Annual Financial Report

RNS Number : 8211P

F&C UK Real Estate Investments Ltd

04 October 2013

 



To:                   RNS

Date:               4 October 2013

From:              F&C UK Real Estate Investments Limited

·     Merged with ISIS Property Trust Limited, increasing net assets by £89 million at the time of the transaction

·     Share price total return of 19.5 per cent for the year

·     Portfolio ungeared total return of 4.0 per cent for the year

·     Net asset value per share total return of 3.9 per cent for the year

·     Net asset value per share total return since launch of 43.0 per cent

·     Dividend of 7.2 pence per share for the year

Chairman's Statement

In April this year the Company completed the merger of its entire assets with the assets of ISIS Property Trust Limited ("IPT"). This was affected through a Scheme of Reconstruction through which IPT Shareholders received New Shares issued by the Company on a NAV for NAV basis. The combination of these complementary property businesses resulted in the enlarged Group which was renamed F&C UK Real Estate Investments Limited ('FCRE'), having a market capitalisation of £151 million at the year end. We believe that this has enhanced liquidity in the shares and increased the attractiveness of the enlarged Group. This transaction resulted in a more diversified property portfolio and has given the Group more flexibility for its future investment strategy. The merged entity will also benefit from a material reduction in the Total Expense Ratio moving forward.

Share price performance has been strong, particularly in the second half of the year and was trading at a premium to net asset value of 1.1 per cent at the year end, with the price at 72.5 pence per share. The share price total return for the year was 19.5 per cent reflecting the shift in sentiment for UK commercial property from the previous year end when the shares were trading at a discount of 13.4 per cent.

 The net asset value ('NAV') total return for the year was 3.9 per cent with a NAV as at 30 June 2013 of 71.7 pence per share. The movement in the interest rate swap valuations had a positive impact on the NAV, with the liabilities decreasing by £3.8 million during the year, increasing the NAV per share by 2.4 pence. The swap valuation is significant and reduced the NAV by 6.9 pence per share at the year end; however future movements should reflect positively over time as the liability reduces to nil by the conclusion of the contract in January 2017.

Share Issues

The Company has experienced continued market demand for its shares and subsequent to the year end, the Company has issued 5 million Ordinary Shares of 1 pence each at a price of 73.5 pence per share, a 2.5 per cent premium to the latest published net asset value, as at 30 June 2013. This is the Company's first tap issue since inception.

Property Market and Portfolio

The UK commercial property market as a whole has seen a return to positive quarterly returns, resulting in an annual total return of 4.8 per cent for the year ended 30 June 2013, as measured by the Investment Property Databank ('IPD') Quarterly Funds Index. Capital values fell over the course of the year; although the improvement in the market resulted in a positive capital return during the final three months. Performance in the year to June 2013 remained highly polarised, with Central London offices and shops strongly out-performing.

At 30 June 2013 the portfolio was valued at £276.6 million, returning 4.0 per cent over the twelve months. The range of returns for individual properties and sectors was very diverse with Central London offices being particularly strong. The Manager is continuing with a strategy of disposing smaller and non-performing assets which no longer fit the profile of the enlarged Group. There have been a number of new lettings and lease renewals and restructures throughout the portfolio which has enabled the Group to maintain the relatively low vacancy rate of 3.2 per cent at the year end and an average weighted unexpired lease term of 7.9 years.

Dividends

Three interim dividends of 1.80 pence per share were paid during the year. As announced on 7 February 2013, as part of the merger proposals and following consultation with larger shareholders, it was proposed that FCRE's dividend would be set at a sustainable level, which was expected to be fully covered by net rental income when the Group was fully invested. In order to achieve this policy the dividend of FCRE will be reduced by approximately 30 per cent to 5.0 pence per share per annum, a yield of 6.9 per cent on the year end share price. Accordingly, a fourth interim dividend of 1.25 pence per share was paid on 27 September 2013, giving a total dividend for the year ended 30 June 2013 of 6.65 pence per share. In the absence of unforeseen circumstances, it is the intention of the Group to continue to pay quarterly interim dividends at the revised rate.

