Mucklow improves, but warns on void rates

PROPERTY developer Mucklow has reported a half-year pre-tax profit of £18.8m compared to a loss £38.8m in the corresponding period last year.
 
Announcing a dividend payout of 8.03p per ordinary share – the same as last year –  Chairman Rupert J Mucklow said: “After two years of falling asset values, property yields have started to harden, which has had a positive impact on our income statement and balance sheet.

“Our financial position remains strong and has been further improved by the extension and increase of our principal banking facilities, a reduction in void levels and the successful disposal of a trading property.

“A surplus on the revaluation of investment properties and development land, increased the profit by £11.6m (2008: £44.5m reduction). The adjusted pre-tax profit, which excludes revaluation of investment properties and profit on the sale of investment properties was £7.2 m (2008: £5.7m).”

Mr Mucklow said that while yields were improving, the impact of the recession on tenants would continue to impact on the company: “The majority of our investment properties are modern and securely let, providing us with a solid income base. However, we do still have a number of units returned each year, due to lease expiries, break clauses and insolvencies. Many of these tend to be older, more secondary buildings, which are harder to relet.”

The impact of ‘punitive’ void rates on unlet properties was also a continuing cause for concern, he said: “Vacant buildings cost money and it is better to have properties occupied at lower rents, than holding out for rental and capital growth and having them remain empty for long periods of time.

“Void rates are now so punitive, rental levels are being heavily discounted and lease terms are getting shorter, in order to secure lettings and save costs. Our occupancy rate at 31 December increased to 92.3%, compared with 90.5% at the beginning of the financial year.”

Mucklow’s investment portfolio, including development land, was valued at £214.9m, showing a surplus in value for the period of £11.7m (5.8%). The initial yield on the investment properties was 8.2% (June 2009: 8.6%).

Property values had improved over the last six months, said the company, on the back of renewed demand from investors and a limited availability of stock. However, values still remain some way short of the 6.0% equivalent yield achieved on the portfolio in June 2007, at the peak of the last cycle. The equivalent yield on investment properties improved during the period from 9.5% to 9.0%.

Mucklow revealed that it had acquired no new property or land since it bought a prime investment property in Aston, Birmingham at the start of the financial year for £1.9m, but hinted that new nbanking facilities had equipped them for a more acquisitive 2010.

Mr Mucklow said: “We successfully completed the extension and increase of our banking facilities with HSBC in November 2009, which has provided us with around £50m to assist our  pre-let Costco development at Coventry and to acquire suitable investment properties.”

The new facilities comprise a £20m term loan, a £40m revolving credit facility and a £5m overdraft, which replaces two short term facilities totalling £35m and a £10m overdraft.