Kenmore Euro Industrial Fund Ltd
10 March 2008
10 March 2008
KENMORE EUROPEAN INDUSTRIAL FUND LIMITED ('KEIF'/ 'Company')
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
KENMORE EUROPEAN INDUSTRIAL FUND MAKES STRONG PROGRESS
Kenmore European Industrial Fund, a Guernsey registered closed-ended investment
company focusing on industrial property assets in Western Europe and
Scandinavia, today announces preliminary results for the year ended 31 December
2007.
Highlights:
• Profit before tax of £11.4 million
• Adjusted Net Asset Value* per share up 17% to 121.6p from 104.1p at 31
December 2006 and up 27% from 95.5p at Admission
• Portfolio valued at £429 million. 27 assets with a cost of £96
million were acquired during the year with a further £22 million of assets in
the pipeline
• First property disposals completed generating a profit of £0.2 million
• Interim dividend of 3.0 pence per share paid; additional interim
dividend of 3.0 pence per share declared. Total dividend of 7.5 pence per share
since Admission fulfils prospectus commitment
Giles Weaver, Chairman, commented:
'Towards the middle of the year the board expects there to be opportunities to
buy higher yielding secondary properties discounted by the current economic
uncertainty and plans for the Fund to take advantage of this. Strategic
realisations in some localities will provide opportunities to reinvest in higher
yielding properties in better performing markets and locations. The Investment
Manager's acquisition team, through its local network of contacts, is ideally
placed to identify opportunities as they arise through the year and will
continue to focus on buying well located secondary properties which are
multi-let and offer stable income.
'The Board believes that the wide spread of the Fund's activities across Europe
means the Company is well placed to capitalise on the opportunities that will
develop this year and that the portfolio will continue to see an improvement on
its already strong and stable income profile. This will help defend capital
value in what will continue to be challenging market conditions.'
* Adjusted net assets of £170,228,000 (2006 - £145,702,000): net asset value of
£147,752,000 (2006 - £140,409,000) plus deferred tax liabilities of £10,531,000
(2006 - £2,583,000) plus unrecognised deferred tax adjusted for within initial
purchase price consideration of £14,080,000 (2006 - £4,845,000) less
unrecognised deferred tax contingently adjusted for within initial purchase
price consideration £2,135,000 (2006 - £2,135,000)
For further information:
Kenmore Financial Services Limited +44 20 7629 4480
Rob Brook
Financial Dynamics +44 20 7831 3113
Stephanie Highett/Dido Laurimore
CHAIRMAN'S STATEMENT
I am delighted to report this second set of results of the Kenmore European
Industrial Fund (the 'Fund' / 'Company'), covering the full financial year to 31
December 2007, a period during which the Company has made excellent progress in
building a strong and diverse portfolio of income-producing assets.
The Fund was launched in September 2006 with a successful fund raising of £140
million. Shortly after admission to the London Stock Exchange on 25 September
2006, it acquired a seed portfolio of 70 properties costing £213 million. This
was augmented by further acquisitions at a cost of £65 million in the period to
31 December 2006. The current financial year has seen the portfolio grow by a
further £96 million of acquisitions to a total cost of £374 million.
The Fund's investment objective is to provide investors with an attractive level
of income together with the potential for capital growth through the ownership
and management of industrial assets in Western and Northern Europe, excluding
the UK, and primarily in France, Germany, Scandinavia and the Benelux countries.
Results
The underlying performance of the Fund continues to be strong and I have
pleasure in reporting that net assets per share, excluding deferred tax, have
increased to 121.6 pence, a rise of 16.8% from 104.1 pence at 31 December 2006.
This represents an increase on net asset value (after listing costs) of 16.8%
in the 12 months or 27.3% in the 15 month period since admission to the London
Stock Exchange and is calculated after paying dividends of 4.5p per share.
