Last checked at 
24 Oct 2012 07:00
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 £172.1 million or 48.3 pence per share ('pps') as at 30 September 2012. This reflects a decrease of 1.7% compared with the NAV as at 30 June 2012 of £175 million. A breakdown of the quarterly movement is set out below:
£m | pps | Comments | |
NAV as at 30 June 2012 | 175.0 | 49.2 | NAV announced 19 July 2012 |
Unrealised change in valuation of direct property portfolio | (2.3) | (0.7) | Like for like decline before capital expenditure of approximately 0.8% |
Realised gain on disposal of investment property | 0.6 | 0.2 | Disposal of, Brentford Gate Centre, Bristol Kingsland, Havant and Bromley |
Capital expenditure during period | (0.6) | (0.2) | Principally relating to refurbishment of Haston House in Edinburgh and The Galaxy in Luton |
Unrealised change in valuation of joint ventures | 0.2 | 0.0 | Increase in value of Merchant Property Unit Trust and Crendon Industrial Partnership Limited |
Movement in interest rate swap | 0.5 | 0.2 | Mark to market movement |
Pre-tax net revenue | 2.1 | 0.6 | Benefit over the quarter from debt repayments made on 16/04/12 and 16/07/12, described further below |
Dividends paid | (3.1) | (0.9) | Dividends paid during the quarter |
Others | (0.3) | (0.1) | Rent free adjustment and tax |
NAV as at 30 September 2012 | 172.1 | 48.3 |
Dividend
The Company announces an interim dividend of 0.88 pps for the period 1 July 2012 to 30 September 2012. The dividend payment will be made on 16 November 2012 to shareholders on the register on 2 November 2012. The ex-dividend date will be 31 October 2012.
Strategy and debt repayment
The Company's strategy remains focused on improving dividend cover and reducing debt to optimise potential refinancing terms ahead of the current loan maturity in July 2014. Over the quarter, the Company sold four further properties for an aggregate value of £23.94 million reflecting an average net initial yield of 4.6%. In each instance asset management activity had been completed which increased realisable value and in aggregate the properties were sold at 3.8% above the latest independent valuation. Subsequently, on 15 October the Company used these proceeds to repay a further £17 million of debt. As a condition of the repayment, a pro-rata proportion of the interest rate swaps has been broken, crystallising a payment of £2.6 million that was already reflected in the net asset value of the Company as of 30 September 2012. This debt repayment reduces annual loan interest by £1 million per annum and follows a £10 million repayment in April 2012 and £12 million repayment in July 2012. Details of the Company's remaining debt and swaps as at 16 October 2012 are set out below:
Amount (£m) | Swap rate (%) | Margin (%) | Total interest rate (%) | Swap maturity | M2M at 15 October 2012* (£m) | M2M at 30 September 2012 (£m) | |
Loan | 43.2 | 5.099 fixed | 0.2 | 5.299 | 15/07/2014 | (3.4) | (4.0) |
Loan | 94.3 | 5.713 fixed | 0.2 | 5.913 | 15/07/2016 | (17.1) | (19.3) |
Loan total | 134.5 | 5.52 fixed | 0.2 | 5.72 | N/A | (20.5) | (23.3) |
Liquidity facility** | 11.2 | 0.54 *** | 0.662 | 1.202 | 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 October 2012
Following the debt repayment the Company has total cash of approximately £27.9 million, of which £16.5 million is outside the security pool charged to the Group's lenders. The Company's net loan-to-value ratio following the debt repayment is 36% which compares with the net loan to value covenant ratio of 60%.
Market Background
The latest IPD Monthly Index to 30 September 2012 confirmed a quarterly total return for all commercial property of 0.6% with an average income return of 1.7% off-set by a capital value decline of 1.1%. This increased the year-to-date average capital value decline to 3.1%. Offices were the best performing sector over the quarter, producing a total return of 1% with capital values falling -0.6%. There continued to be significant polarisation within the office sector with West End offices producing positive capital growth of 1%. The retail sector was again the worst performing sector, producing a total return of 0.3% with negative capital growth of -1.3%. The industrial sector also produced negative capital growth of -1.3% but a higher income return than retail resulted in a total return of 0.6%.
Performance versus Investment Property Databank ('IPD') Benchmark
Over the quarter to 30 June 2012, the latest available data, the Company's property portfolio produced a total return of 0.8% compared with 0.2% for the IPD Benchmark on a like for like basis. Over the 12 months to 30 June 2012 the Company's property portfolio produced a total return of 6.1% compared with the IPD Benchmark of 4.1% on a like for like basis.
Property Portfolio
As at 30 September 2012, the Company's direct property portfolio comprised 54 properties independently valued at £299.7 million. At the same date the direct property portfolio produced a rent of £21.4 million per annum which, based on the Knight Frank independent valuation, reflected a net initial yield of 6.8%. The portfolio's rental value is £23.4 million per annum, resulting in a reversionary yield of 7.4%. There are contracted fixed rental uplifts totalling £1.1 million per annum due by the end of 2014. As at 30 September 2012 the portfolio void rate was 11.2% of rental value, of which 2.2% is under offer to let. The average unexpired lease term, assuming all tenants vacate at the earliest opportunity, was 7.4 years.
