Last checked at 
19 Jul 2012 13:15
19 July 2012
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 £175 million or 49.2 pence per share ('pps') as at 30 June 2012. This reflects a decrease of 2.8% compared with the NAV as at 31 March 2012 of £180 million. A breakdown of the quarterly movement is set out below:
£m | pps | Comments | |
NAV as at 31 March 2012 | 180.0 | 50.6 | Audited NAV announced 17 July 2012 |
Unrealised change in valuation of direct property portfolio | (3.0) | (0.8) | Like for like decline before capital expenditure of approximately 0.9% |
Realised gain on disposal of investment property | 0.2 | 0.1 | Disposal of Fleet |
Capital expenditure during period | (0.3) | (0.1) | Principally relating to refurbishment of Haston House in Edinburgh |
Unrealised change in valuation of joint ventures | 0.1 | 0.0 | Increase in value of Merchant property Unit Trust |
Movement in interest rate swap | (0.2) | (0.1) | Mark to market movement |
Pre-tax net revenue | 1.6 | 0.5 | Sale of West Bromwich reduced quarterly income by £0.3m with only a partial benefit over the quarter from debt repayment on 16/04/12, described further below |
Dividends paid | (3.1) | (0.9) | Dividends paid during the quarter |
Others | (0.3) | (0.1) | Rent free and tax adjustment |
NAV as at 30 June 2012 | 175 | 49.2 |
Dividend
The Company announces an interim dividend of 0.88 pps for the period 1 April 2012 to 30 June 2012. The dividend payment will be made on 17 August 2012 to shareholders on the register on 3 August 2012. The ex-dividend date will be 1 August 2012.
Debt
The Company's strategy is focussed on improving dividend cover and reducing debt in anticipation of its loan refinancing in July 2014. £10 million of debt was repaid on 16 April 2012 followed by a further repayment of £12 million on 16 July 2012. As a condition of the repayments, a pro-rata proportion of the interest rate swaps have been broken and the Company has made an aggregate payment of £2.9 million to break the swaps. This breakage cost was already reflected in the net asset value of the Company. Details of the Company's remaining debt and swaps as at 16 July 2012 are set out below:
Amount (£m) | Swap rate (%) | Margin (%) | Total interest rate (%) | Swap maturity | M2M at 16 July 2012* (£m) | M2M at 30 June 2012 (£m) | |
Loan | 48.6 | 5.099 fixed | 0.2 | 5.299 | 15/07/2014 | (4.3) | (4.6) |
Loan | 102.9 | 5.713 fixed | 0.2 | 5.913 | 15/07/2016 | (20.2) | (21.1) |
Loan total | 151.5 | 5.52 fixed | 0.2 | 5.72 | N/A | (24.5) | (25.7) |
Liquidity facility** | 11.2 | 0.82 *** | 0.662 | 1.482 | 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 16 July 2012
Following the debt repayment the Company has total cash of approximately £25.4 million, of which £17.9 million is outside the security pool charged to the Group's lenders. The Company's net loan-to-value following the debt repayment is 39% which compares with the net loan to value covenant ratio of 60%.
Market Background
The latest IPD Monthly Index confirmed an all property total return of 0.3% over the quarter to June, with capital values falling 1.3%. Retail was the weakest sector over the quarter falling in value by 1.8%, compared with -0.9% for industrial and -0.8% for offices. The market weakness stems from the European sovereign debt crisis, its impact on the wider financial markets and resultant low growth in the UK economy. These factors combined with falling values are impacting on transaction volumes with the number of UK commercial property transactions in Q1 2012 down approximately 25% year-on-year (Source: PropertyData).
Performance versus Investment Property Databank ('IPD') Benchmark
Over the quarter to 31 March 2012, the latest available data, the Company's property portfolio produced a total return of 0.9% (1% including indirect investments) compared with 0.7% (0.7% including indirect investments) for the IPD Benchmark on a like for like basis. This outperformance was supported by the Company's strategically low weighting to retail, the lowest performing sector over the quarter.
