Interim Results 31.12.2022

To:  RNS
Date:  21 March 2023
From:  CT Property Trust Limited
LEI:  231801XRCB89W6XTR23
 

Interim results in respect of the six-month period ended 31 December 2022

• Net asset value total return* of -26.8 per cent
• Share price total return* of -16.2 per cent
• Portfolio ungeared total return* of -22.1 per cent

•  Annualised dividend yield* of 5.8 per cent based on the period end share price
•  Dividend cover* of 108.5 per cent

* See Alternative Performance Measures

The Chairman, Davina Walter, stated:

2022 was a year characterised by geopolitical challenges as inflationary pressures led to rising interest rates amidst slowing economic growth. The second half of the year was marked by economic events closer to home, with September’s mini budget the catalyst for October 2022 being the worst month of capital performance from the UK real estate market on record, closely followed by November 2022 as the second. The end of a prolonged period of loose monetary policy has seen a rapid pricing correction across the real estate markets, causing illiquidity and uncertainty that has spilled over into the start of 2023, albeit with a tentative air of optimism amid initial indications of stabilisation in parts of the market.
 

Company Performance

In this challenging economic context, the Company has delivered a net asset value (‘NAV’) total return of -26.8 per cent and a NAV per share as at 31 December 2022 of 95.4 pence, down from 132.8 pence per share as at 30 June 2022 (a decrease of 28.2 per cent).

The potential downside risk attached to real estate asset values has been priced into the share price for some time with the Company’s shares trading at a substantial discount to NAV. The discount narrowed to 28.1 per cent at the period end, compared to 36.7 per cent as at 30 June 2022. The share price total return for the six-month period was -16.2 per cent.

	Pence
NAV per share as at 30 June 2022	132.8
Unrealised decrease in valuation of property portfolio	(38.7)
Realised gains on disposal of properties	0.5
Share buybacks	0.5
Other net revenue	2.3
Dividends paid	(2.0)
NAV per share as at 31 December 2022	95.4

Portfolio Performance

The Company’s portfolio delivered a total return of -22.1 per cent over the 6 month reporting period, underperforming the MSCI UK Quarterly Property Index (‘MSCI’ or ‘Index’) return of -15.5 per cent. This was driven by a capital return of -24.1 per cent against the Index return of -17.2 per cent. The relative underperformance can be attributed to the Company’s high weighting towards the industrial, logistics and distribution (‘industrials’) and retail warehousing sectors (a combined 77.5 per cent of the portfolio by capital value), which suffered the sharpest yield adjustments following a sustained period of valuation growth.

Whilst this has resulted in a disappointing short-term outturn, our bias to industrials and retail warehouses remains strategically important to our long-term performance. As the Manager’s Review sets out in further detail, these sectors retain strong occupational fundamentals and growth prospects that we expect to come to the fore as the commercial property market moves toward a stabilisation phase. Our portfolio is also characterised by good quality assets in core and primarily south-eastern locations, which should place us in good stead as we navigate these challenging economic headwinds.
 

Borrowings and Cash

The company has maintained a healthy cash position over the period, which was supported by the sale in August 2022 of 14 Berkeley Street in London’s Mayfair for £32.4m.

As at 31 December 2022, the Company had approximately £32.3 million of available cash and an undrawn revolving credit facility of £20 million, with the £7 million drawn down at the start of the period having been paid down. The £90 million long-term debt with Canada Life and the £20 million revolving credit loan facility with Barclays do not need to be refinanced until November 2026 and March 2025 respectively. As at 31 December 2022, the LTV (net of cash) was 22.7 per cent and the weighted average interest rate on the Group’s total current borrowings was 3.36 per cent.
 

Share Buybacks

The Company used some of the proceeds from the sale of Berkeley Street to buy the Company’s shares at a discount. This offered attractive value for shareholders and was both NAV and earnings enhancing. The buybacks were transacted between August and October 2022 but there have not been any in recent months, with the preservation of cash in current markets taking precedence. To date, the Company has bought back 8,575,000 Ordinary Shares at an average discount to the NAV at the time of transaction of 37.9 per cent.
 

Dividends

Two interim dividends of 1.0 pence per share were paid over the six month period, reflecting an annualised yield of 5.8 per cent based on the share price of 68.6 pence at the period close. The current dividend is being paid at 80 per cent of the rate paid pre-pandemic and is fully covered.

The Board will continue to keep the future level of dividends under review.
 

Board Composition

The Company’s former Chairman, Vikram Lall, retired from the Board following November’s Annual General Meeting, having served on the Board for nine years. The Board would like to thank Vikram for his dedication and years of valuable service to the Company during his time in office. As highlighted in the 2022 Annual Report, Rebecca Gates retired from the Board in August 2022, and we thank her for the contribution she made during her time on the Board.

I was delighted to be appointed Chairman with immediate effect following Vikram’s departure and, at the same time, James Thornton joined the Board as a non-executive Director, bringing with him a wealth of experience within the UK real estate market.
 

Environmental, Social and Governance (‘ESG’)

The ESG agenda continues to gather pace. Delivering best practice and positioning our asset base for long-term resilience remains a key pillar of the Company’s strategy.

