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英国投资管理报告指导（英文）Investment Manager's Report-Investment Manager's Report
ECONOMIC OVERVIEW
The UK economy continued to grow over the first three quarters of 2010 with the third quarter recording a 0.7% increase from the 1.1% in the preceding quarter. Despite expectations to the contrary, GDP fell by 0.5% in the fourth quarter, however GDP increased over 2010 by 1.3%, the first annual positive growth since 2007.
One of the primary concerns for continued recovery into 2011 is the increasing rate of CPI inflation, which stands at 4.4%. This rate has been largely driven by the increasing tax, fuel and commodity prices rather than from consumer spending pressures which has sparked much debate as to the MPC policy regarding interest rates, currently set at 0.5%. Market expectations are for rates to rise in May; however, it is arguable that an increase at this time could stifle economic growth prospects.
Ten year gilts and three and five year swap rates have recently seen a dip having broadly followed an upward trend since August 2010 and although still low by 2006-2007 standards they are currently echoing the tone set at the end of 2009. The cost of debt is therefore increasing in response to expected long term interest rate rises.
Despite the anticipated challenges over 2011, ING Financial Markets suggests a steady improvement in the recovery through 2011 and 2012 predicting, GDP growth of 1.5% and 2.0% respectively.
PROPERTY MARKET OVERVIEW
In 2010, the market recorded capital growth of over 8% according to the IPD Annual Index, continuing the theme that the recovery in asset values since mid 2009 has predominately been capital markets led, with the occupational cycle subdued.
Whilst occupancy rates have been improving since the latter part of 2009, and stand at 90% up from their low of 87%, there is still some way to go before recovering to the long term average of 93%.
Rental value growth is now positive in some sectors, primarily in central London, but negative in the majority of other subsectors. The extent of the rental value declines has now passed its 2009 peak and is generally flat at present, recording -0.5% in the IPD Annual Index over 2010 compared to the -7.9% in the previous year.
Looking at the market in the broadest terms, one can see that there is a recovery in values, but at this stage it is not widespread. The recovery has not been consistent across the market and for certain types of assets, especially those with shorter term income profiles, the recovery in pricing has yet to happen.
Furthermore, the Investment Management Association quarterly property fund flow data shows that retail and institution fund flows have steadily decreased since the final quarter of 2009 and the outlook for 2011 is likely to be more income focussed rather than driven by yield compression.
STRATEGY
The Group's strategy is to become the vehicle of choice for investors seeking an income biased exposure to UK commercial real estate. This is achieved by investing in a diversified portfolio of assets and ensuring diversification of cashflow across over approximately 400 tenants.
The portfolio tends to consist of 'value add' type assets where the combination of lease restructuring, refurbishment or other active management initiatives to maximise underlying cashflow will provide opportunities for enhancement in asset values over the medium term.
Whilst the Group tends to limit the amount of trading of assets, not least by virtue of the significant friction costs of purchasing direct real estate, the Group has continued to dispose of non core assets and repay debt, following completion of asset management initiatives. Further details of these assets are detailed below.
UNDERLYING PERFORMANCE
In share price terms the Company began the year at 53.8 pence per share and maintained that level over the period with the share price closing at 53.5 pence per share on 31 December 2010.
This was despite an increase of 9.1% in the Net Asset Value per share during the period and consecutive increases in value over the four quarters. Net Asset Value rose from 55 pence per share as at 31 December 2009 to 60 pence per share as at 31 December 2010. The EPRA Net Asset Value also benefitted from an 8.6% increase from 58 pence per share to 63 pence per share. This measure ignores changes in the fair value of the interest rate swaps.
The increase in property values and high dividend was the key driver of the increase in Net Asset Value. This was supported by the acquisition of the Rugby REIT portfolio, the positive effect of gearing and also active management initiatives undertaken.
The Group continued to out-perform the IPD benchmark over both the three and five year periods by 0.7% and 0.9% respectively as at 31 December 2010. With respect to underlying performance, the twelve months to 31 December 2010 saw a total return of 12.5% compared to the benchmark of 15.1%, largely due to the Group being underweight in the Shopping Centre and Central London Office sectors.
The Group is income focused and has generated income returns of 7.3%, 7.5% and 7.0% over one, three and five years. Relatively, these returns are on average 21% in excess of the benchmark return.
