Interim Management Statement

RNS Number : 7960M

Schroder Real Estate Inv Trst Ld

21 July 2014

 



For release 21 July 2014

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 £238.9 million or 50.7 pence per share ('pps') as at 30 June 2014.  This reflects an increase of 4.3% per share compared with the NAV as at 31 March 2014.  A breakdown of the NAV movement over the quarter is set out below:

	£m	pps*	Comments
NAV as at 31 March 2014	190.4	48.6	Announced 2 May 2014
Net placing and offer for subscription proceeds that completed on 14 April 2014	39.0	-	Placing and offer for subscription proceeds of £40.2 million less £1.2 million costs, increasing number of shares to 471,513,409.
Unrealised change in valuation of direct property portfolio	10.5	2.3	Like for like increase of 3.4% before capital expenditure and the impact of acquisitions over the quarter.
Capital expenditure during period	(0.3)	(0.1)	Relates to refurbishment costs at Peterborough and Salisbury plus planning fees at Wembley.
Unrealised loss on joint ventures	(0.3)	(0.1)	Investment in City Tower in Manchester currently treated as a joint venture with a £500,000 loss reflects impact of acquisition costs mitigated by valuation uplift.  This is off-set by retention in Crendon Industrial partnership.
Post-tax net revenue	2.3	0.5	Resulting in quarterly dividend cover of 94%.
Dividends paid	(2.4)	(0.5)	Dividends paid during the quarter of 0.62 pps.  0.5 pps shown is based on weighted average number of shares held over the period.
Others	(0.3)	-	Adjustment for lease incentives.
NAV as at 30 June 2014	238.9	50.7

* NAV pps analysis adjusted to reflect the 80,000,000 shares issued on 17 April 2014

The like for like uplift of 3.4% excludes the impact of acquiring a 25% interest in City Tower in Manchester for £33 million on 12 June 2014 and an adjoining ownership in Portsmouth for £1.475 million on 19 June 2014.  These properties were revalued to £34 million and £1.5 million respectively as at 30 June 2014, a combined uplift of £1.03 million or 3%.

Strategy

Following the placing in January 2014 that raised gross proceeds of £17.2 million via the issuance of 35,592,128 shares, and the subsequent investment in two property acquisitions, the Board and Manager believed there was potential to enhance returns to Shareholders further through disciplined and accretive growth of the Company. 

Consequently, and as previously reported, on 17 April 2014 the Company completed a second Placing and Offer for Subscription that raised gross proceeds of £40.2 million from the issuance of 80,000,000 shares at an issue price of 50.25 pence per share. On completion of the Placing the number of shares in issue increased to 471,513,409.

The Placing and Offer for Subscription, which was oversubscribed, reflected a premium to the prevailing NAV per share as at 31 March 2014 of 3.4%, with the premium increasing to 4.7% on the basis that that new investors were not entitled to the dividend for the period 1 January 2014 to 31 March 2014. As a result of the oversubscription the Board was required to use its discretion to scale back applications.

In addition to issuing 80,000,000 shares the Company secured shareholder consent to issue a further 120,000,000 shares under a placing programme during the period from 18 April 2014 to 19 March 2015, as and when potential acquisitions are identified.  All shares issued under the placing programme will be issued at a premium to the prevailing NAV at that point in time. 

Following completion of the Placing and Offer for Subscription the Company completed two further acquisitions totalling £34.75 million, referred to earlier, that satisfy the Company's investment criteria by offering good underlying fundamentals in terms of location and specification, affordable rents and sustainable tenant demand.

Following these acquisitions and expenditure since the quarter end, the Company currently has cash totalling approximately £15 million, of which approximately £5 million is available for investment after allowing for operational flexibility and capital expenditure commitments.  A pipeline of further potential acquisitions that satisfy the Company's investment criteria are under consideration and the placing programme enables the Investment Manager to act opportunistically whilst also mitigating the risk of cash drag on shareholders funds. 

Dividend payment

The Company announces an interim dividend of 0.62 pps for the period 1 April 2014 to 30 June 2014.  The dividend payment will be made on 15 August 2014 to shareholders on the register as at 1 August 2014.  The ex-dividend date will be 30 July 2014.    

Market overview

The latest IPD Monthly Index confirmed an average total return for the three months to 30 June 2014 of 5.1%, comprising an income return of 1.5% and capital growth of 3.5%.  The retail sector produced the weakest total return of 4.1% with the office and industrial sectors producing total returns of 6.1% and 5.9% respectively. 

Performance versus Investment Property Databank ('IPD') Benchmark Index

The latest available data for the quarter to 31 March 2014 showed that the Company's property portfolio produced a total return of 3.2% compared with 3.5% for the IPD peer group Quarterly Version of Balanced Monthly Index Funds (the 'IPD Index') on a like-for-like basis.  Despite the underperformance over three months, over the 12 months to 31 March 2014 the Company's portfolio outperformed with a total return of 13.7% compared with the IPD Index at 12.5%.

