RNS Number:8004C
Kenmore Euro Industrial Fund Ltd
28 August 2007
28 August 2007
KENMORE EUROPEAN INDUSTRIAL FUND LIMITED ("KEIF"/ "Company")
INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 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 interim results for the six months to 30 June 2007.
The Company successfully raised #140 million on the London Stock Exchange in
September 2006.
Highlights:
* Profit before tax of #15.7 million
* Adjusted Net Asset Value per share up 22% to 116.3p from 95.5p at
Admission and up 5% from 110.3p at 31 March 2007
* Portfolio valued at #356 million - in the three months to 30 June 2007 the
value of the property portfolio increased by 4.0% measured against value at
31 March 2007
* Seed portfolio increased in value by 7.7% to #237 million during the
reporting period
* Acquisition of a further #48 million of assets in the period under review,
with a further #37 million in solicitors' hands
* Company on track to be fully invested shortly after the first anniversary
of its Admission
* First dividend of 1.5 pence per share paid; additional interim dividend of
3.0 pence per share declared
Giles Weaver, Chairman, commented:
"We have built a strong income-generating portfolio which, despite interest rate
increases, continues to enjoy strong tenant interest. In addition, we continue
to see ongoing demand for specialist investment vehicles such as KEIF from both
indigenous and overseas investors which we believe will ensure the ongoing
strength and liquidity of the European real estate markets.
"As KEIF reaches the status of being fully invested, the Board is actively
considering its strategic options with regard to sourcing and financing the
Company's further growth. With the benefit of the Investment Manager's
specialist expertise and its established presence in our target markets, KEIF is
well placed to continue to take advantage of opportunities to create and enhance
shareholder value."
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 that the Kenmore European Industrial Fund has continued
to make strong progress in the six months to 30 June 2007.
The Company will shortly have completed its first year of trading since its
shares were listed on the London Stock Exchange in September 2006. Since then,
it has made significant progress in terms of achieving its investment objective
of providing investors with an attractive level of income together with the
potential for capital growth through the acquisition and management of
industrial property assets throughout Western Europe and Scandinavia and the
Company is firmly on track to be fully invested shortly after the anniversary of
admission.
Results
The Company has delivered strong results with operating profits in line with its
business plan as set out in its Prospectus.
Profits before tax in the six months to 30 June 2007 were #15.7 million.
Included in this are contributions from:
* operating profits less interest #1.6m
* unrealised revaluation gains #14.9m
* unrealised gains on interest rate swaps #2.9m
* expensing of acquisition costs #3.7m
In the three months to 30 June 2007 the value of the property portfolio
increased by 4.0% measured against value at the 31 March 2007.
The Company continues to see good growth in net asset value ("NAV") per share.
On the Company's Admission, the Prospectus suggested that the adjusted net
assets of the Company would be 95.5 pence per share excluding deferred tax on
unrealised investment gains.
Since then we have seen adjusted NAV per share increase to 116.3 pence as at 30
June 2007, representing an increase of 22% since Admission and 5% since 31 March
2007.
The table below shows the movement in adjusted net asset value per share since
Admission:
NAV per
Share (Pence)
Admission, excluding deferred tax 95.5
Uplift from valuation gains 16.2
Expensing of acquisition costs (3.6)
Uplift from balance of retained profits 6.9
Unrealised gains on interest rate swaps 2.8
Dividends paid (1.5)
As at 30 June 2007, excluding deferred tax 116.3
Including (both recognised and unrecognised) deferred tax, NAV per share is 87.0
pence, an increase of 11.5% compared to the pro-forma figure on Admission of
78.0 pence and 2.6% since 31 March 2007.
I am delighted to report that, in keeping with the expectation stated in the
Company's launch Prospectus, the board has decided to declare an interim
dividend in respect of the 2007 financial year of 3.0 pence per share, which
will be paid on 26 September 2007 to shareholders on the register on 7 September
2007.
Portfolio
Your board is satisfied that, since Admission, the portfolio has been built in
line with the stated investment strategy of the Company and is well diversified
geographically. The concentration of assets in France, which the Company
acquired on Admission, has been successfully diluted by strong acquisition
activity in other countries, with over one-third of the Fund's portfolio now
located in Scandinavia.
The Company has continued to make good progress in its acquisitions programme
since the period end. Acquisitions completed or in solicitors' hands currently
amount to #37 million. If the transactions being progressed are completed as
expected then these, combined with the existing portfolio, will represent
approximately 92% of the Company's gross property assets when fully invested and
mean that the Company is firmly on track to be fully invested shortly after the
anniversary of Admission.