The tables below summarise the key portfolio information as at 30 September 2012:
Sector weightings | Weighting % | |
SREIT | IPD Benchmark* | |
Retail | 23.3 | 44.6 |
Offices | 47.3 | 28.5 |
Industrial | 21.5 | 17.5 |
Other | 7.9 | 9.4 |
* Latest available IPD data as at 30 June 2012
Regional weightings | Weighting % | |
SREIT | IPD Benchmark* | |
Central London | 9.8 | 15.0 |
South East excl. Central London | 47.8 | 34.3 |
Rest of South | 10.7 | 14.2 |
Midlands and Wales | 14.4 | 14.7 |
North and Scotland | 17.3 | 21.8 |
* Latest available IPD data as at 30 June 2012
Top ten properties | Value (£) | (%) | |
1 | London SE1, Minerva House | 29,250,000 | 9.8 |
2 | Brighton, Victory House | 25,250,000 | 8.4 |
3 | Uxbridge, 106 Oxford Road | 14,800,000 | 4.9 |
4 | Brentford, Reynards Business Park | 14,250,000 | 4.8 |
5 | Salisbury, Churchill Way West | 14,150,000 | 4.7 |
6 | Luton, The Galaxy | 13,900,000 | 4.6 |
7 | Wembley, Olympic Office Centre | 13,000,000 | 4.3 |
8 | Basingstoke, Churchill Way | 10,650,000 | 3.6 |
9 | Alfreton, Recticel Unit | 9,000,000 | 3.0 |
10 | Norwich, Union Park | 9,000,000 | 3.0 |
Total as at 30 September 2012 | 153,250,000 | 51.1 | |
Top ten tenants | Rent p.a. (£) | % of portfolio | |
1 | Wickes Building Supplies Limited | 1,092,250 | 4.9 |
2 | Norwich Union Life and Pensions Ltd | 1,039,191 | 4.7 |
3 | Lloyds TSB Bank PLC | 1,024,000 | 4.6 |
4 | Ipsos Mori UK Limited1 | 1,012,500 | 4.6 |
5 | BUPA Insurance Services Limited | 960,755 | 4.4 |
6 | The Buckinghamshire New University2 | 900,000 | 4.0 |
7 | Mott MacDonald Ltd3 | 790,000 | 3.6 |
8 | Recticel SA4 | 731,038 | 3.3 |
9 | Winkworth Sherwood LLP | 689,975 | 3.1 |
10 | Irwin Mitchell LLP | 555,000 | 2.5 |
Total as at 30 September 2012 | 8,794,709 | 39.7 | |
1 Ipsos SA is guarantor. Figures based on 50% ownership of Minerva House. Was formerly let to Synovate Limited, further details under asset management below
2 Fixed uplift to £1.02 million per annum in May 2014
3 Mott MacDonald Group Limited are Guarantor
4 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 noted above, over the quarter four properties were sold for £23.94 million, reflecting an average net initial yield of 4.6% and an average premium to the valuation as at 30 June 2012 of 3.8%. Each disposal crystallised value created by active management and repositioning of the assets, with details summarised below.
On 28 September 2012, the Company simultaneously exchanged and completed the disposal of The Gate Centre in Brentford and Kingsland Trading Estate in Bristol for a combined price of £16.77 million. The sale price compares to a value as at 30 June 2012 of £16 million, reflecting a premium to valuation of £0.77 million or 4.8%.
The apportioned price for The Gate Centre, an 82,000 sq ft multi-let industrial estate in Brentford, was £12.7 million, reflecting a net initial yield of 4.9%. This compared to a value as at 30 June 2012 of £12 million. Recent lettings following refurbishment mean that the property now produces rental income of £0.67 million per annum, increasing to £0.81 million per annum by 2015 as rent free periods expire. The average unexpired lease term is 6.9 years.
The apportioned price for Kingsland Trading Estate, an 84,000 sq ft multi-let industrial estate in Bristol, was £4.07 million, reflecting a net initial yield of 6.7%. This compared to a value as at 30 June 2012 of £4 million. Following a recent letting of 52% of the estate by area and other asset management activity, the property now produces rental of £0.29 million per annum, which will increase to £0.38 million per annum by 2015 as rent free periods expire. The average unexpired lease term for the property is 6.7 years.
On 28 September 2012 the Company also completed the disposal of the trade counter unit at Solent Road Industrial Estate in Havant for £3.17 million. The property produces rental income of £0.16 million per annum, reflecting a net initial yield of 4.8%. This followed earlier completion of the adjoining site on 2 July 2012 for £1.43 million, reflecting a price of £0.45 million per acre. The combined price of £4.6 million was in line with the valuation as at 30 June 2012.
Finally, on 22 August 2012 the Company simultaneously exchanged and completed the disposal of 100 High Street Bromley for £2.57 million, a 9% premium to valuation as at 30 June 2012. The price compared to a value as at 30 June 2012 of £2.35 million. The disposal followed granting a ten year lease to Office Holdings Ltd, trading as Office Shoes, in June 2012. Office Shoes benefit from a rent free period expiring October 2013, when the rent increases from nil to £175,000 per annum.
Asset management
Given the challenging occupational market, the manager continues to focus strongly on asset management to improve net income.
At Minerva House in London, the acquisition of Synovate Limited, the existing tenant, by Ipsos presented an opportunity to improve the tenant covenant profile and bring forward the rent review in December 2012. Following extensive negotiations, Synovate Limited's lease has been assigned to Ipsos Mori UK Limited, guaranteed by Ipsos SA. At the same time, with effect from 28 September 2012, the rent paid by Ipsos to the Company increased from £950,000 to £1,012,500 per annum.
-ENDS-
For further information:
Schroder Property Investment Management Limited:Duncan Owen / Nick Montgomery | 020 7658 6000 |
Northern Trust: David Sauvarin | 01481 745529 |
FTI Consulting: Dido Laurimore / Daniel O'Donnell | 020 7831 3113 |