Final Results
To: RNS
Date: 24 April 2013
From: F&C Commercial Property Trust Limited
Results in Respect of the Year Ended 31 December 2012 (audited)
Highlights
· Share price total return of 8.2 per cent
· Net asset value total return of 4.4 per cent
· Portfolio total return of 5.7 per cent, compared with a total return of 2.8 per cent from the IPD benchmark
· Top quartile performance of the portfolio over 1, 3 and 5 years within the IPD benchmark
· Dividend level maintained at 6.0p per Ordinary Share, providing a yield of 5.8 per cent at the year end
· Over £65 million raised during the year through the issue of new Ordinary Shares, with a further £14 million raised since the year end
· "Best in Class" awards from Investment Week and the Investors' Chronicle
Chairman's Statement
Introduction
I am pleased to report that F&C Commercial Property Trust had a successful year in 2012, making good progress in a number of key areas. The Company delivered a positive net asset value ('NAV') total return, outperforming its performance benchmark index; the portfolio continued to record top quartile performance; it made opportunistic disposals of two Central London properties and exchanged on a third; it made a forward commitment to purchase a significant property in Aberdeen, a transaction that should complete later in 2013; and it issued a large number of new shares at a premium to NAV.
In addition to this, the Company has recently won "Best of Class" awards from both Investment Week and the Investors' Chronicle.
Review of the Year
The Company's NAV total return for the year was 4.4 per cent, comparing favourably with a total return of 2.8 per cent from the benchmark Investment Property Databank ('IPD') Quarterly Universe. The ungeared total return from the property portfolio was 5.7 per cent, again comparing favourably with the IPD total return stated above. The portfolio continues to be in the top quartile over one year and top decile over three and five years within the IPD benchmark.
The share price total return during the year was 8.2 per cent and the share price at the year-end was 103.7p, representing a premium of 5.0 per cent to the NAV per share of 98.8p.
Despite disappointing UK economic growth and concerns regarding the Eurozone, the UK commercial property market in aggregate delivered modest total returns throughout the year. Performance was driven by income returns and capital values moved lower during the year. All sectors saw performance weaken in 2012 compared with the previous year but the deterioration was most pronounced for the retail sector, reflecting structural as well as cyclical factors. The market was polarised, with Central London shops and offices out-performing their regional counterparts and prime property generally out-performing secondary. Occupiers were cost sensitive and rental growth was patchy at best. Activity was subdued and generally lease driven. Investors remained cautious, favouring prime buildings, established locations and assets with longevity and security of income.
The Company sold two Central London properties during the year: 84 Eccleston Square, London SW1 was sold for £49.0 million, and 385/389 Oxford Street, London W1 was sold for £28.1 million. In each case the sales were for an amount in excess of the most recent valuation, demonstrating a strong demand from overseas investors for Central London properties. In addition, during the year the Company exchanged contracts to sell Charles House, 5-11 Regent Street, London SW1 for £36.0 million, compared with the last external valuation of £34.4 million. The sale completed on 5 April 2013.
Although there were no acquisitions completed during the year, the Company has continued to invest in the existing portfolio including the ongoing development of student accommodation at Burma Road, Winchester, the final stage of which is due to complete later in 2013. In addition, at the end of July 2012, the Company agreed a forward commitment to purchase four pre-let office blocks in Aberdeen for approximately £94 million. The office blocks are currently being developed and are expected to be completed between October and November 2013. This purchase will provide the Company with exposure to one of the most buoyant office markets in the UK as well as an attractive long term and secure income stream. The overall net initial yield of 6.8 per cent is above the average yield of the existing property portfolio. Once complete, the acquisition is expected to increase the Company's level of dividend cover.
Full details of the major property management activities undertaken during the year are contained within the Managers' Review.
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 2011 100.5
Realised gains on sale of properties 1.5
Unrealised decrease in valuation of direct property portfolio (1.7)
Movement in interest rate swaps (0.1)
Premium on shares issued 0.3
Net revenue 4.3
Dividends paid (6.0)
---------
NAV per share as at 31 December 2012 98.8
---------
Dividends
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 5.8 per cent based on the year-end share price. Barring unforeseen circumstances, the Board intends that dividends in 2013 will continue to be paid monthly at the same rate.
Issue of New Ordinary Shares
During the year, the Company announced that it would be prepared to issue new Ordinary Shares at a premium to NAV, on a non pre-emptive basis under existing authorities if it was in the shareholders' and Company's interests to do so. It subsequently issued 64.2 million Ordinary Shares (representing 9.4 per cent of the issued share capital at the beginning of the year) for a net consideration of £65.3 million. Since the end of the year, the Company has issued a further 14.0 shares for a net consideration of £14.1 million. All new shares were issued at a premium to the most recently announced NAV.