At 30 June the portfolio produced a yield of 7.54%. If the transactions
referred to above complete, the yield will decrease to 7.49%. Completing these
transactions will also improve the geographic diversity of the portfolio, with a
continued dilution of the concentration of assets in France.
Further information on the portfolio and pipeline of assets is contained in the
Investment Manager's Review.
At 30 June 2007, #204 million of bank debt has been drawn representing gearing
on property at value of 57%. 91% of debt drawn has been protected against
movements in interest rates. As at 30 June 2007, the mark to market increase in
the value of those interest rate hedges since Admission is #3.9 million.
Prospects
I commented in May that European and Scandinavian markets had become tougher
with greater competition for assets and higher interest rates. This remains the
case today. However, we have built a strong income-generating portfolio which,
despite interest rate increases, continues to enjoy strong tenant interest. In
addition, we continue to see ongoing demand for specialist investment vehicles
such as KEIF from both indigenous and overseas investors which we believe will
ensure the ongoing strength and liquidity of the European real estate markets.
As KEIF reaches the status of being fully invested, the Board is actively
considering its strategic options with regard to sourcing and financing the
Company's further growth. With the benefit of the Investment Manager's
specialist expertise and its established presence in our target markets, KEIF is
well placed to continue to take advantage of opportunities to create and enhance
shareholder value.
Giles Weaver
Chairman
27 August 2007
INVESTMENT MANAGER'S REVIEW
Property Market Review
In the first half of 2007, market fundamentals remained healthy across KEIF's
countries of investment, reflecting strong GDP growth across the Euro zone. The
European Industrial market has witnessed an upturn, with manufacturing improving
and strong employment growth in the first half of 2007 continuing from Q4 2006.
While there has been an increase in new supply across Europe, nearly all of the
new-build is for the owner-occupier market and speculative construction remains
low.
Tenant demand remains stable across Europe with the potential for rental growth
in several markets. Investment activity is strong with continuing interest in
the industrial sector. A shortage of product continues to fuel competition
between investors resulting in continuing yield compression, albeit at a slower
rate than in previous years.
France
Vacancy levels are currently 5.6% with demand significantly higher than the
level of new property being constructed. During the first half of 2007, the
investment market for industrial property has been buoyant, with the levels of
transactions increasing slightly compared to the volumes for the second half of
2006, though strong investment across all sectors has caused market share to
decrease to 8.0%. This continued investment reflects the strong demand for
higher yielding assets available in the mature European markets, particularly
among institutional investors and specialised funds.
Germany
As the German economy continues to recover, the country is seeing an increasing
number of investment transactions with more institutional investors and
specialised funds active in the market. We believe that the German market will
continue to strengthen but only in the more desirable locations such as the
Ruhrgebeit, Rhein-Ruhr and around the major conurbations. Generally, rental
demand has suffered from a loss in manufacturing activity but investment demand
is high and purchasing is extremely competitive for both prime and secondary
investments.
Belgium
The investment market has remained active across all sectors attracting a
growing number of international investors. In the first half of 2007 there was
a large volume of capital allocated to light industrial product though low
interest rates have contributed to the continuing high level of owner occupation
in the market, slowing the availability of investment product. The increase in
investment volume in 2006 was noticeable throughout the entire real estate
market and 2007 looks to follow this record year. Yields are expected to harden
further although the remaining margin is limited.
The Netherlands
The investment market is continuing to be dominated by acquisitions in the North
Brabant, Zuid-Holland and Noord-Holland regions with Schiphol seeing a great
deal of the investment activity. Domestic investment still accounts for the
majority of market transactions though, like Belgium, the market is becoming
increasingly international and, as acquisitions become more limited through
increased investor appetite, it is believed that the level of stock coming onto
the market will increase to meet the surplus in demand.
Norway
2006 was a record year for Norwegian commercial property investment in terms of
transaction volumes though proportionally less activity has occurred in the
first half of 2007. Strong investor interest, especially from major
international buyers, limited availability of investment opportunities and
substantial capital seeking exposure to Norwegian commercial property has put
downward pressure on yields. It is expected that further yield compression will
be limited and a gradual stabilisation in yields is expected. Investment
opportunities in industrial buildings have remained limited due to a relatively
restricted availability of product.
Sweden
The industrial sector remained active in Q2 2007 supported by the strong Swedish
economy. The trend remains positive having been on an upward trend since 2005.