The Company has just published its pathway to Net Zero Carbon (‘NZC’) and this can be found on our website ctpropertytrust.co.uk, with a commitment to achieve this critical milestone by 2040. The Board has worked closely with the Manager and their specialist consultants to undertake NZC audits across each of the portfolio assets, modelling the timing and impact of interventions to enable us to make our commitment based on a tangible and deliverable pathway. In line with Green Building Council guidance, our “fabric-first” approach means that the process of delivering the interventions necessary to reduce our portfolio’s operational carbon and energy intensity is already underway and we will continue to closely monitor progress against best practice standards.

April 2023 sees the introduction of the latest Minimum Energy Efficiency Standards (MEES) threshold, against which the portfolio is fully compliant. We are now focused on future threshold requirements, with incremental improvements to energy efficiency a key element of our asset-level business plans and offering clear synergies in the delivery of our NZC commitment.

We continue to develop our ESG agenda, and we are pleased to retain both our GRESB two-star rating and EPRA Gold Award for sustainability disclosures, demonstrating continued progress. The Company’s 2022 ESG Report, detailing the current status and progress made on the portfolio is available on the Company’s website.
 

Outlook

Persistently high inflation and rising interest rates will continue to put downward pressure on growth. However, the employment market remains tight, supply chain pressures are easing and energy costs abating, indicating the impact may be less severe than originally feared.

The level of future growth will be pivotal for the occupational markets, which have demonstrated notable resilience and continue to offer a foundation for growing confidence in the investment markets. The initial stages of 2023 have seen an uptick in investment activity which is expected to support a stabilisation in valuations, although some segments of the real estate market remain under pressure. Provided any impact on the occupational markets is relatively mild, we would expect that the UK real estate sector will see a stabilisation and recovery in the second half of 2023.

At a time when income and its resilience will prove the primary driver of total returns, we are confident that the Company’s portfolio is weighted in favour of those sectors offering the most sustainable income delivery alongside the greatest rental growth prospects. As capital appreciation begins to return, growth sectors will be prioritised, as will the long-term security offered by good quality assets. In this regard, our portfolio is well-positioned.


 

Manager’s Review
 

Portfolio Headlines

• The Company’s portfolio produced a total return of -22.1 per cent over the 6 months to December 2022, against the MSCI UK Quarterly Property Index (‘Index’ or ‘MSCI’) return of -15.5 per cent. This was largely driven by capital underperformance from exposure to industrial and retail warehousing.
• Portfolio total return outperformance of the Index to December 2022 has been maintained over longer time periods of 3, 5 and 10-years.
• Industrial and retail warehousing now account for 77.5 per cent of portfolio value. Portfolio vacancy in these sectors remains at nil and income growth has been delivered over the period.
• Disposal of 14 Berkeley Street for £32.4m, reflecting a net initial yield of 3.1 per cent, completed in August 2022.
• Low portfolio vacancy rate maintained at 2.9 per cent by estimated rental value (“ERV”) at period end, below the Index average of 8.0 per cent.
• Debt remains conservative at a loan to value of 22.7 per cent (net of cash), with long-term debt not due for refinancing until November 2026.
• Rental collection of 99.9 per cent over both the period and 2022 as a whole.

Property Market Review
The second half of 2022 witnessed a rapid repricing of UK commercial real estate owing to a concentration of factors. This challenging backdrop has resulted in the Index at a market level reporting a total return of -15.5 per cent over the period, driven by capital decline of -17.2 per cent. The Index delivered an income return of 2.0 per cent over the period (4.0 per cent annualised).

The inflationary environment gained momentum over the year and as the Bank of England tried to control this, there has been ten consecutive increases to the base rate rising from 0.1 per cent at the start of 2022 to 4.0 per cent at the time of writing. This increase in interest rates placed downward pressure on real estate values, and this was compounded by September’s mini budget, which led to gilt yields rising to levels not seen since 2010. These mounting headwinds of higher interest rates, a weaker economic backdrop and volatility in the financial markets resulted in marked investor caution and subdued activity throughout the period. In October, UK real estate experienced its sharpest monthly value decline on record (according to MSCI), with some areas of forced selling of real estate spurred by the need to satisfy redemption requests and reweighting pressures.

As 2022 came to a close we did see an uptick in agreed transactions, suggesting the period of ‘pricing discovery’ was approaching an end for attractive assets and sectors, which has been further supported by gradual momentum in the early stages of 2023. The nuance of the current downturn has been the strength of the underlying occupational markets where near record low vacancy levels have been maintained across the industrial, retail warehouse and alternative sectors.

In any period of economic pressure, the full impact to real estate is not immediately known and property owners will have a keen eye on occupier health over the forthcoming months. However, owing to the continued positive occupier activity within the aforementioned sectors and provided that any potential recession (real or technical) is mild, occupational markets are expected to remain relatively sound. This is further assisted by a muted development pipeline, constrained by the rise in construction and debt cost, which will keep levels of supply in check.

Despite the strong occupational story, the industrial sector’s low yields in H1 2022 were particularly exposed to the inflationary environment and prime yields moved out approximately 150 basis points in the 6 months to December. The sector delivered rental value growth in excess of 10 per cent in the 12 months to December 2022 and take up levels for 2022 were amongst the strongest on record, despite slowing in the second half of the year. The sector’s vacancy rate remains at near historic lows of circa 4.0 per cent nationally (for units over 100,000 sq ft) principally driven by e-commerce, the push for supply chain resilience and increasing on- and near-shoring. Market level rental growth is expected to remain positive but moderate as occupier margins come under pressure.

