Final Results
To: RNS
Date: 05 April 2016
From: F&C Commercial Property Trust Limited
Results in Respect of the Year Ended 31 December 2015 (audited)
Highlights
- Net asset value total return of 15.9 per cent
- Share price total return of 2.8 per cent
- Portfolio total return of 14.3 per cent, compared with a total return of 13.3 per cent from the IPD benchmark
- Maintained dividend of 6.0p per Ordinary Share, providing a yield of 4.5 per cent based on the year-end share price
- Dividend cover increased to 80.6% from 50.5%, with net income increasing by £15.4 million in the year
Chairman’s Statement
Introduction
2015 was a positive year for the Company as it continued to build on its strong long term record. With a new ten year loan at a significantly lower interest rate in place and the next continuation vote aligned to the maturity of that loan, the focus for the year was driving income and value creating asset management rather than any further corporate change.
Performance for the Year
The net asset value (‘NAV’) total return for the year was 15.9 per cent and the share price total return was 2.8 per cent. The total return from the portfolio was 14.3 per cent, which compares favourably with a total return of 13.3 per cent from the Investment Property Databank (‘IPD’) Quarterly Universe.
The share price at the year-end was 134.4p, representing a discount of 0.6 per cent to the NAV per share of 135.2p.
The following table provides an analysis of the movement in the NAV per share for the year:
| Pence | |
| NAV per share as at 31 December 2014 | 122.1 |
| Unrealised increase in valuation of direct property portfolio | 13.8 |
| Realised increase in valuation of direct property portfolio | 0.3 |
| Increase in valuation of interest rate swap | 0.1 |
| Other net revenue | 4.9 |
| Dividends paid | (6.0) |
| --------- | |
| NAV per share as at 31 December 2015 | 135.2 |
| --------- |
Performance in the year was driven by capital growth in the portfolio of 9.2 per cent. The strongest returns were experienced in the logistics and industrial sector in the South East with the logistics ‘big box’ properties performing particularly well.
In absolute terms, the most significant contributors to returns were:
- London, St Christopher’s Place Estate – reflecting yield compression and rental growth on all elements of the Estate.
- Manchester, 82 King Street - a number of the vacant office floors in the property were refurbished and let.
- London, Cassini House, St James’s Street - reflecting the strength of investment demand and strong rental growth.
- Southampton, Upper Northam Road, Hedge End – there was a letting of a vacant unit to Amazon during the first half of 2015 on a new 10 year lease.
The share price, which had been predominantly trading at a double digit premium to NAV for the last two years, fell significantly in the last quarter of the year and was at a discount of 0.6 per cent at the year end. This is consistent with lower expectations for capital growth in UK commercial property values and this trend has been experienced by the other companies in the sector.
The UK commercial property market is continuing to deliver good performance but there are signs that investment momentum may be easing. There are concerns about pricing, particularly in London, and the market is entering a phase of the cycle where yield compression and the rate of rental growth are both expected to level off.
Borrowings and Loan Refinancing
The Company entered into a £260 million ten year loan agreement with Legal & General Pensions Limited (‘L&G’) on 31 December 2014, refinancing its previous £230 million bonds and a £30 million bank loan. The L&G loan carries a fixed interest rate of 3.32 per cent per annum. The Company also has a £50 million bank loan with a term to 28 June 2017 on which the interest rate is fixed, through an interest rate swap of the same notional value and duration, at 4.88 per cent per annum. The Group’s total borrowings amount in aggregate to £310 million with a weighted average interest rate of 3.57 per cent per annum. Gearing, net of cash, at the end of the year was 19.0 per cent.
Dividends and Dividend Cover
Twelve monthly interim dividends, each of 0.5p per share, were paid during the year maintaining the annual dividend of 6.0p per share and providing a dividend yield of 4.5 per cent based on the year-end share price. Barring unforeseen circumstances, the Board intends that dividends in 2016 will continue to be paid monthly at the same rate.
The Company’s level of dividend cover for the year (excluding capital gains on properties) was 80.6 per cent, significantly ahead of the 50.5 per cent cover achieved last year. This is as a result of net income increasing by £15.4 million in the current year, the majority of which was attributable to the following:
Reduction in interest costs £10.5 million
Increase in rental income £4.1 million
Reduction in non-recoverable property expenses £0.9 million
Exceptional refinancing expenses in 2014 £0.6 million
Increase in Investment Management fee £(0.7) million
Refinancing the debt has provided the largest contribution towards the increased level of dividend cover. The portfolio has, however, also benefited from additional rental income, with a full year’s rent being received from the Prime Four Business Park offices in Aberdeen, significant upward rent reviews at the offices in Cassini House, London and two vacant floors being let in Alhambra House, Glasgow.