The drivers, including industrial production growth, imports and exports, are
all growing strongly. The market is developing at a stable pace with moderate
increases in rents and limited new development though industrial occupiers still
own a large share of the industrial stock. It is expected that interest in the
sector will continue in the second half of 2007, especially amongst domestic
investors though the Swedish market is also increasingly popular among
international investors. This increased activity should lead to further
downward pressure on investment yields which have already fallen to around
6.25%.
Finland
The industrial market in Finland has been fairly active in Q2 2007, with vacancy
rates decreasing further. Strong demand for warehouses, logistics and
light-industrial facilities has resulted in a number of new developments
starting both in the Helsinki region and in secondary cities. A combination of
strong economic prospects and lucrative yields has made the Finnish property
market an attractive prospect for investors during the last few months. It was
again domestic investors, in particular large institutions, corporations and
construction companies, who were the most prominent sellers, whilst pension
funds, listed property companies and foreign investors were the main buyers.
The total investment volume is expected to decrease slightly in 2007.
Portfolio Overview
As at 30 June 2007, the total portfolio was valued at #355.9m. In the first six
months of 2007 the seed portfolio increased in value from #219.7m to #236.6m, a
rise of 7.7%. By value, the portfolio breaks down as follows: France 42%,
Norway 24%, Netherlands 9%, Belgium 8%, Sweden 6%, Germany 6% and Finland 5%.
This shows a proportional reduction in exposure to France of 5.7%, an increased
weighting in Germany of 1.5% and the additional entry of Finland at 4.8%.
At 30 June 2007, the portfolio comprised 102 properties comprising 806,225 sqm
with 464 tenants on 545 leases. The current portfolio rent is #25.60m (NOI)
reflecting a net yield of 7.54% with a vacancy of 12.58% by area and
reversionary yield of 8.10%.
Belgium Finland France Germany Netherlands Norway Sweden TOTAL
Number of Assets 5 7 61 4 4 15 6 102
Number of Tenancies 39 15 287 34 4 58 27 464
Total Area (sqm) 79,665 34,107 265,733 143,210 88,875 115,680 78,955 806,225
Average Lot Size #5,492 #2,451 #2,507 #5,099 #7,923 #5,728 #3,409 #3,489
#'000
Value (per sqm) #345 #503 #576 #142 #357 #743 #259 #441
Area/Tenancy (sqm) 2,043 2,274 926 4,212 22,219 1,994 2,924 1,738
Area/Asset (sqm) 15,933 4,872 4,356 35,803 22,219 7,712 13,159 7,904
During the first half of 2007, the portfolio saw 38 new leases signed or renewed
representing 13.22% of gross income and 40,951 sqm of floor area. 11 tenants
vacated premises representing 1.35% of gross income and 9,671 sqm of floor area.
The income of those assets held at the beginning of the year grew marginally
by 0.24% and occupancy of the whole portfolio remained stable at 87.42%, which
was in part due to leasing and in part due to new acquisitions.
French leasing performance has improved over the first half of the year with
further leases signed and tenants taking occupation early in the second half of
the year. The French properties continue to be over-rented due to the high
level of the construction index to which annual lease rents are referenced
though this has fallen from 15% to 11% over the six-month period. We continue,
on behalf of KEIF, to discuss with tenants the option for removing lease breaks
in return for capping construction index increases in the future.
Transactions
In the first half of 2007, a total of 17 properties were purchased at a net
price of #48.5m (excluding purchaser's costs of 5.98% on average). The total
net operating income for the new properties was #4.13m providing a net initial
yield of 7.91% and a reversionary yield of 9.45%. These additional investments
take the fund to 84.92% invested by cost. No sales were undertaken.
Outlook
Despite recent stock market volatility, caused by the "credit crunch" that is a
result of the sub-prime mortgage market issues stemming from the US, the overall
European warehousing and light industrial markets remain healthy. There are
early signs of rental growth in certain European countries and strong economic
growth is forecast for 2007 across the Euro-Zone and is expected to fuel
occupier demand.
Higher interest rates and the tightening of the spread between property yields
and that of government bonds (due to strong investor appetite continuing to
drive property yields down) is causing increasing debate over whether property
is in danger of becoming over-priced. Secondary yields have moved closer to
that of prime as investors aggressively price out risk which may make secondary
yields vulnerable to negative market factors, especially rising interest rates
and slackening demand. We continue to seek to identify properties for KEIF to
purchase in well located areas with value upside, not only from leasing vacancy
and increasing rents to market levels, but also through unit expansion,
development of spare site area and changes to higher land value uses (retail and
residential in particular). This, combined with seeking longer-term income from
tenants of good covenant, results in a portfolio income that is both defensive
against short-to-medium term market fluctuations but also has significant
potential to create value.
