Interim Management Statement

RNS Number : 1212G

Schroder Real Estate Inv Trst Ld

02 May 2014

 



FINAL for release 2 May 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 £190.4 million or 48.6 pence per share ('pps') as at 31 March 2014.  This reflects an increase of 2.7% per share compared with the NAV as at 31 December 2013.  A breakdown of the NAV movement over the quarter is set out below:

	£m	pps	Comments
NAV as at 31 December 2013	168.5	47.3	Announced 22 January 2014.
Net placing proceeds that completed on 16 January 2014	16.8	-	Placing proceeds of £17.1 million less £0.3 million costs.
31 December 2013 NAV adjusted for placing	185.3	47.3	Increase in number of shares in issue to 391,513,409.
Unrealised change in valuation of direct property portfolio	5.6	1.4	Like for like increase of 2% before capital expenditure and the impact of acquisitions over the quarter.
Capital expenditure during period	(0.5)	(0.1)	Principally relating to the refurbishment of the Dekkertoys unit, Peterborough and East Gates, Leicester.
Realised profit on joint ventures	0.5	0.1	Crendon Industrial Partnership Limited and Merchant Property Unit Trust sold over the quarter
Post-tax net revenue	2.0	0.4	Reflects quarterly dividend cover of 83%.
Dividends paid	(2.4)	(0.6)	Dividends paid during the quarter.
Others	(0.1)	-	Rent free adjustment.
NAV as at 31 March 2014	190.4	48.6

The like for like uplift of 2% excludes the impact of acquiring The Arndale Centre in Leeds and Morgan Sindall House in Rugby for £16.23 million and £3.95 million respectively.  These properties were revalued to £17.25 million and £4.1 million respectively as at 31 March 2014, a combined uplift of £1.17 million or 5.8%.

Placing and Offer for Subscription

As previously reported, in January 2014 the Company completed a Placing to raise £17.2 million at a price of 48.25 pence per share, and efficiently deployed the proceeds to acquire The Arndale Centre in Leeds and Morgan Sindall House in Rugby.

On 17 April 2014 the Company completed a second Placing and Offer for Subscription that raised £40.2 million from the issuance of 80 million shares at an issue price of 50.25 pence per share. On completion of the Placing the number of shares in issue increased to 471,516,409. This means the unaudited NAV is currently approximately £229 million.

The Placing and Offer for Subscription, which was oversubscribed, reflected a premium to the prevailing NAV 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 to 31 March 2014. As a result of the oversubscription the Board was required to use its discretion to scale back applications.

The Investment Manager is actively targeting a pipeline of potential acquisitions currently under negotiation and where terms have been agreed with the vendors.

In addition to issuing 80 million shares the Company has secured shareholder consent to issue a further 120 million shares under a placing programme during the period from 18 April 2014 to 19 March 2015, as and when potential acquisitions are identified.  This should enable the Investment Manager to act opportunistically by making a series of accretive property acquisitions whilst also mitigating the risk of cash drag on shareholders funds.  All shares issued under the placing programme will be issued at a premium to the prevailing NAV at that point in time.

Dividend payment

On 3 April 2014 the Company announced an interim dividend payment of 0.62 pence per share for the period 1 January 2014 to 31 March 2014.  The dividend was paid on 25 April 2014 with the timing brought forward from the normal dividend payment cycle as a consequence of the Placing and Offer for Subscription. 

Market overview

The latest IPD Monthly Index confirmed an average total return for the three months to 31 March 2014 of 3.87%.  The retail sector produced the weakest total return of 2.59% with the office and industrial sectors producing total returns of 5.15% and 5.04% respectively.  In contrast with previous quarters, the best performing office sub-sector was South East offices which produced a total return of 5.6% compared with the West End and Mid-town Central London sub-markets at 5.25%.  Whilst the South East and London generally produced the strongest quarterly returns, there is now clear evidence of a recovery in the regions.  For example, industrial property in the rest of the UK outperformed the South East over the quarter, driven by improving market sentiment leading to investors accepting lower yields.

Performance versus Investment Property Databank ('IPD') Index

The latest available IPD Index performance data for the quarter to 31 December 2013 confirmed that the Company's property portfolio produced a total return of 4.7% compared with 4.3% for the IPD peer group Quarterly Version of Balanced Monthly Index Funds (the 'IPD Index') on a like-for-like basis. 