The table below sets out the movement in adjusted net asset value per share for
the current financial year (since 31 December 2006) and for the period since
admission:
NAV per share (Pence) Since admission This year
Opening, excluding deferred tax and after listing 95.5 104.1
costs
Uplift from valuation gains 16.4 10.8
Expensing of acquisition costs (4.6) (3.7)
Uplift from balance of retained profits 1.3 0.3
Improvement in mark to market of debt 1.4 0.6
Dividends paid (4.5) (4.5)
Foreign exchange movements 7.6 7.4
Deferred tax compensated for at acquisition 8.5 6.6
As at 31 December 2007, excluding deferred tax 121.6 121.6
Profits before tax in the year to 31 December 2007 were £11.4 million (25
September 2006 to 31 December 2006 - £7.7 million) giving earnings per share of
2.5p.
The Fund has generated strong underlying performance in line with the original
business plan, but the share price performance has been caught up in the
negative sentiment being shown by investors towards commercial property on the
back of the well publicised global credit crunch in financial markets. The
Fund's share price is now standing at a substantial discount to the net asset
value.
The Board constantly monitors the share price performance and regularly consider
options to make the most efficient use of capital, including the potential for
share buybacks. In doing so, it takes into account other potential calls on the
Group's cash resources and the potential returns from further investment and
capital expenditure on enhancing the property portfolio. At the present time
the Board feels that it is appropriate to retain surplus cash within the fund to
provide flexibility to invest in the portfolio as further opportunities arise.
Portfolio
During the year, the Company acquired 27 assets at a cost of £96 million
(excluding acquisition costs). As at the balance sheet date, the Company held
properties at a market value of £429 million. The year also saw the first
property sales and realisation of profits with the sale of Palaiseau in France
for £1.3 million, generating a profit of £0.2 million. Further information on
the portfolio and the pipeline of assets is contained in the Investment
Manager's Review.
Gearing
Fund policy, as stated in the prospectus, is to keep borrowings at approximately
70% of gross assets when fully invested. The prospectus also explained that
during the period when the Fund is being invested the level of gearing may fall
below this level.
As at 31 December 2007, the Company had drawn £263 million of debt from its
total facilities to finance the acquisition of the portfolio. This represented
gearing of 61%. In line with Board policy the drawings under these facilities
reflect, as far as practical, the currencies in which the underlying assets are
held. At the year end 73% of total borrowings were denominated in Euros, 20% in
Norwegian Kroner and 7% in Swedish Krona.
The Company has hedged the risk of interest rate increases by the use of
interest rate swaps. As at 31 December 2007, a total of 83% of the Company's
debt has been protected in this way. Although interest rates across Europe have
eased in recent months, they are still above those at flotation; the blended
cost of money based on debt drawn to date is currently 4.24% (5.21% including
margin) and the Fund is well protected by the hedging instruments in place. The
results for the year reflect an improvement in the mark to market value of the
Company's hedge instruments over the year of £0.8 million.
Dividends
I am delighted to report that the Board has decided to declare a further
dividend of 3.0 pence per share for the current financial year. This will be
paid on 25 April 2008 to shareholders on the register on 11 April 2008. An
initial dividend of 3.0 pence per share in respect of the current financial year
was paid on 26 September 2007. This adds to the initial dividend of 1.5 pence
per share in respect of the period from admission to 31 December 2006 that was
paid on 25 April 2007 and fulfils the dividend policy outlined to shareholders
at the time of the Company's fund raising.
Shareholder Communication
The Board considers it important that shareholders are kept regularly informed
of the progress of the Fund. The adjusted Net Asset Value per share will
continue to be published quarterly.
Corporate Governance
The Company is registered in Guernsey. As such, it is not formally required to
comply with the Combined Code on Corporate Governance. However, the directors
intend to comply with the Code, and our statement on compliance is contained in
the annual report.
