Schroder Emerging Retail Property Unit Trust Quarterly Report

Transcription

1 31 March 2011 For professional investors only. Not suitable for retail clients Schroder Emerging Retail Property Unit Trust Quarterly Report 1 Schroder Property Managers (Jersey) Limited PO Box 490, 29 Esplanade, St Helier, Jersey JE4 9WB Regulated by the Jersey Financial Services Commission

2 Contents Page Executive Summary 3 Retail Market Commentary 4 Key Activities over the Quarter 5 Performance Analysis 7 Trust Issues 8 Databank 9 Unitholder Information 12 Important Information 14 The source for all information is Schroders unless otherwise stated 2 Lucy Lilley Fund Manager Phone +44 (0) Fax +44 (0) lucy.lilley@schroders.com

3 Executive Summary Market Commentary The UK economic recovery stalled in the fourth quarter of 2010, partly due to severe weather, with GDP contracting by 0.6%. Schroders continue to anticipate modest GDP growth over the next two years, although there continues to be significant risk to this outlook. IPD report that the total return for local shops was 19.0% in 2010, above both standard retail (13.8%) and the all property average (15.2%). This performance is due to rental growth in prime local shops where there is good demand. The secondary occupational retail market remains more difficult than prime, with weaker demand. There have been a number of administrations and poor trade results over the quarter, but to date these administrations have not affected the Trust. We continue to believe that a polarisation of values and demand will occur and that strong food anchored district centres and catchment dominating schemes are likely to outperform all retail. Investor demand is focused on prime assets, although there is some appetite for secondary properties where there is opportunity for value improvement through asset management. Over the quarter there has been an outward yield movement on secondary assets. Key Activities There were no sales or purchases during the first quarter of Three rent reviews have been completed in Southsea and Woodley at an average of 8.3% above estimated rental value ( ERV ). One letting was completed in Shipley at a rent 9.5% above ERV. The focus remains to maintain and increase income across the portfolio. At 31 March 2011 the Trust had no void retail units. The total void level for the portfolio, including residential and office accommodation is 4.8%. Performance The total portfolio value at 31 March 2011 was 67.2 million. There was a decrease of 280,000 over the first quarter of 2011, predominantly due to a reduction in ERV at Dunfermline and an outward yield movement at Bristol. The underlying property portfolio produced a total return of 1.0% and 9.7% in the three and twelve months to the end of February 2011 against IPD monthly All Standard Retail returns of 1.6% and 10.6%. The Trust recorded a total return of 0.8% and 7.0% in the three months and twelve months to the end of March SEPUT, the Trust s largest unitholder, have acquired further units and now own 99.8% of the units in issue. 3

4 Retail Market Commentary The UK economic recovery stalled in the final quarter of 2010, with GDP contracting by 0.6%. Even allowing for the severe weather disruption the release was surprisingly weak, although the latest PMI surveys point towards a return to growth in the first quarter of We continue to believe that the UK will see a slow, but steady expansion over the next two years, with GDP growth of 1.5%-2.0% in 2011 and Inflation continues to cause headaches for policy makers, with CPI inflation, the governments target measure, at 4.0%, a long way above the 2.0% target (source: Office for National Statistics ( ONS )). Whilst inflation caused by the January increase in VAT should drop out of the equation by the end of 2011, the concern is that further increases in oil and other commodity prices will continue to exert an upward pressure on prices. Inflation is eroding the spending power of the consumer, particularly whilst average earnings growth (2.2% in the year to January 2011) remains muted. Despite the squeeze to incomes, three month rolling non-food sales values increased by 3.6% in the year to February 2011 (source: ONS). These figures are reflecting weak comparables however, and recent consumer confidence surveys imply that this sales growth is unlikely to be sustained going forward. More retail sales diverted away from the high street % of non-food sales On-line sales Supermarkets Retail warehouses Town centres ex.supermarkets Source: PMA, Verdict. March 2011 IPD report that local shops returned 19.0% in 2010, above both standard retail (13.8%) and the all property average (15.2%). This outperformance can be largely attributed to rental growth in local shops of 3.2%, whilst all standard retail (-1.7%) and all property (-0.4%) rental values continued to fall. Despite the strong recent performance of local shops, in the longer term we remain concerned over the continued diversion in retail sales towards supermarkets and the internet (see chart above). We believe this will impact some locations more than others, and that there will be a continued divergence in performance between the best and the worst performing schemes. We continue to favour strong food anchored district centres, affluent suburbs and large city centre retail destinations that dominate their catchment shopping population. 4

