F&C UK Real Estate generated a net asset value per share total return of 5.6% for the six months ended 31 December 2015 on the back of an ungeared portfolio return of 4.7%. The share price total return was 4.8%. The shares were trading at a slight premium to the NAV of 1.9% at the period end, compared to a premium of 2.6% as at
30 June 2015.They declared a dividend of 2.5 pence per share for the period.
returns were a bit behind the IPD Index which returned 6.3% over the period – an income return of 2.4%, a 3.8% rise in capital values and 2% rental growth.
The Company’s best performing assets for the period were predominantly within the industrial sector. The two largest contributors to returns were Hemel Gateway, Hemel Hempstead where the valuation improved significantly following recent letting activity, and Colnbrook Industrial Estate, London where returns were driven by both positive market sentiment and the re-negotiation of the lease at Unit 8. These returns were complimented by strong relative returns from the mixed use asset at 24 Haymarket, London. The portfolio’s retail assets performed broadly in line with their peers within the index over the period, driven by the retail warehouse assets; however the office portfolio performance was more disappointing, coming in below the index for the period.
The vacancy rate on the portfolio increased to 4.5 per cent as at period end from 3.3 per cent at 30 June 2015, although the Company did successfully complete the letting of the 27,764 square foot Unit B at Hemel Gateway, Hemel Hempstead, to Victoria Plum Ltd. The agreed term was 10 years, subject to a break in Year 5 and the annual rent was GBP235,994pa (GBP8.50 per square foot). Approximately half of the portfolio void is accounted for by the asset at Site E Chippenham Drive, Milton Keynes. Following lease expiry in 2015, this property is currently undergoing refurbishment with delivery expected in Q2 2016. Leasing and asset management initiatives conducted over the period combined to produce top quartile gross income growth for the portfolio (versus the IPD index).
The initial yield on the portfolio is now 5.4 per cent and the average weighted unexpired lease term of the portfolio is now 7.3 years. The largest ten tenants by rent, all rated as negligible or low risk by IPD, account for 43 per cent of
total income. The portfolio remains well balanced both geographically and by sector split, with a 60 per cent weighting to London and the South East.
The Company sold one property at 7/11 Bridge Street, Guildford for GBP2,125,000, reflecting a net initial yield of 5.0 per cent. The sale price achieved was in excess of the previous quarters valuation. The decision to dispose of the asset
was taken in light of the relatively small lot size, the low yielding nature of the investment and the potential for new retail supply within the town. No properties were purchased over the six months, however, following on from the
successful refinancing, we are now looking to the market on an opportunistic basis to identify suitable buying opportunities and address any opportunity to recycle capital. The Managers say they are content to abstain from new acquisitions until appropriate assets are identified at the right pricing to support the Company’s objective.
FCRE : F&C UK Real Estate