Borrowings

The net gearing level as at 30 June 2013 was 39.7 per cent, which compares with 40.4 per cent as at 30 June 2012 and 40.0 per cent at launch on 1 June 2004.

As part of the merger, the Facilities of the Group and IPT which were previously in place were replaced with a new term and revolving credit loan facility. The New Facility permits a maximum amount of £115 million to be drawn down. The interest rate swaps which were in place for the Group and IPT, and which fix the interest payable in respect of £100 million in aggregate of the existing borrowings, were novated to a subsidiary of the Group, F&C UK Real Estate Finance Limited without any amendments or additional cost. As a condition of obtaining the consent of Lloyds TSB Bank to the merger, the aggregate margin under the New Facility with £112 million drawn down will increase by 0.18 per cent per annum (based on the current loan to value and drawn down amounts) giving a fixed interest rate payable on £100 million of the New Facility of 5.77 per cent per annum (including the margin increase referred to above) and a floating rate which is currently around  1 per cent per annum on the balance. The New Facility is repayable in January 2017, the same repayment date as applied under the previous Facilities.  The other terms of the New Facility and related security and finance documents are substantially similar to the terms of the previous Facilities.

The Group had £5.8 million of cash available at 30 June 2013 and an undrawn loan facility of £3 million. It is the Company's intention to maintain a prudent attitude to gearing.

Change in Directorate

On 11 April 2013, following the merger, Vikram Lall, Graham Harrison and Michael Soames who were previously Directors of IPT, were appointed as Directors of the Company. Chris Spencer and Giles Weaver retired from the Board on the same day. Mr Spencer and Mr Weaver have been important members of the Board since the launch of the Company and we thank them for their hard work over the years.

It was with enormous sadness that the Board announced that Michael Soames died suddenly on 2 June 2013. Michael had been a Director of IPT since its launch in October 2003 and had made a valuable contribution over many years. He will be greatly missed by the Board and the Manager.

 

Outlook

Against a background of some caution, there is a consensus that the property market has reached the low point in this cycle. As the economy improves, increased demand for property should help to support rental growth in areas of tight supply and this is expected to continue to favour well-let property in established locations. The Board believes that the Group's portfolio is well placed to take advantage of market conditions and the Manager will continue with the strategy to dispose of smaller properties. This and the recent success in issuing new shares will provide the Group with working capital and allow the Manager to seek new investments for the portfolio.

Manager's Review

The UK commercial property market delivered a portfolio total return of 4.8 per cent in the year to June 2013, as measured by the Investment Property Databank ("IPD") Quarterly Universe. This represents a modest improvement on the 4.6 per cent return of the previous year. However, in contrast to the previous year, performance saw quarter on quarter improvements.

Performance was supported by a portfolio income return of 5.8 per cent. Although capital values fell over the course of the year, the improvement in the market resulted in a positive out-turn during the final three month period.

The year to June 2013 has seen the UK economy gradually recovering, with GDP turning positive during the latter part of the period, helped by some easing in monetary conditions. The government remains committed to fiscal austerity and the need to re-balance the public accounts, which may limit the speed of the upturn but there are signs that business and consumer sentiment are steadying.

Investment activity in the UK commercial property sector totalled £36 billion in the year to June 2013, more than 15 per cent above the previous year, according to Property Data. The market remains driven by overseas investors, especially for Central London offices. However, the year also witnessed investors broadening their interest to other sectors of the market and to the regions. The low level of gilt yields has attracted investors seeking long-term stable income and this has produced intense competition for long-leased and index-linked stock.

The improvement has been largely investment-led and the occupational market has been more subdued, with rental growth patchy and largely focused on Central London. It has remained challenging to grow the income stream given occupier caution, the impact of rising business rates on the ability of tenants to pay higher rents and tenant administrations. Demand is still predominantly driven by negotiating new leases rather than growth.