Board Composition
As reported last year, the Board is going through a period of change. Two new independent non-executive Directors, Peter Cornell and David Preston, were appointed on 1 May 2015 with Nick Tostevin, who had been a Director since the Company’s launch in 2005 and Chairman of the Audit Committee, retiring from the Board at the close of the last Annual General Meeting on 28 May 2015. At the same time, Trudi Clark was appointed as the new Audit Committee Chairman and Martin Moore was appointed as Senior Independent Director.
The Board has consisted of seven Directors since May 2015. In order to facilitate a smooth transition, the stated intention has always been that one further long serving Director would retire at the Annual General Meeting in 2016. Accordingly, Brian Sweetland, who has been a Director since 2005, will retire from the Board at the Annual General Meeting on 2 June 2016. On behalf of the Board, I would like to thank Brian for all the time and effort he has put in over the years; he has made a valuable contribution towards the ongoing success of the Company.
This year the Company conducted an external board review that has helped clarify the optimum approach to board succession and identified areas of potential improvement in board process and performance.
Annual General Meeting
The Annual General Meeting will be held at 12.30pm on Thursday 2 June 2016 at Trafalgar Court, Les Banques, St. Peter Port, Guernsey.
Outlook
There are clear signs that investors are adopting a more restrained approach to investing across all asset classes including commercial property, which will have contributed to the re-rating of the Company’s shares. This restraint looks set to continue, given the volatility of global financial markets and the international macro-economic and political environment. There is also the forthcoming EU referendum which adds a further level of uncertainty and may lead to inactivity in the investment market and indeed the occupational markets.
There is a general consensus that returns will now revert to being more income driven following three years of strong capital performance. Rental growth is expected to be positive at the all-property level, particularly on prime assets, but rates of growth are expected to moderate over the next few years.
The Company has always adopted a prudent, low risk approach to investment and as a consequence, has a high quality portfolio with a modest level of borrowings. There exists a number of opportunities within the portfolio to enhance returns further and this remains the focus of management activity with the objective of enhancing the total return on the existing assets and continuing to build dividend cover.
Finally, while the environment in the last several years has been positive for property investment, your Board and the Managers are mindful that this remains a cyclical business. They are confident that a continued well integrated corporate and property investment strategy, combined with high quality portfolio and strong financial position, will enable your Company to take advantage of available opportunities that may be expected to emerge.
Chris Russell
Chairman
Managers’ Review
Highlights over the Year
- Strong total return from property portfolio of 14.3 per cent compared with 13.3 per cent from the benchmark.
- Capital growth of 9.2 per cent compared with 8.2 per cent from the benchmark.
- Gross rental income increased by £4.1 million per annum.
- Void levels remain low, following a number of successful re-lettings.
- Acquisition of a newly constructed office building in Crawley pre let to Virgin Atlantic at a gross purchase price of £45.3 million.
Property Market Review for 2015
The market portfolio total return for the year, as measured by the Investment Property Databank ('IPD') Quarterly Universe, was 13.3 per cent. During the second half of the year there was some loss of momentum but performance was supported by continued inflows of capital, especially from overseas investors and positive rental growth.
The property market benefitted from continued economic recovery in the UK, modest inflation, rising employment and a continued regime of low interest rates that kept property pricing attractive against the risk-free rate.
Investment activity exceeded £70 billion to reach record levels, with the value of transactions peaking in the second quarter. Several large hotel portfolio and leisure deals boosted the total but most segments, apart from shopping centres, saw activity levels above the long-run average. Overseas investors continued to be the largest single group of buyers accounting for almost half of all purchases. UK institutions having been net investors since early 2013 adopted a neutral position during the second half of the year. Central London remained in favour but concerns about pricing intensified as the year progressed and there was greater interest and activity in the regions.
Further yield compression was witnessed with the all-property initial yield dipping below 5 per cent to finish the year at 4.8 per cent. IPD data shows all segments of the market recording inward yield shift in the 12-month period. As the year progressed the momentum slowed and the gap between prime and secondary yields showed signs of stabilisation.
Offices were the top performer among the three main property sectors in 2015 with an 18.1 per cent benchmark return. The City and West End were the strongest performing sub-components of the office sector, delivering benchmark total returns of 20.4 per cent and 19.9 per cent respectively. Industrials recorded 16.3 per cent with retail lagging at 9.0 per cent. As in previous years, retail has been polarised with Central London out-performing the regions, delivering a total return of 23.7 per cent versus 6.5 per cent for standard retail outside London and the South East.
The income return for the year was 4.8 per cent. Benchmark capital values rose by 8.2 per cent, driven by double digit growth for offices and industrials in London and the South East. The retail market has seen strong capital growth in Central London but outside London and the South East growth for standard retails has been barely positive at 0.9 per cent.
