Last checked at 
19 Jul 2013 07:00
Schroder Real Estate Investment Trust Limited
(the 'Company' / 'Group')
INTERIM MANAGEMENT STATEMENT
The Company has continued to make progress on key strategic objectives, focusing on unlocking value within the portfolio as well as entering into an attractive long-term debt facility at a low cost. The refinancing has provided the platform to take advantage of improving market conditions and to create additional opportunities for enhancing rental income and longer term growth.
Net Asset Value
Schroder Real Estate Investment Trust Limited announces an unaudited net asset value ('NAV') of £157.8 million or 44.3 pence per share ('pps') as at 30 June 2013. This reflects a decrease of 1.7% compared with the NAV as at 31 March 2013 of £160.5 million. A breakdown of the NAV movement over the quarter to 30 June 2013 is set out below:
£m | pps | Comments | |
NAV as at 31 March 2013 | 160.5 | 45.1 | NAV announced 24 April 2013 |
Unrealised change in valuation of direct property portfolio | (0.8) | (0.2) | Like for like decline before capital expenditure of 0.29% |
Capital expenditure during period | (0.1) | (0.0) | Principally relating to planning fees at Wembley and the refurbishment of Haywood House, Cardiff |
Unrealised change in valuation of joint ventures | 0.2 | 0.1 | Increase in valuation of Merchant Property Unit Trust and Crendon Industrial Partnership Limited |
Swap break costs | 0.1 | 0.0 | Positive difference between the marked to market value of the historic interest rate swaps as at 31 March 2013 of £15.2 million compared with the break cost incurred of £15.1 million on 16 April 2013 |
Related refinance cost | (0.6) | (0.2) | Write-off of unamortised finance costs relating to the securitised loan facility repaid on 16 April 2013 |
Post-tax net revenue | 1.6 | 0.4 | Post-tax dividend cover of 74% on new level of dividend of 0.62 pence per share or £2.2m per quarter |
Dividends paid | (3.1) | (0.9) | Dividends paid during the quarter |
NAV as at 30 June 2013 | 157.8 | 44.3 |
Dividend payment
The Company announces an interim dividend of 0.62 pps for the period 1st April 2013 to 30th June 2013. The dividend payment will be made on 23rd August 2013 to shareholders on the register on 9th August 2013. The ex-dividend date will be 7th August 2013.
Debt
As noted above and as previously announced, on 16th April the Company completed a new £129.58 million refinance facility with Canada Life to refinance the previous securitised loan totalling £114.5 million that would otherwise have matured in July 2014. Details of the new loan and compliance with the principal covenants are set out below:
Canada Life loan | Maturity | Interest rate (%) | Loan to Value ('LTV') ratio* (%) | LTV ratio covenant (%)* | Interest cover ratio (%)** | ICR ratio covenant (%)** | Forward looking ICR ratio (%)*** | Forward looking ICR ratio covenant (%)*** |
103.7 | 16/04/2028 | 4.77 | 50.3 | 65 | 269 | 185 | 253 | 185 |
25.9 | 16/04/2023 |
* Loan balance divided by property value as at 30 June 2013
** For the quarter preceding the Interest Payment Date ('IPD'), ((rental income received - void rates, void service charge and void insurance) / interest paid)
*** For the quarter preceding the IPD, ((rental income received - void rates, void service charge and void insurance) / interest paid)
As at 30 June 2013 the Company held cash outside the Canada Life security totalling £25.5 million. This results in a loan to value ratio, net of cash, of 40.4%.
Market Background
The latest Investment Property Data ('IPD') Monthly Index to 30 June 2013 confirmed a quarterly total return for all commercial property of 1.9% (quarter to 31 March 2013 1.1%) with an average income return unchanged at 1.7% (1.7%). After 18 consecutive months of capital value declines, ending in May 2013, IPD Monthly Index capital values increased by 0.18% (-0.7%) over the quarter. This resulted in a total return for the year to 30 June 2013 of 4.1%, with an average income return of 6.9% off-set by a capital value decline of -2.6%.
These signs of a market recovery follow improving sentiment that has been supported by increased bank lending to the sector. Market activity is increasing with UK commercial property transactions up 28% over the first quarter of 2013 compared with the first quarter of 2012 (source: Jones Lang LaSalle). Whilst Central London continues to drive total returns, the largest yield gap on record between average 'prime' property and average 'secondary' property (source: CBRE) means that investors are increasingly looking towards the regions in search of a higher income return. Whilst the recovery outside of London will be polarised due to broader structural changes, such as e-tailing and the growth of alternative property types, the Company is positioned to benefit from these improving conditions through its existing holdings.