2010 REVIEW
2010 remained very much occupier focused in what has generally been a fragile market. In terms of activity, the Group completed 30 lettings, 15 lease renewals or lease restructurings and 12 rent reviews.
As highlighted in the Half Yearly financial report the most significant event over the period was the acquisition of Rugby Estates Investment Trust Plc ('Rugby REIT'). At a time when the property market was constrained by a limited supply of stock and strong demand, the Company was able to source an attractive portfolio of assets with existing finance in place. The pricing of the acquisition, at a significant discount to Rugby REIT's stated IFRS Net Asset Value, was one of the principal drivers of capital growth during the period. In addition, as this was a corporate acquisition, it enabled the Group to purchase a portfolio of assets in a financially efficient manner.
Capital growth over the preceding 12 months, which was relatively muted, reflects the current market polarisation between longer term income and that of a shorter duration. Over the medium term, we believe there is embedded value within the portfolio, where current external 'market' valuation, remains some 10% lower than the most recent estimate of cost of construction of the assets, before allowing for land costs also.
As at 31 December 2010, the annualised rental income was £31.2 million. It is expected that this will rise to £31.9 million per annum by the end of 2011 following expiries of rent free periods and fixed rental uplifts. The reversionary rental income for the portfolio is £34.9 million per annum, which will be primarily achieved through the letting of vacant accommodation. The net initial yield of the property portfolio is 6.9%.
The most significant transactions undertaken during the year are detailed below.
OFFICES
The Group's exposure to the office sector represents 34.2% of the portfolio by value.
As at 31 December the Group held 22 office assets, with a value of £145.7 million, reflecting a capital value of approximately £159 per sq ft. The office portfolio is leased to 175 tenants and had an occupancy rate of 84% at 31 December 2010.
The most significant transaction over the period was at 50 Farringdon Road, London EC1, where we undertook a lease surrender in April, for a premium in excess of £4 million, ahead of a tenant break option in September 2010. A significant refurbishment programme has been undertaken and the property has just started to be marketed with positive occupier interest.
At Austin Friars, London EC2, acquired as part of the Rugby REIT transaction, we have let two floors in two separate transactions at rental levels some 30% ahead of our original estimates at the time of purchase. This reflects not only an underlying improvement in this core central London market but also a refurbishment of the accommodation.
At our business park in Colchester, four new lettings were achieved in some of the smaller suites adding £90,000 per annum of income. In a separate transaction we negotiated out a break clause, due in 2012, by offering a short term rent free period thereby securing income maturity to 2017 and also enhancing asset value. The rental income was £202,000 per annum.
In the final quarter, in Milton Keynes, following a tenant exercising a break option on a suite of offices, we simultaneously agreed a back to back letting for 50% of the space, with the remainder currently being marketed. This letting has set a new headline rental level for the building.
INDUSTRIAL
The Group's exposure to the industrial sector is 34.2%. This comprises five distribution warehouses and 20 multi-let industrial estates. The industrial portfolio is leased to 130 tenants and had an occupancy rate of 92%.
As at 31 December the Group held 25 industrial assets with a value of £145.4 million reflecting a capital value of £65 per sq ft.
In Harlow, we have moved an existing tenant into larger premises and refurbished the two small units they vacated. Following the year end we have let one of the smaller units and have good interest in the remainder. These transactions add £110,000 per annum and £56,000 per annum respectively to the rental income.
At another unit, following a tenant going into liquidation in 2009, we negotiated a financial settlement with guarantors for over £540,000. These monies have been in part used to refurbish the unit, which is shortly to finish, ahead of formal marketing.#p#分页标题#e#
In Colchester we negotiated the removal of a break clause due in 2012, by offering a short term rent free period thereby securing income maturity to 2022 and enhancing asset value. The rental income here was £148,000 per annum.
In respect of the Rugby assets acquired, we regeared one of the leases at Datapoint Business Centre, London E16 in line with estimated rental value at the time of purchase, securing £59,750 per annum and undertook five lease renewals and lettings in Epsom, thereby securing a further £97,550 per annum of income.
RETAIL
The Group's retail exposure totals 27.1% which is split between high street retail and retail warehousing representing 19.9% and 7.2% of the total portfolio respectively.