Clearly, there is some current uncertainty in the financial markets, however, we
believe strong economic conditions in the Euro-Zone should sustain improved
occupier demand in the remainder of 2007 and, along with supply constraints and
high construction cost inflation, should see rental growth in the better
economies and stability elsewhere.
Looking forward, we anticipate that conditions will remain favourable in the
industrial/warehouse sector with increasing investor interest putting downward
pressure on yields, steady but cautious tenant demand and stable supply through
lack of development.
We expect the fund to be to be fully committed by end of the fourth quarter
2007.
Rob Brook
Kenmore Financial Services Limited
Investment Manager
PORTFOLIO STATISTICS
Geographical Analysis as at 30 June 2007
% Portfolio
France 42%
Norway 24%
The Netherlands 9%
Belgium 8%
Sweden 6%
Germany 6%
Finland 5%
Tenure Analysis as at 30 June 2007
% Portfolio
Freehold 99%
Leasehold 1%
Lease Expiry Profile
At 30 June 2007 the average lease length through to expiry for the portfolio was
5.3 years.
Top Ten Tenants at 30 June 2007
Passing Rent % Total Portfolio
Tenant #'000s Passing Rent
Kuehne + Nagel Logistics 2,531 6.1%
EDEKA 1,995 4.8%
Bauda AS 1,554 3.7%
Kuehne + Nagel Chilled Logistics 1,060 2.6%
Machinery Oy 929 2.2%
Skandinavisk Transport System AS 842 2.0%
Daimler Benz AG 784 1.9%
Postakeriet Sverige Ab 698 1.7%
I.N.A. 659 1.6%
Bongs Konvolutter 651 1.6%
11,703 28.2%
CONSOLIDATED INCOME STATEMENT
For the six months to 30 June 2007
Six months to Period to
30 June 2007 31 December
(Unaudited) 2006
#'000 (Audited)
Notes #'000
Revenue
Rental income 12,954 5,193
Other income 3,191 522
Gains on investments
Unrealised gains on revaluation of investment properties 14,908 5,072
Total income 31,053 10,787
Expenditure
Property acquisition and related costs (3,749) -
Other expenses (11,740) (3,001)
Total expenditure (15,489) (3,001)
Net operating profit before finance costs 15,564 7,786
Net finance costs
Interest revenue receivable 2,578 677
Finance costs 2 (2,485) (762)
93 (85)
Net profit from ordinary activities before taxation 15,657 7,701
Taxation on profit on ordinary activities 3 (5,230) (2,804)
Net profit for the period 10,427 4,897
Basic earnings per share 4 7.4p 3.5p
This financial information has been prepared on the basis of the accounting
standards and policies set out in the Annual Report and Accounts for the period
ended 31 December 2006.
All items in the above statement derive from continuing operations.
CONSOLIDATED BALANCE SHEET
As at 30 June 2007
30 June 2007 31 December
(Unaudited) 2006
#'000 (Audited)
Notes #'000
Non-current assets
Property, plant and equipment 49 3
Investment properties 347,298 283,010
Trade and other receivables 5,008 2,135
Deferred tax assets 1,590 159
353,945 285,307
Current assets
Trade and other receivables 16,497 16,723
Cash and cash equivalents 13,764 33,581
30,261 50,304
Total assets 384,206 335,611
Current liabilities
Trade and other payables (23,660) (20,617)
Non-current liabilities
Loans and borrowings (204,155) (172,002)
Deferred tax liabilities (7,655) (2,583)
(211,810) (174,585)
Total liabilities (235,470) (195,202)
Net assets 148,736 140,409
Represented by:
Share capital - -
Share premium 2,985 2,985
Special distributable reserve 130,400 132,500
Translation reserve 27 27
Revenue reserve 15,324 4,897
Equity shareholders' funds 148,736 140,409
Net asset value per share 7 106.2p 100.3p
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months to 30 June 2007
Six months to Period to
30 June 2007 31 December
(Unaudited) 2006
#'000 (Audited)
Notes #'000
Income and expense recognised directly in equity
Foreign currency translation differences for foreign operations - 27
- 27
Net profit for the period 10,427 4,897
Dividends paid 6 (2,100) -
Issue of ordinary share capital, net of issue costs - 135,485
Total changes in equity for the period 8,327 140,409
CONSOLIDATED CASH FLOW STATEMENT
For the six months to 30 June 2007
Six months to Period to
30 June 2007 31 December
(Unaudited) 2006
#'000 (Audited)
Notes #'000
Cash flows from operating activities
Net profit from ordinary activities before taxation 15,657 7,701
Adjustments for:
Unrealised gains on revaluations of investment properties (14,908) (5,072)
Depreciation on other fixed assets 7 1
Decrease / (increase) in operating trade and other 225 (16,723)
receivables
Increase in operating trade and other payables 2,934 19,970
