9th Oct 2008 16:41
CLOSE HIGH INCOME PROPERTIES PLC (the "Company")
INTERIM MANAGEMENT STATEMENT
ANNOUNCEMENT OF NAV
The Board advises that as at close of business on 30 September 2008, the unaudited net asset value per Ordinary Share of 1 penny each of the Company was 62.90 pence (31 August 2008: 79.95 pence). The unaudited net asset value per "D" Ordinary Share of 1 penny each on the same date was 36.86 pence (31 August 2008: 57.09 pence). This represents a decrease of 21.33 per cent per Ordinary Share and a decrease of 35.44 per cent per "D" Ordinary Share.
The Ordinary Share and "D" Ordinary Share property portfolios were valued at 30 September 2008 by DTZ Debenham Tie Leung Limited ("DTZ"). On a like for like basis there has been an average fall in valuation from 30 June 2008 of 8.5% across the Ordinary Share portfolio and a 15% fall in valuation across the "D" Ordinary Share property portfolio.
Whilst a fall in valuation was expected, and the reasons for it explained in detail in the Interim Report and Financial Statements, the extent of the fall in value in the "D" Ordinary Share portfolio, for the reasons set out below, was significantly greater.
The "D" Ordinary Share portfolio consists entirely of multi-let courtyard office estates and has no industrial component. The void rate on these estates has improved since we purchased them in 2006. The original void rate of 25% has been reduced to its current level of 16%, but remains higher than our long-term target void rate of 10%. As a result of changes introduced by the Government to the charging of council tax rates on empty properties, the Company has been burdened with higher costs at a time when it has been difficult to secure lettings to new tenants.
In addition, many of the existing tenant leases which the Company inherited on acquiring the "D" Ordinary Share portfolio leave the Company with an obligation to pay certain costs, such as electricity costs, which would usually be passed on to the tenant under a service charge. Under the terms of the purchase agreement the vendor paid for these costs for a two year period (with a fixed contribution payable by the Company). Since March 2008 the full unrecoverable cost has now fallen on the Company. The resultant lower net income is taken into account by the valuer and leads to a consequential reduction in value. Close Investments Limited, the Property Investment Adviser, has changed the asset management team responsible for these properties and is confident the unrecoverable costs will be reduced over the medium term.
As announced on 19 September 2008, the Company completed the sale of a portfolio of seven properties within the Ordinary Share portfolio for £17.25 million (before costs of sale). In addition the Company also completed last month the sale of a further property within the Ordinary Share portfolio for £4.1 million (before costs of sale).
The net asset value per share is calculated under International Financial Reporting Standards ("IFRS").
Set out below is a breakdown of the change to the unaudited net asset values per share calculated over the period from 1 September 2008 to 30 September 2008.
|
Ordinary Share |
"D" Ordinary Share |
|||
|
Pence per share |
% of opening NAV |
Pence per share |
% of opening NAV |
|
|
Net asset value per share as at 31 August 2008 |
79.95 |
57.09 |
||
|
Increase / (decrease) in interest rate swap valuation |
(0.19) |
(0.24) |
(0.51) |
(0.89) |
|
Movement in revenue reserves |
1.20 |
1.50 |
0.19 |
0.33 |
|
Movement from the sale of property during September |
(4.00) |
(5.00) |
- |
- |
|
Unrealised decrease in valuation of property portfolio (including the effect of gearing) |
(14.06) |
(17.59) |
(19.91) |
(34.88) |
|
Net asset value per share as at 30 September 2008 |
62.90 |
(21.33) |
36.86 |
(35.44) |
The property portfolio will next be valued by DTZ as at 31 December 2008. The net asset value per share as at 31 October 2008 will be announced in November 2008.
GROUP BORROWINGS
The Board is pleased to confirm that the Company continues to operate within all of its borrowing arrangements and is satisfying all 'loan to value' ratios and interest rate cover tests.
The recently completed property disposals from the Ordinary Share portfolio have provided a useful level of liquidity which will be used in part to reduce gearing levels further.
As a result of the failure to date to sell two properties from the "D" Ordinary Share portfolio, together with the significant fall in the valuation of that portfolio, the loan to value covenant level in respect of this share class stands at its agreed limit of 65%. Preliminary discussions have taken place with the Company's lending bank to provide a temporary revised package of covenants and loan terms which would provide time for the Company to take further action to bring the loan to value back in line with the original covenants in the event that there is further fall in property values in the future. The bank has been very helpful to date and we will report further when these discussions are finalised.
DIVIDEND DECLARATION
The Directors announce the Company's twenty second interim dividend of 1.625 pence per Ordinary Share in respect of the period from 1 July 2008 to 30 September 2008. The dividend is payable on 31 October 2008 to Ordinary Shareholders on the register on 17 October 2008.
This dividend will be paid out of the Company's distributable capital reserves.
As a result of the fall in value of the "D" Ordinary Share property portfolio, the Directors do not recommend the payment of a dividend to "D" Ordinary Shareholders at this time in order to preserve cash to help sustain liquidity.
EXPENSES
The Board and the Property Investment Adviser have undertaken a review of the Group's operating expenses with a view to improving earnings per share. The Board is pleased to announce that the Property Investment Adviser has agreed to reduce its annual management fee by 25% with effect from 1 November 2008. From this date the annual fee in respect of the Ordinary Share gross assets will be reduced from 2% to 1.5%. In respect of the "D" Ordinary Share gross assets, the annual fee will reduce from 1.5% to 1.125%.
The Company has also reached agreement with both the independent valuers, DTZ, and its Brokers that their fees will be reduced by a similar percentage with effect from 1 November 2008.
It is estimated that these costs savings may amount to £680,000 in a full year based on the value of the property portfolio at 30 September 2008.
For further information contact:
Peter Roscrow
Close Investments Limited
020 7426 4174
Related Shares:
IMPT.L