Rental growth was 4.0 per cent but as in the previous year, it was concentrated in the capital where City and West End offices recorded rental growth of more than 11 per cent and Central London retail 4.7 per cent. The retail market outside the South East has continued to experience rental decline. The occupational market is showing signs of stabilisation and the vacancy rate moved marginally lower to 6.7 per cent by the end of the year at the all-property level. Rent passing rose by a modest 1.2 per cent in the year underscoring the difficulty of capturing rental growth. This is especially pronounced for more secondary stock. The year has seen an increased interest in development, including some speculative development, particularly in the logistics and industrial sector and selective office markets.
Property delivered another year of double digit total returns driven by investment demand and continued strength in the London market but there is polarisation and some parts of the market remain challenged
Valuation and Portfolio Growth
The Company invests in a diversified UK commercial real estate portfolio of 37 properties.
CBRE Limited independently valued the portfolio at £1,355.9 million as at 31 December 2015.
The total return from the portfolio over the year was 14.3 per cent (32nd percentile) compared with the 13.3 per cent benchmark return. The portfolio has delivered a strong track record of longer term performance: top quartile over three years and top decile over five and ten years.
| Market Segment – Direct Property | Portfolio Total Return (%) | Benchmark Total Return (%) |
| St Retails – South East* | 18.5 | 14.2 |
| St Retails – Rest of UK | - | 6.5 |
| Shopping Centres | - | 9.5 |
| Retail Warehouses | 7.8 | 6.9 |
| Offices – City | 23.0 | 20.4 |
| Offices – West End | 12.3 | 19.9 |
| Offices – South East | 10.0 | 18.0 |
| Offices – Rest of UK | 12.5 | 12.2 |
| Industrials – South East | 20.3 | 17.3 |
| Industrials – Rest of UK | 18.4 | 15.0 |
| Other Commercial | 19.2 | 12.3 |
| All Segments | 14.3 | 13.3 |
* Includes West End Retail
Retail Market
The Company’s exposure to the “in town†retail sector is restricted to 3 holdings in total, St Christopher’s Place Estate, London W1, The Broadway, Wimbledon and a shop in Conduit Street, London W1. The value of these three holdings is £358 million.
Strategically the Company does not own any shopping centres or traditional High Street shops having sold 124 Princes Street, Edinburgh during the year.
St Christopher’s Place Estate, London W1 is a conviction holding for the Company and its largest asset. However, underlying this it does comprise 44 individual properties and a diversification of uses ranging from traditional retail, restaurants, offices and a growing residential exposure.
The Estate continues to perform strongly, with a 19.0 per cent increase in its capital value over the year. This was driven by a hardening in capitalisation rates as a consequence of the continued demand for Central London retail properties, and capital investment, particularly the redevelopment of 71-77 Wigmore Street which commenced at the beginning of the year and should be completed by the end of 2016. Improvements in rental values have also been demonstrated by retail lettings in James Street, increasing rents by 5.9 per cent to £180 Zone A, and lettings in St. Christopher’s Place increasing the rental by 7 per cent to £200 Zone A. St Christopher’s Estate should also benefit from the investment being made into the surrounding area and the improvements being made by adjacent owners. There are currently no retail vacant units on the Estate.
The commercial element of the redevelopment of 71-77 Wigmore Street has already generated a good level of interest and formal marketing has now commenced. Meanwhile, looking ahead, a planning application has now been submitted for the redevelopment of 1-2 Barrett Street, following extensive pre- application consultation with the City of Westminster over the last 12 months.
At 16 Conduit Street, we are still seeing strong rental growth and an agreement was entered into for a surrender of the existing lease, held by Christian Dior, subject to a re-letting of the ground floor retail unit to luxury retailer MCM at a higher rental level. The surrender and re-letting will complete in 2016.
At the Company’s retail and leisure holding in Wimbledon, another round of rent reviews with unchanged occupiers has commenced. A number of announcements have been made concerning proposals for Crossrail 2, which will run through Wimbledon, and active consultation has been undertaken with the Manager. The investment value impact is likely to be positive.
Outside London, the focus has been on concluding several key initiatives. Sears Retail Park, Solihull, is now fully let. Unit 5, the former JJB unit, was extensively refurbished and the lease completed to TK Maxx in July at a commencing rent of £380,000 per annum. This new tenant to the Park complements the 2014 letting to Next at Home and since these units opened, the Park has seen a notable increase in footfall.
At Newbury Retail Park an agreement to lease has been contracted with TK Maxx at Unit 10 which will be extensively redeveloped on the expiry of the current tenant’s lease. The letting to TK Maxx reflects an increase in retail values to £35 psf. The Arcadia Group vacated Unit 13 since the year-end and this has now been let to Boots the Chemist upon their relocation from Unit 10. These new lettings generate an income of £650,000 per annum and will enhance the retail offer on the Park as a whole.
Office Market
The Company’s exposure to the office sector amounts in total to £541 million (39.9 per cent of the portfolio) across 17 properties and providing approximately 40 per cent of gross rental income.
