Investment portfolio

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Throughout 2010, we remained committed to our strategy of focusing on assets with a mix of core defensive income and asset enhancement initiatives to drive value in the medium-term.

Investment portfolio

As at 31st December 2010 the portfolio comprised 37 assets with a fair value of £199.2 million, increased from 33 assets at £181.0 million a year earlier. We retain our strong discipline in evaluating each opportunity both in respect of our existing portfolio and new assets, since income return will come under increasing pressure in this stage of the current economic cycle.

The revaluation of the direct investment portfolio at December 2010 showed a capital gain of £8.8 million or 4.6 per cent. We were pleased to achieve a 15.2 per cent IPD Total Portfolio Return in 2010, equal to the IPD UK Quarterly Property Index return. The IPD Index return benefited from a strong contribution from Central London, excluding which the Index would have shown 10.1 per cent. Our portfolio does not include Central London exposure, indicating an outperformance in regional and secondary markets of 50 per cent.

This builds on our record over several years, which saw us secure in April a prestigious IPD award for the highest three-year annualised return within the specialist funds sector.

The average initial yield in 2010 was 6.12 per cent compared with 6.82 per cent in 2009.

Acquisitions during the year added £4.9 million to the rent roll, which was reduced by £1.9 million through the sales of Grimsby and Warrington. New lettings within the portfolio during the year totalled 101,067 sq. ft. and rent of £1.3 million. Voids within the completed portfolio rose slightly from 7.5 per cent to 8.0 per cent, principally owing to the acquisition of Pearl Assurance House, Nottingham, with a business plan of rolling refurbishment within the office accommodation. Overall, contracted annual rent rose to £12.5 million from £11.6 million as at the previous year end.

At Atlantic Village, Bideford it has been another active and successful year. Key lettings have been secured to Gap and Nike which serve to strengthen further the scheme’s attractiveness with footfall at the scheme up 20 per cent year-on-year as a direct consequence. With the anchor tenants now in place, we are working on the remainder of the Centre to improve the line up. We also feel that the scheme is now sufficiently strong to progress the proposed extension, and we have recently submitted a planning application for a further 84,000 sq. ft. of retail accommodation on existing land to provide a second anchor area to the scheme. It is expected that planning will be obtained later this year and that circa 50 per cent of the space will be pre-let before a start on site is made.

During 2010 we acquired a 40 per cent interest in land known as Atlantic Park, located directly across the road from Atlantic Village. This 20-acre site has recently been allocated in the Local Plan for a mixed-use development and we are working up a planning application for submission in 2012.

At The Furlong Shopping Centre, Ringwood16, we have had a successful year in capturing, through rent reviews, the rental reversion generated through our earlier letting campaign. We continue to improve the tenant mix at the Centre and to work on our Phase II proposals, where the land acquisition strategy is nearing completion and a revised planning application should be made in 2011.

At Kingsland Shopping Centre, Thatcham, several smaller lettings have served to improve trading. We are also giving active consideration to a 10,000 sq. ft. extension to the Centre. This additional floor space will enhance the retail critical mass, which is the next stage in the value creation process.

At Crown Glass Shopping Centre, Nailsea17, we were much encouraged by Waitrose taking over the former Somerfield unit adjacent to our holding. We have seen elsewhere just how powerful the impact of this can be on adjoining retail units and this is starting to occur at Nailsea as existing tenants such as HSBC have sought to upsize their space and WH Smith are under offer on a unit. We plan to continue this process in 2011 whilst working on our development plans for further retail accommodation on the land we acquired adjacent to the Centre.

At Swanley Shopping Centre, Swanley18, the opening of the Wilkinson unit has provided a much needed anchor for the scheme and we are already seeing both new occupiers enter the scheme and existing tenants renew their leases. In 2011, we need to build on this momentum whilst developing, in conjunction with the Local Authority, our ideas for an expansion of the scheme in the medium-term.

At The Broadway, Bexleyheath, we secured an expansion of the Primark unit, simultaneously re-gearing the lease to a new 25-year term. This activity added ten per cent to the asset value and underscores how important a proactive asset management strategy can be in a low-growth environment.

At the same time, we need to consider the overall return potential of the portfolio and dispose of those assets where performance has peaked or whose performance may be better driven by an alternative strategy outside our core skill base. These were the reasons behind the disposals of the House of Fraser store in Grimsby (where we considered that performance had peaked) and The Genesis Centre, Warrington (where more intensive local management was needed in these recessionary times).

The sales achieved a profit over their fair value as at 31st December 2009 of £0.3 million. The Grimsby property had been acquired only in July 2009, and achieved a selling price of £13.2 million against its acquisition cost of £10.5 million 14 months earlier.

Inevitably these disposals remove valuable income, and we are pleased to report that the Grimsby income has now been replaced by the acquisition of three assets in Burnley, Port Talbot and Carmarthen totalling £11.8 million, yielding 8.9 per cent and with a weighted unexpired lease term of 8.9 years. These assets, whilst primarily acquired for their income, also have a degree of value-added potential. We continue to seek similar assets to replace the Warrington rent roll.

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Atlantic VillageBideford View this development

• 16The Furlong Shopping CentreRingwood
• 17Crown Glass CentreNailsea
• 18Swanley Shopping CentreSwanley

Further reading

• Corporate Responsibility