Annual Report 2017 Cubic Property Fund at a Glance
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Annual Report 2017 Cubic Property Fund at a glance GAV (Gross Asset Value) NAV Price (Per Share) £179m £3.189 Increase in NAV * Fund’s loan to value 9.5% 50.25% * Before distributions and withholding tax Pg. 19 Curzon Cinemas in Aldgate 2 Cubic Property Fund | Annual Report 2017 The Cubic Property Fund Contents 4 Chairman’s Statement is a diversified Real Estate Fund listed 6 Performance Highlights on The International Stock Exchange. 8 Portfolio Statistics 9 Portfolio Highlights The Fund’s strategic focus is to provide 10 Top Ten Assets 11 Asset Locations investors with consistent income returns Investment Adviser’s Report in conjunction with sustained capital 12 European Economic Overview 13 European Property Overview growth from a high quality commercial 13 Outlook 14 UK Economic Overview real estate portfolio. The Fund focuses 14 UK Property Overview its investment within the UK and Core Strategy European Cities, with prime portfolios 16 Strategy 17 Asset Management Strategy established. The Fund maintains a 17 Debt Strategy 17 Investment Process diversified sector spread across the 18 Gearing &Hedging portfolio with a focus on asset quality 18 Cash Flow Asset Management and value add, enabling sustained 19 New Acquisitions high levels of occupancy, rental growth 19 Acquisitions Post Year End 20 Disposals and long term lease lengths. 20 Disposals Post Year End 21 Lettings & Lease Restructuring 21 Lettings & Lease restructuring Post Year End 22 Rent Reviews 22 Rent Reviews Post Year End Case Studies 23 Copenhagen 24 Oslo 25 West End Quay 26 Croydon 27 Curzon Cinemas 28 Balavan 29 Finance Initiatives Financial Statements 31 Management & Administration 32 Report of the Directors 39 Custodian’s Report 40 Independent Auditors Report 42 Consolidated Statements 44 Consolidated Balance Sheet 45 Consolidated Cash Flow Statement 46 Notes to the Consolidated Financial Statements Pg. 20 Østensjøveien 27, Oslo sold for NOK 540,000,000 3 Cubic Property Fund | Annual Report 2017 Chairman’s Statement Our 2017 results demonstrate that The Cubic Property Fund has successfully delivered its strategy despite global economic uncertainty during the year and performed above expectations. Dear Shareholders, In light of the global economic uncertainty during the year (Brexit and European elections) I am o It sold its Danish portfolio, in which it had a pleased to confirm that Cubic Property Fund has 46.83% stake, at record low yields following again performed above expectations for the year successful completion of numerous asset ended 31 March 2017. management initiatives. The sale achieved a return on its investment of over 150% during the As demonstrated by the table below on a like for like 5 years it held the investment. basis the fund showed an increase of 9.5% for the year, and increased its dividend payment by 2.7%. o The Fund sold its 34% stake in the Oslo property, Even after the Withholding Tax Charge (see below achieving over 80% return on its equity. WHT explanation) the Fund had a closing share o It also sold the Worcester and Ipswich properties price of 318.9p, representing a 1.8% increase on where the asset management initiatives had run March 2016 price of 313.3p. their course and the decision to sell these assets allowed the fund to re-invest into other stronger Price per share % assets. 2016 Closing Price 313.30 o The small asset vehicle (Balavan Limited) was Gross 2017 Performance 29.77 9.5% launched during the year to take advantage of the economies of scale from having a single Less Dividend (8.53) (2.7%) mortgage and company to house smaller Less WHT (15.64) (5.0%) properties with values under £5m. During the 2017 Closing price 318.90 1.8% year the Fund acquired 7 new properties, and transferred 6 properties from existing SPV’s to The Fund continues to follow its core strategy join with the Turnham Green Property. The 14 of achieving value for shareholders through properties back up a single £20M mortgage loan targeted acquisitions/sales and by effective asset facility with Lloyds Bank, enhancing debt pricing management initiatives applied to its property and providing surplus cashflow for the fund portfolio. The Fund has been able to enhance its o As confirmed in last year’s report, the Fund has cost of debt across the portfolio, maintained a completed on the 3 Curzon cinema investments. secured income average over 10 years and it has a During the current year a 4th Curzon investment balanced gearing profile of 50%. was being developed at Colchester. With the strategy in mind, the Fund has had a o The Dividend pay-out was £2,844,000, productive year with the following salient points representing 3% increase from last year