The total return on the office portfolio was 12.2 per cent compared with the IPD benchmark total return of 18.1 per cent. This relative underperformance can be attributed to, the Company’s West End and South East properties. With regard to the Company’s West End properties, analysis suggests the portfolio benefitted from yield compression from its prime assets earlier in the cycle whilst the South East segment has been affected by voids at Watchmoor Park, Camberley and Thames Valley Park, Reading.
The Company owns only one City of London office: 7 Birchin Lane, EC3. Valued at under £20 million, the Company is not overly exposed to the expected increase in supply in 2018. This property outperformed last year and a number of floors are currently the subject of refurbishment. It is expected that on reletting, rents should be achieved in excess of £60 psf, which is significantly ahead of the previous rental level. In the West End, office floors at 2-4 King Street, London SW1 and 17a Curzon Street, London W1 are also being refurbished.
The Company’s largest exposure to the Rest of UK Offices is its holdings in Aberdeen. The fall in the price of oil has had an impact on the Aberdeen property market with few leasing or investment transactions taking place. The local market is quiet, but the Company’s properties are located on what has now established itself as Aberdeen’s prime out of town office location. The buildings, which are all new and let to good covenants on long leases with fixed rental uplifts, continue to provide strong underlying cashflows.
Elsewhere in the regional market 82 King Street, Manchester continues to build upon its recent leasing success with lettings to Zeus Capital, Axa, Channel 4, Odgers Berndtson, Foresight Group and Cognitive Publishing. As a result of these lettings the vacant area in the building has reduced from 36,000 sq. ft. to just under 16,000 sq. ft.
Industrial & Logistics
The Company has an exposure to eleven properties in this sub-sector with a combined value of £193 million. The portfolio is underweight to industrial estates with its main exposure being “big box†distribution units located in core areas. Distribution and logistics had a strong year with significant investor appetite for properties, given the attractions of the sub-sector arising from the structural changes to retail and supportive occupier demand. The Company’s portfolio outperformed due to both yield compression and underlying rental growth.
Of particular note was the letting of a vacant 66,700 sq. ft. unit at Hedge End, Southampton to Amazon on a new 10 year lease, with a break at year 5, at an annual rent £517,000 (£7.75 per sq. ft.). Several of the Company’s logistics holdings are subject to shorter lease terms and material negotiations have progressed with their tenants to renew or regear these leases on longer lease terms.
At the Cowdray Centre, Colchester a vacant unit was let at a rent of £75,000 per annum and more significantly, progress has been made regarding the 12 acre development site. An outline planning application was submitted last year to develop the site with of 154 residential units. Since the year end, this outline planning application was determined by the local planning authority, which approved a resolution to grant consent, subject to completing a Section 106 Agreement. Securing this consent will enable discussions to start with volume housebuilders on the site’s future.
The Alternative Property Sector
The student accommodation block, let in its entirety to the University of Winchester on a long lease, remains the Company’s only exposure to this sector. The property produced a total return of 19.2 per cent last year. This lease is subject to annual RPI increases and the annual rent is now £1.725 million.
Acquisitions & Sales
As previously announced, the Company purchased The Leonardo Building on the Manor Royal Business Park, Crawley. The property was acquired part way through its construction and the development was completed in December 2015 comprising 110,545 sq. ft. of Grade A offices. The building was pre-let to Virgin Atlantic Ltd on a 16.5 year lease (18 months’ rent free) at an initial rent of £23.5 per sq. ft. The tenant entered into the lease in December and is currently onsite fitting out the offices. The Company paid a total consideration of £45.3 million and the rental income due is £2.54 million per annum, equivalent to a net initial yield of 5.6 per cent. The acquisition provides the Company with an exposure to a new building, located in an area of the South East currently experiencing strong occupational demand with limited new supply off a low rental base. These supportive fundamentals should provide a platform for rental growth.
The Company also completed the disposal of one fully let property at 124/125 Princes Street, Edinburgh at a price of £18.1 million (before costs), reflecting a net initial yield of 5.1 per cent. The sale price exceeded the last external valuation of £15.1 million and realised significant capital growth following the completion of asset management initiatives that included the refurbishment and leasing of office floors.
Property Management
The management of the Company’s income remains a key activity and gross income increased by £4.1 million over the year.
During the year we contracted 48 lease events at a total rental income over of £1.6 million per annum and the most notable lettings are highlighted elsewhere in this report. Fifteen rent reviews were also documented increasing annual rental income by approximately £722,000.
Void levels were largely unchanged over the year at 4.5 per cent of estimated rental value (excluding properties held for development). The vacant accommodation mainly relates to office floors at 7 Birchin Lane, London EC3, which are now being refurbished, and small office suites at St Christopher’s Place Estate.