Prospects
Over the past year, mainland European property markets have not been subject to
the same level of readjustment as those in the UK. Although there are now some
signs of yields drifting out, there are however significant variations across
markets, with some countries holding up better than others. Spain for example
is showing poor results, while Scandinavia is expected to perform considerably
better.
Towards the middle of the year the board expects there to be opportunities to
buy higher yielding secondary properties discounted by the current economic
uncertainty and plans for the Fund to take advantage of this. Strategic
realisations in some localities will provide opportunities to reinvest in higher
yielding properties in better performing markets and locations. The Investment
Manager's acquisition team, through its local network of contacts, is ideally
placed to identify opportunities as they arise through the year and will
continue to focus on buying well located secondary properties which are
multi-let and offer stable income.
At 31 December 2007 the portfolio was yielding 7.51% and continues to have a
strong defensive income profile. The key asset management focus for 2008 will
continue to be on improving the level of leasing through reducing current
vacancies and maintaining a high level of tenant retention. There remain
significant value creation opportunities within the portfolio not only from
increasing income through leasing to market rents but also through refurbishment
and expansion of existing assets.
The Board believes that the wide spread of the Fund's activities across Europe
means the Company is well placed to capitalise on the opportunities that will
develop this year and that the portfolio will continue to see an improvement on
its already strong and stable income profile. This will help defend capital
value in what will continue to be challenging market conditions.
Giles Weaver
Chairman
10 March 2008
INVESTMENT MANAGER'S REVIEW
Property Market Review
2007 was a record year for investment transactions in Europe, with CBRE
recording a total volume of €240 billion of which 8% were industrial and the
majority involved cross-border investors. However, as a percentage of overall
investments, the market share of industrial transactions fell due to a lack of
available product. The market is dominated by a shortage of land for new
developments and high construction costs which together act to limit new supply.
Despite the volatility in financial markets, underlying European property market
fundamentals remained strong in Q4 2007 and have remained so in the first few
months of 2008. Indeed in France, KEIF saw the strongest quarter for leasing
performance in 2007 with 22,414 sqm leased to 23 tenants with a total rent roll
of £1.2 million per annum (17,948 sqm being new leases). Nevertheless, while
leasing remained strong, property values did plateau in the quarter and in some
cases saw minor reductions. Although market sentiment and valuations across
Europe are expected to show some declines in 2008, it is important to note that
some markets should perform better than others with in most cases northern
Europe out performing southern Europe. KEIF's properties are weighted towards
those countries expected to fare better than average.
The first half of 2008 is expected to see a reduction in investment activity but
this is anticipated to pick up in the second half with some vendors reducing
pricing to reflect revised investor expectations. Tougher financing terms and
reducing values may lead to some investors having no option but to sell, leading
to cash rich investors benefiting from good buying opportunities.
The biggest potential threat to the industrial market is that the impact from
recent volatility in the financial markets spills over into the wider economy
affecting occupiers' business performance. However, so far the signs in Q1 2008
are that property market fundamentals remain strong in western and northern
Europe with strong leasing activity, especially for units in assets such as
those in the Company's portfolio.
Belgium
The first half of 2007 saw healthy take-up for industrial property with levels
in the order of 114,000 sqm and this performance is expected to be matched in
the second half of the year. As with elsewhere, increasing construction costs,
shortage of land and the need for companies to maintain flexibility have
resulted in an increasing trend of occupiers moving from a traditional
owner-occupier route towards leasing. While investment activity was strong in
2007, only a minority of transactions involved industrial property, due to a
shortage of suitable product.
Finland
There is a continuing lack of good quality industrial and logistics properties
in Finland and this, combined with restraints on new supply, continues to
attract strong investment interest from both domestic and international
investors. Occupier demand is still strongly based in the Greater Helsinki
Economic Region. Void rates are estimated to be between 1% and 3% with a
significant element of that vacancy being in older obsolete properties. The
Finnish investment market is rapidly maturing with circa 70% of all investment
transactions in 2007 involving foreign investors.