As at 31 December, the Group held 20 retail assets with a value of £115.1 million. The retail portfolio is leased to 81 tenants and had an occupancy rate of 97%.
At our retail warehouse park in Swansea, full occupancy was achieved following the Administration and CVA of Roseby and JJB respectively, last year. Two lettings to value retailers, Home Bargains and Poundland, have added £160,000 per annum to the net rental income position.
In Stockport we agreed a letting to The Entertainer securing £80,000 per annum on a ten year lease. In Kings Heath, Birmingham, by sub dividing a unit vacated in 2009, we secured two lettings at rents rising to in excess of £120,000 per annum, a figure ahead of the previous passing rent.
In Guildford, a simultaneous surrender and re-letting of a retail unit, enabled the Group to set one of the highest rental levels in the town, with a letting to Toast, the fashion and homeware brand, proving that 'life' does exist on the High Street.
LEISURE
As at 31 December the Group held three leisure assets, with a value of £19.3 million. The leisure portfolio is leased to ten tenants and had an occupancy rate of 96%.
The most significant transaction over the period was the settlement of a rent review on the Crown and Mitre hotel in Carlisle, which achieved a 30% uplift, or £26,000 per annum increase. The settlement that was finally reached after the year end relates to a 2008 review. Following this, the Group's exposure to the leisure sector represents 4.5% of the portfolio by value.
ACQUISITIONS AND DISPOSALS
The Company is continuing its strategy of selling smaller non core assets, whilst at the same time looking to recycle capital into more attractive propositions.
The acquisition activity of 2010 focused around the takeover of Rugby REIT and the 33 assets owned within the structure.
In terms of disposal activity, the Group made seven disposals, for a total consideration of £11.9 million and a further four disposals have completed or exchanged contracts following the year end for a combined consideration of £2.1 million. The combined proceeds of the disposals achieved in 2010 was some 14.5% ahead of their preceding valuation.
Of the disposals last year, three were sold vacant and two were sold to special purchasers.
DEBT
Debt remains a key issue for the commercial real estate market as a whole and it is no exception for this Company.
In 2010, the Group diversified its sources of debt funding through the introduction of zero dividend preference shares, in addition to the loan notes and a secured lending facility already within the structure.
Ensuring an optimal solution to the Group's refinancing which is due within the next 18 months is a key objective. Over the course of 2010 the Group continued its reduction of securitised lending through the purchase and cancellation of loan notes in the secondary market. The pricing of these acquisitions at below par value ensured that the transactions were both accretive to dividend cover and Net Asset Value.
Furthermore, in December, and as part of the listing of the Group's zero dividend preference shares, the Group repurchased £4 million of ZDPs thereby reducing the liability to £27.6 million as at 31 December 2010.
During the summer the Group restructured its loan facility with the Royal Bank of Scotland, which resulted in a reduction in the overall cost of finance and a reduction in the loan maturity profile to coincide with any wider refinancing.
Full details of the Group's borrowings are included within Note 17, to the consolidated financial statements.
In respect of the two principal facilities the Group had the following debt covenants at the year end:
Loan to Value
Interest Cover
Actual
Covenant
Actual
Covenant
Securitised loan notes
£171.6 million
45.5%
60% (until Jan 2012 thereafter 55% to July 2012 falling to 50% thereafter)
2.59 times
1.75 times
Royal Bank of Scotland facility
£20.4 million
39.2%
50%
3.49 times
2.0 times
OCCUPANCY
Occupancy within the portfolio remains in line with the wider market, standing at 90%. The most significant impact on the occupancy rate during the year was the surrender of the lease at Farringdon, which is detailed above. It is expected that this will rise to 93% once a tenant is secured for the property.
As at 31 December the estimated rental value of the vacant accommodation within the portfolio is £3.4 million and this is expected to be the principal driver of income growth over the short term, whilst rental value growth remains muted.
Outlook
Whilst 2010 was a year of positive capital growth, there are currently limited signs of capital appreciation across the UK market in the short term.
Having witnessed significant falls in property values between 2007 and 2009 and then a rebound since the middle of 2009, we now appear to be entering a period of relative stability in values, albeit set against a backdrop of uncertain economic growth.
Occupancy rates now appear to be on an upward trend and, similar to rental growth, remain specific to certain sub sectors which is very much driven at a macro level.
