Interim Management Statement

RNS Number : 4747R

F&C Commercial Property Trust Ld

19 November 2012

 



F&C Commercial Property Trust Limited

Interim Management Statement

For the Period from 1 July 2012 to 19 November 2012

Investment Objective

The investment objective of the Company 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.

Performance Summary

Total Return	For the three month period ended 30 September 2012
Net asset value per share*	1.6%
Ordinary Share price	0.7%
Investment Property Databank   Quarterly Universe	0.7%
FTSE All-Share Index	4.7%

Capital Values	As at  30 September 2012	As at 30 June 2012	% Change
Net asset value per share*	99.0p	98.9p	+0.1
Ordinary Share price	103.4p	104.2p	-0.8
Premium to net asset value*	4.4%	5.4%
Gearing*#	28.2%	28.8%
Net gearing*$	18.4%	24.6%

Sources: F&C Investment Business Limited, Investment Property Databank ('IPD'), Datastream.

*  Calculated under International Financial Reporting Standards ('IFRS'). Net asset value total return is calculated assuming dividends are re-invested

#  Gearing: Borrowings/total assets (less current liabilities)

$  Net gearing: (Borrowings - cash)/total assets (less current liabilities and cash)

Review of the Third Quarter

Property Market Overview

Although the third quarter saw all property total returns improve to 0.7% from 0.4% in the previous quarter, according to the IPD Quarterly Index, sentiment remains subdued. Capital values continued to fall and rental values were flat during the quarter.

Strength in the Central London Office and Retail market persists with investment from overseas investors a major factor supporting performance; elsewhere the market is significantly weaker.

Total returns in the retail sector registered an improvement after a poor second quarter but this may reflect an adjustment by valuers to an overly aggressive markdown three months earlier. The sector remains troubled by restrained consumer spending, cost pressures on retailers, rental pressure on landlords and retailers in administration.

The yield gap has continued to widen with prime property generally holding steady but secondary yields moving out further. In some instances, secondary yields are at, or close to, levels seen at the low point of the 2007-2009 downturn. Projected slow growth within and beyond the UK, and the problems of the Eurozone, are continuing to produce a climate of uncertainty which delays decision-making. Investors are risk averse and focused on prime property and core locations. Assets with a long and secure income stream are highly favoured.

Portfolio Overview

As at 30 September 2012 the Company's portfolio was valued at £901.2 million (£940.2 million as at 30 June 2012).  After allowing for disposals and capital expenditure, this represented a 0.6% increase in the valuation during the quarter.

The portfolio recorded a total return of 1.9% over the quarter, compared with the IPD All Quarterly and Monthly Valued Funds total return of 0.7% and over the period the portfolio was ranked on the 9^th percentile against 242 funds.

The strongest performing property sub-sectors of the portfolio were South East Retail, West End London Offices, Retail Warehouses and the "Other" sector. Two sub-sectors recorded negative total returns over the period; Rest of UK Retail and Offices Rest of UK where capitalisation rates moved out and values fell.  Even though the Company is invested in prime properties it is not immune to the negative investor sentiment currently prevailing in these sectors.

As previously announced, on 31 July 2012, the Group 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 is 6.8%, which is above the average yield of the portfolio. On the same date, 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 purchase of the property.

During the period, it was also announced that the Group had completed the sale of its property at 84 Eccleston Square, London SW1 for £49.0 million. The sale price compared with the last external valuation of £45.0 million reflecting a net initial yield of 6.08%. The rationale for the sale was to take advantage of the current strong demand from overseas investors for Central London properties especially with potential to convert to residential uses. The sale helps to manage the portfolio's lease expiry profile 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.

Since the end of the period, the Company has announced the sale of 385/389 Oxford Street, London W1 for £28.1 million. This is a long leasehold property entirely let to Boots UK Limited on a lease expiring in June 2019 at an annual passing rent of £1,075,000. The sale price compares with the last external valuation of £23.9 million and reflects a net initial yield of 3.62 per cent. The sale completed on the 15 November 2012.

The Company incurred capital expenditure of £4.25 million over the quarter relating to three projects, the largest of which is the development of the student accommodation blocks at Winchester. One block completed during the quarter and was handed over to the University. The scheme remains both on budget and programme with completion scheduled for June 2013. The capitalisation rate on Winchester hardened during the period, contributing to the outperformance of the "Other" sector referred to above. The other projects include a 10,000 sq. ft. extension for the tenant of industrial premises at Upper Northam Road, Hedge End, Southampton which secured a re-gearing of the lease, and the refurbishment of Thames Valley Two, Reading.

Void levels within the portfolio are 6.7 per cent (excluding properties held for development). Two lettable units became vacant during the period; a further floor at 82 King Street, Manchester and space at Thames Valley Two, Reading which is already in the process of being refurbished. The leasing of voids remains a primary focus and there remain a number of lettings in legal hands. However, as previously reported, it is taking significant time and effort to contract leases.

Top Ten Holdings

	Sector
Properties valued in excess of £100 million
London W1, St Christopher's Place Estate	Retail
Properties valued between £70 million and £100 million
Newbury, Newbury Retail Park	Retail Warehouses
Properties valued between £50 million and £70 million
London SW1, Cassini House, St James's Street	Offices
London SW19, Wimbledon Broadway	Retail
Solihull, Sears Retail Park	Retail Warehouses
Properties valued between £30 million and £50 million
Rochdale, Dane Street	Retail Warehouses
London W1, 25 Great Pulteney Street	Offices
Uxbridge, 3 The Square, Stockley Park	Offices
London SW1, Charles House, 5-11 Regent Street	Offices
Properties valued between £20 million and £30 million
Chorley, Units 6 and 8 Revolution Park	Industrial

Geographical Analysis *

Location	30/09/2012 Percentage of portfolio		30/06/2012 Percentage of portfolio
London - West End	39.6		42.4
South East	26.8		25.2
Midlands	12.1		11.7
North West	11.0		10.6
Scotland	7.4		7.2
Eastern	2.0		1.9
Rest of London	1.1		1.0
Total	100.0		100.0

Sector Analysis *

Sector	30/09/2012 Percentage of portfolio		30/06/2012 Percentage of portfolio
Offices	35.4		38.8
Retail	28.2		26.7
Retail Warehouses	20.8		19.9
Industrial	14.1		13.5
Other (Winchester)	1.5		1.1
Total	100.0		100.0

* Does not include the office blocks in Aberdeen which will be recognised on acquisition, expected to be between October and November 2013.

Dividends

Interim dividends, in respect of the year ending 31 December 2012, each of 0.5 pence per share, were paid on 31 July, 31 August, 28 September and 31 October 2012.

The Board has recently announced a further interim dividend of 0.5 pence per share, payable on 30 November 2012 to shareholders on the register on 16 November 2012.

It is the Board's intention that the Company will continue to pay dividends monthly.

Issue of Shares

During the quarter to 30 September 2012 the Company issued 23.25 million Ordinary Shares, raising gross proceeds of £23.7 million.

Since the end of the quarter, the Company has issued a further 8.75 million Ordinary Shares, raising gross proceeds of £8.9 million. As a result, the Company's issued share capital is represented by 740,287,003 Ordinary Shares of 1p each.

Subsequent Events

Other than the issue of shares mentioned above, the Board is not aware of any significant events or transactions which have occurred since 30 September 2012 and the date of publication of this statement which would have a material impact on the financial position of the Company.

Quarterly and Key Information

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

Enquiries:

Richard Kirby

F&C REIT Property Asset Management plc

Tel: [phone]

Graeme Caton

Winterflood Securities Limited

Tel: [phone]

 

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