France
Demand for industrial and logistics property remained strong in 2007 and it is
estimated that an additional 1.4 million square metres of new stock is added on
average annually. There is an increasing trend for French companies to
outsource distribution leading to high levels of demand for new large high-bay
warehousing. It is estimated that 60% of overall take-up in 2007 was by third
party logistics providers moving to or expanding into modern logistics
buildings. The majority of industrial leasing activity remains in the Ile de
France area and leasing activity has remained buoyant through Q4 2007 into Q1
2008. France saw another record breaking year with circa £14.7 billion of
transactions, although within this, the percentage of industrial transactions in
the market reduced largely due to lack of product.
Germany
Despite improvement in the fourth quarter 2007, overall take-up was 30% down on
2006, which was a record year for leasing activity. The German industrial
market is characterised by dramatic regional differences with Hamburg and Munich
amongst the most popular and Eastern Germany still underperforming. Supply
picked up in 2007 pointing to improving dynamics in the industrial market.
General investment activity in Germany was again strong in 2007 and is expected
to remain so in 2008, albeit, as with elsewhere in Europe, the availably of good
well located secondary properties will limit opportunities.
The Netherlands
For 2007, leasing activity was strong and this is expected to continue into the
first half of 2008. Vacancy is reported to be reducing in and around Amsterdam
and the port of Rotterdam, a maritime hub, continues to see high demand. The
shortage of development land, a stable occupier market and low vacancy rates are
keeping yields low and it continues to attract both international and domestic
investors.
Norway
The market is characterised by a shift from rational owner occupiers towards
leasing modern high-tech properties. This is increasingly resulting in voids in
older stock and increased competition by landlords could lead to rental falls.
Strong economic performance is expected to fuel tenant demand but again this is
likely to be focused on modern prime property. Norway is an investment market
traditionally dominated by domestic investors although there is an increasing
interest from international investors. Prime yields should hold firm with
higher interest rates and lending constraints already putting upward pressure on
secondary yields.
Sweden
Strong tenant demand throughout 2007 has been bolstered by increasing
employment, a strong economy and good access to investment capital. This has
led to increasing new supply despite tight planning control. This strong
performance is expected to continue into 2008 and lead to modest rental growth.
Increasing interest from international investors is expected to lead to another
good year in 2008 and strong competition between buyers should lead to stable or
falling yields.
Portfolio Overview
As at 31 December 2007 the total portfolio was valued at over £428.8m compared
to £287.9m at 31 December 2006. By value the portfolio breaks down across seven
countries as follows:
France 41%
Norway 22%
Belgium 11%
Netherlands 8%
Sweden 7%
Germany 6%
Finland 5%
This shows a reduction in exposure to France by 8% from 49% at the year start.
The portfolio comprises 110 properties, 891,513 sqm with 545 individual leases.
The current portfolio rent is £30.5m (NOI) reflecting a net yield of 7.51% with
a void of 11.2% by area and reversionary yield of 8.22%.
Belgium Finland France Germany Netherlands Norway Sweden TOTAL
Number of Assets 9 7 64 4 4 15 7 110
Number of Tenants 72 14 315 36 4 60 44 545
Total Area (sqm) 125,316 34,138 274,803 142,790 88,875 122,532 103,060 891,514
Average Lot Size £5,353 £2,981 £2,760 £6,240 £8,556 £6,194 £4,420 £3,897
£'000
Value (per sqm) £384 £611 £643 £175 £385 £758 £300 £481
Area/Tenancy (sqm) 1,740 2,438 872 3,966 22,219 2,042 2,342 1,636
Area/Asset (sqm) 13,924 4,877 4,294 35,697 22,219 8,169 14,723 8,105
During the year, 87 new leases were signed or renewed across the portfolio,
representing 19.5% of gross income and 10.5% or 93,488 sqm of total area. 38
tenants vacated premises, representing 3.8% of gross income and 28,813 sqm. The
occupancy of the whole portfolio has increased by 1.3% to 88.7% by year end.