The income component of returns looks set to become more dominant, returning to more historic fundamentals, where as an asset class income has provided close to 70% of the total return.
Adopting an 'income' focused strategy, as we have since launch, puts us in a positive position looking forward.
Michael Morris
ING Real Estate Investment Management (UK) Limited
4 April 2011
Portfolio Analysis
Geographical
As at 31 December 2010 the regional weightings of the Property Portfolio, as a percentage of current portfolio value, are summarised as follows:
£000
% of Portfolio
IPD Quarterly Index (Dec 10)
Central London
£71,940
16.9%
22.1%
South East and Greater London
£109,275
25.7%
29.7%
Eastern
£36,895
8.7%
7.2%
South West
£19,966
4.7%
6.4%
Midlands
£72,767
17.1%
11.0%
North
£78,035
18.3%
14.8%
Scotland
£10,550
2.5%
6.2%
Wales
£23,470
5.5%
2.2%
Northern Ireland
£2,510
0.6%
0.4%
Total
£425,408
100%
100%
(Source: ING REIM & IPD as at 31 December 2010)
Sector
As at 31 December 2010 the sector weightings of the Property Portfolio, as a percentage of current portfolio value, are summarised as follows:
£000
% of Portfolio
IPD Quarterly Index (Dec 10)
Offices
£145,690
34.2%
30.0%
Industrial
£145,360
34.2%
15.6%
Retail
£84,258
19.9%
29.8%
Retail Warehouse
£30,800
7.2%
19.8%
Leisure
£19,300
4.5%
4.8%
Total
£425,408
100%
100%
英国投资管理报告指导(Source: ING REIM & IPD as at 31 December 2010)
Covenant Strength
The covenant strength, based as a percentage of current passing rent by risk rating, as at 31 December 2010 is summarised as follows:
Portfolio %
Benchmark %
Negligible and Government risk
51.0
47.9
Low risk
26.8
22.9
Low-medium risk
3.9
7.6
Medium-high risk
1.9
2.9
High risk
4.7
5.2
Maximum
8.3
7.9
Ineligible/not matched
3.4
5.6
Total
100%
100%
(Source: IPD IRIS Report Dec 2010)
Covenant strength data is produced by Investment Property Databank (IPD).
The Group held a total of £1.8 million of rental deposits at 31 December 2010.
Longevity of Income
As at 31 December 2010, based as a percentage of current net annual rent,
http://www.ukassignment.org/dxygessay/2012/0312/19317.html the length of the leases to the first termination is summarised as follows:
Years
£000
%
Up to 5
£14,582
46.8%
5 to 10
£10,443
33.5%
10 to 15
£2,958
9.5%
15 to 25
£2,275
7.3%
25 and over
£909
2.9%
Total
£31,167
100%
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(Source: ING REIM as at 31 December 2010)
Top Ten Tenants
The top ten tenants, based as a percentage of current passing rent, as at 31 December 2010 is summarised as follows:
Tenant
% of Passing Rent
TNT UK Ltd
9.1%
Cadence Design Systems Limited
3.1%
Tanfield Group Plc
2.7%
Menzies Hotels Property No.20 Ltd
2.7%
Exel UK Ltd
2.7%
BT Telecommunications Plc
2.5%
Edward Stanford Ltd
2.1%
Asda Stores Ltd
1.9%
Amcor Packaging UK Limited
1.7%
RHM Group Ltd
1.5%
Total
30.0%
(Source: ING REIM as at 31 December 2010)
Valuation Schedule as at 31 December 2010
Properties valued in excess of £20 million
Sector
Unit 5320, Magna Park, Lutterworth, Leics.
Industrial
Units A-G2, River Way Industrial Estate, Harlow, Essex
Industrial
Properties valued between £15 million to £20 million
stanford House, 12-14 Long Acre, London WC2
Retail
Phase II, Parc Tawe, Link Road, Swansea
Retail Warehouse
Properties valued between £10 million to £15 million
Colchester Business Park, The Crescent, Colchester, Essex
Office
Angouleme Way Retail Park, Bury, Greater Manchester
Retail Warehouse
1-3 Chancery Lane, London WC2
Office
Boundary House, Jewry Street, London EC3
Office
56 Castle Street, 2/12 English Street and 12-21 St Cuthberts Lane, Carlisle, Cumbria
Retail
50 Farringdon Road, London EC1
Office
401 Grafton Gate East, Milton Keynes, Bucks.
Office
Vigo 250, Birtley Road, Washington, Tyne and Wear
Industrial
Properties valued between £5 million to £10 million
City Link House & Tolley House, Addiscombe Road, Croydon
Office
L'Avenir, Opladen Way, Westwick, Bracknell, Berks.
