Net Asset Value(s)

To:                   Company Announcements

Date:                4 February 2019

Company:        F&C Commercial Property Trust Limited

LEI:                  213800A2B1H4ULF3K397

Subject:           Net Asset Value

Net Asset Value

The unaudited net asset value (‘NAV’) per share of the Group as at 31 December 2018 was 139.8 pence. This represents a decrease of 1.4 per cent from the unaudited NAV per share as at 30 September 2018 of 141.8 pence and a NAV total return for the quarter of -0.4 per cent.

The NAV has been calculated under International Financial Reporting Standards (‘IFRS’). It is based on the external valuation of the Group’s direct property portfolio prepared by CBRE Limited.

The NAV includes all income to 31 December 2018 and is calculated after deduction of all dividends paid prior to that date. As at 31 December 2018, no adjustments were required to the NAV in respect of dividends for which the share price had gone ex-dividend.

Share Price

The share price was 124.60 pence per share at 31 December 2018, which represented a discount of 10.9 per cent to the NAV per share announced above. The share price total return for the quarter was -9.7 per cent.

Analysis of Movement in NAV

The following table provides an analysis of the movement in the unaudited NAV per share for the period from 30 September 2018 to 31 December 2018 (including the effect of gearing):

	£m	Pence per share	% of opening NAV per share
NAV as at 30 September 2018	1,133.4	141.8
Unrealised decrease in valuation of property portfolio *	(15.4)	(1.9)	(1.3)
Movement in fair value of interest rate swap	(0.1)	0.0	0.0
Other net revenue	11.5	1.4	1.0
Dividends paid	(12.0)	(1.5)	(1.1)
NAV as at 31 December 2018	1,117.4	139.8	(1.4)

* The ungeared decrease in the valuation of the property portfolio over the quarter to 31 December 2018 was 1.0%, after allowing for capital expenditure.

The net gearing at 31 December 2018 was 21.2%. #

# Net gearing: (Borrowings – cash) ÷ total assets (less current liabilities and cash).

Market

The industrial and distribution sectors have continued to drive the UK property market, but alternatives and many of the office sub-markets also out-performed. In part, this reflects a weakening retail market driving down the all-property average. Compared with the previous quarter, alternatives and City offices saw an improved performance. For the year, industrials strongly out-performed, with offices outside the West End and alternatives doing well but retail delivering a marginally negative total return.

We are increasingly concerned by the weakness in the retail market, which we expect to persist in 2019. The RICS has indicated that valuers need to widen their supporting evidence beyond pricing in the very thin retail investment market. Downward re-rating of retail properties is expected to continue in 2019, given the likelihood of further administrations, CVA’s, store closures and the unwinding of lease commitments. This should occur across the sector, but with Central London and some prime locations relatively resilient.

We expect standard industrials and distribution to be a major driver of the market, helped by the growth of e-commerce. However, there may be little scope for further yield compression and some rental growth expectations could prove optimistic.

Performance

The capital value of the portfolio decreased by 0.7 per cent over the quarter, with a capital return of -1.0 per cent after allowing for capital expenditure. The MSCI UK monthly property index recorded a decline in capital values of 0.2 per cent (before capital expenditure) over the period. The impact on NAV was attributable to the continued valuation write downs on the two retail warehouses at Newbury Retail Park and Solihull Retail Park as a result of the decompression in capitalisation rates. As previously reported, asset management initiatives are underway and focussed on securing revised planning consents to enable lettings to preferred retailers. In addition, the NAV reflected the valuation write down on Thames Valley One and Two to reflect the contracted sale.

Reclassification of sector weightings

Historically, the Company’s investments in the St. Christopher’s Place Estate and at Wimbledon Broadway have been shown as retail in their entirety, consistent with how they are classified within the MSCI property Index.  At a time when shareholders and analysts are now scrutinising any portfolio’s retail exposure, it is important to provide more detail as to the true retail exposure. St. Christopher’s Place comprises approximately 150 lettable units made up of over 50 shops and restaurants, 40 office suites and 60 residential apartments. Wimbledon comprises a number of retail units, a cinema, a gym and some food and beverage units. In the interest of transparency, these assets when disaggregated by capital value falls into the following underlying segments: -

Sector	St. Christopher Place & Wimbledon (% of Capital value as at 31 December 2018)
Retail	47.6
Food and Beverage	20.6
Residential	15.0
Office	10.7
Leisure	6.1

Residential and leisure will now be more appropriately classified under the alternatives sector category. Food and beverage will remain in the retail category.

Sales and Purchases

It has been the Company’s strategy to sell a number of its vacant non-income producing properties where the immediate re-letting prospects were challenging. In November the Company completed the sale of Building B, Watchmoor Park, Camberley for a price of £5.1 million. The property is an entirely vacant, three storey office building totalling 32,641 sq. ft. The sale price was in-line with the external September valuation but significantly ahead of the £2.4 million valuation as at 31 December 2017.  In December the Company exchanged contracts for the sale of its freehold interest in two further office properties, Thames Valley Park One and Thames Valley Park Two. The sale completed in January 2019 at a combined sale price of £24.4 million compared with the previous external valuation of £27.0 million (-9.6% below valuation). This is a strategic sale, Thames Valley Park One comprises 75,000 sq. ft. and is entirely vacant and requiring extensive refurbishment. Thames Valley Park Two is a separate building of approximately 55,000 sq. ft. of which 28,900 sq. ft. is vacant. At a time of significant uncertainty these non-core disposals address the Company’s largest void exposure by rental value, releases capital to be invested in income producing properties, significantly reduces non-recoverable expenditure and removes a future substantive capital expenditure requirement of approximately £8.0 million.