Despite strong leasing performance during the quarter, the new acquisitions,
purchased with 77.9% occupancy, have led to the occupancy of the total portfolio
increasing only marginally. Without these fourth quarter acquisitions, the
portfolio occupancy would have been 89.4%.
From 31 December 2006 to 31 December 2007, a total of 27 properties were
purchased, increasing the total net operating income of the portfolio by £8.8m,
giving a net initial yield of 7.34% and a reversionary yield of 8.56%.
Outlook
It remains difficult to predict the impact of the volatility in the financial
markets over 2008 but despite some risks to value on the downside, the shortage
of development land and continuing high construction costs across our key
markets will help to limit falls in industrial property values. There also
remains a weight of capital seeking opportunities which, once the markets
settle, should help stabilise. Against this background, the KEIF portfolio has
a strong and stable rent profile with potential for strong value creation
through active asset management. The Investment Manager's local network of
offices and strong relationships with local owners and developers will ensure
that the portfolio continues to be aggressively and pro-actively managed.
During 2008 we expect the Fund will trade out of assets where there is either a
threat to value by holding longer or to release capital for investing in higher
yielding assets with strong income profiles. The slow but increasing trend of
European organisations moving away from being owner-occupiers towards leasing
will continue and we believe KEIF remains well positioned to take advantage of
the opportunities this will bring.
Rob Brook
Kenmore Financial Services Limited
Investment Manager
PORTFOLIO STATISTICS
Geographical Analysis as at 31 December 2007
% Portfolio
France 41%
Norway 22%
Belgium 11%
The Netherlands 8%
Sweden 7%
Germany 6%
Finland 5%
Tenure Analysis as at 31 December 2007
% Portfolio
Freehold 99%
Leasehold 1%
Lease Expiry Profile
At 31 December 2007 the average lease length through to expiry for the portfolio
was 5.1 years.
Top Ten Tenants at 31 December 2007
Passing Rent % Total Portfolio
Tenant £'000s Passing Rent
Kuehne + Nagel Logistics 1,865 5.5%
EDEKA 1,470 4.4%
Bauda AS 1,142 3.4%
Machinery Oy 847 2.5%
Kuehne + Nagel Chilled Logistics 781 2.3%
Skandinavisk Transport System AS 619 1.8%
Daimler Crysler AG 578 1.7%
Blondie Logistics 518 1.5%
I.N.A. 494 1.5%
Bongs Konvolutter 478 1.4%
8,792 26.0%
INCOME STATEMENTS
Audited
For the year ended 31 December 2007
Year ended Four months ended
31 December 2007 31 December 2006
Company Group Company Group
£'000 £'000 £'000 £'000
Revenue
Rental income - 27,948 - 5,193
Other income - 4,946 - 522
Gains on investments
Unrealised gains on revaluation
of investment properties - 15,111 - 5,072
Realised gains on disposal
of investment properties - 171 - -
Total income - 48,176 - 10,787
Expenditure
Property acquisition and related costs - (5,237) - -
Other expenses (7,046) (22,688) (170) (3,001)
Total expenditure (7,046) (27,925) (170) (3,001)
Net operating profit/(loss)
before finance costs (7,046) 20,251 (170) 7,786
Net finance costs
Interest receivable 7,690 3,052 2,029 677
Finance costs (1,659) (11,880) (720) (762)
6,031 (8,828) 1,309 (85)
Net profit/(loss) before taxation (1,015) 11,423 1,139 7,701
Taxation on profit/(loss) - (7,991) - (2,804)
Net profit/(loss) for the year (1,015) 3,432 1,139 4,897
Basic earnings per share 2.5p 3.5p
Diluted earnings per share 2.4p 3.5p
BALANCE SHEETS
Audited
As at 31 December 2007
2007 2006
Company Group Company Group
£'000 £'000 £'000 £'000
Non-current assets
Property, plant and equipment - 45 - 3