Prime yields for retail warehouses moved out by approximately 100-125 basis points over H2 2022, although by the close of 2022, the sector’s vacancy rate fell to circa 5 per cent, supported by the expansion of discount and convenience led retailers such as Lidl, PureGym, B&M, Home Bargains and Aldi. The sector drivers including consumer convenience, flexibility of the real estate, omni-channel retailing (‘clicks and bricks’), and the role the real estate plays in the ‘last mile’ of the consumer supply chain remains sound. Other good news at an occupier level has been the recent business rates revaluation that will see rating liabilities fall, supporting retailer margins.

High street retail has been less exposed to the pricing correction seen over the period, as the sector benefitted from a relative yield defence following a number of years of yield decompression. The sector has been through a significant period of restructuring, and continues to do so, however the occupational market continues to thrive for assets in ‘permanent’ locations at sustainable rents.

Offices remains highly polarised between prime and secondary stock. Occupiers are increasingly seeking high quality space with strong amenity provision to serve as an attractive environment for employees working in hybrid models. The propensity for staff to visit the office to meet colleagues typically during the central part of the week, and businesses need to offer more expansive working environments (larger desks, more break-out areas and a greater breadth of meeting rooms and pods), means that many space requirements for some occupiers do not differ greatly compared to pre-pandemic levels. Nevertheless, larger floorplates, often in out-of-town locations, have been noticeably impacted and demand for basic secondary space has materially declined. Sound ESG credentials continue to increase in importance to occupiers, and responsible investors with established ESG agendas, such as ourselves, will be well placed.

Portfolio Performance
Over the six months to December 2022 the Company’s portfolio delivered an ungeared total return of -22.1 per cent, against the Index return of -15.5 per cent, driven by the relative capital declines of -24.1 per cent against the index of -17.2 per cent.

While capital performance over the six-month period has been negative, the portfolio has outperformed the Index over 3,5 and 10 years.

Portfolio Sector Performance
In recent years, the portfolio’s exposure to the industrial and retail warehouse sectors (77.5 per cent combined portfolio value) has proven the key determinant of outperformance. However, recent sustained yield compression resulted in these sectors being more acutely exposed to the inflationary environment that saw marked outward yield movement in the second half of 2022.

The portfolio’s industrial assets saw capital falls of -28.8 per cent, against the Index sector return of -25.7 per cent, and the portfolio’s retail warehouses fell by -20.0 per cent against the Index of -15.6 per cent. Despite recent underperformance, we remain confident with our asset allocation to these growth sectors for their functional relevance in occupier markets and rental growth prospects. Indeed, our industrial portfolio delivered estimated rental value growth of 11.7 per cent in 2022 (vs the Index at 10.4 per cent), resulting in the industrial portfolio offering reversionary income potential in excess of 30 per cent at the period end.

Our retail warehousing assets remain fully let at sustainable rents to ‘essential retailers’, which has generated an attractive income return of 3.2 per cent over the six-month period, vs the Index of 2.9 per cent. Both sectors are therefore key in delivering our yield advantage and we expect them to be at the forefront of any future capital value recovery.

The portfolio’s high street retail holdings outperformed the Index on both capital and income returns on a relative basis generating a weighted total return of -5.7 per cent. The portfolio is at near full occupation with assets located in core locations within their local setting. This has helped the Company enter a number of lease renewals over the period.

The office portfolio generated a total return of -14.7 per cent. While the portfolio saw greater capital falls of -17.9 per cent against the Index at -13.7 per cent, the portfolio generated an income return of 3.7 per cent over the period, a significant premium on the Index income return of 1.7 per cent. This was in part due to the reverse premium paid by the outgoing tenant at High Wycombe following the reletting.

Portfolio Activity
As at December 2022 the portfolio had a low vacancy rate at 2.9 per cent alongside rent collection rates of 99.9 per cent for the period. The portfolio is characterised by reversionary income potential of 19 per cent, without factoring in any additional forecast rental growth. The weighted average unexpired lease term (“WAULT”) stands at 6.2 years (assuming all tenant breaks are operated) which offers an attractive balance between income duration and the opportunity to leverage leasing events to generate both income and capital growth. We expect income to be a key component of return as we enter a low-return environment.

Industrial
The industrial portfolio (56.0 per cent of portfolio value) is fully occupied and carries reversionary income potential in excess of 30 per cent. During the six-month period we completed a number of successful asset management initiatives:

• Unit 1 Network, Bracknell – this 35,000 sq ft logistics unit became vacant in September 2022 as the tenant operated their break option. The unit was re-let in December 2022 on a new 10-year lease to DX Logistics at £15.50 psf reflecting a 47 per cent uplift to the previous passing rent and 15 per cent premium to the rent agreed on the reletting of the adjacent Unit 2 Network in March 2022.
• Unit K60, Lister Road, Basingstoke – the 58,000 sq ft logistics unit, let to distribution specialist Bunzl, was subject to a February 2022 rent review. This settled in July 2022 at a rent of £11.10 psf showing a 24 per cent uplift to the previous passing rent.
• Unit 2, Lakeside Logistics Centre, Colnbrook, Heathrow – this unit on the multi-let logistics estate, let to branding agency N20, was subject to an outstanding July 2020 rent review. It was settled in September 2022 at a rent showing a 14 per cent uplift to the previous passing rent.

Retail Warehouses & Retail
Our retail warehousing portfolio (21.5 per cent of portfolio value) remains fully occupied and

is let to ‘essential’ and discount retailers at sustainable rents. Given the full occupancy, there were no leasing events over the period.