5 Key Activities over the Quarter Purchases There were no purchases this quarter. Sales There were no sales this quarter Asset Management Initiatives Maggs House, Bristol Within this holding Business Environment Group Limited are the largest tenant with a lease expiring in November We are continuing discussions to negotiate the possibility of a lease regear Upper Richmond Road, East Sheen The section 106 Agreement has now been agreed and has been circulated for signature. On completion, planning permission will be confirmed for the redevelopment of two ground floor retail units with new additional residential accommodation above. The development can then commence upon expiry of the existing retail leases between 2012 and 2014 if appraisals show the scheme to be value enhancing. Duloch Retail Park, Dunfermline Duloch Park Limited, the tenant of the restaurant unit, has ceased trading. We have agreed terms with a new restaurant operator to take a new 15 year lease on the unit, subject to vacant possession. 210/210A High Road, Loughton Building surveyors have been instructed to tender for the upgrade works to the vacant residential accommodation. Subject to receipt of suitable tenders and commercial viability, the residential accommodation will be refurbished and relet. Terms have now been agreed and solicitors have been instructed with the tenant of 202 High Road which, upon completion, will allow the provision of suitable access to the proposed larger scale redevelopment of an additional floor of new flats above the existing residential accommodation. Upon completion of the legal documentation, this development can be progressed, if commercially viable. Palmerston Road, Southsea Negotiations continue with Laura Ashley, who are currently holding over, to renew their lease. There is strong interest in this unit from an alternative occupier. Monsoon has agreed terms to remain in the unit for a further year on one months notice. The Broadway, Buckingham Parade, Stanmore Medicals Direct are the largest office tenant within this holding. They have served a break notice effective in February We have been in discussion, endeavouring to secure a reletting to this tenant. They have now appointed agents and negotiations are progressing. 5 We continue to monitor the potential redevelopment of the land to the rear of this holding.

6 Crockhamwell Road, Woodley Rating surveyors have now been appointed to negotiate the removal of the residential accommodation from the Council Tax list and reduce the rating assessment to the vacant office space. If successful, this will significantly reduce ongoing void costs. 6

7 Performance Analysis The Trust returned 0.8%, 7.0% and -3.0% in the three months, one year and three years to the end of March The underlying property portfolio returned 1.0% and 9.7% in the three and twelve months to the end of February 2011, whilst it returned -1.2% per annum on a three year basis. The portfolio return was above the IPD All Standard Retail benchmark over the three years to the end of February 2011, although behind over three months and twelve months. Trust Return versus Portfolio and IPD All Standard Retail returns* % return months 12 months 3 years pa -1.5 Trust to March 2011 Trust to February 2011 Portfolio IPD Source: Investment Property Databank / Schroders * Portfolio and IPD returns are calculated to February 2011, Trust returns to March IPD and portfolio returns are property returns, gross of Trust management fees and do not include the effect of cash or gearing. They are therefore not directly comparable to the Trust returns which are net of fees and cash. The Trust s benchmark is All Standard Retail in the IPD Quarterly Universe. The monthly series used in the above analysis accounts for the 52% of the properties in the benchmark valued on a monthly basis. 7

8 Trust Issues The Trust s largest unitholder, Schroder Exempt Property Unit Trust ( SEPUT ) has acquired further units in the Trust during the first quarter of SEPUT now own 99.8% of the units in issue. 8