The property market in the year to June 2013 remained highly polarised, with Central London offices and shops strongly out-performing other regions. Most regions outside London recorded falls in capital values for the full year. This masks an improving tone to much of the regional property market during the three months to June 2013, but the regions were still generally under-performing London.

The retail sector as a whole under-performed the all-property average, affected by subdued consumer spending, margin pressure on retailers and the continued diversion of trade online and to supermarkets. Standard retail properties in the regions and retail warehousing were especially vulnerable but there were bright spots such as London retail and supermarkets. In the office market, double digit annual total returns in the West End contrasted with negative total returns for offices outside London and the South East. The industrial sector also delivered a mixed performance. Distribution warehousing saw total returns improve from a year earlier to out-perform the all-property average but standard industrial properties were weaker. Again, there was a regional dimension with the heartlands of London, the South East and the Midlands out-performing more peripheral locations.

Prime property generally out-performed secondary stock during the year with the disparity especially marked for town centre retail and non-London offices, although there have been tentative signs of greater interest in good secondary stock towards the end of the reporting period.

The past year recorded a relatively muted performance but with signs of improvement becoming increasingly apparent.

Portfolio

On 11 April 2013 the Company merged with ISIS Property Trust Limited ("IPT") and was renamed F&C UK Real Estate Investments Limited. The merged Group resulted in a sizeable increase in the size of the portfolio to £276.8 million. This effectively diversified further the property and tenant exposure, provided greater flexibility in banking covenants, and over time will allow the Group to obtain exposure to assets with a larger lot size. The two portfolios both had complementary geographic and sector exposure whilst maintaining an overweight position in London and the South-East.

Previously the Group's portfolio comprised 33 properties with an aggregate market value of £157.9 million and a rent roll of £11.5 million, giving a net initial yield of 6.9 per cent. The IPT portfolio comprised 23 properties with an aggregate market value of £119.2 million and a rent roll of £8.6 million, giving a net initial yield of 6.8 per cent.

At the time of the merger the combined portfolio had an aggregate market value of £276.8 million and a rent roll of £20.1 million, giving a net initial yield of 6.9 per cent.

At 30 June 2013 the portfolio was valued at £276.6 million, which showed an increase in capital value of £1.19 million or 0.4 per cent on a like for like basis over the valuation of the portfolios at merger. There have also been two property sales in the period between merger and the year end. An industrial property at 6 James Street, York and a unit shop at 67/69 King Street, South Shields were sold for a total of £1.52 million, in line with the previously reported valuations.

Over the year to 30 June 2013, the portfolio returned 4.0 per cent, which reflected an income return of 7.1 per cent, but with a capital fall of 2.9 per cent. The range of returns for individual properties and sectors was very diverse. West End offices, which account for 6.7 per cent of the portfolio by value, outperformed and industrial properties, making up 29.3 per cent of the portfolio had positive returns. However, portfolio returns were particularly disadvantaged by Rest of UK offices.

The vacancy rate on the portfolio reduced from 3.7 per cent at the time of the merger to 3.2 per cent as at 30 June. Dreams plc went into administration during the second quarter of 2013 but the Group was able to relet Unit A, Halls Mill Retail Park, Bury virtually immediately. Steinhoff UK Group Properties Limited (trading as Bensons for Bed) took a lease of the 10,000 square foot unit at £150,000 per annum, the same rent as previously paid by Dreams, on a ten year lease with break at the fifth year with an 18 month rent free period.

The Group negotiated a lease extension with Bunzl UK Limited at the Maxi Centre, Theale which comprises a modern distribution unit of 61,000 square foot. The existing lease, due to expire in September 2014 has been extended until December 2023 (with a tenant's option to break in 2016 and 2018) at a rent of £500,880 per annum with a 10 month rent free period.

