD Monthly Index total return of -17.6 per cent. However, the effects of gearing, combined with the fall in the valuation of the interest rate swap, resulted in a negative total return of 30.9 per cent, with the net asset value ('NAV') per share falling to 80.4 pence.
The share price fell by 32.0 per cent to 51.0 pence per share and was showing a discount of 36.6 per cent to NAV as at 31 December 2008, recognising the fact that further capital declines are expected.
The intensification of the credit crisis since September, its effect on the wider economy, both in the UK and internationally and the recognition that the country had entered a period of recession were the main catalysts for the deterioration in performance. Despite the fact that governments across the globe have acted swiftly in an attempt to remedy the liquidity situation and the Bank of England has cut interest rates to record low levels, sentiment is still very subdued.
Dividends
The Company is currently paying an annualised dividend of 7.2 pence per share in the form of quarterly interim dividends of 1.80 pence per share. The first interim dividend for the year ending 30 June 2009 was paid in December 2008, with a second interim dividend of 1.80 pence per share to be paid on 27 March 2009 to shareholders on the register on 6 March 2009. The Board is comfortable with the Company's position relative to its banking covenants and with its level of income collection and is therefore happy to confirm that, in the absence of unforeseen circumstances, it intends to pay a further two dividends at this rate in respect of the current financial year.
Borrowings
The Company is in a relatively strong financial position with a long term facility of £75 million available until 2017. £60 million of this facility has been drawn down to date and, as at 31 December 2008, the loan to value ratio ('LTV') was 38.1per cent, net of current assets and liabilities of £525,000. This is comfortably within the LTV restriction of 60 per cent. The other significant covenant is the amount by which rental income covers interest, with a minimum restriction of 150 per cent. As at 31 December the interest rate cover was 255 per cent, providing significant headroom.
The interest rate on the £60 million loan has been fixed with an interest rate swap at 5.655 per cent. The valuation of the swap has been significantly reduced as interest rates have fallen, with a liability being shown on the balance sheet as at 31 December of £8.1 million. This liability will reduce as the contract gets closer to its expiry date in 2017 and as interest rate swaps increase from their current very low levels.
Property Market
Total returns in the UK commercial property market were negative 22.5 per cent in 2008, as measured by IPD - the worst annual IPD performance on record, with performance deteriorating markedly in the final quarter of the year. Investment transactions fell by more than 50 per cent in value when compared with 2007, reflecting the unavailability of finance and the generally cautious approach of investors.
Rents have fallen in 2008 as momentum moved further in favour of the tenant with rent-free periods and shorter lease lengths being offered. This weakness in the occupational market has also been reflected in the rise in vacant property with IPD reporting a void rate of more than 10 per cent of rental income at the all property level. The Company's comparable rate of 3.9 per cent is significantly better than the industry average.
Portfolio
As a result of a reduction in capital values the net initial yield on the Company's property portfolio, based on the 31st December 2008 valuation, had risen to 7.2 per cent which compares to the IPD All Property Initial yield of 7.0 per cent. The Company did not purchase any property within the period; nor have any properties been sold. The Company is seeking to extract maximum performance from asset management during this period of volatility in the markets.
Without a doubt the collection of rent is becoming more challenging and one cannot ignore the possibilities of a rise in tenant defaults. As mentioned above, the Company continues to maintain a low level of voids, and although the economic environment has affected occupancy levels, the Company's void rate is still very low. There are two vacant floors at 48/49 St James Street London SW1, totalling 2,816 square feet, one of which has been refurbished and is being marketed to let. One floor is currently awaiting refurbishment. There are two further voids of note, an empty shop unit at 67/69 King Street South Shields and a vacant wine bar unit at 7/11 Bridge Street Guildford.
During the period, the Company let industrial premises at Unit 6 Lakeside Road Colnbrook. The unit comprising 12,200 square feet was let on a new 10 year lease with a tenant's break at the fifth year at a rent of £123,500pa. The estate is now fully let.