Investment properties - 414,746 - 283,010
Investment in subsidiary undertakings 184,303 - 144,236 -
Other investments, including - 3,180 - 2,135
derivatives
Deferred tax assets - 969 - 159
184,303 418,940 144,236 285,307
Current assets
Trade and other receivables - 18,553 18 16,723
Cash and cash equivalents 2,094 13,981 25,294 33,581
2,094 32,534 25,312 50,304
Total assets 186,397 451,474 169,548 335,611
Current liabilities
Trade and other payables (44,128) (30,235) (32,924) (20,617)
Non-current liabilities
Loans and borrowings - (262,956) - (172,002)
Deferred tax liabilities - (10,531) - (2,583)
- (273,487) - (174,585)
Total liabilities (44,128) (303,722) (32,924) (195,202)
Net assets 142,269 147,752 136,624 140,409
Represented by:
Share capital - - - -
Share premium 2,985 2,985 2,985 2,985
Special distributable reserve 126,200 126,200 132,500 132,500
Translation reserve 12,960 10,238 - 27
Revenue reserve 124 8,329 1,139 4,897
Equity shareholders' funds 142,269 147,752 136,624 140,409
Net asset value per share 105.5p 100.3p
CASH FLOW STATEMENTS
Audited
For the year ended 31 December 2007
Year ended Four months ended
31 December 2007 31 December 2006
Company Group Company Group
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net profit/(loss) before taxation (1,015) 11,423 1,139 7,701
Adjustments for:
Unrealised gains on revaluations of investment - (15,111) - (5,072)
properties
Realised gains on disposal of investment - (171) - -
properties
Depreciation - 3 - 1
Foreign exchange movements 12,960 (2,048) - -
Taxation paid - (1,163) - (216)
Decrease/(increase) in trade and other 18 (1,830) (18) (16,723)
receivables
Increase in trade and other payables 11,204 9,928 32,924 19,970
Net cash inflow from
operating activities 23,167 1,031 34,045 5,661
Cash flows from investing activities
Acquisition of investment properties - (86,953) - (275,170)
Development expenditure - (1,893) - (2,258)
Proceeds from disposal of
investment properties - 1,265 - -
Acquisition of property, plant & - (45) - (4)
equipment
Investment in subsidiaries (40,067) - (144,236) -
Increase in other investments - (1,045) - (2,135)
Net cash outflow from
investing activities (40,067) (88,671) (144,236) (279,567)
Cash flows from financing activities
Proceeds from issue of
ordinary share capital - - 140,000 140,000
Issue costs of ordinary share capital - - (4,515) (4,515)
Receipt of borrowings - 73,547 - 172,002
Dividends paid (6,300) (6,300) - -
Net cash inflow/(outflow)
from financing activities (6,300) 67,247 135,485 307,487
Net (decrease)/increase in cash
and cash equivalents (23,200) (20,393) 25,294 33,581
Cash and cash equivalents at start 25,294 33,581 - -
Foreign exchange movements on cash
and cash equivalents - 793 - -
Cash and cash equivalents at end 2,094 13,981 25,294 33,581
NOTES TO THE PRELIMINARY ANNOUNCEMENT
1. Accounting policies - Basis of preparation
This press release contains the financial information of Kenmore European
Industrial Fund Limited (the 'Company') and its subsidiaries (together referred
to as the 'Group') for the year ended 31 December 2007.
The financial information is prepared on the historical cost basis and is
presented in Sterling rounded to the nearest thousand.
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2007. Statutory accounts for
2007, prepared under IFRS as adopted by the International Accounting Standards
Board, will be delivered in due course. The auditors have reported on those
accounts; their report was (i) unqualified, (ii) did not include references to
any matters to which the auditors drew attention by way of emphasis without
qualifying their reports.
This information is provided by RNS
The company news service from the London Stock Exchange
