30th Nov 2007 17:16
UK Commercial Property Trust Ltd30 November 2007 UK COMMERCIAL PROPERTY TRUST LIMITEDFOR IMMEDIATE RELEASECONTINUATION VOTE 30 November 2007 RECOMMENDED PROPOSALS TO APPROVE THE CONTINUATION OF THE COMPANY UK Commercial Property Trust Limited ("UKCM" or the "Company") has todaypublished a circular (the "Circular") convening an extraordinary general meetingon 19 December 2007 to propose a resolution to approve the continuation of theCompany. Introduction and background UKCM is a closed-ended Guernsey registered investment company which is listed onthe Official List of the UK Listing Authority. It was launched in September2006. The Company's investment objective is to provide Shareholders with anattractive level of income together with the potential for capital and incomegrowth from investing in a diversified portfolio of UK commercial properties. As a result of current market circumstances, the Company's Shares, in commonwith the shares of all other companies in its Sector, are currently trading at asignificant discount to their net asset value. In accordance with the prospectuspublished by the Company at the time of its launch in September 2006, theCompany has commenced a programme of share buy backs. The Company was one of thefirst in its Sector to do so. The Company currently has the narrowest discountin the Sector. The prospectus issued by the Company also stated that, if the share price of aShare was more than 5 per cent. below the published net asset value of a Sharefor a continuous period of 90 dealing days or more, the Directors would convenean extraordinary general meeting to consider an ordinary resolution for thecontinuation of the Company. On 11 October 2007 the Directors announced that theShares had traded at more than a 5 per cent. discount to their NAV for 90dealing days and that the Directors would convene an extraordinary generalmeeting to consider a continuation resolution. Performance of the Company The Company was launched in September 2006 with a property portfolio valued at£498 million. Since launch, the portfolio has grown substantially as a result ofa further issue in February 2007 to fund the acquisition of a portfolio ofproperties valued at £350 million. Over the period from the launch of the Company to 30 September 2007 (being themost recent quarter end) the NAV total return per Share (with dividendsre-invested) was 7.70 per cent. compared with the total return on the FTSEAll-Share Index over this period of 13.51 per cent. and on the FTSE Real EstateIndex of -9.68 per cent. For this same period the Property Portfolio generated atotal return of 7.95 per cent. (excluding acquisition costs) compared with atotal return from the IPD Index of 7.7 per cent. The acquisition of the portfolio in February 2007 improved the prospects forincome and capital growth in the Property Portfolio, further diversified theProperty Portfolio and allowed the Company to benefit from the reduced costs ofthe increased size of the Group. Over the period since launch the main driversof performance for the Company have been its exposure to South East retail andSouth East offices, in which the Company has an overweight position relative tothe IPD Index. At the close of business on 29 November 2007, the Shares were trading at adiscount of 22.4 per cent. compared with the Sector average of 35.2 per cent.As at 30 September 2007 the Company had total assets (less current liabilities)of £879.5 million. Investment outlook The property market is currently experiencing a period of pricing correction.Yields on property assets have moved out in all markets as the impact of moreexpensive debt and lower expected returns feeds through to prices achievable inthe market. The expectation is that the outward yield correction will continueduring the first six months of 2008 and that total returns will be below cash inthe short term. Despite this, occupational demand and rental growth remainsreasonably healthy, particularly in the office sector and the South East as aregion. Against this background, the Company is expected to perform reasonablywell given its exposure to generally prime stock and its weighting to the officesector. Recent investment and asset management activity The Company has completed the sale of its Princes Street, Edinburgh holding for£11 million and a small parade of secondary retail shops and a leisure unit atUxbridge for £6 million. As outlined to investors at launch, the Property Portfolio contains a number ofasset management opportunities, several of which have been implemented. Thereremain a number of further initiatives in both the initial and second portfoliowhich are being pursued. Principal highlights since launch 9 Colmore Row, Birmingham A total of 25,324 sq ft, representing 48 per cent. of the available space, hasbeen let to such companies as Atisreal, Kaupthing Singer Friedlander andEcclesiastical Insurance Group. All lettings have been in excess of theestimated rental value (''ERV'') for the building and, with occupational demandremaining healthy in Birmingham, the Company is hopeful of securing furtherlettings in the building in the short term. Marlow Sainsbury's Supermarkets Limited has taken a new 28 year FRI lease at acommencing rental of £495,000 per annum rising to £600,000 in 2009. The previousrent payable was £345,000 and the introduction of this new lease at thissignificantly higher level effectively doubled the value of the property. Charter Place, Uxbridge In June, the Company completed the restructuring of five leases held by NexenPetroleum at Charter Place, a 155,000 sq ft office building