Commercial Property News

 A&J Mucklow Group, the Midlands based real estate investment trust, slumped to a full-year pretax loss of £26.7m after writing down £41.2m, and said this morning that it expects a further decline in property values over the next 12 months.

For the year to end-June, 2008, the company posted a pretax loss under IFRS of £26.7m, after writing down £41.2m in the value of its portfolio, against a pretax profit of £33.4m last year.

The company added in a statement that while a correction in property yields had been expected, its speed and severity had been far greater than anticipated. The company said its net asset value per share (NAV) was reduced by 14.8% in the period while revenue fell to £18.4m from £25m.

'We shall continue to watch the investment market closely and when appropriate, we intend to use our strong financial position to start buying quality investment properties, on attractive terms, across the Midlands,' Chairman Rupert Mucklow said in a statement.

In May it agreed to borrow £20 million from Lloyds TSB at a fixed rate of 5.59 per cent for 15 years. It used the money to pay off existing revolving credit facilities to freeing up cash for future projects.

“We have positioned ourselves to start buying,” Mr Mucklow said. “We are just waiting for property values to stabilise. We are hopeful that the market will stabilise at the end of the year.

“We are not in a rush. We have got a nice little war chest. We are looking to buy from other developers at yields of eight per cent.”
Mucklow completed speculative developments in Worcester, Dudley and Wednesbury during the year for a total cost of £18 million.

Some 70% of this space is now reserved or let. But it is planning no more speculative building. This is partly because demand from occupiers is expected to slow down, though the recent introduction of business rate on vacant industrial properties is also a factor. Overall, 93% of Mucklow’s space is occupied, down marginally from 94% a year ago.

Retailers are suffering more than other tenants, but only 10% of Mucklow’s portfolio is retail.

“We are not seeing any tenant failures,” Mr Mucklow said. “One or two occupiers are paying by arrangement. We have very little retail, but some guys are trading direct with the public selling things like furniture from industrial sites.”

As promised when it became a Real Estate Investment Trust last year, Mucklow is raising its final dividend, like the interim, by 20% to 9.65p. That reflects a £2.7 million saving in corporation tax arising from the change of status.

The shares, which had already risen strongly earlier this week, recovered another 6p against the market trend to close at 250p – a discount of nearly 33% to a net asset value of 379p at the end of June, with a dividend yield of 7%.

“The economic indicators for the next 12 months do not look very favourable, which could impact on the UK occupier market and cause a further deterioration in property values,” Mr Mucklow added.

“Fortunately, we are in a strong position of having low gearing and a modern portfolio of quality let properties, with very few leases expiring over the next few years.

“We anticipate a challenging period ahead. Our main focus will be towards maintaining our occupancy levels and using our cash wisely during these uncertain times.”