Property Portfolio
As at 30 June 2012, the Company's direct property portfolio comprised 57 properties independently valued at £324.9 million. At the same date the direct property portfolio produced a rent of £23.2 million per annum which, based on the Knight Frank independent valuation, reflected a net initial yield of 6.8%. The portfolio rental value is £25.4 million per annum, resulting in a reversionary yield of 7.4%. There are contracted fixed rental uplifts totalling £1.5 million per annum due by the end of 2014. As at 30 June 2012 the portfolio void rate was 10.4% of rental value, falling to 9.8% following the disposal of the Havant site on 2 July, described in more detail below. The average unexpired lease term, assuming all tenants vacate at the earliest opportunity, was seven years. The tables below summarise the key portfolio information as at 30 June 2012:
Sector weightings | Weighting % | |
SREIT | IPD Benchmark* | |
Retail | 22.7 | 45.9 |
Offices | 46.2 | 30.0 |
Industrial | 26.7 | 18.6 |
Other | 4.4 | 5.5 |
* Latest available IPD data as at 31 March 2012
Regional weightings | Weighting % | |
SREIT | IPD Benchmark* | |
Central London | 8.7 | 17.3 |
South East excl. Central London | 39.3 | 31.9 |
Rest of South | 23.3 | 6.7 |
Midlands and Wales | 15.2 | 28.3 |
North and Scotland | 13.6 | 15.8 |
* Latest available IPD data as at 31 March 2012
Top ten properties | Value (£) | (%) | |
1 | London SE1, Minerva House | 28.2 | 8.7 |
2 | Brighton, Victory House | 25.3 | 7.8 |
3 | Uxbridge, 106 Oxford Road | 14.8 | 4.6 |
4 | Salisbury, Churchill Way West | 14.5 | 4.5 |
5 | Luton, The Galaxy | 14.2 | 4.4 |
7 | Brentford, Reynards Business Park | 13.5 | 4.2 |
6 | Wembley, Olympic Office Centre | 13.3 | 4.1 |
8 | Brentford, The Gate Centre | 12.0 | 3.7 |
9 | Basingstoke, Churchill Way | 10.7 | 3.3 |
10 | Sheffield, The Portergate | 9.1 | 2.8 |
Total as at 30 June 2012 | 155.6 | 48.1 | |
Top ten tenants | Rent p.a. (£) | % of portfolio | |
1 | Wickes Building Supplies Limited | 1,092,250 | 4.7 |
2 | Norwich Union Life and Pensions Ltd | 1,039,191 | 4.5 |
3 | Lloyds TSB Bank PLC | 1,024,000 | 4.4 |
4 | BUPA Insurance Services Limited1 | 960,555 | 4.1 |
5 | Synovate Limited2 | 950,000 | 4.1 |
6 | The Buckinghamshire New University3 | 900,000 | 3.9 |
7 | Mott MacDonald Ltd4 | 790,000 | 3.4 |
8 | Recticel SA5 | 731,038 | 3.2 |
9 | Winkworth Sherwood LLP6 | 689,975 | 3.0 |
10 | Irwin Mitchell LLP | 555,000 | 2.4 |
Total as at 30 June 2012 | 8,732,209 | 37.7 | |
1 Rent free expired on 4 April 2012
2 Aegis Group plc is guarantor. Figures based on 50% ownership of Minerva House
3 Half rent free period expired in May 2012. Further fixed uplift to £1.02 million per annum in May 2014
4 Mott MacDonald Group Limited are Guarantor
5 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
6 On assignment from Reed Smith Ramboud Charot LLP. Figures based on 50% ownership of Minerva House
IPD has compared the quality of the portfolio income against the IPD peer group benchmark that results in a rating that takes into account tenant credit weightings, lease length, tenant concentration, reversionary potential and vacancy. As at 31 March 2012, the latest available information, IPD ranks the Company's portfolio on the 13th percentile of the IPD Benchmark peer group.
Transactions
As noted above, on 2 May 2012 the Company sold its 28.9% interest in One Plantation Place Unit Trust, the owner of Plantation Place, London EC3, for £11.7 million. This was a key initiative for the Company as Plantation Place was not income producing and proceeds have been used to repay more debt.
On 22 June 2012, the Company exchanged contracts to sell Solent Road Industrial Estate in Havant for £4.6 million, compared to a value of £4.5 million as at 31 March 2012. The property is being acquired by one purchaser through two acquisition contracts, with the aggregate price equating to a net initial yield of 4.6%, reducing to 3.7% after non-recoverable expenditure. The first contract completed on 2 July for £1.43 million with the second for £3.17 million completing no later than 29 September 2012.
On 25 June 2012, Cedar House in Fleet was sold to an owner occupier for £1 million. This compared to the independent valuation as at 31 March 2012 of £0.82 million.
Asset management
On 22 June 2012, 100 High Street, Bromley was let to Office Holdings Limited (trading as Office Shoes) on a new ten year lease without breaks at £0.175 million per annum. The tenant receives 15 months rent free. The property was previously let to a temporary occupier at £0.1m p.a. and the letting was in line with the independent valuation rental value assumption as at 31 March 2012.
On 16 July 2012, 68/70 St Ann's Road, Harrow was let to Caversham Finance Limited (trading as Brighthouse) on a new ten year lease without breaks at £0.12 million per annum. The tenant receives 12 months rent free, structured as a half rent free period, with a stepped increase in the rent to £0.13 million per annum at year five, when there will be an open market rent review capped at £0.15 million per annum. The property was previously let to Game, who went into administration earlier in 2012. The letting was below the independent valuation rental value assumption as at 31 March 2012 of £0.15 million 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 |