The high street retail portfolio (6.4 per cent of portfolio value) is focussed on neighbourhood and convenience-led assets in ‘permanent’ locations and includes a number of mixed-use holdings offering residential and office alternative uses. The portfolio’s low vacancy rate of 3.7 per cent by ERV has been supported by a number of recent asset management initiatives:

• 24 Haymarket, London – the occupier of two office suites at this West End mixed-use holding was subject to lease renewal in early 2022. The event offered the opportunity to carry out ESG led upgrades to one of the suites, following which two new 5-year leases were completed in July at rents broadly in line with the ERV.
• Chobham Road, Sunningdale – this mixed-use retail holding, with some residential upper parts, offers convenience-led retail in an affluent and busy catchment. Over the 6-month period, lease renewals have completed on 3 units, all delivered at a premium to ERV, maintaining full-occupancy of the retail element.

Offices
The Company’s offices (16.1 per cent of value) are characterised by ‘blue chip’ occupiers, including the likes of Lloyds Bank, The Secretary of State and HSBC. Recent asset management activity includes:

• Glory Park, High Wycombe – the ground and first floors were let to Takeda until 2024, although the tenant was no longer in occupation. In November 2022 the tenant’s lease was surrendered for a premium payable to the Company and the floors immediately relet at £24.0 psf to a new tenant on a

10-year lease, with a break option after 5 years. The incoming tenant has carried out a refurbishment of the office suites to include upgrades to the lighting systems, which will future-proof the asset EPC rating.

There is an increasing focus on the ESG credentials of offices, with investors becoming more sensitive to potential capital expenditure requirements. The Company’s independent valuers have long been building capital expenditure contingencies into leasing assumptions.

Investment Activity
In August 2022, the Company completed the disposal of the prime, multi-let office at 14 Berkeley Street, London, for £32.4 million. Following the completion of the business plan the asset was identified for sale as it was considered to be at its cyclical peak, low yielding and one of the largest assets in the portfolio. We exited at a yield of 3.1% (a 5 per cent premium to the June 2022 valuation), which is considered to have been top of the market.

The proceeds from the sale have strengthened the Company’s balance sheet at an important juncture. A portion of the proceeds were used by the Board to initiate a share buyback programme, whilst the Company retains a healthy cash balance and a conservative level of gearing.

Reinvestment into new assets was postponed owing to the repricing of commercial property in the later half of 2022. At the right time the Company will look to reinvest in yield accretive quality assets where and when we see value.

We will look to retain our overweight allocations to industrial and retail warehousing, and the bias exposure to the South of England. At the appropriate time there will be the opportunity for some asset rotation to add a degree of geographic diversity and enhance income return.

Outlook
As a relatively illiquid asset class, it is important to take a medium to long-term view in direct real estate investment. Although capital values can fluctuate in the short term the income element of returns has remained attractive and stable over the short and long-term and will once again come into focus as we enter a low growth environment.

Inflationary pressures and the cost of debt are showing early signs of easing. This has been reflected in the stabilisation of the 10-year government bonds, generally considered as the risk-free rate proxy to commercial real estate.

Whilst risks remain, as the year progresses, we expect to see values stabilise with some recovery in the valuations of assets with strong occupier fundamentals. We have begun to witness this with an uptick in investment activity either side of the new year. Notwithstanding this, we do not expect values to rebound to the levels of over exuberance witnessed in the early part of 2022, whilst poorer secondary assets, particularly within the offices sector, are expected to see further downward pressure.

Income is the key driver of real estate returns over the long-term. Whether we are in periods of capital growth or facing upward yield pressure, the fundamentals remain consistent – to manage a portfolio of attractive assets with functional relevance that businesses want to occupy. The qualities of the portfolio have been well discussed, characterised by our inherent reversionary potential and bias exposure to growth sectors. We remain positive that despite the current headwinds the portfolio will be able to deliver a sustainable and growing income stream.


 

CT Property Trust Limited
Condensed Consolidated Statement of Comprehensive Income

	Notes	Six months to 31 December 2022 (unaudited)	Six months to 31 December 2021 (unaudited)	Year to 30 June 2022 (audited)
		£000	£000	£000
Revenue
Rental income		8,503	8,617	17,869
Other income		397	-	607
Total revenue		8,900	8,617	18,476
(Losses)/gains on investment properties
Gains on sale of investment properties realised	6	1,153	572	772
Unrealised (losses)/gains on revaluation of investment properties	6	(93,207)	44,892	71,767
Total income		(83,154)	54,081	91,015
Expenditure
Investment management fee	2	(887)	(1,119)	(2,380)
Other expenses	3	(1,001)	(819)	(1,568)
Total expenditure		(1,888)	(1,938)	(3,948)
Net operating (loss)/profit before finance costs and taxation		(85,042)	52,143	87,067
Net finance costs
Interest receivable		227	-	5
Finance costs		(1,765)	(1,725)	(3,434)
		(1,538)	(1,725)	(3,429)
Net (loss)/profit from ordinary activities before taxation		(86,580)	50,418	83,638
Taxation		(2)	(118)	(235)
(Loss)/profit for the period		(86,582)	50,300	83,403
Basic and diluted earnings per share	5	(36.7)p	20.9p	34.6p
EPRA earnings per share		2.3p	2.0p	4.5p