The provision for overdue debt (90 days) at the year-end was 0.5 per cent of gross annualised rents which is low in comparison with the size of the Company’s rent roll.
Outlook
UK property is performing well, and the Governor of the Bank of England’s announcement in January 2016 that he believes that there is no need to raise interest rates imminently bodes well for both the investment and occupational property markets. However there are clear headwinds with the economic effects of the slowdown in China, higher US interest rates, sluggish growth in the Eurozone and lower oil prices all potential issues; especially if they lead to reduced or reversed investment and capital flows from Asia and the Middle East in particular. The outcome of the EU referendum is unclear and this could lead to uncertainty and inactivity, with investors holding back until the result is known. In the occupational markets tenants may also delay making important decisions until the result. As a generality the EU referendum may be disruptive to the markets.
Within property, the reforms to the rating system are a further area of uncertainty. We believe that the era of double digit total returns has drawn to a close and the market has entered a period when income is the main driver of total returns. The Property Managers are forecasting a market total return of circa 6.5 per cent for 2016 and that total returns in the five years to 2020 will average 5.0 per cent per annum. In light of such an outlook, the ability to deliver on opportunities within the portfolio that grow the income stream will be critical. We continue to favour Central London retail, quality logistics and South East offices but also recognise the importance of stock-specific selection. We remain wary of secondary stock in weaker or non-established locations.
Richard Kirby
Investment Manager
BMO REP Asset Management plc
F&C Commercial Property Trust Limited
Consolidated Statement of Comprehensive Income (audited)
| Year ended 31 December 2015 |
Year ended 31 December 2014 |
||
| £’000 | £’000 | ||
| Revenue | |||
| Rental income | 62,613 | 58,528 | |
| --------- | --------- | ||
| Total revenue | 62,613 | 58,528 | |
| Gains/(losses) on investment properties | |||
| Unrealised gains on revaluation of investment properties | 110,314 | 150,521 | |
| Gains on sale of investment properties realised | 2,530 | - | |
| ---------- | ---------- | ||
| Total income | 175,457 | 209,049 | |
| ---------- | ---------- | ||
| Expenditure | |||
| Investment management fee | (8,100) | (7,312) | |
| Other expenses | (4,204) | (5,854) | |
| ---------- | ---------- | ||
| Total expenditure | (12,304) | (13,166) | |
| ----------- | ----------- | ||
| Operating profit before finance costs and taxation | 163,153 | 195,883 | |
| ----------- | ----------- | ||
| Net finance costs | |||
| Interest receivable | 194 | 347 | |
| Finance costs | (11,708) | (22,165) | |
| ----------- | ----------- | ||
| (11,514) | (21,818) | ||
| ----------- | ----------- | ||
| Profit before taxation | 151,639 | 174,065 | |
| Taxation | (142) | (164) | |
| ---------- | ---------- | ||
| Profit for the year | 151,497 | 173,901 | |
| ---------- | ---------- | ||
| Other comprehensive income | |||
| Items that are or may be reclassified subsequently to profit or loss | |||
| Movement in fair value of interest rate swaps | 909 | (52) | |
| ---------- | ---------- | ||
| Total comprehensive income for the year | 152,406 | 173,849 | |
| ---------- | ---------- | ||
| Basic and diluted earnings per share | 19.0p | 22.5p | |
All of the profit and total comprehensive income for the year is attributable to the owners of the Company.
All of the items in the above statement derive from continuing obligations.