There have been a number of smaller lettings and this has enabled the Group to maintain a relatively low vacancy rate. At Above Bar Church, Southampton, the Group secured a new letting of the unit that became vacant earlier in 2012 as a result of Bon Marche going into administration. The unit has now been let to The Works Stores Limited on the basis of a new ten year lease, with a tenant's break at the fifth year, on a stepped rent averaging £120,000 per annum for the first five years, and subject to a six month rent free period. At 67/69 King Street, South Shields, the vacant shop unit was let to Greenwoods Menswear Limited, at a rent increasing to £30,000 per annum on the basis of a five year lease. The property was subsequently sold. At 25 Northbrook Street, Newbury, the tenant renewed its lease for a further five years at £40,000 per annum, but subject to a break at the third year. At George Street, Croydon, the upper floors, used as serviced offices, were re-let for a further 15 years at £21,000 per annum.

In addition the manager has continued to identify opportunities to extend and re-gear leases in order to add value. As at 30 June the average weighted unexpired lease term was 7.9 years.

Outlook

The market cycle shows signs of having passed its low point, but uncertainties remain. Problems in the Eurozone still need to be resolved and consensus forecasts are for modest UK growth, although it is expected to be sustained over the medium-term. As the economy improves and excess capacity is eliminated, the impact of minimal new development may become increasingly felt, helping to support rental growth in areas of tight supply. More generally, the challenge will continue to be to protect and enhance the income stream from property and this is expected to continue to favour well-let property in established locations.

Against this background the Manager believes that the Group's portfolio is well placed to take advantage of improvements in market sentiment and that this will feed through to valuations and occupancy levels. Since the merger with IPT, the Manager has sought to dispose of smaller assets which are no longer commensurate with the size of the Group's portfolio and which add little value to ultimate performance. This strategy and the recent success in issuing new shares will allow the Group to reduce borrowings and associated risk. The improved level of working capital also gives the Manager ready access to funds for improvements to property, as well as for restructuring leases with key tenants. Further targeted sales will also enable the Manager to seek new investments and enhance the quality of the Group's portfolio.

All enquiries to:

Ian McBryde

Scott Macrae

F&C Investment Business Limited

Tel: [phone]

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

Guernsey GY1 3QL

Tel:      [phone]

F&C UK Real Estate Investments Limited

Consolidated Statement of Comprehensive Income

	Year ended 30 June 2013	Year ended 30 June 2012
	£'000	£'000
Revenue
Rental income	13,791	11,788
Total revenue	13,791	11,788
Losses on investment properties	(4,313)	(2,483)
	9,478	9,305
Expenditure
Investment management fee	(1,242)	(1,137)
Expenses of merger	(746)	-
Other expenses	(1,204)	(1,253)
Total expenditure	(3,192)	(2,390)
Net operating profit before finance costs	6,286	6,915
Net finance costs
Interest receivable	15	12
Finance costs	(4,222)	(3,453)
	(4,207)	(3,441)
Net profit from ordinary activities before taxation	2,079	3,474
Taxation on profit on ordinary activities	(479)	(303)
Profit for the year	1,600	3,171
Other comprehensive income to be reclassified to profit or loss in subsequent periods
Net gain/(loss)  on cash flow hedges, net of tax	3,783	(2,515)
Total comprehensive income for the year, net of tax	5,383	656
Basic and diluted earnings per share	1.2p	2.9p

All items in the above statement derive from continuing operations.

All of the profit for the year is attributable to the owners of the Company.