Property Portfolio

As at 31 March 2014 the Company's direct property portfolio comprised 54 properties independently valued at £306.5 million.  At the same date the direct property portfolio produced a rent of £21 million per annum which, based on a Knight Frank independent valuation, reflected a net initial yield of 6.5%.  The portfolio's rental value is £23.5 million per annum, resulting in a reversionary yield of 7.2%.  The portfolio benefits from additional fixed rental uplifts of £1.3 million per annum due by March 2016.

As a result of the asset management and letting activity over the quarter and since the quarter end, the portfolio void rate reduced from 12.5% to 11.7%, with the potential for a further reduction to approximately 11% based on lettings under offer.  The average unexpired lease term, assuming all tenants vacate at the earliest opportunity, increased over the quarter from 7.3 years to 7.5 years.  The tables below summarises the key portfolio information as at 31 March 2014:

Sector weightings	Weighting %
	SREIT	IPD Index*
Retail	30.7	43.9
Offices	41.8	28.5
Industrial	23.7	18.1
Other	3.8	9.6

* Latest available IPD Index data as at 31 December 2013

Regional weightings	Weighting %
	SREIT	IPD Index*
Central London	0	18.2
South East excl. Central London	41.9	32.0
Rest of South	11.9	7.2
Midlands and Wales	27.7	22.3
North and Scotland	8.5	20.2

* Latest available IPD Index data as at 31 December 2013

Top ten properties		Value (£)	(%)
1	Brighton, Victory House	26,900,000	8.8
2	Wembley, Olympic Office Centre and site	22,500,000	7.3
3	Leeds, Headingley, The Arndale Centre	17,250,000	5.6
4	Uxbridge, 106 Oxford Road	16,750,000	5.5
5	Brentford, Reynards Business Park	16,000,000	5.2
6	Salisbury, Churchill Way West	13,000,000	4.2
7	Luton, The Galaxy	11,750,000	3.8
8	Basingstoke, Churchill Way	11,200,000	3.7
9	Norwich, Union Park	9,750,000	3.2
10	Alfreton, Recticel Unit	9,500,000	3.1
	Total as at 31 March 2014	154,600,000	50.4

Top ten tenants		Rent p.a. (£)	% of portfolio
1	Wickes Building Supplies Limited	1,092,250	5.2
2	Norwich Union Life and Pensions Ltd	1,039,191	4.9
3	Lloyds TSB Bank PLC	1,024,000	4.9
4	The Buckinghamshire New University	1,018,267	4.8
5	BUPA Insurance Services Limited	960,755	4.6
6	Mott MacDonald Ltd1	790,000	3.7
7	Recticel SA2	731,038	3.5
8	Sportsdirect.com Retail Limited	657,177	3.1
9	Booker Limited	570,000	2.7
10	Irwin Mitchell LLP	555,000	2.6
	Total as at 31 March 2014	8,437,678	40.0

¹ Mott MacDonald Group Limited are Guarantor

² The tenant is currently benefiting from a half rent period equating to £365,519 per annum which will increase to £731,038 per annum on 17 April 2014

Transactions

As reported in the Interim Management Statement for the quarter to 31 December 2013, on 15 January the Company acquired The Arndale Centre in Leeds for £16.23 million, reflecting a net initial yield of 9.14%.

On 7 February 2014 the Company announced the acquisition of Morgan Sindall House in Rugby for £3.95 million, reflecting a net initial yield of 8%.  The property comprises a 36,016 sq ft office building together with 95 car parking spaces and is let to Morgan Sindall Plc as their regional headquarters for 15 years without tenant breaks at £335,000 per annum or an overall rate of £9.30 per sq ft, with a guarantee from Morgan Sindall Group Plc.  The lease benefits from five yearly upwards only rent reviews linked to the Retail Price Index, subject to a minimum uplift of 2% per annum compound and a maximum uplift of 4% per annum compound.  

Asset management

Since the end of the period the Company has secured a resolution to grant planning consent required in order to proceed with the letting of the vacant unit at Churchill Way Retail Park in Salisbury to TJX UK Limited ('TJX', the operating company for TK Maxx and Homesense).  On completion of ongoing landlords works TJX will take a new 15 year lease with a tenant break at year 10, at £255,000 per annum or £17 per sq ft.  TJX will receive six months rent free on completion of the lease together with capital contribution towards their fit-out of £382,000. 

Debt

The Company has a single loan facility with Canada Life totalling £129.58 million secured against property valued at £277.9 million as at 31 March 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	46.6	65	293	185	250	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 £28.6 million.   

Following the Placing and Offer for Subscription, and before any further property acquisitions, the Company also has cash totalling approximately £50 million.   

-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

 

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