9 Databank Trust Information At 31 March 2011 Net asset value (NAV) 72.3 million Offer price per unit Mid price per unit Bid price per unit Net asset value per unit Distribution yield 5.1% Bid-offer spread 6.6% Debt (% of NAV) Nil Property Portfolio At 31 March 2011 Property value 67.2 million Net initial yield 7.0% Equivalent yield 7.5% Net reversionary yield 7.5% Void rate (as a % of estimated rental value) 4.8% Number of holdings 10 Number of tenants 118 Unitholder Information At 31 March 2011 Number of units in issue 2,345,546 Number of units redeemed over the quarter Value of units redeemed over the quarter Number of units issued over the quarter Value of units issued over the quarter Number of units matched over the quarter 36,345 Value of units matched over the quarter For details of secondary market trading or new units Nil Nil Nil Nil 1.2 million Please contact John Harding on +44 (0) or john.harding@schroders.com 9

10 Portfolio Analysis (at 31 March 2011) Trust Regional Weighting (% by capital value) 5.0% 7.8% Greater London 9.4% 13.4% 37.3% South East South West Yorkshire & Humberside West Midlands Scotland 27.1% Source: Schroders, 31 March 2011 Trust Lease Expiry Profile (% by income)* 11.9% 0.7% 0.9% Less than 5 years 5-10 years 42.5% years years 44.0% More than 20 years Source: Schroders, 31 March 2011 * assuming break options are exercised Trust Top Ten Retail Tenants Share of Income (%) Tenant 5.9% Clinton Cards (Essex) Ltd 3.6% New Look Retailers Ltd 3.3% Iceland Foods plc 2.7% Halifax plc 2.6% The Boots Company plc 2.0% Costa Ltd 1.7% Cobra Leisure West Ltd 1.7% Dreams plc 1.6% Laura Ashley Ltd 1.6% Phones 4 U Source: Schroders, 31 March

11 Trust Asset Exposure At 31 March 2011 Largest Three Assets Smallest Three Assets Average Property Lot Size Property 2-42 Palmerston Road, Southsea High Road, Loughton Maggs House, Queens Road, Bristol London Road, Enfield High Street, Harborne Upper Richmond Road, East Sheen 6.7 million (31 December million) Source: Schroders, 31 March

12 Unitholder Information The Trust is an open ended property unit trust constituted under the laws of Jersey. Management and Administration Trustees: BNP Paribas Securities Services Trust Company (Jersey) Limited and BNP Paribas Securities Services Trust Company Limited Manager: Registrar: Property Adviser: UK Legal Adviser: Jersey Legal Adviser: UK Property Lawyer: Valuer: Auditors: Schroder Property Managers (Jersey) Limited JPM Administration Services (CI) Limited Schroder Property Investment Management Limited SJ Berwin LLP Mourant Ozanne Dechert LLP Allsop LLP PricewaterhouseCoopers CI LLP Investment Policy The investment objective of the Trust is to achieve a blend of capital and income growth for investors through investment in retail property. Investment Restrictions The holdings and operations of the Trust will be restricted by the investment restrictions detailed on page 11 of the Prospectus. Establishment The Trust was re-constituted in April 2002 as a Jersey property unit trust and will have a life of 25 years subject to extensions thereafter. Costs and Fees The following fees and charges will be payable: Initial charge: Trustees fee: Manager s fee: Property Adviser s fee: The Manager has the discretion to charge an Initial Charge of not more than 5.0% of the Issue Price of units. 20,000 per annum plus % of Net Asset Value in excess of million. 0.5% per annum of the higher of the Valuation of the Properties or the Net Asset Value of the Trust. 0.5% per annum of the Valuation of the Properties. Arrangements will be made to ensure that there shall be no double charging of Initial Charges and Manager s fees should the Trust invest in any Schroders funds. 12