Borrowings and Cash Balances
At the end of the year, the Company's borrowings were represented by £230 million of Secured Bonds which have been assigned an 'Aaa' rating by Moody's Investor Services and mature in 2015, and a £50 million secured bank loan which is repayable in 2017. The Company's gearing, net of cash, as at 31 December 2012 was 15.0 per cent. This compares with 25.4 per cent at the end of the previous year. Had the Company been fully invested at 31 December 2012, the level of gearing would have been 27.8 per cent.
During the year, and as part of the funding of the commitment to purchase the office blocks in Aberdeen, the Company entered into a new £30 million committed bank facility which will mature on 30 June 2015. The facility will be drawn down on the purchase of the property.
The Company had cash balances of £153 million as at 31 December 2012. This amount has increased further following the sale of Charles House as described above. Approximately £64 million, plus costs, is expected to be required to fund the purchase of the office blocks in Aberdeen and some cash is required for normal working capital. The remaining balance provides the Managers with an opportunity to consider attractive investment opportunities through new acquisitions and to continue to invest in the existing portfolio.
Real Estate Investment Trusts ('REIT') Regime
The Board has for some time been monitoring changes to the REIT regime, particularly how these changes might impact the Group, and will continue to keep the situation under regular review. In the meantime, the Board is satisfied that it continues to be in the Company's interests to maintain the current group structure.
Annual General Meeting
The Annual General Meeting will be held at 12.30pm on Thursday 23 May 2013 at Trafalgar Court, Les Banques, St. Peter Port, Guernsey.
Outlook
The economy is predicted to see a slow but sustained recovery on consensus forecasts. Downside risks remain and the adjustment period is likely to be prolonged. The upturn in the property market is expected to be gradual and to broaden as excess capacity is absorbed and occupier demand recovers, with performance being primarily income driven.
Although London and the South East may continue to out-perform the regions, stock selection, asset management and the quality of the income stream will be major factors in determining performance and enhancing dividend cover.
Chris Russell
Chairman
Managers' Review
Market Review
The market total return for the year, as measured by the Investment Property Databank ('IPD') Quarterly Universe was 2.8 per cent. Total returns were positive throughout the year but concerns about the sovereign debt crisis, possible Eurozone fracture and the loss of recovery momentum, both internationally and in the UK, all weighed on sentiment for much of the period. The 2012 outturn was the weakest since 2008.
This subdued performance was reflected in a flat rental growth performance and a 2.8 per cent fall in market capital values as both initial and equivalent all property yields edged higher during the year. Performance in 2012 was driven by an income return of 5.8 per cent.
Investment activity was slightly higher in 2012 than in the previous year and close to the long-term average at £35.6 billion, according to Property Data figures. The year saw a shift in the composition of investment with Central London offices recording a £5 billion increase in transactions to more than £15 billion, while investment in UK retail declined by more than £3 billion. Investment from overseas purchasers increased in 2012, approaching half of all transactions, but institutions were net sellers of property during the year.
Investors have been attracted to UK property as a large, mature, transparent market outside the Eurozone. The very low level of UK gilt yields experienced during 2012 has helped to keep property pricing attractive relative to the risk free rate and has also led some investors to consider switching into property as an alternative to gilts where a long and secure income stream can be obtained.
Maintaining income streams has been challenging given economic and financial market uncertainty, fiscal austerity policies and subdued economic growth. The year saw IPD void rates move above 10 per cent while higher business rates have put further pressure on tenants. Occupiers are cost sensitive and occupational demand is generally being driven by lease events rather than growth. The impact of voids has been felt more keenly for more secondary property with prime proving more resilient. The uncertain market outlook and difficulty in securing development finance has also led to a prolonged period of low levels of new supply. It is patchy, but in some areas the combination of competing demand, tight supply and investor interest has led to significant out-performance.
This can be seen most clearly in London. Central London shops delivered double digit IPD universe total returns and West End/Midtown offices recorded a total return of 9.8 per cent on standing investments in 2012. In other parts of the UK, the market was much weaker with negative total returns seen for provincial shops and offices.
Occupier and investor caution is also leading to a focus on prime property. IPD market data showed prime property delivering a positive total return and out-performing more secondary stock in most segments of the market in 2012. The robustness and longevity of the income stream and the ability to secure re-lettings or an alternative use for a property remain key drivers of value and performance.
Portfolio
The property portfolio recorded a total return of 5.7 per cent over the year, compared with the IPD Quarterly Universe (comprising directly held properties only) total return of 2.8 per cent referred to above. Once again the portfolio has delivered a strong outperformance of the benchmark. Over the period the portfolio was ranked on the 11th percentile and 27th out of 237 funds included within the benchmark.
The three year annualised return ranks the portfolio on the 6th percentile (against 215 funds) and the five year annualised return ranks the portfolio on the 7th percentile (against 203 funds). Therefore, the portfolio continues to maintain its top quartile performance over 1, 3 and 5 years.
As at 31 December 2012 the Company's property portfolio was externally valued at £879.7 million. This represents an absolute reduction in value of £52.9 million mainly attributable to the property sales reviewed later in this report. However, the portfolio recorded positive capital growth of 0.1 per cent when the market as a whole recorded negative growth.