Taxation paid 63 (216)
Net cash inflow from operating activities 3,978 5,661
Cash flows from investing activities
Purchases of investment properties (50,170) (275,170)
Development expenditure (752) (2,258)
Purchase of other fixed assets (53) (4)
Increase in non-current trade and other receivables - (2,135)
Net cash outflows from investing activities (50,975) (279,567)
Cash flows from financing activities
Proceeds from issue of ordinary share capital - 140,000
Issue costs of ordinary share capital - (4,515)
Receipt of borrowings 29,280 172,002
Dividends paid 6 (2,100) -
Net cash inflow from financing activities 27,180 307,487
Net (decrease) / increase in cash and cash equivalents (19,817) 33,581
Opening cash and cash equivalents 33,581 -
Closing cash and cash equivalents 13,764 33,581
NOTES TO THE INTERIM REPORT
1. The unaudited interim results have been prepared on the basis of
International Financial Reporting Standards and the accounting policies set out
in the statutory accounts of the Group for the period ended 31 December 2006.
2. Finance costs
Six months to Period to
30 June 2007 31 December
(Unaudited) 2006
#'000 (Audited)
#'000
Interest on borrowings 4,318 1,962
Unrealised gains on interest rate swaps (2,867) (1,092)
Other interest 1,034 (108)
2,485 762
3. The income tax expense for the six months ended 30 June 2007 reflects the
estimated total effective rate on profit before taxation (as adjusted for
unrealised gains on revaluation of investment properties and interest rate
swaps, and the investment manager's performance fee) for the Group of
approximately 10.8% for the year ending 31 December 2007.
4. The earnings per Ordinary Share are based on the net profit for the period
of #10,427,000 and on 140,000,000 Ordinary Shares, being the weighted average
number of shares in issue during the period.
5. Earnings for the six months to 30 June 2007 should not be taken as a guide
to the results for the year to 31 December 2007.
6. A first interim dividend of 1.5 pence per share, totalling #2,100,000 was
paid on 25 April 2007 to shareholders on the register on 10 April 2007. A
second interim dividend of 3.0 pence per share, totalling #4,200,000 will be
paid on 26 September 2007 to shareholders on the register on 7 September 2007.
7. There were 140,000,000 Ordinary Shares in issue at 30 June 2007 (31
December 2006 - 140,000,000).
8. a. Reconciliation of net asset value per accounts to
adjusted net asset value before deferred tax liabilities:
Total Per share
#'000 Pence
Net asset value per accounts 148,736 106.2p
Adjustments:
Deferred tax liabilities 7,655 5.5p
Unrecognised deferred tax adjusted for within 8,559 6.1p
initial purchase price consideration
Unrecognised deferred tax contingently adjusted for within (2,135) (1.5)p
initial purchase price consideration
Adjusted net asset value 162,815 116.3p
b. Reconciliation of net asset value per accounts to adjusted
net asset value after deferred tax liabilities and contingent deferred tax:
Total Per share
#'000 Pence
Net asset value per accounts 148,736 106.2p
Adjustments:
Unrecognised deferred tax liabilities (35,546) (25.3)p
Unrecognised deferred tax adjusted for within initial purchase price 8,559 6.1p
consideration
Adjusted net asset value after deferred tax liabilities and contingent 121,749 87.0p
deferred tax
INDEPENDENT REVIEW REPORT TO KENMORE EUROPEAN INDUSTRIAL FUND LIMITED
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2007 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Statement of Changes in
Equity, Consolidated Cash Flow Statement and Notes 1 to 8. We have read the
other information contained in the Interim Report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company for
our review work, for this report, or for the conclusions we have reached.
Directors' Responsibilities
The Interim Report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the Interim Report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review Work Performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the UK. A review consists
principally of making enquiries of management and applying analytical procedures
to the financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review Conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.
KPMG Channel Islands Limited
Guernsey
27 August 2007
This information is provided by RNS
The company news service from the London Stock Exchange
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