F&C UK Real Estate Investments Limited

Consolidated Balance Sheet

	30 June 2013 £'000	30 June 2012 £'000
Non-current assets
Investment properties	271,063	160,310
Current assets
Trade and other receivables	6,362	3,133
Cash and cash equivalents	5,775	1,396
	12,137	4,529
Total assets	283,200	164,839
Non-current liabilities
Interest-bearing bank loan	(112,998)	(65,423)
Interest rate swap	(9,888)	(8,825)
	(122,886)	(74,248)
Current liabilities
Trade and other payables	(6,181)	(3,623)
Income tax payable	(472)	(170)
Interest rate swap	(4,546)	(2,613)
	(11,199)	(6,406)
Total liabilities	(134,085)	(80,654)
Net assets	149,115	84,185
Represented by:
Share capital	2,081	1,105
Special distributable reserve	153,929	89,445
Capital reserve	760	5,073
Other reserve	(7,655)	(11,438)
Equity shareholders' funds	149,115	84,185
Net asset value per share	71.7p	76.2p

F&C UK Real Estate Investments Limited

Consolidated Statement of Changes in Equity

For the year ended 30 June 2013

	Share Capital £'000	Special Distributable Reserve £'000	Capital Reserve £'000	Other Reserve £'000	Revenue Reserve £'000	Total £'000
At 1 July 2012	1,105	89,445	5,073	(11,438)	-	84,185
Profit for the year	-	-	-	-	1,600	1,600
Other comprehensive gains	-	-	-	3,783	-	3,783
Total comprehensive income for the year	-	-	-	3,783	1,600	5,383
Issue of ordinary shares on merger	976	66,527	-	-	-	67,503
Dividends paid	-	-	-	-	(7,956)	(7,956)
Transfer in respect of losses on investment properties	-	-	(4,313)	-	4,313	-
Transfer of net deficit for the year	-	(2,043)	-	-	2,043	-
At 30 June 2013	2,081	153,929	760	(7,655)	-	149,115

For the year ended 30 June 2012

	Share Capital £'000	Special Distributable Reserve £'000	Capital Reserve £'000	Other Reserve £'000	Revenue Reserve £'000	Total £'000
At 1 July 2011	1,105	91,747	7,556	(8,923)	-	91,485
Profit for the year	-	-	-	-	3,171	3,171
Other comprehensive losses	-	-	-	(2,515)	-	(2,515)
Total comprehensive income for the year	-	-	-	(2,515)	3,171	656
Dividends paid	-	-	-	-	(7,956)	(7,956)
Transfer in respect of losses on investment properties	-	-	(2,483)	-	2,483	-
Transfer of net deficit for the year	-	(2,302)	-	-	2,302	-
At 30 June 2012	1,105	89,445	5,073	(11,438)	-	84,185

F&C UK Real Estate Investments Limited

Consolidated Cash Flow Statement

	Year ended 30 June 2013	Year ended 30 June 2012
	£'000	£'000
Cash flows from operating activities
Net profit for the year before taxation	2,079	3,474
Adjustments for:
Losses on investment properties	4,313	2,483
Decrease in operating trade and other receivables	1,619	337
Decrease in operating trade and other payables	(1,646)	(181)
Interest received	(15)	(12)
Finance costs	4,222	3,453
	10,572	9,554
Taxation paid	(177)	(216)
Net cash inflow from operating activities	10,395	9,338
Cash flows from investing activities
Purchase of investment properties	-	(3,359)
Capital expenditure	(329)	(160)
Sale of investment properties	1,522	-
Cash transferred on merger	658	-
Interest received	15	12
Net cash inflow/(outflow) from investing activities	1,866	(3,507)
Cash flows from financing activities
Dividends paid	(7,956)	(7,956)
Bank loan interest paid	(698)	(760)
Payments under interest rate swap arrangement	(3,228)	(2,650)
Bank loan drawn down	4,000	5,000
Net cash outflow from financing activities	(7,882)	(6,366)
Net increase/(decrease) in cash and cash equivalents	4,379	(535)
Opening cash and cash equivalents	1,396	1,931
Closing cash and cash equivalents	5,775	1,396

F&C UK Real Estate Investments Limited

Principal Risks and Risk Uncertainties

The Group's assets consist of direct investments in UK commercial property.  Its principal risks are therefore related to the commercial property market in general, but also the particular circumstances of the properties in which it is invested and their tenants.  More detailed explanations of these risks and the way in which they are managed are contained under the headings of Credit Risk, Liquidity Risk and Interest Rate Exposure and Market Price Risk.  The Manager also seeks 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.

