Last checked at 
22 Oct 2013 12:40
FINAL for release 22 October 2013
Schroder Real Estate Investment Trust Limited
(the 'Company' / 'Group')
INTERIM MANAGEMENT STATEMENT
Net Asset Value
Schroder Real Estate Investment Trust Limited announces an unaudited net asset value ('NAV') of £161.6 million or 45.4 pence per share ('pps') as at 30 September 2013. This reflects an increase of 2.4% compared with the NAV as at 30 June 2013 of £157.8 million. A breakdown of the NAV movement over the quarter is set out below:
£m | pps | Comments | |
NAV as at 30 June 2013 | 157.8 | 44.3 | NAV announced 19 July 2013. |
Unrealised change in valuation of direct property portfolio | 5.6 | 1.6 | Like for like increase before capital expenditure of 2.2%. |
Capital expenditure during period | (1.0) | (0.3) | Principally relating to the refurbishment of 95 The Promenade in Cheltenham and planning fees at Wembley. |
Unrealised change in valuation of joint ventures | (0.2) | (0.1) | Surplus income on Crendon offset by a decline in the value of the Merchant Property Unit Trust. |
Post-tax net revenue | 2.2 | 0.6 | Quarterly dividend cover of 101% including a dilapidations payment of £385,000 received in connection with Haywood House in Cardiff. Dividend cover was 83% excluding this receipt. |
Dividends paid | (2.2) | (0.6) | Dividends paid during the quarter. |
Others | (0.6) | (0.1) | Rent free adjustment following rent free periods granted over the quarter in connection with new lettings. |
NAV as at 30 September 2013 | 161.6 | 45.4 |
Dividend payment
The Company announces an interim dividend of 0.62 pps for the period 1 July 2013 to 30 September 2013. The dividend payment will be made on 22 November 2013 to shareholders on the register as at 8 November 2013. The ex-dividend date will be 6 November 2013.
Market Background
The latest Investment Property Data ('IPD') Monthly Index to 30 September 2013 confirmed a monthly total return of 0.6%, the highest monthly increase since 2010. This contributed to a quarterly total return for all commercial property of 2.9% (quarter to 30 June 2013 1.9%) with the quarterly income return unchanged at 1.7%.
The UK property market recovery follows GDP growth of 0.7% over the second quarter of 2013 accompanied by more positive economic data for employment growth, retail sales and the housing market, which has been stimulated in part by the introduction of 'Help to Buy'. Furthermore, the Monetary Policy Committee ('MPC') of the Bank of England have introduced 'forward guidance' stating that interest rates are likely to remain low during the early stages of the economic recovery. Whilst these conditions should provide support for a continued recovery in commercial property values, we remain vigilant of the risk to the consumer through static real incomes and high household debt levels.
Performance versus Investment Property Databank ('IPD') Index
The latest available IPD Index performance data for the quarter to 30 June 2013 confirmed that the Company's property portfolio produced a total return of 1.6%, in line with the IPD peer group Quarterly Version of Balanced Monthly Index Funds (the 'IPD Index') on a like-for-like basis. Over the longer term, the Company's property portfolio continues to outperform the sector, producing a total return of 6.0% per annum over the three years to June 2013, compared with the IPD Index over the same period of 5.1% per annum.
Property Portfolio
As at 30 September 2013, the Company's direct property portfolio comprised 51 properties independently valued at £263.44 million. At the same date the direct property portfolio produced a rent of £18.2 million per annum which, based on the Knight Frank independent valuation, reflected a net initial yield of 6.5%. The portfolio's rental value is £21 million per annum, resulting in a reversionary yield of 7.5%. Following letting and lease restructuring activity over the quarter the portfolio benefits from additional fixed rental uplifts of £1.9 million per annum due by September 2015.