Strategy and Positioning of the Portfolio
The portfolio continues to be managed to reflect our asset allocation preference to Central London in general and the West End in particular. St. Christopher's Place Estate, London W1, the Company's largest asset, continues to be a main driver of performance. The exposure to Central London has reduced due to the sales highlighted later in this report, however, this is not a strategic move away from Central London. We are not calling the top of the market for Central London properties and are adjusting the asset allocation as appropriate. The sales were based upon value judgements to sell ex growth or non-core Central London properties to take advantage of the strength and depth of overseas purchasers and resultant pricing.
Our strategy is to recycle capital into other areas of Central London likely to benefit from future growth or re-rating of location.
The sales, combined with the contracted acquisition of four pre-let office blocks in Aberdeen, which is described later in this report, will benefit the Company's lease expiry profile. This acquisition also provides a secure and attractive income stream and is expected to prove to be reversionary and benefit from some yield compression as the location becomes established.
Stock selection will remain critical, combined with the evaluation of credit, future earnings and sustainability of income. Property fundamentals cannot be ignored, especially if shorter leases with possible asset management opportunities are being appraised.
Retail
The retail sector IPD benchmark portfolio total return was 1.6 per cent in 2012, the weakest of the three main property sectors. The year witnessed several major retailer administrations, a step-change in the growth of multi-channel retailing, some faltering in the supermarkets' advance and consumers still experiencing austerity with their personal financial budgets. The market remains highly polarised with some segments, such as Central London shops, regional out of town shopping centres, major district and local retail centres, out-performing but the regional towns seeing greater pressure. Retail warehousing delivered a rare year of underperformance in 2012, with traditional retail parks the worst hit. Prime retail property out-performed secondary over the year, with the disparity especially marked for standard high street retail units and shopping centres.
The Company's retail properties recorded a total return of 6.8 per cent for the year, significantly outperforming the IPD benchmark total return of 1.6 per cent. The Company's strongest performance was derived once again from its South East retail holdings which recorded a total return of 13.3 per cent. This continues a trend seen in 2010 and 2011 and is attributable to the strong performance of the Company's Central London retail properties where St. Christopher's Place Estate, categorised by IPD as South East Retail, produced the strongest weighted contribution to the portfolio's performance.
Asset management initiatives, including lease re-gears and renewals, new lettings and refurbishments of parts of St. Christopher's Place Estate have built upon progress made during 2011. In partnership with Westminster City Council, significant public realm works completed in 2012, including the repaving of the Barrett Street piazza and James Street pavement. The final phase of tree planting and repairs to the existing paving was completed in November 2012. New marketing initiatives for 2013 which make use of the website and social media platform are underway. This all helps provide a more attractive retailing environment, improving footfall and quality of occupational demand.
The retail unit at 13 Gees Court and 10/12 James Street, formerly occupied by Kew, was let to Phase Eight in December 2012. Phase Eight opened this as their London flagship store in March 2013; the unit has frontage to both James Street and Gees Court. The tenant carried out considerable improvements to the Gees Court frontage which positively improves the streetscape of the Estate.
In addition, Patty & Bun successfully opened a high quality burger restaurant at 54 James Street in December 2012 and received very positive reviews from the press. This restaurant is very busy and has drawn new customers to the north end of James Street.
Excluding the units in the course of refurbishment, all the offices in the Estate are let, although the tenant of the upper floors of 21 Barrett Street has served a break notice effective April 2013 and we are currently marketing the unit. Refurbishment of the first floor offices at St. Christopher's House is underway with completion due in summer 2013. In addition, the conversion of offices at the first floor of Greengarden House is also due to complete in summer 2013. Work to convert the upper floors of 67 Wigmore Street into residential accommodation including the addition of an extra floor to the building is underway with completion due in autumn 2013. The development will provide high quality residential accommodation within a sought after residential location, adding to St. Christopher's Place Estate's desirability as a mixed use central London asset.
The portfolio has no exposure to shopping centres and only one shop unit outside the South East, 124/125 Princes Street, Edinburgh. The Company's retail warehouse properties recorded a total return of minus 0.6 per cent compared with a benchmark return of 0.7 per cent, a relative underperformance of 1.3 per cent. This underperformance was asset specific; Sears Retail Park at Solihull was marked down in capital value by approximately 14 per cent. This property, totalling 126,000 sq. ft., experienced tenant defaults in the last quarter of 2012 with both JJB Sports and Comet entering administration. JJB Sports occupied a 10,000 sq. ft. retail unit and Comet 30,000 sq. ft. and it is expected both leases will be disclaimed by the respective administrators. Both units' combined annual rental value is £1.3 million. We are very focused on re-letting these units and marketing is underway. A variation of existing planning consents will be needed to permit wider retail use of the units and, if successful, this has the potential to transform the property.
