Financial Summary
for the six months ended 31 December 2017
|
Income statement |
Six months ended |
Six months ended |
|
|
31 December 2017 |
31 December 2016 |
|
Underlying pre-tax profit (1) |
£8.0m |
£7.9m |
|
Statutory pre-tax profit |
£29.9m |
£9.1m |
|
EPRA EPS (1) |
12.88p |
12.54p |
|
Basic EPS |
47.36p |
14.39p |
|
Interim dividend per share |
10.18p |
9.88p |
|
Balance sheet |
31 December 2017 |
30 June 2017 |
|
Net asset value |
£318.9m |
£296.7m |
|
EPRA NAV per share (1) |
506p |
471p |
|
Basic NAV per share |
504p |
469p |
|
Net debt |
£73.6m |
£78.5m |
|
Net debt to equity gearing |
23% |
26% |
|
Property portfolio |
31 December 2017 |
30 June 2017 |
|
Vacancy rate |
7.5% |
4.2% |
|
Portfolio value (2) |
£402.8m |
£386.9m |
|
Valuation gain |
£14.1m |
£13.0m |
|
Initial yield on investment properties |
5.8% |
6.2% |
|
Equivalent yield |
6.8% |
7.0% |
The interim dividend of 10.18p per share (2016: 9.88p) consists of two quarterly dividends of 5.09p and 5.09p.
Chairman's Statement
Half-year to 31 December 2017
I am pleased to report another solid performance by the Group for the six months ended 31 December 2017. Statutory pre-tax profit increased to £29.9m, compared with £9.1m for the corresponding period last year and EPRA net asset value per share rose by 7.4% in the first half year to 506p.
Half-Year Results to 31 December 2017
Statutory pre-tax profit for the half year was £29.9m (31 December 2016: £9.1m), which included a revaluation surplus of £14.1m (31 December 2016: £0.5m).
The underlying pre-tax profit* for the half year was £8.0m (31 December 2016: £7.9m).
EPRA earnings per ordinary share increased by 2.7% to 12.88p (31 December 2016: 12.54p).
EPRA net asset value per ordinary share increased by 35p to 506p (30 June 2017: 471p).
Shareholders' funds rose to £318.9m (30 June 2017: £296.7m), while net debt to equity gearing and loan to value (LTV) reduced to 23% and 18% respectively (30 June 2017: 26% and 20%).
Dividend
The Directors have declared an interim dividend of 10.18p per ordinary share, an increase of 3% over last year (31 December 2016: 9.88p). The dividend will be paid as a Property Income Distribution (PID) and split into two quarterly dividends of 5.09p each. The first quarterly dividend will be paid on 16 April 2018 to shareholders on the register at the close of business on 16 March 2018 and the second quarterly dividend will be paid on 16 July 2018 to shareholders on the register at the close of business on 15 June 2018.
Property Review
Our property portfolio has continued to benefit from steady occupier demand and rental levels that are still growing, during the first six months of the financial year. Property values have also continued to improve on the back of strong investor interest and a shortage of available stock.
The Group's vacancy rate at 31 December 2017 was 7.5% (30 June 2017: 4.2%). The increase was mainly due to a lease expiry on a 110,000 sq ft warehouse at Worcester, just prior to the half-year end. Our vacancy rate is likely to reduce significantly in the second half year as over half our vacant space is currently under offer, including the Worcester property.
We declined to buy any investment properties during the period. In October 2017, we sold our Bull Ring Trading Estate in Birmingham for £13.0m, significantly above our 30 June 2017 valuation of £5.4m. We also exchanged contracts to sell another industrial property at Camp Hill, Birmingham for £7.0m, which was previously valued at £5.3m at 30 June 2017. The completion of the sale of Camp Hill will take place in April 2018.
Our 44,250 sq ft pre-let industrial development at i54 Wolverhampton is progressing well and due to complete in March 2018. The substantial refurbishment of our 25,190 sq ft office building at Trinity Central, close to Birmingham International railway station, should also complete in March 2018 and is now under offer to a single tenant.
Construction of a new trunk road by Birmingham City Council, alongside our 20 acre development site at Mucklow Park, Tyseley, is due to commence in March 2018, enabling us to start actively pursuing pre-lets for the proposed first phase of the development comprising 130,000 sq ft. We are also actively marketing the remaining 11 acres of land at i54 Wolverhampton.
Property Valuation
Cushman & Wakefield revalued our property portfolio at 31 December 2017. The investment properties and development land were valued at £402.8m (30 June 2017: £386.9m), recognising a revaluation surplus of £14.1m (3.6%).
The initial yield on the investment properties was 5.8% (30 June 2017: 6.2%). The equivalent yield was 6.8% (30 June 2017: 7.0%).
Cushman & Wakefield also revalued our trading properties at 31 December 2017. The total value was £2.0m, which showed an unrecognised surplus of £1.5m against book value.
Finance
Total net borrowings at 31 December 2017 were £73.6m (30 June 2017: £78.5m). Undrawn term banking facilities totalled £44.0m, whilst net debt to equity gearing had reduced to 23% (30 June 2017: 26%) and LTV 18% (30 June 2017: 20%).
Principal Risks and Uncertainties
The process for identifying, assessing and reviewing the risks faced by the Group is described in the Principal Risks and Uncertainties section on pages 16 and 17 of the 2017 annual report and financial statements, which is available on the Company's website.
These risks comprise tenant default, changes in demand for space and market pricing affecting value in the investment portfolio; reduced availability or increased cost of debt finance, interest rate sensitivity and REIT compliance; recruitment and retention of people; and speculative development exposure on lettings, cost/time delays on contracts, inability to acquire land and holding too much development land.
In the view of the Board these principal risks and uncertainties are as equally applicable to the remaining six months of the financial year as they were to the six months under review.
The Board considers that there are no significant elements of seasonality or cyclicality in the underlying operations of the business.
Outlook
Market conditions for industrial and commercial property in the Midlands continue to look favourable for the second half year. Assuming all lettings currently under offer complete, the additional rental income we should receive from a reduction in vacant space, will comfortably offset the annual rental income lost from the £20m of property disposals agreed in the first half year. We remain optimistic about our prospects for the full year.
Rupert Mucklow
Chairman
12 February 2018