F&C Commercial Property Trust Limited
Consolidated Balance Sheet (audited)
| As at 31 December 2015 £’000 |
As at 31 December 2014 £’000 |
|
| Non-current assets | ||
| Investment properties | 1,340,061 | 1,195,593 |
| ------------ | ------------ | |
| 1,340,061 | 1,195,593 | |
| ------------ | ------------ | |
| Current assets | ||
| Trade and other receivables | 19,575 | 21,581 |
| Cash and cash equivalents | 55,755 | 90,497 |
| ------------ | ------------ | |
| 75,330 | 112,078 | |
| ------------ | ------------ | |
| Total assets | 1,415,391 | 1,307,671 |
| ------------ | ------------ | |
| Current liabilities | ||
| Trade and other payables | (26,002) | (22,125) |
| ------------ | ------------ | |
| Non-current liabilities | ||
| Interest-bearing loans | (307,419) | (307,111) |
| Interest rate swaps | (1,546) | (2,455) |
| ------------ | ------------ | |
| (308,965) | (309,566) | |
| ------------ | ------------ | |
| Total liabilities | (334,967) | (331,691) |
| ------------ | ------------ | |
| Net assets | 1,080,424 | 975,980 |
| ------------ | ------------ | |
| Represented by: | ||
| Share capital | 7,994 | 7,994 |
| Share premium | 127,612 | 127,612 |
| Reverse acquisition reserve | 831 | 831 |
| Special reserve | 474,529 | 511,933 |
| Capital reserve – investments sold | (21,408) | (18,856) |
| Capital reserve – investments held | 374,340 | 258,944 |
| Hedging reserve | (1,546) | (2,455) |
| Revenue reserve | 118,072 | 89,977 |
| ------------ | ------------ | |
| Equity shareholders’ funds | 1,080,424 | 975,980 |
| ------------ | ------------ | |
| Net asset value per share | 135.2p | 122.1p |
F&C Commercial Property Trust Limited
Consolidated Statement of Changes in Equity
for the year ended 31 December 2015 (audited)
Share Capital £’000 |
Share Premium £’000 |
Reverse Acquisition Reserve £’000 |
Special Reserve £’000 |
Capital Reserve - Investments Sold £’000 |
Capital Reserve – Investments Held £’000 |
Hedging Reserve £’000 |
Revenue Reserve £’000 |
Total £’000 |
|
| At 1 January 2015 | 7,994 | 127,612 | 831 | 511,933 | (18,856) | 258,944 | (2,455) | 89,977 | 975,980 |
| Total comprehensive income for the year | |||||||||
| Profit for the year | - | - | - | - | - | - | - | 151,497 | 151,497 |
| Movement in fair value of interest rate swaps | 909 |
909 |
|||||||
| Transfer in respect of unrealised gains on investment properties | 110,314 |
(110,314) |
|||||||
| Gains on sale of investment properties realised | 2,530 |
(2,530) |
|||||||
| Transfer of prior years’ revaluation to realised reserve | (5,082) |
5,082 |
|||||||
| Transfer from special reserve | (37,404) |
37,404 |
|||||||
| Total comprehensive income for the year | - |
- |
- |
(37,404) |
(2,552) |
115,396 |
909 |
76,057 |
152,406 |
| Transactions with owners of the Company recognised directly in equity | |||||||||
| Dividends paid | - | - | - | - | - | - | - | (47,962) | (47,962) |
At 31 December 2015 |
7,994 |
127,612 |
831 |
474,529 |
(21,408) |
374,340 |
(1,546) |
118,072 |
1,081,424 |
Consolidated Statement of Changes in Equity
for the year ended 31 December 2014 (audited)
Share Capital £’000 |
Share Premium £’000 |
Reverse Acquisition Reserve £’000 |
Special Reserve £’000 |
Capital Reserve - Investments Sold £’000 |
Capital Reserve – Investments Held £’000 |
Hedging Reserve £’000 |
Revenue Reserve £’000 |
Total £’000 |
|
| At 1 January 2014 | 7,587 | 78,566 | 831 | 556,082 | (18,856) | 108,423 | (2,403) | 68,784 | 799,014 |
| Total comprehensive income for the year | |||||||||
| Profit for the year | - | - | - | - | - | - | - | 173,901 | 173,901 |
| Movement in fair value of interest rate swaps | (52) |
(52) |
|||||||
| Transfer in respect of unrealised gains on investment properties | 150,521 |
(150,521) |
|||||||
| Transfer from special reserve | - | - | - | (44,149) | - | - | - | 44,149 | - |
| Total comprehensive income for the year | - |
- |
- |
(44,149) |
- |
150,521 |
(52) |
67,529 |
173,849 |
| Transactions with owners of the Company recognised directly in equity | |||||||||
| Issue of ordinary share capital | 407 | 49,046 | - | - | - | - | - | - | 49,453 |
| Dividends paid | - | - | - | - | - | - | - | (46,336) | (46,336) |
At 31 December 2014 |
7,994 |
127,612 |
831 |
511,933 |
(18,856) |
258,944 |
(2,455) |
89,977 |
975,980 |
F&C Commercial Property Trust Limited
Consolidated Statement of Cash Flows (audited)
| Year ended 31 December 2015 | Year ended 31 December 2014 | |
| £’000 | £’000 | |
| Cash flows from operating activities | ||
| Profit for the year before taxation | 151,639 | 174,065 |
| Adjustments for: | ||
| Finance costs | 11,708 | 22,165 |
| Interest receivable | (194) | (347) |
| Unrealised gains on revaluation of investment properties | (110,314) | (150,521) |
| Gains on sale of investment properties realised | (2,530) | - |
| Decrease in operating trade and other receivables | 2,006 | 1,264 |
| Increase in operating trade and other payables | 3,877 | 4,299 |
| ----------- | ----------- | |
| 56,192 | 50,925 | |
| ----------- | ----------- | |
| Interest received | 194 | 347 |
| Interest and bank fees paid | (11,395) | (15,349) |
| Tax paid | (147) | (437) |
| ----------- | ----------- | |
| (11,348) | (15,439) | |
| ----------- | ----------- | |
| Net cash inflow from operating activities | 44,844 | 35,486 |
| ----------- | ----------- | |
| Cash flows from investing activities | ||
| Purchase/development of investment properties | (44,914) | (123,737) |
| Sale of investment properties | 18,007 | - |
| Capital expenditure | (4,717) | (7,152) |
| ----------- | ----------- | |
| Net cash outflow from investing activities | (31,624) | (130,889) |