Offices
The office sector as a whole delivered an IPD portfolio total return of 4.2 per cent in 2012, driven by strong growth in Central London which recorded total returns of 5.9 per cent and 10.4 per cent in the City and West End respectively. In contrast, total return performance in the Rest of South East was markedly weaker at minus 0.7 per cent and provincial offices still worse at minus 4.0 per cent. The performance of City offices was not immune from financial market concerns but was helped by strength in the Technology Media & Telecommunications ('TMT') market while the West End was more resilient, reflecting its wider occupational base and scope for alternative use, especially residential. The Rest of South East market saw some encouraging lettings and greater investor interest in 2012, but sentiment towards the provincial office markets remained weak, with double digit falls in capital values being recorded over the year.
The Company's offices recorded a total return of 3.5 per cent compared with the benchmark total return of 4.2 per cent. The Company's strongest performing segment was, unsurprisingly, its West End offices which recorded a total return of 9.8 per cent but marginally underperformed the benchmark return of 10.4 per cent. Offices Rest of UK recorded minus 4.1 per cent which was in line with the benchmark return of minus 4.0 per cent. It is the portfolio's South East Offices which notably underperformed, recording a total return of minus 5.5 per cent compared with the minus 0.7 per cent benchmark return. The disappointing performance of this segment was due to the exposure to voids and some shorter unexpired lease terms where the external valuers moved out capitalisation rates. The Company has 50,799 sq. ft. of vacant offices at Watchmoor Park, Camberley and 37,000 sq. ft. at Thames Valley Park Two, Reading. The comprehensive refurbishment of this last property was completed in January 2013. A letting of 17,827 sq. ft. was contracted during the year to Baxter Storey, an existing sub-tenant within the building, and there remains a good level of interest in the remaining space. Indeed, it is notable that enquiries and viewings of good quality properties in the South East has recently increased and it would appear some occupational confidence may be returning to this sector.
In the West End, leasing activity at 25 Great Pulteney Street, London W1 continued to be a success. The first, ground and lower ground floors have now been let to WPP (UK) Group at a rent of £708,000 per annum. This equates to the property now being 82 per cent let. The only available floor is the 5,890 sq. ft. second floor where it is anticipated a letting will contract shortly. This property produced a total return of 11.4 per cent over the year.
Industrial
The industrial market delivered an IPD benchmark total return of 2.8 per cent in 2012, in line with the all property average, with once again the south east out-performing the rest of the UK and prime outperforming secondary. The sector has the benefit of a relatively high income return which totalled 6.7 per cent in 2012. The distribution and logistics sector has also benefited from a relatively low level of voids and an active occupational market in core areas together with slightly longer leases on average, some of which are indexed.
The Company's industrial and logistics properties produced a total return of 6.4 per cent compared with the IPD benchmark return of 2.8 per cent, thereby correcting the underperformance recorded for 2011. The Company's industrial south east properties provided a total return in line with the benchmark, 3.5 per cent compared with 3.6 per cent, whilst industrial/logistics Rest of UK registered a total return of 7.3 per cent compared with a 1.6 per cent total return from the benchmark. The outperformance of this segment is attributable to the higher income return on these properties which to some extent is due to the shorter lease terms. The asset management strategy remains to re-gear leases to secure longer lease terms and over the period there was success at Hedge End, Southampton where Ericsson Television Limited contracted to a new lease for a term of 10 years, subject to 12 months rent free. In addition, the unit was extended by 8,816 sq. ft. at a capital cost of £1.5 million and an increase in rent of £59,000 per annum.
The 'Other' Sector
This sector comprises alternates such as healthcare, student accommodation, hotels, data centres and automotive uses. This sector is growing in importance and now comprises approximately 7.3 per cent of the IPD benchmark. The sector offers an opportunity to acquire properties secured on long leases, usually at least 15 years, with fixed uplifts or RPI linkage. These can be attractive in an environment where total returns are income driven and where the traditional sectors are not in the main offering long leases. The Other sector recorded a total return of 5.9 per cent in 2012, the highest return from the four main sectors.
The Company's exposure to the Other sector is achieved through its holding of student accommodation at Burma Road, Winchester. This property recorded a total return of 14.1 per cent during the year. It comprises the development of five blocks of student accommodation which, on completion, will total 499 bedrooms and will be let to the University of Winchester on a new 25 year lease with cap and collar RPI linkage. The first block was handed over to the University prior to the current academic year and the University is paying a pro-rata rent. The remaining four properties are due to complete during the summer and will be handed over to the University in readiness for the 2013-2014 academic year. All blocks are on budget and are expected to be handed over on time. To date the Company has incurred costs of £17.4 million, inclusive of land acquisition, on the project. The increase in value during the period was attributable to the external valuers re-rating the capitalisation rates in the face of comparable transactions providing evidence of yield compression.