CT Property Trust Limited
Condensed Consolidated Balance Sheet

Notes	31 December 2022 (unaudited) £000	31 December 2021 (unaudited) £000	30 June  2022 (audited) £000
Non-current assets
Investment properties  6	281,866	381,459	405,875
Trade and other receivables	4,189	3,979	4,734
	286,055	385,438	410,609
Current assets
Trade and other receivables	2,629	3,139	2,418
Cash and cash equivalents	32,323	11,052	13,563
	34,952	14,191	15,981
Total assets	321,007	399,629	426,590
Non-current liabilities
Interest-bearing bank loans  7	(90,005)	(89,939)	(89,999)
Trade and other payables	(744)	(772)	(1,137)
	(90,749)	(90,711)	(91,136)
Current liabilities
Trade and other payables	(8,907)	(7,622)	(8,768)
Interest-bearing bank loans  7	-	(9,882)	(6,915)
Tax payable	-	(118)	(186)
	(8,907)	(17,622)	(15,869)
Total liabilities	(99,656)	(108,333)	(107,005)
Net assets	221,351	291,296	319,585
Represented by:
Share capital   9	2,407	2,407	2,407
Special distributable reserve	170,189	177,161	177,161
Capital reserve	44,229	109,208	136,283
Revenue reserve	4,526	2,520	3,734
Equity shareholders’ funds	221,351	291,296	319,585
Net asset value per share  10	95.4p	121.0p	132.8p
EPRA net tangible assets per share	95.4p	121.0p	132.8p

CT Property Trust Limited
Condensed Consolidated Statement of Changes in Equity

For the period ended 31 December 2022 (unaudited)

	Share Capital £000	Special Distributable Reserve £000	Capital Reserve £000	Revenue Reserve £000	Total £000
Notes At 1 July 2022	2,407	177,161	136,283	3,734	319,585
Shares bought back for  9 treasury	-	(6,972)	-	-	(6,972)
Loss for the period	-	-	-	(86,582)	(86,582)
Dividends paid  4	-	-	-	(4,680)	(4,680)
Transfer in respect of losses on investment properties	-	-	(92,054)	92,054	-
At 31 December 2022	2,407	170,189	44,229	4,526	221,351

For the period ended 31 December 2021 (unaudited)

	Share Capital £000	Special Distributable Reserve £000	Capital Reserve £000	Revenue Reserve £000	Total £000
Notes At 1 July 2021	2,407	177,161	63,744	2,498	245,810
Profit for the period	-	-	-	50,300	50,300
Dividends paid  4	-	-	-	(4,814)	(4,814)
Transfer in respect of gains on investment properties	-	-	45,464	(45,464)	-
At 31 December 2021	2,407	177,161	109,208	2,520	291,296

For the year ended 30 June 2022 (audited)

	Share Capital £000	Special Distributable Reserve £000	Capital Reserve £000	Revenue Reserve £000	Total £000
Notes At 1 July 2021	2,407	177,161	63,744	2,498	245,810
Profit for the year	-	-	-	83,403	83,403
Dividends paid  4	-	-	-	(9,628)	(9,628)
Transfer in respect of gains on investment properties	-	-	72,539	(72,539)	-
At 30 June 2022	2,407	177,161	136,283	3,734	319,585

CT Property Trust Limited
Condensed Consolidated Statement of Cash Flows

	Notes	Six months to 31 December 2022 (unaudited)	Six months to 31 December 2021 (unaudited)	Year to  30 June 2022 (audited)
		£000	£000	£000
Cash flows from operating activities
Net (loss)/profit for the period before taxation		(86,580)	50,418	83,638
Adjustments for:
Gains on sale of investment properties    realised    Unrealised losses/(gains) on revaluation of    investment properties	6 6	(1,153) 93,207	(572) (44,892)	(772) (71,767)
Decrease/(increase) in operating trade and other    receivables		335	(395)	(429)
(Decrease)/increase in operating trade and other    payables		(254)	(1,127)	384
Interest received		(227)	-	(5)
Finance costs		1,765	1,725	3,434
		7,093	5,157	14,483
Taxation paid		(188)	(187)	(236)
Net cash inflow from operating activities		6,905	4,970	14,247
Cash flows from investing activities
Capital expenditure	6	(68)	(1,129)	(1,547)
Purchase of investment properties	6	-	(20,789)	(20,737)
Sale of investment properties	6	32,022	7,809	10,834
Interest received		227	-	5
Net cash inflow/(outflow) from investing activities		32,181	(14,109)	(11,445)
Cash flows from financing activities
Dividends paid		(4,680)	(4,814)	(9,628)
Bank loan interest paid		(1,674)	(1,626)	(3,242)
Buy-backs to treasury		(6,972)	-	-
Bank loan (repaid)/drawn down, net of costs – Barclays		(7,000)	10,000	7,000
Net cash (outflow)/inflow from financing activities		(20,326)	3,560	(5,870)
Net increase/(decrease) in cash and cash equivalents		18,760	(5,579)	(3,068)
Opening cash and cash equivalents		13,563	16,631	16,631
Closing cash and cash equivalents		32,323	11,052	13,563

CT Property Trust Limited

Notes to the Condensed Consolidated Financial Statements
for the six months to 31 December 2022

1.  General information

The condensed consolidated financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom Financial Conduct Authority and IAS 34 ‘Interim Financial Reporting’. The condensed consolidated financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the consolidated financial statements for the Group for the year ended 30 June 2022 which were prepared under full IFRS requirements. The accounting policies used in preparation of the condensed consolidated financial statements are consistent with those of the consolidated financial statements of the Group for the year ended 30 June 2022.