As a result of these three disposals, the Company’s void rate has reduced from the last reported level of 6.9 per cent to 5.1 per cent. There are a number of lettings under advanced negotiation and when these contract, the void rate will fall further to approximately 3.0 per cent.

Portfolio Analysis – Sector Breakdown

	Portfolio Value £m	% of portfolio as at 31 December 2018 (Reclassified)	% like for like capital value shift (excl transactions & CAPEX)	% of portfolio as at 31 December 2018 (Before Reclassification)
Offices	570.6	39.9	0.0	36.8
West End	200.3	14.1	2.0	11.0
South East	120.0	8.4	-5.1	8.4
South West	33.4	2.3	2.9	2.3
Rest of UK	196.6	13.7	0.9	13.7
City	20.3	1.4	0.2	1.4
Retail	320.3	22.4	0.7	31.4
West End	243.7	17.0	0.7	24.3
South East	44.2	3.1	-0.1	4.8
Rest of UK	32.4	2.3	1.6	2.3
Industrial	254.9	17.8	-0.1	17.8
South East	30.1	2.1	2.8	2.1
Rest of UK	224.8	15.7	-0.5	15.7
Retail Warehouse	155.7	10.9	-7.1	10.9
Alternatives	128.7	9.0	-0.2	3.1
Total Property Portfolio	1430.2	100.0	-0.7	100.0

Portfolio Analysis – Geographic Breakdown

	Market Value £m	% of portfolio as at 31 December 2018
West End	503.7	35.3
South East	335.1	23.4
Scotland	175.4	12.3
Midlands	168.7	11.8
North West	163.5	11.4
South West	33.4	2.3
Eastern	30.1	2.1
Rest of London	20.3	1.4
Total Property Portfolio	1,430.2	100.0

Top Ten Investments

	Sector
Properties valued in excess of £250 million
London W1, St Christopher’s Place Estate *	Mixed
Properties valued between £100 million and £150 million
London SW1, Cassini House, St James’s Street	Office
Properties valued between £70 million and £100 million
Newbury, Newbury Retail Park	Retail Warehouse
Properties valued between £50 million and £70 million
Solihull, Sears Retail Park	Retail Warehouse
London SW19, Wimbledon Broadway**	Mixed
Properties valued between £40 million and £50 million
Crawley, Leonardo House, Manor Royal	Office
Winchester, Burma Road	Alternative
Manchester, 82 King St	Office
Properties valued between £30 million and £40 million
Aberdeen, Unit 2 Prime Four Business Park, Kingswells	Office
Aberdeen, Unit 1 Prime Four Business Park, Kingswells	Office

*Mixed use property of retail, office, food/beverage and residential space.

**Mixed use property of retail, food/beverage and leisure space.

Summary Balance Sheet

	£m	Pence per share	% of Net Assets
Property Portfolio	1,429.9	178.9	128.1
Adjustment for lease incentives	(21.5)	(2.7)	(1.9)
Fair Value of Property Portfolio	1,408.4	176.2	126.2
Debtors	25.9	3.2	2.3
Cash	10.1	1.3	0.9
Interest rate swap	0.1	-	-
Current Liabilities	(17.3)	(2.2)	(1.6)
Total Assets (less current liabilities)	1,427.2	178.5	127.8
Non-Current liabilities	(1.8)	(0.2)	(0.2)
Interest-bearing loans	(308.0)	(38.5)	(27.6)
Net Assets at 31 December 2018	1,117.4	139.8	100.0

Borrowings

The Group’s borrowings consist of a £260 million loan with a term to 31 December 2024 and a fixed interest rate of 3.32 per cent per annum. The Group also has a £50 million bank loan with a term to 21 June 2021 on which the interest rate has been fixed, through an interest rate swap of the same notional value and duration, at 2.522 per cent per annum. In addition, the Board has agreed an additional revolving credit facility of £50 million with Barclays over the same period, to be used for ongoing working capital purposes and to provide the Group with the flexibility to acquire further property should the opportunity arise. This facility is currently undrawn.

The Group’s weighted average cost of debt is 3.3 per cent per annum.

Key Information

This statement and further information regarding the Company, including movements in the share price since the end of the period and the Group’s most recent annual and interim reports, can be found at the Company’s website fccpt.co.uk.

The next quarterly valuation of the property portfolio will be conducted by CBRE Limited during March 2019 and it is expected that the unaudited NAV per share as at 31 March 2019 will be announced in April 2019.

This announcement contains inside information.

Enquiries:
Richard Kirby
BMO REP Asset Management plc
Tel: [phone]

Graeme Caton
Winterflood Securities Limited
Tel: [phone]