Purchases and Disposals
In July, the Group agreed a forward commitment to purchase four pre-let office properties in Aberdeen for approximately £94 million, plus costs. This is the largest single acquisition made by the Company since its launch in 2005. The properties are currently being developed, are expected to be completed between October and November 2013 and will comprise approximately 300,000 sq. ft. net initial area.
The four blocks are situated on the Prime Four Business Park, Kingswells, Aberdeen which is a new out of town business park located to the west of the city centre.
Office Block 1, comprising 100,000 sq. ft. has been pre-let to Nexen Petroleum UK on a full repairing and insuring lease for a term of 15 years at a rent of £23.25 per sq. ft. with no rent free period. Block 2 will be another 100,000 sq. ft. building and has been pre-let to Apache Northern Sea Limited on a full repairing and insuring lease for a term of 15 years at a rent of £23.00 per sq. ft. with a three month rent free period. Blocks 3 and 4 have been pre-let to Transocean Drilling UK Limited on full repairing and insuring terms for a term of 20 years. Block 3 is a headquarters office building which will comprise approximately 75,000 sq. ft. and Block 4 will be Transocean's bespoke global training centre. These two blocks have been pre-let at rents of £21.75 per sq. ft. and £19.50 per sq. ft. respectively, both with no rent free periods. All leases provide for five yearly
rent reviews to the higher of open market rental value or three per cent per annum compounded.
The total anticipated income upon completion is £6.7 million per annum and the overall net initial yield on completion is 6.84 per cent which is in excess of the initial yield on the Company's total portfolio.
The purchase will provide the Company with exposure to one of the most buoyant office markets in the UK and to new headquarter office buildings let to excellent covenants on secure lease terms.
The pre-letting of Phase II of the development is underway and a 40,000 sq. ft. letting to Premier Oil and the development of a DeVere Hotel have recently been announced. This activity underwrites the location, provides critical mass and supports the reversionary rents on the Company's investment.
During the year, the Company took advantage of the strength of the Central London investment market by selling three properties. The first sale to complete was 84 Eccleston Square, London SW1 for £49.0 million. The sale price reflected a £4.0 million increase above the last external valuation and a net initial yield of 6.08 per cent. The reason for selling this property was to take advantage of the strong demand from overseas investors for Central London properties, especially those with potential to convert to residential uses. The sale also benefited the management of the portfolio's lease expiry profile by avoiding the risk of lease expiries and future requirements for capital expenditure in March 2014 when £3.1 million of rental income from this property was due to expire. The expiries at Eccleston Square would have been the Company's largest lease exposure in 2014.
385/389 Oxford Street, London W1 sold for £28.1 million. This long leasehold property is entirely let to Boots UK Limited on a lease expiring in June 2019 at an annual passing rent of £1,075,000. At the transaction date this rent represented one of the highest rent per sq. ft. on Oxford Street, equating to £700 per sq. ft. The property was acquired by an overseas investor at a net initial yield of 3.62 per cent and the sale price compared with the previous external valuation of £23.9 million.
During the year, the Company exchanged contracts to sell Charles House, 5-11 Regent Street, London SW1 for £36.0 million. The sale completed on 5 April 2013. This leasehold property has newly refurbished lower ground, first and sixth floors and, along with the second floor, are let until 2018/9. The third floor is let until 2017. The three unrefurbished floors (fourth, fifth and seventh) are let until 2014. The remaining ground and lower ground offices are let until 2018 but with breaks in 2013. The retail is let until 2021 (no.9), and 2017 (no.11). The lease of Flight Centre (no.7) expired in August 2012 and the tenant has served a s.26 notice requesting a new 10 year lease with a five year break at the passing rent. The property was acquired by The Crown Estate, the Freeholder, at a net initial yield of 5.96 per cent representing a capital value of £820 per sq. ft., showing a profit of £1.6 million (4.65 per cent) compared with the previous external valuation of £34.4 million.
Property Management
The management of income remains key and this remains a challenging environment. The strategy of sustaining and protecting rental income within the portfolio is still the principal asset management focus.
Void levels over the period increased from 6.0 per cent to 7.0 per cent of estimated rental value (excluding properties held for development) compared with the benchmark void rate of 10.2 per cent. This equates to approximately £3.5 million of rental value of which approximately 30 per cent is currently under offer. We remain totally focused on leasing the vacant accommodation in the portfolio. During 2012 we contracted 29 lettings, producing a total rental income of £4.7 million per annum inclusive of the lettings at Watchmoor Park, Camberley and 25 Great Pulteney Street, London W1 announced last year. During the year we also contracted 11 rent reviews with a total uplift of £0.3 million per annum (6.4 per cent) over the previous passing rent.
We continue to actively manage the Company's rental arrears and bad debts. The provision for overdue debt (90 days) is 0.9 per cent of annualised rents, which remains extremely low, comparatively.