2.  Investment management fee	Six months to 31 December 2022 £000	Six months to 31 December 2021 £000	Year to 30 June 2022 £000
Investment management fee	887	1,119	2,380

With effect from 1 July 2022, the Company’s investment manager Columbia Threadneedle Investment Business Limited (formerly BMO Investment Business Limited) receives an investment management fee

of 0.55 per cent per annum of Total Assets including cash held provided that no fee is payable on any cash held in excess of 5 per cent of the net assets of the Group. Prior to 1 July 2022, the investment management fee was 0.6 per cent per annum of Total Assets including cash held provided that no fee is payable on any cash held in excess of 5 per cent of the net assets of the Group.

The notice period in relation to the termination of the investment management agreement is six months by either party. The investment management agreement may be terminated earlier provided that a payment in lieu of notice, equivalent to the amount the Investment Manager would otherwise have received during the notice period, is made.

3.  Other expenses	Six months to 31 December 2022 £000	Six months to 31 December 2021 £000	Year to 30 June 2022 £000
Direct operating expenses of let rental property	325	377	641
Direct operating expenses of vacant property	118	321	371
Bad debts	(42)	(358)	(425)
Valuation and other professional fees	194	112	266
Directors’ fees	80	82	165
Administration fee payable to the Manager	57	57	113
Other expenses	269	228	437
	1,001	819	1,568

4.  Dividends

	Six months to 31 December 2022		Six months to 31 December 2021		Year ended 30 June 2022
	£000	Rate (pence)	£000	Rate (pence)	£000	Rate (pence)
Property Income Distributions:
Fourth interim for the prior year	2,359	1.0	2,407	1.0	2,407	1.0
First interim	2,321	1.0	2,407	1.0	2,407	1.0
Second interim	-	-	-	-	2,407	1.0
Third interim	-	-	-	-	2,407	1.0
	4,680	2.0	4,814	2.0	9,628	4.0

A second interim dividend for the year to 30 June 2023, of 1.0 pence per share, will be paid on 31 March 2023 to shareholders on the register at close of business on 17 March 2023.

5.  Earnings per share	Six months to 31 December 2022	Six months to 31 December 2021	Year to 30 June 2022
Net (loss)/profit attributable to ordinary shareholders (£000)	(86,582)	50,300	83,403
Weighted average of ordinary shares in issue during period	235,670,703	240,705,539	240,705,539
Earnings per share	(36.7)p	20.9p	34.6p

Earnings for the six months to 31 December 2022 should not be taken as a guide to the results for the year to 30 June 2023.

6.  Investment properties

		Six months to 31 December 2022 £000	Six months to 31 December 2021 £000	Year to 30 June 2022 £000
Freehold and leasehold properties Opening market value		410,225	325,575	325,575
Capital expenditure		68	1,129	1,547
Purchases		-	20,789	20,737
Sales    - net proceeds     - gains on sales		(32,022) 13,390	(7,809) 2,956	(10,834) 2,111
Unrealised gains realised during the period		(12,237)	(2,384)	(1,339)
Unrealised gains on investment  properties Unrealised losses on investment properties		356 (93,563)	48,754 (3,862)	77,353 (5,586)
Movement in lease incentive  receivable		(262)	652	661
Closing market value		285,955	385,800	410,225
Adjustment for lease incentives		(4,089)	(4,341)	(4,350)
Balance sheet fair value		281,866	381,459	405,875

	Six months to 31 December 2022 £000	Six months to 31 December 2021 £000	Year to 30 June 2022 £000
Gains on sales	13,390	2,956	2,111
Unrealised gains realised during the period	(12,237)	(2,384)	(1,339)
Gains on sale of investment properties realised	1,153	572	772

	Six months to 31 December 2022 £000	Six months to 31 December 2021 £000	Year to 30 June 2022 £000
Unrealised gains on investment properties	356	48,754	77,353
Unrealised losses on investment properties	(93,563)	(3,862)	(5,586)
Unrealised (losses)/gains on revaluation of investment properties	(93,207)	44,892	71,767

All the Group’s investment properties were valued as at 31 December 2022 by qualified professional valuers working in the company of Cushman & Wakefield.  All such valuers are chartered surveyors, being members of the Royal Institution of Chartered Surveyors (‘RICS’).  There were no significant changes to the valuation techniques used during the period and these valuation techniques are detailed in the consolidated financial statements as at and for the year ended 30 June 2022.  The market value of these investment properties amounted to £285,955,000 (31 December 2021: £385,800,000; 30 June 2022: £410,225,000), however an adjustment has been made for lease incentives of £4,089,000 that are already accounted for as an asset (31 December 2021: £4,341,000; 30 June 2022: £4,350,000).

7.  Interest-bearing bank loans

IRP Holdings Limited (“IRPH”) has in place a £90 million non-amortising term loan facility agreement with Canada Life.  Interest is payable on this loan, quarterly in arrears, at a fixed rate of 3.36 per cent per annum. The loan is secured by means of a fixed charge over specific properties. The loan has a maturity date of 9 November 2026.