in Uxbridge. Therestructuring involved the removal of tenant break options effective December2007 affecting leases with a combined rental of £730,000. Nexen are nowcommitted to the building until at least December 2012 at an improved rentalahead of ERV. The Parade, Swindon There has also been positive letting progress in the Company's largest propertyat The Parade, Swindon with lettings to Clarks, Thorntons, Ryman Stationers andCornish Bakehouse. The Company has now appointed The Shearer Property Group, anexperienced retail property developer, to work with the Company in identifyingand delivering Phase 1 of a major refurbishment of the BHS block with theintention of optimising values in rental and capital terms. Kensington High Street, London Following Thomas Cook's decision to vacate its shop premises at 184 KensingtonHigh Street, the Company agreed to a surrender of that lease in return for areverse premium of £250,000. The property was simultaneously let to Kuoni Ltd ona new 15 year FRI lease (some eight years longer than previous lease) at a rentof £200,000 per annum, some 12 per cent. higher than the previous rent andraising the rental tone for this section of the street. In addition to the above, there has been solid letting activity in Pall MallCourt, Manchester and Dolphin Industrial Estate, Sunbury where lettingsproducing a combined rental of £458,789 after rent free periods have beencompleted. This activity together with six rent review settlements and two leaserenewals all at or in excess of ERV has resulted in an improved rental incomestream for the Company with many other asset management opportunities to bepursued in the short to medium term. Future strategy and gearing It is the Board's intention that the primary focus of the Company's strategy isto grow the rental income of the Company. In addition, the Board intends to seekopportunities to make acquisitions to enhance the income and capital returns onthe Property Portfolio. The Property Portfolio is currently overweight in offices relative to the IPDIndex (particularly in the regions) and the current relative strength of thismarket could provide an opportunity to reduce this exposure. The Company willcontinue with its objective of selling out any remaining small, secondary assetssubject to pricing. Re-investment will be targeted at larger, multi-let assetsmore in line with the quality of the overall Property Portfolio and valueenhancing asset management and refurbishment opportunities. The Company currently does not have any borrowings in place. In the prospectusissued by the Company in September 2006, it was stated that it was theDirectors' intention to limit any borrowings of the Company to a maximum of 10per cent. of the Group's net assets at the time of drawdown. The Board believes that prevailing market conditions will provide attractiveopportunities for the Company to acquire properties during this period tostrengthen the Company's performance during and following the current downturnand to enhance the income returns on the Property Portfolio. In anticipation ofsuch opportunities arising and in accordance with the terms of the prospectus,preliminary discussions have been held with a number of potential lenders sothat a loan facility of up to 10 per cent. of the Company's net assets at thetime of drawdown can be put in place quickly when the Board thinks that the timeis right to do this. Subject to the Resolution to continue the Company beingpassed by Shareholders, it is expected that this facility could be put in placeand available to the Company in the first half of 2008. The Board and the Manager will continue to monitor carefully opportunities, inthe market and through share buy backs, to utilise the Company's cash resources,both existing and under any debt facility, to enhance returns for Shareholders. Discount and share buy backs For the period from launch to 24 April 2007, the Shares traded at an averagepremium of 4.69 per cent. to their NAV (adjusted for any quarterly dividends forwhich the share price has gone ex-dividend over this period). However, as areflection of the more challenging environment for property as an asset classand increases in interest rates, and in common with the Sector and the widerquoted property sector over recent months, the Company's Shares have traded at adiscount to NAV since 24 April 2007. At close of business on 29 November 2007,the discount was 22.4 per cent. As at 29 November 2007, the Sector averagediscount was 35.2 per cent. Since September 2007 the Company has bought back 12,873,713 Shares, equivalentto 1.46 per cent. of the issued share capital prior to the commencement of theshare buy backs. The Shares were bought back at an average discount of 20.10 percent. to the published NAV (adjusted for any quarterly dividends which had goneex-dividend) and provided an enhancement of 0.3p per Share (0.4 per cent.) tothe current Share price. The Shares were bought back into treasury. In carryingout these share buy backs the Board gave careful consideration to the Company'scash flow as well as to amounts committed to future development and assetmanagement opportunities and to the advice of its advisers. The Company's prospectus contains a statement that the Directors intend to usethe share buy back authority to purchase Shares (subject to the income and cashflow requirements of the Company) if the Share price is more than 5 per cent.below the published NAV for a continuous period of 20 dealing days or more. Toensure a fair comparison, the Directors believe that such discount should becalculated by adjusting the published