In last year's review we commented on the Company's exposure to retailer defaults and failures. At that time the exposure was to Peacocks (Newbury Retail Park) and Blacks (Wimbledon Broadway, London SW19) with an aggregate liability of £345,000 per annum. The Peacocks' position has concluded with the lease assigned to Poundland at the previous rent and we are close to a resolution at Wimbledon. As reported earlier in this report the Company does have an exposure to Comet and JJB Sports, with a combined liability of £1.3 million per annum. We continue to negotiate with the administrators in order to secure new lettings of the units.
Outlook
The gradual working through of the Eurozone problems, some easing in domestic monetary conditions and a projected return to positive, if modest, economic growth in the UK, have led to some stabilising of sentiment. While the short-term outlook is by no means settled, there are tentative signs that the ground is being prepared for a sustainable recovery in the UK property market. This is likely to be income driven, and steady rather than spectacular. We believe that London and the South East will continue to out-perform but with more opportunities emerging selectively in the regions. Structural factors such as the reduced role of the public sector, growth of non-store retailing and the release of leveraged stock onto the market will remain significant in the longer-term and influence market-wide performance. As economic growth becomes apparent and spare capacity is absorbed, we fully expect to see a broadening of rental growth and greater support to capital values emerge in the UK.
Richard Kirby
Investment Manager
F&C REIT Property Asset Management plc
F&C Commercial Property Trust Limited
Consolidated Statement of Comprehensive Income (audited)
|
|
|
Year ended 31 December 2012 |
Year ended 31 December 2011 |
|
|
|
£'000 |
£'000 |
|
Revenue |
|
|
|
|
Rental income |
|
57,212 |
60,495 |
|
|
|
--------- |
--------- |
|
Total revenue |
|
57,212 |
60,495 |
|
|
|
|
|
|
Gains on investment properties |
|
|
|
|
Unrealised (losses)/gains on revaluation of investment properties |
|
(11,393) |
38,518 |
|
Gains/(losses) on sale of investment properties realised |
|
10,380 |
(86) |
|
|
|
---------- |
---------- |
Total income |
|
56,199 |
98,927 |
|
|
|
---------- |
---------- |
|
Expenditure |
|
|
|
|
Investment management fee |
|
(5,994) |
(5,727) |
|
Other expenses |
|
(5,649) |
(5,153) |
|
|
|
---------- |
---------- |
|
Total expenditure |
|
(11,643) |
(10,880) |
|
|
|
----------- |
----------- |
|
Operating profit before finance costs |
|
44,556 |
88,047 |
|
|
|
----------- |
----------- |
|
Net finance costs |
|
|
|
|
Interest receivable |
|
530 |
510 |
|
Finance costs |
|
(14,719) |
(14,705) |
|
|
|
----------- |
----------- |
|
|
|
(14,189) |
(14,195) |
|
|
|
----------- |
----------- |
Profit before taxation |
|
30,367 |
73,852 |
|
|
|
|
|
|
Taxation |
|
(233) |
(187) |
|
|
|
---------- |
---------- |
|
|
|
|
|
Profit for the year |
|
30,134 |
73,665 |
|
|
|
---------- |
---------- |
|
Other comprehensive income |
|
|
|
|
Movement in fair value of interest rate swaps |
|
(660) |
(3,671) |
|
|
|
---------- |
---------- |
|
Total comprehensive income for the year |
|
29,474 |
69,994 |
|
|
|
---------- |
---------- |
|
|
|
|
|
|
Basic and diluted earnings per share |
|
4.2p |
10.8p |
|
|
|
|
|
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 2012 £'000 |
As at 31 December 2011 £'000 |
|
Non-current assets |
|
|
|
Investment properties |
833,147 |
924,583 |
|
|
------------ |
------------ |
|
|
833,147 |
924,583 |
|
|
------------ |
------------ |
Current assets |
|
|
|
Properties held for sale |
36,000 |
- |
|
Trade and other receivables |
15,575 |
11,197 |
|
Cash and cash equivalents |
153,143 |
49,822 |
|
|
------------ |
------------ |
|
|
204,718 |
61,019 |
|
|
------------ |
------------ |
Total assets |
1,037,865 |
985,602 |
|
|
------------ |
------------ |
|
|
|
|
Current liabilities |
|
|
|
Trade and other payables |
(18,340) |
(18,301) |
|
|
------------ |
------------ |
Non-current liabilities |
|
|
|
Interest-bearing bonds |
(229,675) |
(229,546) |
|
Interest-bearing bank loan |
(49,099) |
(49,452) |
|
Interest rate swaps |
(4,720) |
(4,060) |
|
|
------------ |
------------ |
|
|
(283,494) |
(283,058) |
|
|
------------ |
------------ |
Total liabilities |
(301,834) |
(301,359) |
|
|
------------ |
------------ |
Net assets |
736,031 |
684,243 |
|
|
------------ |
------------ |
|
|
|
|
Represented by: |
|
|
|
Share capital |
7,447 |
6,805 |
|
Share premium |
64,612 |
- |
|
Reverse acquisition reserve |
831 |
831 |
|
Special reserve |
562,366 |
562,366 |
|
Capital reserve - investments sold |
(28,002) |
(48,817) |
|
Capital reserve - investments held |
51,002 |
72,830 |
|
Hedging reserve |
(4,720) |
(4,060) |
|
Revenue reserve |
82,495 |
94,288 |
|
|
------------ |
------------ |
Equity shareholders' funds |
736,031 |
684,243 |
|
|
------------ |
------------ |
|
|