As a result of the letting activity summarised below the portfolio void rate reduced to 13% from 13.9% over the quarter. The average unexpired lease term, assuming all tenants vacate at the earliest opportunity, reduced slightly from 7.4 years to from 7.3 years. The tables below summarise the key portfolio information as at 30 September 2013:
Sector weightings | Weighting % | |
SREIT | IPD Index* | |
Retail | 25.2 | 44.1 |
Offices | 43.4 | 28.4 |
Industrial | 24.8 | 17.9 |
Other | 6.6 | 9.6 |
* Latest available IPD data as at 30 June 2013
Regional weightings | Weighting % | |
SREIT | IPD Index* | |
Central London | 0 | 18.7 |
South East excl. Central London | 55.2 | 31.1 |
Rest of South | 12.7 | 7.0 |
Midlands and Wales | 13.8 | 24.9 |
North and Scotland | 18.3 | 18.3 |
* Latest available IPD data as at 30 June 2013
Top ten properties | Value (£) | (%) | |
1 | Brighton, Victory House | 24,900,000 | 9.5 |
2 | Wembley, Olympic Office Centre and site* | 21,000,000 | 8.0 |
3 | Brentford, Reynards Business Park | 16,000,000 | 6.1 |
4 | Uxbridge, 106 Oxford Road | 15,350,000 | 5.8 |
5 | Salisbury, Churchill Way West | 13,000,000 | 4.9 |
6 | Luton, The Galaxy | 11,750,000 | 4.5 |
7 | Basingstoke, Churchill Way | 10,900,000 | 4.1 |
8 | Alfreton, Recticel Unit | 9,000,000 | 3.4 |
9 | Norwich, Union Park | 8,850,000 | 3.4 |
10 | London, Booker Unit | 8,150,000 | 3.2 |
Total as at 30 September 2013 | 138,900,000 | 52.7 | |
* Previously Olympic Office Centre and the adjoining site have been shown separately. On a like for like basis the value of combined interest in June 2013 was £16.5 million
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 September 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
Transactions
On 13 September 2013 the Company announced it had exchanged conditional contracts to sell Reynards Trading Estate in Brentford to Notting Hill Home Ownership ('Notting Hill') for a base price of approximately £20 million, with completion subject to Notting Hill securing a residential planning permission at their own cost. This compares to a value of £16 million as at 30 September 2013. Notting Hill is obliged to make a pre-planning application and carry out local community consultation during 2013 and early 2014, with the planning application submitted shortly thereafter. Whilst this is an important step forward to realising value from a substantially non-income producing asset, there continues to be uncertainty regarding the timing and prospects for achieving a residential planning permission.
On 17 September the Company announced it had exchanged contracts to sell one acre of the car park adjoining the Olympic Office Centre to The UNITE Group plc ('UNITE') for £7.4 million. The disposal is subject to UNITE securing detailed planning consent for 200,000 sq ft of student accommodation comprising approximately 684 rooms and ancillary retail. This forms half of the two acre car park adjoining the 74,000 sq ft Olympic Office Centre.
At the same time as exchanging contracts with UNITE, the Company has secured a resolution to grant outline planning consent for a 400,000 sq ft mixed use scheme on the two acre car park, which includes 200,000 sq ft of student accommodation. This supports UNITE's detailed application and, assuming the UNITE disposal completes as planned in the second half of 2014, will result in the Company having outline consent for 200,000 sq ft of residential units on the remaining one acre adjacent to Wembley Stadium. In addition, a detailed application was approved for a new multi-storey car park at the base of the Olympic Office Centre to service its future parking requirements.
This activity had a positive impact on the value of the Olympic Office Centre over the quarter. The valuation of the office building and car park increased from £16 million in June 2013 to £21 million in September 2013. This valuation is split between the Olympic Office Centre at £10 million, the one acre site under contract to UNITE at £6 million and the remaining one acre at £5 million.
The Company is exploring potential new accretive acquisitions for its existing cash resources.
Asset management
As noted above, over the quarter the portfolio void rate reduced from 13.9% to 13% This was principally due to the letting of two vacant retail properties in Chelmsford and Leicester that will, on expiry of their rent free periods, provide £342,000 per annum of new rental income to the Company.
In Chelmsford, the 6,091 sq ft of retail space at 24 to 25 High Street has been let to jewellery retailer Fraser Hart on a new 15 year lease without tenant breaks for an annual rent of £207,000. The successful letting is a result of the Company securing planning consent for a new façade to enable trading at both ground and first floor levels. Fraser Hart will have the benefit of a three month rent free period and a capital incentive equivalent to 21 months rent as a contribution to the improvement works.
In Leicester, 7,041 sq ft of retail space in 12 to 14 Eastgates has been let to Cruise Clothing Company ('Cruise'), a subsidiary of Sportsdirect, on a new 10 year lease for an annual rent of £135,000. Cruise has a break option at year five subject to a six month penalty, and benefits from an initial 12 month rent free period.
Debt
Details of the £129.58 million loan with Canada Life and compliance with the principal covenants as at 30 September 2013 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 | 49.2 | 65 | 260 | 185 | 253 | 185 |
25.9 | 16/04/2023 |
* Loan balance divided by property value as at 30 September 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 September 2013 the Company held cash outside the Canada Life security totalling £24.2 million. This results in a loan to value ratio, net of cash, of 40%.
-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 |