Property Portfolio

As at 30 June 2014 the Company's direct property portfolio comprised 55 properties independently valued at £352.46 million.  At the same date the direct property portfolio produced a rent of £23.8 million per annum which, based on the independent valuation, reflected a net initial yield of 6.4%.  The portfolio's rental value is £26.5 million per annum, resulting in a reversionary yield of 7.2%.  The portfolio benefits from additional fixed rental uplifts of £1.5 million per annum due by June 2016.

As a result of the asset management and letting activity over the quarter, the portfolio void rate reduced from 11.7% to 10.7%, calculated as a percentage of portfolio rental value.  The average unexpired lease term, assuming all tenants vacate at the earliest opportunity, was unchanged over the quarter at 7.5 years.  The tables below summarises the key portfolio information as at 30 June 2014:

Sector weightings	Weighting %
	SREIT	IPD Index*
Retail	29.6	41.6
Offices	44.2	29.4
Industrial	21.3	19.5
Other	5.0	9.5

* Latest available IPD Index data as at 31 March 2014 

Regional weightings	Weighting %
	SREIT	IPD Index*
Central London	0	15.1
South East excl. Central London	38.1	43.3
Rest of South	10.7	7.0
Midlands and Wales	25.1	14.6
North and Scotland	26.1	20.0

* Latest available IPD Index data as at 31 March 2014

Top ten properties		Value (£)	(%)
1	Manchester, City Tower	34,000,000	9.6
2	Brighton, Victory House	27,900,000	7.9
3	Wembley, Olympic Office Centre and site	24,550,000	7.0
4	Leeds, Headingley, The Arndale Centre	17,750,000	5.0
5	Uxbridge, 106 Oxford Road	17,000,000	4.8
6	Brentford, Reynards Business Park	16,000,000	4.5
7	Salisbury, Churchill Way West	14,200,000	4.0
8	Luton, The Galaxy	11,750,000	3.3
9	Basingstoke, Churchill Way	11,350,000	3.2
10	Norwich, Union Park	11,000,000	3.1
	Total as at 30 June 2014	185,500,000	52.4

Top ten tenants		Rent p.a. (£)	% of portfolio
1	Wickes Building Supplies Limited	1,092,250	4.6
2	Norwich Union Life and Pensions Ltd	1,039,191	4.3
3	Lloyds TSB Bank PLC	1,024,000	4.3
4	The Buckinghamshire New University	1,018,267	4.2
5	BUPA Insurance Services Limited	960,755	4.0
6	Mott MacDonald Ltd	790,000	3.3
7	Recticel SA	731,038	3.0
8	Sportsdirect.com Retail Limited	657,177	2.7
9	Booker Limited	570,000	2.4
10	Irwin Mitchell LLP	555,000	2.3
	Total as at 30 June 2014	8,437,678	35.1

Transactions

Following completion of the Placing and Offer for Subscription on 17 April, on 12 June the Company acquired a 25% interest in City Tower, a landmark mixed use building in Central Manchester, for £33 million, reflecting a net initial yield of 7%.  The Company acquired the property alongside two funds managed by Schroders in a simple joint ownership structure with each investor able to call for a disposal of the underlying property.

City Tower provides 615,429 sq ft of office, retail, leisure and hotel accommodation on a three acre island site including 456 car parking spaces.  It is located in a prime location within the Central Business District of Manchester with frontage to both Piccadilly Gardens and New York Street.  The property is held on a long leasehold basis from Manchester City Council with 218 years unexpired at nil rent.   The property provides significant diversification with 115 tenancies and a spread of lease expiries with an average unexpired lease term, to the earlier of lease expiry or break, of 10.8 years. 

The offices, representing approximately 65% of the income, are let at a low initial rent of £17 per sq ft with key tenants including the National Institute for Health and Care Excellence, the Ministry of Justice, The University of Law Limited and Aegis Outsourcing (UK) Limited.  The property offers significant scope to add value through asset management and also benefits from being central to the city and Manchester's public transport infrastructure network.

On 19 June 2014 the Company also acquired 250 to 254 Commercial Road in Portsmouth for £1.475 million, reflecting a net initial yield of 9.5%.  The property adjoins the Company's recent acquisition of 244 to 248D Commercial Road and is let to KFC, Greggs and Ladbrokes producing a rent of £148,000 per annum.  The property is situated immediately opposite the proposed site for the 600,000 sq ft Northern Quarter retail and leisure redevelopment, with the proposed anchor store directly facing the subject property.  This acquisition results in a combined investment at Commercial Road in Portsmouth of £8.7 million, reflecting a blended net initial yield on the acquisition cost of 8.5%. 

Debt

The Company has a single loan facility with Canada Life totalling £129.58 million secured against property valued at £287.56 million as at 30 June 2014.  Details of the loan and compliance with 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	45.1	65	265	185	256	185
25.9	16/04/2023

*        For the quarter preceding the Interest Payment Date ('IPD'), ((rental income received - void rates, void service charge and void insurance) / interest paid)

**       For 12 months following the IPD, ((forecast rental income - forecast void rates, void service charge and void insurance) / forecast interest for the next 12 months)

In addition to the property portfolio secured against the Canada Life facility, the Company has unsecured properties with a combined value of £64.9 million and cash as at 30 June 2014 of £20.2 million.   This results in a loan to value ratio, net of cash, of 31%.   

-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 3727 1000

 

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