NAV for any quarterly dividends for whichthe share price has gone ex-dividend. It is the Board's intention that it will continue to consider share buy backs,taking into account the income and cash flow requirements of the Company. TheDirectors will seek to ensure that any share buy backs are undertaken at priceswhich are in the best interests of all Shareholders. In the current marketconditions, Shareholders should not expect that share buy backs in and ofthemselves will succeed in narrowing the discount materially. However, the Boardbelieves that share buy backs, at current levels, offer attractive returns forthe Company's available cash. Majority Shareholder voting intention Subsidiary entities of Resolution plc or funds over which Resolution plc or itssubsidiary entities have discretionary management are entitled to exercise thevotes attached to 658,760,625 Shares (being 76.0 per cent. of the Company'sissued share capital) and have indicated that they currently intend to vote infavour of the Resolution. Attractions of the Company and the Shares The Directors believe that there are a number of advantages for Shareholders invoting for a continuation of the Company: • Since the launch of the Company, the Company has, as anticipated, paid its target dividends as detailed in the prospectus dated 11 September 2006 and equivalent to a gross annual dividend of 5.25p per Share per annum. • Although the Board anticipates a further correction in capital values, it believes that the Property Portfolio remains well positioned and should outperform the wider UK commercial property market over the medium term. • The Company's Shares currently trade at the narrowest discount in the Sector. • The Company, which currently has no gearing, has the ability to take advantage of the current correction in capital values in the UK commercial property market by introducing a modest amount of borrowings in order to acquire further properties at attractive prices. • There are a number of asset management opportunities in the Property Portfolio that should assist the performance of the Company over the medium term. Extraordinary General Meeting The Extraordinary General Meeting has been convened for 2.30 p.m. on 19 December2007, to be held at Trafalgar Court, Les Banques, St. Peter Port, Guernsey GY13QL. All Shareholders are entitled to attend and vote on the Resolution to beproposed at the EGM, which will be proposed as an ordinary resolution.If the Resolution is not passed, the Directors will convene a furtherextraordinary general meeting of the Company to be held within six months of thedate of the EGM to consider the winding up of the Company or a reconstruction ofthe Company, which will offer all Shareholders the opportunity to realise theirinvestment. If the Resolution is passed, the Directors would not intend to convene anotherextraordinary general meeting to consider the continuation of the Company unlessthe Shares trade at a discount of over 5 per cent., calculated as describedabove, for 90 dealing days or more following the first anniversary of the EGM. Copies of the Circular have been submitted to the FSA, and will shortly beavailable for inspection at the FSA's Document Viewing Facility which issituated at: Financial Services Authority25 The North ColonnadeCanary WharfLondon E14 5HSTel: 020 7066 1000 Copies of the Circular will also shortly be available for collection duringnormal business hours on any day (Saturdays, Sundays and public holidaysexcepted) from the registered office of the Company at Northern TrustInternational Fund Administration Services (Guernsey) Limited, Trafalgar Court,Les Banques, St Peter Port, Guernsey GY1 3QL and from Dickson Minto WS, RoyalLondon House, 22/25 Finsbury Square, London EC2A 1DX. All enquiries Douglas Armstrong, Dickson Minto WS0207 628 4455 Nigel Russell/Graeme Caton/Graham Reaves, G&N Collective Funds Services Limited0131 226 4411 The Company Secretary, Northern Trust International Fund Administration Services(Guernsey) Limited01481 745001 Definitions The following definitions apply throughout this announcement unless the contextrequires otherwise: "Board" or "Directors" the board of directors of the Company "Company" UK Commercial Property Trust Limited "EGM" or "Extraordinary General Meeting" the extraordinary general meetingof the Company convened for 2.30 p.m. on 19 December 2007 (or any adjournmentthereof) "ERV" the estimated rental value "Group" the Company and its direct and indirect subsidiary entities "1IFRS" International Financial Reporting Standards as adopted in theEuropean Union "IPD" Investment Property Databank Limited "IPD Index" the IPD UK Balanced Monthly and Quarterly Universe prepared by IPD "Manager" Resolution Investment Services Limited "NAV" the net asset value of a Share calculated under IFRS "Property Portfolio" the property assets of the Company "Resolution" the resolution to approve the continuation of the Company set outin the notice of the EGM "Sector" the sector comprising offshore incorporated, main market Londonlisted property investment companies invested principally in mainstream UKcommercial property, being the Company, F&C Commercial Property Trust Limited,ING UK Real Estate Income Trust Limited, Invista Foundation Property TrustLimited, ISIS Property Trust Limited, ISIS Property Trust 2 Limited, StandardLife Investments Property Income Trust Limited and Teesland Advantage PropertyIncome Trust Limited "Shareholders" the holders of Shares "Shares" ordinary shares of 25p each in the capital of the Company This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
UKCM.L