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CT Property Trust posts 34.3% jump in NAV but warns valuation declines to come

CT Property Trust (formerly BMO Real Estate Investments) has posted a 34.3% NAV total return in annual results to 30 June 2022.

The group’s NAV jumped 30.1% in the year to 132.8p per share, while it paid dividends of 4p per share. The dividend was fully covered by earnings by 106.5%.

The company’s share price did not track the NAV performance during the year, with share price total return at 24.0%, representing a discount of 36.7% to the NAV at the year end. This discount has widened further following a rise in interest rate expectations and the knock-on effect for real estate investment and valuations. The shares are now trading on a 45% discount to NAV.

The group’s chairman Vikram Lall warned: “There have been falls in property valuations across all sectors since 30 June, with industrial valuations seeing the largest declines and the company’s portfolio will not be immune.”

Debt and cash position

The group has £90m of long-term debt with Canada Life and Barclays, which do not need to be refinanced until November 2026 and March 2025 respectively.

As at 30 June 2022, the group’s net gearing was 22.1% and the weighted average interest rate was 3.1%.

The group had around £13.6m of available cash at 30 June and an undrawn revolving credit facility of £13.0m. Its cash resources have increased considerably following the sale of a central London office post year-end for £32.4m.

Since the year end, the company has started to use some of the cash generated from the sale of the Berkeley Street office to buy back shares in the company at a discount rather than investment in new properties, which will be both NAV and earnings enhancing. It has so far bought back 6,325,000 shares at an average discount to the NAV of 36.1%.

Reduced management fee

The board and the manager have agreed to reduce the management fee from 0.6% per annum of the total assets (including cash held under of 5% of net assets) to 0.55% with effect from 1 July 2022.

Outlook

Chairman Vikram Lall said: “The UK economy rebounded strongly in 2021, but growth has slowed in the face of rising and entrenched inflation, persistent supply chain disruption and elevated geopolitical risks. Policymakers are also taking steps that will further constrain growth, with the Bank of England raising interest rates. It seems increasingly likely that this will precipitate a recession in the UK and a period of negative growth lies ahead.

“At the time of writing, inflation in the UK was 9.9%, just shy of the 10.1% 40-year high seen in July and the Bank of England have revised their estimate of peak inflation to 11.0%. Double digit inflation is expected to last for a year as households face an acute cost of living crisis driven by increasing energy prices. 2023 should see inflation begin to edge down with the unveiling of the government’s energy price guarantee package designed to shield households and businesses from soaring energy prices over the next six months, followed by a review. The Bank of England has raised interest rates to 2.25%, with further increases anticipated as they battle to tame inflation. Increases in the costs of financing will undoubtedly slow real estate activity, while the ability of occupiers to withstand inflationary pressures will be a key differentiator. There have been falls in property valuations across all sectors since 30 June, with industrial valuations seeing the largest declines and the company’s portfolio will not be immune. Discounts in the UK REIT sector have widened substantially in recent months and the current discount in our shares reflects that.

“In uncertain markets, the quality of the underlying portfolio comes to the fore. Our portfolio is characterised by assets in core locations, with long term value in the residual and a quality tenant base, which has delivered consistent long-term capital and income performance. As we move to the next stage in the property market cycle, income will drive returns, while asset resilience should protect long-term capital values. Consequently, the portfolio’s income advantage, sector exposures, geographical focus and low vacancy rate stand us in good stead as we enter a period of economic uncertainty.”

CTPT : CT Property Trust posts 34.3% jump in NAV but warns valuation declines to come

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