which that are notable: - validates the Fund’s ability to generate cash. 4 Cubic Property Fund | Annual Report 2017 Performance Highlights The NAV per share increased to 318.90 pence (as at 31 March 2017 (31 March 2016: 313.30 pence per share) representing NAV growth of 6.87% over the last 12 months. In combination, the fund also distributed 2.7% of NAV as dividend. This Nav includes a provision for possible Withholding Tax (WHT). The possibility of a WHT liability, which arises from the successful Danish portfolio sale and recent changes in Danish Tax law, has been fully provided in side pocket shares which will be issued in Q3 2017 to shareholders registered at 31 December 2016. Advice from two leading international accountancy firms is positive but cannot eliminate this uncertainty and if the Danish tax position is resolved without any liability, the side pocket shareholders will receive value of 16 pence per share. £3.189 £3.133 £0.0853 £2.739 £0.0828 £0.072 2017 2015 2016 2017 2015 2016 Share Price Dividend per Share 6 Cubic Property Fund | Annual Report 2017 100% Focus on strong European markets £179m Gross asset valuation of Fund’s portfolio 10.78 yrs Average weighted unexpired lease term 2.9m Sq ft Of Commercial Property 124 Commercial Tenancies 89 Assets 11 Acquisitions & Disposals 7 Cubic Property Fund | Annual Report 2017 Portfolio Statistics 362% 10.5 10.6 10.78 98% 98% 97% Years Years Years 309% 285% 2015 2016 2017 2015 2016 2017 2015 2016 2017 WAULT * Occupancy Interest Cover Ratio 4.11% 3.64% 54% 52% 3.48% 50.25% 2015 2016 2017 2015 2016 2017 Cost of Funds Loan to Value Leisure 2% Poland 1% 21% Office 77% UK Germany 3% Sector Location Spain Weighting 5% Weighting 42% 14% Retail 35% Industrial Channel Islands *Weighted Average Unexpired Lease Term 8 Cubic Property Fund | Annual Report 2017 Portfolio Highlights High Street, Exeter Acquired Q4 2006 Tenant Jack Wills West End Quay, London Pelham Street, Nottingham Acquired Q3 2006 Acquired Q1 2016 Tenants Various incl. Tesco, Tenant Revolution Superdrug The School Yard, Harborne Acquired Q4 2014 Tenants Prezzo, Boston Tea Party Arts Complex, Southampton Acquired Q2 2017 Tenants Various incl. Nandos, Travis Perkins, UK Costa Tenant Travis Perkins George Street, Sheffield Acquired Q3 2016 Banc de Sang, Barcelona Tenant Curzon Cinema Acquired Q1 2014 Canter Way, London Tenant Banc de Sang Acquired Q2 2016 Tenant Curzon Cinemas High Street, Guildford Acquired Q3 2016 Tenant Gerard Darel 9 Cubic Property Fund | Annual Report 2017 Top Ten Assets Market Let by Asset Ownership Area Annual Gross WAULT Main Tenants Value Sector Area Country (%) (Sq. Ft.) Rent (Years) (£m) % Banc de Sang Banc de Sang 52.4 15.5% Office 146,454 2,664,426 100 42.62 Barcelona TP1 (35) Travis Perkins Ltd 40.52 49.0% Industrial 449,398 2,439,289 100 14.43 Various UK Locations TP2 (19) Travis Perkins Ltd 32.87 42.50% Industrial 403,276 2,091,000 100 13.38 Various UK Locations West End Quay Superdrug Stores 17.40 95.60% Retail 30,436 931,800 100 5.64 London 50 La Colomberie Colomberie 10.50 50.0% Office 28,487 868,458 100 7.82 Jersey Services Ltd Arnold House HSBC Bank Plc 10.00 100% Office 23,540 673,600 100 13.96 Guernsey The Arts Complex* Mustang Sallys 8.75 100% Retail 88,315 558,101 100 12.73 Southampton Mid Kent Palmer & Harvey Business Park 8.30 100% Industrial 86,994 513,558 100 6.29 McLane Ltd Snodland Turnham Green Maison Blanc 5.30 100% Retail 3,964 156,000 41 3.59 Chiswick Curzon Cinema Curzon Ltd 5.10 40.0% Leisure TBC 168,000 100 24.47 London *Acquired post financial year 10 Cubic Property Fund | Annual Report 2017 Asset Locations Investment Adviser’s Report European Economic Overview developments have buoyed investor investment picked up in Q4 with a sentiment, allowing Europe to show record €86.8bn being transacted The Eurozone economy has wider and more stable economic across Europe. outperformed expectations and growth. This paired with modest earlier concerns over politics in the inflation expectations and a low In 2017 trading activity in continental bloc appear to have been overblown. interest rate environment, investors Europe increased despite elections in As the recovery is about to enter a are increasingly looking wider than several notable markets. fifth year, confidence has picked the core locations of London, Paris up, and the upswing has widened to and the main German and Nordic Following a strong end to 2016, most EU countries. cities. European commercial property investment volumes eased to €44.2 The Focus Economics GDP data Similarly, election results in the billion in Q1 2017, an 8.3% decrease reveals that Eurozone recorded Netherlands and France have compared with the corresponding robust GDP growth of 0.6% in the calmed fears that the series of major quarter of 2016.