|
|
Net asset value per share |
98.8p |
100.5p |
F&C Commercial Property Trust Limited
Consolidated Statement of Changes in Equity
for the year ended 31 December 2012 (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 2012 |
6,805 |
- |
831 |
562,366 |
(48,817) |
72,830 |
(4,060) |
94,288 |
684,243 |
|
Total comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
- |
- |
30,134 |
30,134 |
|
Movement in fair value of interest rate swaps |
- |
- |
- |
- |
- |
- |
(660) |
- |
(660) |
|
Transfer in respect of unrealised losses on investment properties |
- |
- |
- |
- |
- |
(11,393) |
- |
11,393 |
- |
|
Gains on sale of investment properties realised |
- |
- |
- |
- |
10,380 |
- |
- |
(10,380) |
- |
|
Transfer of prior years' revaluation to realised reserve |
- |
- |
- |
- |
10,435 |
(10,435) |
- |
- |
- |
|
Total comprehensive income for the year |
- |
- |
- |
- |
20,815 |
(21,828) |
(660) |
31,147 |
29,474 |
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners of the Company recognised directly in equity |
|
|
|
|
|
|
|
|
|
|
Issue of ordinary share capital |
642 |
64,612 |
- |
- |
- |
- |
- |
- |
65,254 |
|
Dividends paid |
- |
- |
- |
- |
- |
- |
- |
(42,940) |
(42,940) |
|
At 31 December 2012 |
7,447 |
64,612 |
831 |
562,366 |
(28,002) |
51,002 |
(4,720) |
82,495 |
736,031 |
Consolidated Statement of Changes in Equity
for the year ended 31 December 2011 (audited)
|
|
Share Capital £'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 2011 |
6,805 |
831 |
576,729 |
(48,271) |
33,852 |
(389) |
85,524 |
655,081 |
|
Total comprehensive income for the year |
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
- |
73,665 |
73,665 |
|
Movement in fair value of interest rate swap |
- |
- |
- |
- |
- |
(3,671) |
- |
(3,671) |
|
Transfer in respect of unrealised gains on investment properties |
- |
- |
- |
- |
38,518 |
- |
(38,518) |
- |
|
Losses on sale of investment properties realised |
- |
- |
- |
(86) |
- |
- |
86 |
- |
|
Transfer of prior years' revaluation to realised reserve |
- |
- |
- |
(460) |
460 |
- |
- |
- |
|
Transfer from special reserve |
- |
- |
(14,363) |
- |
- |
- |
14,363 |
- |
|
Total comprehensive income for the year |
- |
- |
(14,363) |
(546) |
38,978 |
(3,671) |
49,596 |
69,994 |
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners of the Company recognised directly in equity |
|
|
|
|
|
|
|
|
|
Dividends paid |
- |
- |
- |
- |
- |
- |
(40,832) |
(40,832) |
|
At 31 December 2011 |
6,805 |
831 |
562,366 |
(48,817) |
72,830 |
(4,060) |
94,288 |
684,243 |
F&C Commercial Property Trust Limited
Consolidated Statement of Cash Flows (audited)
|
|
Year ended 31 December 2012 |
Year ended 31 December 2011 |
|
|
£'000 |
£'000 |
Cash flows from operating activities |
|
|
|
Profit for the year before taxation |
30,367 |
73,852 |
|
Adjustments for: |
|
|
|
Finance costs |
14,719 |
14,705 |
|
Interest receivable |
(530) |
(510) |
|
Unrealised losses/(gains) on revaluation of investment properties |
11,393 |
(38,518) |
|
(Gains)/losses on sale of investment properties realised |
(10,380) |
86 |
|
Increase in operating trade and other receivables |
(4,378) |
(684) |
|
Increase in operating trade and other payables |
67 |
379 |
|
|
----------- |
----------- |
|
|
41,258 |
49,310 |
|
|
----------- |
----------- |
|
Interest received |
530 |
510 |
|
Interest paid |
(14,484) |
(14,453) |
|
Tax paid |
(255) |
(7) |
|
|
----------- |
----------- |
|
|
(14,209) |
(13,950) |
|
|
----------- |
----------- |
Net cash inflow from operating activities |
27,049 |
35,360 |
|
|
----------- |
----------- |
Cash flows from investing activities |
|
|
|
Purchase/development of investment properties |
(12,159) |
(45,026) |
|
Sale of investment properties |
77,165 |
1,174 |
|
Capital expenditure |
(10,583) |
(10,296) |
|
|
----------- |
----------- |
|
Net cash inflow/(outflow) from investing activities |
54,423 |
(54,148) |
|
|
----------- |
----------- |
Cash flows from financing activities |
|
|
|
Issue of ordinary share capital, net of costs |
65,254 |
- |
|
Dividends paid |
(42,940) |
(40,832) |
|
Set-up costs of bank facility |
(465) |
- |
|
|
----------- |
----------- |
|
Net cash inflow/(outflow) from financing activities |
21,849 |
(40,832) |
|
|
----------- |
----------- |
|
Net increase/(decrease) in cash and cash equivalents |
103,321 |
(59,620) |
|
Opening cash and cash equivalents |
49,822 |
109,442 |
|
|
----------- |
----------- |
|
Closing cash and cash equivalents |
153,143 |
49,822 |
|
|
----------- |
----------- |
F&C Commercial Property Trust Limited
Principal Risks and Risk Management
The Company's assets comprise direct investments in UK commercial property, although market uncertainty has resulted in cash being held. Its principal risks are therefore related to the commercial property market in general and its investment properties. 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. Detailed explanations of the risks associated with the Group's financial instruments are contained in note 2.