IPT Property Holdings Limited (“IPTH”) has in place a £20 million revolving credit facility (“RCF”) agreement with Barclays. The loan facility expires on 27 March 2025 and can be drawn down or repaid at anytime. Interest accrues on the bank loan at a variable rate, based on the SONIA Daily Compounded rate plus margin and mandatory lending costs. The margin is 1.7 per cent per annum for the duration of the loan and interest is payable quarterly. As at 31 December 2022 none of the RCF was drawn down (31 December 2021: £10 million; 30 June 2022: £7 million).

At 31 December 2022 borrowings of £90 million were drawn down.  The balance sheet value is stated at an amortised cost of £90,005,000 (31 December 2021: £99,821,000 and 30 June 2022: £96,914,000).  Amortised cost is calculated by deducting loan arrangement costs, which are amortised back over the life of the loan.  The fair value of the Canada Life loan is shown in note 8.

8.  Fair value measurements

The fair value measurements for financial assets and financial liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows:

• Level 1 – Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities.  Examples of such instruments would be investments listed or quoted on any recognised stock exchange.

• Level 2 – Quoted prices for similar assets or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment.  Examples of such instruments would be those for which the quoted price has been suspended, forward exchange rate contracts and certain other derivative instruments. 

• Level 3 – External inputs are unobservable.  Fair value is the Directors’ best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instruments.

All of the Group’s investments in direct property are included in Level 3 as it involves the use of significant inputs. There were no transfers between levels of the fair value hierarchy during the six-month period ended 31 December 2022.

Other than the fair values stated in the table below, the fair value of all other financial assets and liabilities is not materially different from their carrying value in the financial statements.

	31 December 2022 £000		31 December 2021 £000		30 June  2022 £000
£90 million Canada Life Loan 2026*	93,448		93,997		93,443

*The fair value of the interest-bearing Canada Life Loan is based on the yield on the Treasury 2% 2025 which would be used as the basis for calculating the early repayment of such loan plus the appropriate margin. The Canada Life loan is classified as Level 2 under the hierarchy of fair value measurement.

The Group’s financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 30 June 2022.

9.  Share capital

Allotted, issued and fully paid

	Listed		Held in Treasury		In Issue
	Number	£000	Number	£000	Number	£000
Ordinary shares of 1 pence each
Balance at 1 July 2022	240,705,539	2,407	-	-	240,705,539	2,407
Repurchased to be held in treasury	-	-	(8,575,000)	(86)	(8,575,000)	(86)
Balance at 31 December 2022	240,705,539	2,407	(8,575,000)	(86)	232,130,539	2,321

During the period the Company bought back 8,575,000 Ordinary shares at a cost of £6,972,000 (period to 31 December 2021 – nil; year to 30 June 2022 – nil).

As at 31 December 2022 the Company held 8,575,000 Ordinary shares in treasury (31 December 2021 – nil; 30 June 2022 – nil).

10. Net asset value per share

	Six months to 31 December 2022	Six months to 31 December 2021	Year ended 30 June  2022
Net asset value per ordinary share	95.4p	121.0p	132.8p
Net assets attributable at the period end (£000)	221,351	291,296	319,585
Number of ordinary shares in issue at the period end	232,130,539	240,705,539	240,705,539

11. Going concern

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.They have considered the current cash position of the Group, the availability of the loans and compliance with their covenants, forecast rental income and other forecast cash flows.The Group has agreements relating to its borrowing facilities with which it has complied during the period.Based on this information the Directors believe that the Group has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of the approval of the accounts.For this reason, they continue to adopt the going concern basis in preparing the accounts.

12. Related party transactions

The Directors of the Company, who are considered to be the Group’s key management personnel, received fees for their services and dividends from their shareholdings in the Company.  No fees remained payable at the period end.

13. Operating segments

The Board has considered the requirements of IFRS 8 ‘Operating Segments’.  The Board is of the view that the Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Group has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group’s performance is the total return of the Group’s net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the condensed consolidated financial statements.

14. Investment in subsidiary undertakings

The Group results consolidate those of IRP Holdings Limited (‘IRPH’) and IPT Property Holdings Limited (‘IPTH’). IRPH and IPTH are companies incorporated in Guernsey whose principal business is that of a property investment company.  These companies are 100 per cent owned by the Group’s ultimate parent company, which is CT Property Trust Limited.

15. The report and accounts for the half-year ended 31 December 2022 is available on the website ctpropertytrust.co.uk.

  Statement of Principal Risks and Uncertainties

The economic environment has deteriorated significantly in the six month period as UK inflation has risen to above 10 per cent.

This has led to a cost of living crisis and we have witnessed interest rates rising to 4 per cent with a further increase predicted.

Against this background, real estate valuations are going through a period of price adjustment as capital values fall. Rent collections statistics have, however, held up to date.

The Group’s assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the UK commercial property market in general but also the particular circumstances of the properties in which it is invested and their tenants. Other risks faced by the Group include geopolitical, market, investment and strategic, regulatory, tax structuring and compliance, financial, reporting, credit, operational and environmental risks. The Group is also exposed to risks in relation to its financial instruments. These risks, and the way in which they are mitigated and managed, are described in more detail under the heading ‘Principal Risks and Future Prospects’ within the Strategic Report in the Group’s Annual Report for the year ended 30 June 2022. The Group’s principal risks and uncertainties have not changed materially since the date of that report and are not expected to change for the remainder of the Company’s financial year.