Office
Unit 3220, Magna Park, Lutterworth, Leics.
Industrial
Angel Gate Office Village, City Road, London, EC1
Office
Strathmore Hotel, Arndale Centre, Luton, Beds.
Leisure
17/19 Fishergate, Preston
Retail
53/55/57 Broadmead, Bristol
Retail
Regency Wharf, Broad Street, Birmingham
Leisure
The Business Centre, Molly Millars Lane, Wokingham, Berks.
Industrial
Units 1-13 Dencora Way, Sundon Park, Luton, Beds.
Industrial
Westlea Campus, Chelmsford Road, Swindon, Wilts.
Office
Scots Corner, High Street/Institute Road, Birmingham
Retail
Northampton Business Park, 800 Pavillion Drive, Northampton
Office
Datapoint Business Centre, Cody Road, London, E16
Industrial
Queens House, 17/29 St Vincent Place, Glasgow
Office
Lawson Mardon Buildings, Kettlestring Lane, York
Industrial
Nonsuch Industrial Estate, 1-25 Kiln Lane, Epsom, Surrey
Industrial
78-80 Briggate, Leeds
Retail
Waterside Park, Longshot Lane, Bracknell, Berks.
Office
Sentinel House, Ancells Business Park, Fleet, Hants.
Office
Haynes Way, Swift Valley Industrial Estate, Rugby, Warwickshire
Industrial
Longcross Court, Newport Road, Cardiff
Office
Easter Court, Gemini Park, Warrington
Industrial
Valuation Schedule as at 31 December 2010 (continued)
Properties valued under £5 million
Zenith, Downmill Road, Bracknell, Berks.
Industrial
Trident House, 42/48 Victoria Street, St Albans, Herts.
Office
Waterside House, Kirkstall Road, Leeds
Office
Units 1-3, 18/28 Victoria Lane, Huddersfield, West Yorks.
Retail
72/78 Murraygate, Dundee
Retail
6/12 Parliament Row, Hanley, Worcs.
Retail
Atlas, Third Avenue, Globe Park, Marlow, Bucks.
Office
123 High Street, Guildford, Surrey
Retail
Merchants House, Crook Street, Chester
Office
Heron Industrial Estate, Spencers Wood, Reading
Industrial
28 Austin Friars, London EC2
Office
7 & 9 Warren Street, Stockport
Retail
2/2a George Street, Richmond
Retail
Middleton Trade Park, Oldham Road, Manchester
Industrial
Abbey Business Park, Mill Road, Newtownabbey, Belfast
Industrial
Magnet Trade Centre, Winnersh, Reading
Industrial
2 Bath Street, Bath
Retail
8-9 College Place, Southampton
Office
Accrington Trade Park, Acccrington, Lancs.
Industrial
Thistle Hotel, Unit 1 & Le Pavilion, Brighton
Leisure
Highgrove Industrial Estate, Quatremaine Road, Portsmouth
Industrial
Spur Road,1, 2, & 3 Quarry Lane, Chichester
Industrial
113 High Street, Sutton
Retail
Nuffield Industrial Centre, Nuffield Road, Poole
Industrial
119-121 High Street, Epsom, Surrey
Retail
Manchester Road/Drury Lane, Oldham, Lancs.
Industrial
Churchfields Industrial Estate, St. Leonards-on-Sea, Sussex
Industrial
Marshall Building,122-124 Donegall Street, Belfast
Office
BT Unit, Eagle Trading Estate, Blackpool
Industrial
6 Argyle Street, Bath
Retail
Cloisters, Orchard Street, Dartford
Office
3 Lower Borough Walls, Bath
Retail
英国投资管理报告指导Repton Court, 12 Burnt Mills Industrial Estate, Basildon, Essex
Industrial
Winston Business Centre, Lancing, Sussex
Industrial
10 Margaret Street, Canterbury, Kent
Retail
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