Performance versus Investment Property Databank ('IPD') Index
The latest IPD performance data for the quarter to 31 March 2013 confirmed that the Company's property portfolio produced a total return of -0.1%. This compared with 0.9% for the IPD peer group Quarterly Version of Balanced Monthly Index Funds (the "IPD Index") on a like-for-like basis. The Company's property portfolio continues to outperform over the longer term, producing a total return of 6.3% per annum over the three years to March 2013, compared with the IPD Index over the same period of 5.7% per annum.
Property Portfolio
As at 30 June 2013, the Company's direct property portfolio comprised 52 properties independently valued at £257.82 million. At the same date the direct property portfolio produced a rent of £18.1 million per annum which, based on the Knight Frank independent valuation, reflected a net initial yield of 6.6%. The portfolio's rental value is £21 million per annum, resulting in a reversionary yield of 7.7%. Following letting and lease restructuring activity over the quarter the portfolio benefits from fixed rental uplifts due by June 2015 of £1.9 million per annum, an increase from £1.3 million per annum reported as at 31 March 2013.
As a result of the letting activity the portfolio void rate reduced to 13.9% from 14.4% over the quarter and the average unexpired lease term, assuming all tenants vacate at the earliest opportunity, increased to 7.4 years from 7 years. The tables below summarise the key portfolio information as at 30 June 2013:
Sector weightings | Weighting % | |
SREIT | IPD Index* | |
Retail | 25.7 | 44.2 |
Offices | 42.0 | 28.6 |
Industrial | 25.1 | 17.6 |
Other | 7.2 | 7.7 |
* Latest available IPD data as at 31 March 2013
Regional weightings | Weighting % | |
SREIT | IPD Index* | |
Central London | 0 | 20.7 |
South East excl. Central London | 48.3 | 40.5 |
Rest of South | 13.8 | 6.1 |
Midlands and Wales | 22.4 | 12.1 |
North and Scotland | 15.5 | 20.6 |
* Latest available IPD data as at 31 March 2013
Top ten properties | Value (£) | (%) | |
1 | Brighton, Victory House | 24,500,000 | 9.5 |
2 | Brentford, Reynards Business Park | 16,000,000 | 6.2 |
3 | Uxbridge, 106 Oxford Road | 15,150,000 | 5.9 |
4 | Salisbury, Churchill Way West | 13,000,000 | 5.0 |
5 | Wembley, Olympic Office Centre | 12,500,000 | 4.9 |
6 | Luton, The Galaxy | 11,750,000 | 4.6 |
7 | Basingstoke, Churchill Way | 10,650,000 | 4.1 |
9 | Norwich, Union Park | 8,850,000 | 3.4 |
8 | Alfreton, Recticel Unit | 8,800,000 | 3.4 |
10 | Sheffield, The Portergate | 8,300,000 | 3.2 |
Total as at 30 June 2013 | 129,500,000 | 50.2 | |
Top ten tenants | Rent p.a. (£) | % of portfolio | |
1 | Wickes Building Supplies Limited | 1,092,250 | 5.6 |
2 | Norwich Union Life and Pensions Ltd | 1,039,191 | 5.3 |
3 | Lloyds TSB Bank PLC | 1,028,900 | 5.3 |
4 | BUPA Insurance Services Limited | 960,755 | 4.9 |
5 | The Buckinghamshire New University1 | 900,000 | 4.6 |
6 | Mott MacDonald Ltd2 | 790,000 | 4.0 |
7 | Recticel SA3 | 731,038 | 3.7 |
8 | Irwin Mitchell LLP | 555,000 | 2.8 |
9 | Booker Limited | 550,000 | 2.8 |
10 | Network Housing Group Limited | 539,386 | 2.8 |
Total as at 30 June 2013 | 8,186,520 | 41.8 | |
1 Fixed uplift to £1.02 million per annum in January 2014
2 Mott MacDonald Group Limited are Guarantor
3 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
Asset management
Progress has been made with new letting activity and lease restructuring over the quarter to reduce void and increase the average unexpired lease term. Three examples are summarised below:
At Horton Park Industrial Estate in Telford, four new lettings were completed generating additional rent of £90,000 per annum. This reduced the void from 28% to 16% over the quarter.
At The Lakes in Northampton, the largest tenant's lease that was due to expire in 2016 has been extended by ten years without break options. The tenant, legal firm MacIntyre Hudson, will receive 12 months rent free before the rent reverts to the same level of £173,139 per annum.
At Reynards Trading Estate in Brentford, since the refusal of the planning application for 275 residential units on the grounds of overdevelopment of the site, discussions are continuing with the Local Planning Authority regarding the level of density which will be acceptable in a revised application. Securing planning consent and selling Reynards remains a key strategic initiative and a further update will be provided in due course.
-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 / Nina Legge | 020 7831 3113 |