| ----------- | ----------- | |
| Cash flows from financing activities | ||
| Issue of ordinary share capital, net of costs | - | 49,453 |
| Dividends paid | (47,962) | (46,336) |
| Draw down of Bank Loan, net of costs | - | 29,768 |
| Repayment of Bank Loan | - | (30,000) |
| Draw down of L&G Loan, net of costs | - | 257,679 |
| Redemption value of Secured Bonds | - | (235,601) |
| ----------- | ----------- | |
| Net cash (outflow) / inflow from financing activities | (47,962) | 24,963 |
| ----------- | ----------- | |
| Net decrease in cash and cash equivalents | (34,742) | (70,440) |
| Opening cash and cash equivalents | 90,497 | 160,937 |
| ----------- | ----------- | |
| Closing cash and cash equivalents | 55,755 | 90,497 |
| ----------- | ----------- |
F&C Commercial Property Trust Limited
Principal Risks and Risk Management
The Board applies the principles detailed in the internal control guidance issued by the Financial Reporting Council, and has established an ongoing process designed to meet the particular needs of the Company in managing the risks and uncertainties to which it is exposed. The principal risks and uncertainties faced by the Company are described below and in note 2 which provides detailed explanations of the risks associated with the Company’s financial instruments.
- Market – the Company’s assets comprise principally direct investments in UK commercial property and it is therefore exposed to movements and changes in that market.
- Investment and strategic – poor investment processes and incorrect strategy, including sector and geographic allocations, use of gearing, inadequate asset management activity and tenant defaults could lead to poor returns for shareholders.
- Regulatory – breach of regulatory rules could lead to suspension of the Company’s London Stock Exchange listing, financial penalties or a qualified audit report.
- Management and control – changes that cause the management and control of the Company to be exercised in the United Kingdom could lead to the Company becoming liable to United Kingdom taxation on income and capital gains.
- Operational – failure of the Managers’ accounting systems or disruption to its business, or that of other third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders’ confidence.
- Financial – inadequate controls by the Managers or other third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to a qualified audit report, misreporting or breaches of regulations. Breaching Guernsey solvency test requirements or loan covenants could lead to a loss of shareholders’ confidence and financial loss for shareholders.
The Board seeks to mitigate and manage these risks through continual review, policy-setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Company’s property portfolio. The Managers seek to mitigate these risks through active asset management initiatives and carrying out due diligence work on potential tenants before entering into any new lease agreements. All of the properties in the portfolio are insured.
F&C Commercial Property Trust Limited
Statement of Directors' Responsibilities in Respect of the Annual Financial Report
In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:
- The financial statements contained within the Annual Report for the year ended 31 December 2015, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;
- The Chairman’s Statement and Managers’ Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;
- ‘Principal Risks and Risk Management’ includes a description of the Company's principal risks and uncertainties; and
- The Annual Report includes details of related party transactions that have taken place during the financial year.
On behalf of the Board
Chris Russell
Director
F&C Commercial Property Trust Limited
Notes to the audited Consolidated Financial Statements
for the year ended 31 December 2015
1. The Board has declared a twelfth, and last, interim dividend for the year of 0.50p per share to be paid on 29 April 2016 to shareholders on the register on 8 April 2016.
It is the Directors’ intention that the Company will continue to pay dividends monthly.
2. Financial Instruments
The Company’s investment objective is to provide ordinary shareholders with an attractive level of income together with the potential for capital and income growth from investing in a diversified UK commercial property portfolio.
Consistent with that objective, the Group holds UK commercial property investments. In addition, the Group’s financial instruments during the year comprised interest-bearing bank loans, cash and receivables and payables that arise directly from its operations. The Group does not have exposure to any derivative instruments other than the interest rate swap entered into to hedge the interest paid on the Barclays interest-bearing bank loan.
The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as all assets and liabilities of the Group are maintained in pounds sterling.
The Board reviews and agrees policies for managing the Group’s risk exposure. These policies are summarised below and have remained unchanged for the year under review. These disclosures include, where appropriate, consideration of the Group’s investment properties which, whilst not constituting financial instruments as defined by IFRS, are considered by the Board to be integral to the Group’s overall risk exposure.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.
In the event of default by an occupational tenant, the Group will suffer a rental shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Managers monitor such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants.