During the period several rent reviews and lease renewals were settled. The lease of the Caviar House at 48/49 St James Street London SW1 was renewed retrospectively from 24th December 2007 for a further ten years at a rental of £287,400pa, an increase of £59,400pa.A rent review on 34 The Parade Leamington Spa was agreed with effect from June 2007 at £90,500pa, an increase of £7,500pa.
Outlook
The outlook for UK commercial property is very uncertain with forecast returns ranging wildly, although all on the negative side. This uncertainty reflects the general state of the financial markets and the economy as we move from one crisis to the next. Consensus forecasts have become progressively more negative with GDP now forecast to fall in 2009. These forecasts have had an effect on the Company's share price which has fallen to around 43p as at the date of this statement.
There is the risk that the banking and economic packages introduced by the government will not succeed and that the economic downturn could be longer than originally anticipated. There is also the likelihood of occupational markets weakening further, putting pressure on rents and voids.
This environment can provide opportunities however, particularly as forced sellers bring quality stock to the market at low prices. The reduction in interest rates and gilt yields should take some of the pressure off property yields. The current level of property yields looks attractive at over 7 per cent, relative to competing asset classes, and this could be considered attractive for long term investors.
Whilst no certainty can be given as to when the UK commercial property market will turn, the Company remains well placed to weather the current environment and to take advantage of the opportunities that will be presented when it does. Until that time, the Company will continue with its low risk strategy of protecting the income streams within the portfolio; remaining relatively inactive on the capital front until it is clear that value-enhancing transactions can be achieved.'
Enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
I McBryde, S Macrae
F&C Investment Business Limited
Tel: 0207 628 8000
Fax: 0131 225 2375
IRP Property Investments Limited
Consolidated Income Statement
for the six months to 31 December 2008
| Notes | Six months to 31 December 2008 (unaudited) | Six months to 31 December 2007 (unaudited) | Year to 30 June 2007 (audited) |
| £'000 | £'000 | £'000 | |
| Revenue | |||
| Rental income | 6,239 | 6,228 | 12,513 |
| Losses on investment properties 2 | (33,748) | (25,459) | (40,215) |
| Total income | (27,509) | (19,231) | (27,702) |
| Expenditure | |||
| Investment management fee | (724) | (946) | (1,769) |
| Direct operating expenses of let rental property | (135) | (143) | (384) |
| Provision for bad debts | (130) | 47 | (4) |
| Administrative fee | (34) | (33) | (67) |
| Valuation and other professional fees | (85) | (79) | (164) |
| Directors' fees | (52) | (52) | (105) |
| Other expenses | (89) | (126) | (240) |
| Total expenditure | (1,249) | (1,332) | (2,733) |
| Net operating loss before finance costs | (28,758) | (20,563) | (30,435) |
| Net finance costs | |||
| Interest receivable | 50 | 227 | 318 |
| Interest payable | (1,764) | (1,751) | (3,508) |
| (1,714) | (1,524) | (3,190) | |
| Net loss from ordinary activities before taxation | (30,472) | (22,087) | (33,625) |
| Taxation on profit on ordinary activities | - | - | - |
| Net loss for the period | (30,472) | (22,087) | (33,625) |
| Loss per share 3 | (27.6)p | (20.0)p | (30.4)p |
IRP Property Investments Limited
Consolidated Balance Sheet as at 31 December 2008
| 31 December 2008 (unaudited) £'000 | 31 December 2007 (unaudited) £'000 | 30 June 2008 (audited) £'000 | |
| Non-current assets | |||
| Investment properties | 156,853 | 205,249 | 190,443 |
