Interim Management Statement

RNS Number : 4486T

F&C Commercial Property Trust Ld

19 November 2013

 



F&C Commercial Property Trust Limited

Interim Management Statement

For the Period from 1 July 2013 to 19 November 2013

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 2013
Net asset value per share*	3.3%
Ordinary Share price	3.6%
Investment Property Databank   Quarterly Universe	2.9%
FTSE All-Share Index	5.6%

Capital Values	As at  30 September 2013	As at 30 June 2013	% Change
Net asset value per share*	101.4p	99.6p	+1.8
Ordinary Share price	115.00p	112.50p	+2.2
Premium to net asset value*	13.4%	13.0%
Net gearing*$	12.4%	11.6%

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

Total returns at the all property level in the third quarter were 2.9 per cent for standing investments, according to the IPD Quarterly Universe. This represented the best quarterly out-turn since 2010. The income return was 1.4 per cent during the three month period.

Rental growth was subdued during the quarter at 0.1 per cent at the all property level, with real rental growth patchy and generally confined to Central London. Net income growth was 0.3 per cent, indicating the challenges that still remain in the occupational market, especially at the more secondary end. The improvement in total returns was largely driven by strength in the investment market. Investment activity in the period rose to its highest quarterly level since 2007. Sentiment improved in the wake of stronger UK economic data, and fears of a disorderly collapse of the Eurozone have eased. Although overseas buyers remained an important driver of net investment, domestic investors became more active during the quarter.

While investors still favoured Central London, prime property and property let on long leases, they are now broadening their search to the regions. Investors have also started to move slightly higher up the risk curve to benefit from higher yields. The quarter saw some inward pressure on yields, which was most marked for prime office and industrial property outside London and for "good secondary" stock.

Central London continued to out-perform the market as a whole but the third quarter saw offices in the Rest of the South East (RoSE) deliver a higher total return than the Central London office market. All parts of the UK property market, as measured by the IPD standard segmentation, registered an improvement in quarter on quarter total returns and delivered positive capital growth. Retail property, Central London excepted, remained a relatively weak performer compared with offices and industrial property.

The UK commercial property market witnessed a broadly-based upturn during the third quarter, with recovery spreading beyond London and to "near prime" property assets.

Portfolio Overview

As at 30 Sept 2013 the Company's portfolio was valued at £891.8 million (30 June 2013: £866.3 million). After allowing for capital expenditure, this represented a 2.2 per cent increase in the valuation over the quarter.

The portfolio recorded a total return of 3.5 per cent over the period, compared with the IPD Quarterly Universe total return of 2.9 per cent and the portfolio was ranked on the 25^th percentile against 234 benchmark funds. The total return for the 12 month period to 30 September 2013 was 9.8 per cent (11^th pcl).

The strongest performing property sub-sectors of the portfolio were South East Retail, once again driven by the Company's largest asset St. Christopher's Place Estate, London W1, retail warehouses and South East offices. The weakest total return came from Rest of UK offices but these properties produced a positive total return and no sub-sector in the portfolio recorded a negative total return.

There were no sales or purchases over the period. However, a number of asset management initiatives including development, redevelopment, new lettings and lease re-gears have had a positive impact on the portfolio.

The Company incurred capital expenditure of £6.6 million, mainly relating to three of its main projects at Burma Road, Winchester, Sears Retail Park, Solihull, and St. Christopher's Place Estate. 

The student accommodation at Burma Road, Winchester achieved practical completion on 2 September 2013. All blocks have been handed over to the University of Winchester. A 25 year lease, with uplifts, has been entered into producing a current rent of £1.7 million from 14 September 2013. Long leased properties with strong credit and RPI linked or fixed rental uplifts continue to be highly sought after by investors resulting in this holding experiencing further yield compression over the quarter.

The refurbishment of Thames Valley Two, Reading has completed and 27,000 sq.ft has been let. A good level of demand has been received for the remaining space.

The refurbishment and conversion of the first floor of St. Christopher's Place Estate has been completed. This provides two new office suites at Green Garden House and the creation of four residential units. These works completed on budget and programme with the offices achieving rents of £67.50 - £72.50 per sq.ft. The redevelopment demonstrates evidence of the inherent value of the estate and further redevelopment and asset management initiatives are programmed.

The agreement for surrender and re-letting at 16 Conduit Street completed on 30 September 2013. Christian Dior UK Ltd has taken a new ten year lease on effective full repairing and insuring terms with one rent review at the end of the fifth year. The rent rises from £227,000 passing to £350,000 with immediate effect from completion. The lease term extends to 2023 (previously the lease expired in 2020). The covenant strength and occupier greatly improves the asset and this has been reflected in valuation and capitalisation yield.

The completion of the forward commitment to acquire Prime Four Business Park, Aberdeen, comprising four headquarters office blocks totalling 300,000 sq.ft. has been delayed slightly to November/December 2013. The Company does not have any liability for this delay.

A letting of Unit 2b has been completed at Sears Retail Park, Solihull, providing a fifteen year term to TK Maxx Homesense (TJX UK) with a tenant option to break at year ten. The letting continues the strong advancement in asset management initiatives on the retail park following the previously reported defaults.

Void levels within the portfolio are 6.9 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 £4.3 million of rental value of which approximately 35 per cent is currently under offer.

Top Ten Holdings *

	Sector
Properties valued in excess of £150 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
Properties valued between £30 million and £50 million
Solihull, Sears Retail Park	Retail Warehouses
London W1, 25 Great Pulteney Street	Offices
Rochdale, Dane Street	Retail Warehouses
Uxbridge, 3 The Square, Stockley Park	Offices
Properties valued between £20 million and £30 million
Chorley, Units 6 and 8 Revolution Park	Industrial
Winchester, Burma Road	Other

Geographical Analysis *

Location	30/09/2013 Percentage of portfolio		30/06/2013 Percentage of portfolio
London - West End	37.9		37.4
South East	28.8		28.7
Midlands	11.5		11.7
North West	11.3		11.5
Scotland	7.4		7.6
Eastern	1.9		1.9
Rest of London	1.2		1.2
Total	100.0		100.0

Sector Analysis *

Sector	30/09/2013 Percentage of portfolio		30/06/2013 Percentage of portfolio
Offices	33.1		33.2
Retail	29.0		28.8
Retail Warehouses	20.2		20.8
Industrial	14.6		14.7
Other (Winchester)	3.1		2.5
Total	100.0		100.0

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

Dividends

Interim dividends, in respect of the year ending 31 December 2013, each of 0.5 pence per share, were paid on 31 July, 30 August, 27 September and 31 October 2013.

As previously announced, a further interim dividend of 0.5 pence per share will be paid on 29 November 2013 to shareholders on the register on 15 November 2013.

Issue of Shares

During the quarter to 30 September 2013 the Company did not issue or buy back any Ordinary Shares. The Company's issued share capital is represented by 758,715,702 Ordinary Shares of 1p each.

Subsequent Events

The Board is not aware of any significant events or transactions which have occurred since 30 September 2013 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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