Other risks faced by the Company include the following:
· Economic - external shocks, inflation or deflation, economic recessions and movements in interest rates could affect property valuations.
· Investment and strategic - incorrect strategy, including sector and geographic allocations and use of gearing could lead to poor returns for shareholders.
· Regulatory - breach of regulatory rules could lead to suspension of the Company's 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 the Managers' business, or that of 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 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, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.
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 2012, 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 2012
1. The Board has declared a twelfth, and last, interim dividend for the year of 0.50p per share to be paid on 26 April 2013 to shareholders on the register on 12 April 2013.
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 comprise interest-bearing bonds, an interest-bearing bank loan, 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 swaps entered into to hedge the interest paid on the interest-bearing bank loan and facility.
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.
During the year and the prior year, due to the quantum of cash balances held, counterparty risk was spread by placing cash across a number of different financial institutions.
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.
The Group's investments may, from time to time, include investments in indirect property funds which are not traded in an organised public market and which generally may be illiquid. As a result, similar to the directly-held properties, the Group may not be able to liquidate quickly some of its investments in those instruments in order to meet its liquidity requirements. As at 31 December 2012 the Group did not hold any investments in indirect property funds (2011: £nil).
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 £230 million Secured Bonds due 2017 on which the rate has been fixed at 5.23 per cent until the expected maturity date of 30 June 2015. If the bonds are not redeemed at this date they will carry interest at 0.6 per cent over LIBOR until the final maturity date of 30 June 2017. 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.
The Group has entered into a forward interest rate window swap, commencing between 22 October 2013 and 31 July 2014, at the option of the Group, with a nominal value of £30 million and a maturity date of 30 June 2015. This swap will be used to fix the interest rate on the £30 million interest-bearing bank loan facility which is expected to be used to partially fund a property purchase at Prime Four Business Park, Kingswell, Aberdeen. The forward interest rate swap would fix the interest rate would fix the rate on the loan at 3.71 per cent per annum until the maturity date of 30 June 2015.
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 2012 (2011: 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.
The Group may also hold investments in indirect property funds (including listed property companies) which in turn invest directly in commercial property. In addition to the price risk attaching to the underlying assets, such funds also carry the risk that the investment cannot be disposed of at its net asset value due to a lack of liquidity. The Company did not hold any investments in indirect property funds at 31 December 2012 or 31 December 2011.
3. There were 744,715,702 Ordinary Shares in issue at 31 December 2012 (2011: 680,537,003).
The Company issued 64,178,699 Ordinary Shares during the year (2011: nil) raising net proceeds of £65,254,000. The Company did not repurchase any Ordinary Shares during the year.
At 31 December 2012, the Company did not hold any Ordinary Shares in treasury (2011: nil).
4. The basic and diluted earnings per Ordinary Share are based on the profit for the year of £30,134,000 (2011: £73,665,000) and on 714,924,384 (2011: 680,537,003) 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.
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.
The Company owns 100 per cent of the issued 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 Accede Limited, a company incorporated in England and Wales. At 31 December 2012 this Company was dormant, having previously acted as an investment and property company.
The Group also consolidates the results of F&C Commercial Property Finance Limited, a special purpose vehicle incorporated in Guernsey to issue the interest-bearing bonds. F&C Commercial Property Finance Limited has the same board of directors as the Company and the Company has the majority of the risks and rewards associated with the vehicle. F&C Commercial Property Finance Limited is therefore consolidated as a quasi-subsidiary under common control.
6. These are not full statutory accounts. The full audited accounts for the year to 31 December 2012 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 745324
Fax: 01481 745051
Richard Kirby
F&C REIT Property Asset Management plc
Tel: 0207 016 3577
Graeme Caton
Winterflood Securities Limited
Tel: 0203 100 0268
This information is provided by RNS
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