13 Issue and Redemption of Units Units will be issued on a monthly basis. The Issue Price of units will be the Net Asset Value of the Trust divided by the number of units in issue plus a Dilution Levy. The Dilution Levy will be calculated as the Manager s estimate of average fiscal and purchase costs per unit, incurred in acquiring the Properties within the Trust at the date of issue of such units. Subject to unitholder consent each year the Manager may offer to the existing unitholders Special units. The Special units will be issued at a price of Net Asset Value divided by the number of units in issue plus a Dilution Levy which shall be reduced by such a percentage as the Manager may in its discretion consider appropriate provided that the Dilution Levy may not be less than 2.0%. Special units will attract a penalty of 5.0% of Net Asset Value per Unit from the Redemption Price if redeemed within five years of their issue. Any Special units not taken up by the holders within 20 business days of their offer may be offered by the Manager to third parties. Units will be redeemable on a quarterly basis on three months notice. The Redemption Price of units will be the net asset value of the Trust divided by the number of units in issue less the Manager s estimate of the percentage cost per unit of the fiscal and sale charges of properties. The Manager may declare a suspension in the redemption of units for up to two years in the event of circumstances set out in the Trust Instrument. The minimum holding is 800 units. Distributions Distribution of net income less costs will be made on a monthly basis. No capital distribution will be made before the determination of the Trust. Unit Pricing The Manager will calculate monthly the Bid and Offer Price as represented by one unit. An independent market valuation of the Properties held by the Trust will be prepared on a monthly basis by the Valuers. Resolutions Resolutions will be passed by Extraordinary Resolution. At least 75.0% of the number of votes cast by holders will be needed to pass an Extraordinary Resolution. Matters requiring approval in this way are set out in the Trust Instrument. Where Majority Holders exist, their votes will be capped at 50.0%. Documents Available The following information and documents are available on the website at For any additional information not found on the website, please contact us. Prospectus Monthly Unit Prices Monthly Income Distributions Report and Accounts 13

14 Important Information The Trust quarterly report is produced for distribution to existing investors in the Trust only. It is for information purposes only and is not intended as promotional material in any respect. The Trust quarterly report should not be relied upon for any purpose including accounting, legal or tax advice or investment recommendations. The Trust is a collective investment scheme within the meaning of section 235 of the Financial Services and Markets Act 2000 ( FSMA ). The Trust is not an authorised unit trust scheme, OEIC, or recognised scheme and therefore constitutes an unregulated collective investment scheme. As an unregulated collective investment scheme, distribution and promotion of the Trusts units is restricted for the purposes of sections 21 and 238 of the FSMA to persons who are themselves authorised under the FSMA or who otherwise fall within the categories or exceptions made under sections 21 and 238. Accordingly, this material is directed at existing investors in this Trust only and should not be relied upon by persons of any other description. In any case, a recipient who is in any doubt about investment in the Trust should consult an authorised person who specialises in investments of this nature. Investors should be aware that past performance may not necessarily be repeated in the future. The Trust invests in real property, the value of which is generally a matter of a valuer s opinion and which may not be readily saleable. Reliable information about the value of units in the Trust or the extent of the risks to which they are exposed may not be available. A potential conflict with the Manager s duty to the unitholder may arise where an associate of the Manager invests in units in the Trust. There is no recognised market for units in the Trust and an investment in units is not readily realisable. It may be difficult to deal in the units or to sell them at a reasonable price. The price of units and the income from them may fluctuate upwards or downwards and cannot be guaranteed. All or most of the protections provided by the UK regulatory system do not apply to investment in the Trust and compensation under the UK Financial Services Compensation Scheme will not be available. Any forecasts in this document should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors. For the purposes of the Data Protection (Jersey) Law 2005, the data controller in respect of any personal data you supply is Schroder Property Managers (Jersey) Limited (SPMJ). Personal information you supply may be processed for the purposes of investment administration by any company within the Schroder Group and by third parties who provide services and such processing and which may include the transfer of data outside of the European Economic Area. SPMJ may also use such information to advise you of other services or products offered by the Schroder Group unless you notify it otherwise in writing. Issued by Schroder Property Managers (Jersey) Limited, PO Box 490, 29 Esplanade, St Helier, Jersey JE4 9WB. Regulated by the Jersey Financial Services Commission. 14