| Interest rate swap | - | - | 2,269 |
| 156,853 | 205,249 | 192,712 | |
| Current assets | |||
| Trade and other receivables | 2,865 | 2,893 | 3,336 |
| Cash and cash equivalents | 1,994 | 3,681 | 2,468 |
| 4,859 | 6,574 | 5,804 | |
| Total assets | 161,712 | 211,823 | 198,516 |
| Non-current liabilities | |||
| Interest-bearing bank loan | (60,440) | (60,408) | (60,384) |
| Interest rate swap | (8,118) | (514) | - |
| (68,558) | (60,922) | (60,384) | |
| Current liabilities | |||
| Trade and other payables | (4,334) | (4,511) | (4,475) |
| Total liabilities | (72,892) | (65,433) | (64,859) |
| Net assets | 88,820 | 146,390 | 133,657 |
| Represented by: | |||
| Share capital | 1,105 | 1,105 | 1,105 |
| Special distributable reserve | 97,569 | 99,648 | 98,271 |
| Capital reserve | (1,736) | 46,768 | 32,012 |
| Revenue reserve | - | (617) | - |
| Other reserve | (8,118) | (514) | 2,269 |
| Equity shareholders' funds | 88,820 | 146,390 | 133,657 |
| Net asset value per share 5 | 80.4p | 132.5p | 121.0p |
IRP Property Investments Limited
Consolidated Statement of Changes in Equity
for the six months to 31 December 2008
| Notes | 31 December 2008 (unaudited) £'000 | 31 December 2007 (unaudited) £'000 | 30 June 2008 (audited) £'000 |
| Opening net assets | 133,657 | 176,377 | 176,377 |
| Net loss for the period | (30,472) | (22,087) | (33,625) |
| Dividends paid 6 | (3,978) | (3,989) | (7,967) |
| Movement in other reserve | (10,387) | (3,911) | (1,128) |
| Closing net assets | 88,820 | 146,390 | 133,657 |
IRP Property Investments Limited
Consolidated Statement of Cash Flows
for the six months to 31 December 2008
| Six months to 31 December 2008 (unaudited) | Six months to 31 December 2007 (unaudited) | Year to 30 June 2008 (audited) | |
| £'000 | £'000 | £'000 | |
| Cash flows from operating activities | |||
| Net operating loss for the period before finance costs | (28,759) | (20,563) | (30,435) |
| Adjustments for: | |||
| Losses on investment properties | 33,748 | 25,459 | 40,215 |
| Decrease / (increase) in operating trade and other receivables | 472 | (190) | (864) |
| Decrease in operating trade and other payables | (107) | (24) | 59 |
| 5,354 | 4,682 | 8,857 | |
| Interest received | 50 | 182 | 273 |
| Bank loan interest paid | (1,948) | (1,953) | (3,918) |
| Receipts under interest rate swap arrangement | 206 | 497 | 912 |
| (1,692) | (1,274) | (2,733) | |
| Net cash inflow from operating activities | 3,662 | 3,408 | 6,124 |
| Cash flows from investing activities | |||
| Purchase of investment properties | - | (15,164) | (15,164) |
| Capital expenditure | (158) | (197) | (147) |
| Sale of investment properties | - | 2,678 | 2,677 |
| Net cash outflow from investing activities | (158) | (12,683) | (12,634) |
| Cash flows from financing activities | |||
| Dividends paid | (3,978) | (3,989) | (7,967) |
| Net cash outflow from financing activities | (3,978) | (3,989) | (7,967) |
| Net decrease in cash and cash equivalents | (474) | (13,264) | (14,477) |
| Opening cash and cash equivalents | 2,468 | 16,945 | 16,945 |
| Closing cash and cash equivalents | 1,994 | 3,681 | 2,468 |
IRP Property Investments Limited
Notes to the Consolidated Financial Statements
for the six months to 31 December 2008
| | Six month period to 31 December 2008 £’000 |
| Opening valuation | 190,443 |
| Capital Expenditure | 158 |
| Losses on investment properties | (33,748) |
| Closing valuation | 156,853 |
| | Six months to 31 December 2008 | Six months to 31 December 2007 | Year ended 30 June 2008 | |||
| Fourth interim dividend | 1,989 | 1.80 | 2,000 | 1.81 | 2,000 | 1.81 |
| First interim dividend | 1,989 | 1.80 | 1,989 | 1.80 | 1,989 | 1.80 |
| Second interim dividend | | | | | 1,989 | 1.80 |
| Third interim dividend | | | | | 1,989 | 1.80 |
| | 3,978 | 3.60 | 3,989 | 3.61 | 7,967 | 7.21 |