Statement of Directors’ Responsibilities in Respect of the Interim Report

We confirm that to the best of our knowledge:

• the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the European Union;

• the Chairman’s Statement constituting the Interim Management Report together with the Statement of Principal Risks and Uncertainties include a fair review of the information required by the Disclosure and Transparency Rules (‘DTR’) 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements; and

• the Chairman’s Statement together with the consolidated financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board
Davina Walter
Chairman
21 March 2023
 

Alternative Performance Measures

The Company uses the following Alternative Performance Measures (‘APMs’). APMs do not have a standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other entities.

Discount or Premium – The share price of an Investment Company is derived from buyers and sellers trading their shares on the stock market. If the share price is lower than the NAV per share, the shares are trading at a discount. This usually indicates that there are more sellers than buyers. Shares trading at a price above the NAV per share, are said to be at a premium.

	Six months to 31 December 2022 Pence	Six months to 31 December 2021 Pence	Year to 30 June 2022 Pence
Net Asset Value per share	95.4	121.0	132.8
Share price per share	68.6	85.4	84.0
Discount	28.1%	29.4%	36.7%

Dividend Cover – The percentage by which profits for the period (less gains/losses on investment properties) cover the dividend paid.

A reconciliation of dividend cover is shown below:

	Six months to 31 December 2022 £000	Six months to 31 December 2021 £000	Year to 30 June 2022 £000
(Loss)/profit for the period	(86,582)	50,300	83,403
Add back: Realised gains	(1,153)	(572)	(772)
Other income	(397)	-	(607)
Unrealised losses/(gains)	93,207	(44,892)	(71,767)
Profit before investment gains and losses	5,075	4,836	10,257
Dividends	4,680	4,814	9,628
Dividend Cover percentage	108.4%	100.5%	106.5%

Dividend Yield – The annualised dividend divided by the share price at the period end. An analysis of dividends is contained in note 4.

Net Gearing – Borrowings less net current assets divided by value of investment properties.

	Six months to 31 December 2022 £000	Six months to 31 December 2021 £000	Year to 30 June 2022 £000
Interest-bearing bank loans	90,005	99,821	96,914
Less net current assets excluding Barclays loan	(26,045)	(6,451)	(7,027)
Total	63,960	93,370	89,887
Investment properties	281,866	381,459	405,875
Net Gearing	22.7%	24.5%	22.1%

Portfolio (Property) Capital Return – The change in property value during the period after taking account of property purchases and sales and capital expenditure, calculated on a quarterly time-weighted basis.

Portfolio (Property) Income Return – The income derived from a property during the period as a percentage of the property value, taking account of direct property expenditure, calculated on a quarterly time-weighted basis.

Portfolio (Property) Total Return – Combining the Portfolio Capital Return and Portfolio Income Return over the period, calculated on a quarterly time-weighted basis.

Total Return – The return to shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the Share Price or NAV. The dividends are assumed to have been reinvested in the form of Ordinary Shares or Net Assets, respectively, on the date on which they were quoted ex-dividend.

	Six months to 31 December 2022	Six months to 31 December 2021	Year to 30 June 2022
NAV per share at the start of the period	132.8p	102.1p	102.1p
NAV per share at the end of the period	95.4p	121.0p	132.8p
Change in the period	-28.2%	+18.5%	+30.1%
Impact of dividend reinvestments	+1.4%	+2.1%	+4.2%
NAV total return for the period	-26.8%	+20.6%	+34.3%

	Six months to 31 December 2022	Six months to 31 December 2021	Year to 30 June 2022
Share price per share at the start of the period	84.0p	71.0p	71.0p
Share price per share at the end of the period	68.6p	85.4p	84.0p
Change in the period	-18.3%	+20.3%	+18.3%
Impact of dividend reinvestments	+2.2%	+3.0%	+5.7%
Share price total return for the period	-16.1%	+23.3%	+24.0%

EPRA Performance Measures

The European Public Real Estate Association (EPRA) is the industry body representing listed companies in the real estate sector. EPRA publishes Best Practice Recommendations (BPR) to establish consistent reporting by European property companies. Key performance measures are disclosed below:

EPRA earnings and EPRA earnings per share – EPRA earnings represents the earnings from core operational activities, excluding investment property revaluations and gains/losses on asset disposals.  It demonstrates the extent to which dividend payments are underpinned by recurring operational activities.

	Six months to 31 December 2022 £000	Six months to 31 December 2021 £000	Year to 30 June 2022 £'000
Earnings per IFRS income statement	(86,582)	50,300	83,403
Exclude:
Net change in value of investment properties	93,207	(44,892)	(71,767)
(Gains)/losses on disposals of investment properties	(1,153)	(572)	(772)
EPRA earnings	5,472	4,836	10,864
Weighted average number of shares in issue (000's)	235,671	240,705	240,705
EPRA earnings per share (pence per share)	2.3	2.0	4.5

EPRA Net Tangible Assets - Assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax.

	Six months to 31 December 2022 £000	Six months to 31 December 2021 £000	Year to 30 June 2022 £'000
IFRS NAV	221,351	291,296	319,585
Net assets used in per share calculation	221,351	291,296	319,585
Shares in issue (000's)	232,131	240,705	240,705
EPRA assets per share (pence per share)	95.4	121.0	132.8

Enquiries to:

The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court,
Les Banques,
St Peter Port
Guernsey GY1 3QL
Tel:  [phone]
Fax:  [phone]

M Howard, S Macrae
Columbia Threadneedle Investment Business Limited
Tel:  [phone]
Fax:  [phone]

The full interim report for the period to 31 December 2022 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: ctpropertytrust.co.uk