All of the Group’s cash is placed with financial institutions with a long term credit rating of A or better. Bankruptcy or insolvency of such financial institutions may cause the Group’s ability to access cash placed on deposit to be delayed or limited. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, cash holdings would be moved to another bank.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. The Group’s investments comprise UK commercial property. Property and property-related assets in which the Group invests are not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate quickly its investments in these properties at an amount close to their fair value in order to meet its liquidity requirements.
The Group’s liquidity risk is managed on an ongoing basis by the Managers and monitored on a quarterly basis by the Board. In order to mitigate liquidity risk the Group aims to have sufficient cash balances (including the expected proceeds of any property sales) to meet its obligations for a period of at least twelve months.
Interest rate risk
Some of the Group’s financial instruments are interest bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Group is exposed to interest rate risk due to fluctuations in the prevailing market rate.
The Group’s exposure to interest rate risk relates primarily to its long-term debt obligations. Interest rate risk on long-term debt obligations is managed by fixing the interest rate on such borrowings, either directly or through interest rate swaps for the same notional value and duration. Long-term debt obligations and the interest rate risk they confer to the Group is considered by the Board on a quarterly basis. Long term debt obligations consist of a £260 million L&G loan on which the rate has been fixed at 3.32 per cent until the maturity date of 31 December 2024. The Group also has a £50 million interest-bearing bank loan on which the rate has been fixed through an interest rate swap at 4.88 per cent per annum until the maturity date of 28 June 2017.
When the Group retains cash balances, they are ordinarily held on interest-bearing deposit accounts. The benchmark which determines the interest income received on interest bearing cash balances is the bank base rate which was 0.5 per cent as at 31 December 2015 (2014: 0.5 per cent). The Company’s policy is to hold cash in variable rate or short-term fixed rate bank accounts and not usually in fixed rate securities with a term greater than three months.
Market price risk
The Group’s strategy for the management of market price risk is driven by the investment policy. The management of market price risk is part of the investment management process and is typical of commercial property investment. The portfolio is managed with an awareness of the effects of adverse valuation movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in property and property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Such risk is minimised through the appointment of external property valuers.
3. There were 799,366,108 Ordinary Shares in issue at 31 December 2015 (2014: 799,366,108).
.
At 31 December 2015, the Company did not hold any Ordinary Shares in treasury (2014: nil).
4. The basic and diluted earnings per Ordinary Share are based on the profit for the year of £151,497,000 (2014: £173,901,000) and on 799,366,108 (2014: 771,857,477) Ordinary Shares, being the weighted average number of shares in issue during the year.
5. The Company owns 100 per cent of the issued ordinary share capital of FCPT Holdings Limited, a company registered in Guernsey which was, until the group reconstruction in 2009, the top company in the group structure. The principal activity of FCPT Holdings Limited is now to act as a holding company and it owns 100 per cent of the ordinary share capital of F&C Commercial Property Holdings Limited, a company registered in Guernsey whose principal business is that of an investment and property company, and 100 per cent of the ordinary share capital of Winchester Burma Limited, a company registered in Guernsey whose principal business is that of an investment and property company.
The Company owns 100 per cent of the issued ordinary share capital of SCP Estate Holdings Limited, a company registered in Guernsey. The principal activity of SCP Estate Holdings Limited is to act as a holding company and it owns 100 per cent of the ordinary share capital of SCP Estate Limited, a company registered in Guernsey whose principal business is that of an investment and property company, and 100 per cent of the ordinary share capital of Prime Four Limited, a company registered in Guernsey whose principal business is that of an investment and property company.
On 19 January 2016, the Company dissolved Accede Limited, a company incorporated in England and Wales. This Company was dormant, having previously acted as an investment and property company.
On 1 September 2015, FCPT Holdings Limited dissolved F&C Commercial Property Finance Limited, a special purpose vehicle incorporated in Guernsey, having previously acted as a vehicle to issue the interest-bearing bonds which were repaid in full on 2 January 2015.
On 23 July 2015, the Company incorporated Leonardo Crawley Limited, a company registered in Guernsey whose principal business is that of an investment and property company.
On 31 July 2015, the Company acquired Crawley Holdings Limited, a company registered in England and Wales whose principal business is that of an investment and property company.
6. The Group had capital commitments totalling £8,852,000 as at 31 December 2015 (2014: £1,719,000). These commitments related mainly to contracted development works at the Group’s properties at St. Christopher’s Place Estate, London W1.
7. These are not full statutory accounts. The full audited accounts for the year to 31 December 2015 will be sent to shareholders and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL, the registered office of the Company, and from the Company’s website: www.fccpt.co.uk
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration (Guernsey) Limited
Trafalgar Court
Les Banques
St. Peter Port
Guernsey GY1 3QL
Tel: 01481 745436
Fax: 01481 745186
Richard Kirby
F&C REIT Property Asset Management plc
Tel: 0207 016 3577
Graeme Caton
Winterflood Securities Limited
Tel: 0203 100 0268
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