Other risks faced by the Group include the following:

·     Economic - inflation or deflation, economic recessions and movements in interest rates could affect property valuations.

·     Strategic - incorrect strategy, including sector and property allocation and use of gearing, could all lead to poor returns for shareholders.

·     Regulatory - breach of regulatory rules could lead to suspension of the Group's Stock Exchange listing, financial penalties or a qualified audit report.

·     Management and control - changes that cause the management and control of the Group to be exercised in the United Kingdom could lead to the Group becoming liable to United Kingdom taxation on income and capital gains.

·     Financial - inadequate controls by the Manager or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations.

·     Operational - failure of the Manager's accounting systems or disruption to the Manager's 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.

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 Group's property portfolio, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council. 

The Board and the Manager recognise the importance of the share price relative to net asset value in maintaining shareholder value. The Manager meets with current and potential new shareholders, and with stockbroking analysts who cover the investment trust sector, on a regular basis. In addition, communication of quarterly portfolio information is provided through the Group's website.

Financial Instruments and Investment Property

The Group's investment objective is to provide ordinary shareholders with an attractive level of income together with the potential for income and capital 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 cash, receivables, a bank loan, an interest rate swap and payables.

The Group is exposed to various types of risk that are associated with financial instruments.  The most important types are credit risk, liquidity risk and market risk (those relating to interest rate changes and pricing movements).

There was no foreign currency risk as at 30 June 2013 or 30 June 2012 as assets and liabilities are maintained in Sterling.

The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Group are detailed below.

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 until it is re-let. The Board receives regular reports on concentrations of risk and any tenants in arrears.  The Manager monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants.

The Group has a diversified tenant portfolio. The maximum credit risk from the rent receivables of the Group at 30 June 2013 is £524,000 (2012: £457,000). Rental deposits from tenants at 30 June 2013 were £449,000 (2012: £159,000). It is the practice of the Group to provide for rental debtors greater than three months overdue unless there is certainty of recovery. As at 30 June 2013 the provision was £150,000 (2012: £205,000). Of this amount £nil was subsequently written off and £nil has been recovered.

All of the cash is placed with financial institutions with a credit rating of A or above.  Bankruptcy or insolvency 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, the Manager would move the cash holdings to another financial institution.

The Group can also spread counterparty risk by placing cash balances with more than one financial institution.  The Directors consider the residual risk to be minimal.

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 in which the Group invests is 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 Manager and monitored on a quarterly basis by the Board.

In certain circumstances, the terms of the Group's bank loan entitles the lender to require early repayment, and in such circumstances the Group's ability to maintain dividend levels and the net asset value attributable to the ordinary shares could be adversely affected.  As at 30 June 2013 the cash balance was £5,775,000 (2012: £1,396,000).

Interest rate exposure

Some of the Group's financial instruments are interest-bearing.  These 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.

Interest is receivable on cash at a variable rate.  At the year-end, rates receivable ranged from 0.37 per cent on current account balances to 0.53 per cent for deposit account balances.  Interest is payable on the bank loan at a variable rate of LIBOR plus a margin of 0.475 per cent.  The effect of the interest rate swap is to fix interest payable at 5.77 per cent per annum.  The effective rate of interest on the loan is 0.98 per cent.  Interest on financial instruments classified as floating rate is repriced at intervals of less than one year.

Exposure varies throughout the year as a consequence of changes in the composition of the net assets of the Group arising out of the investment and risk management policies.

In addition, tenant deposits are held in interest-bearing bank accounts.  These accounts earn interest at base rate less 0.75 per cent and receive no interest at this time as the base rate is too low.  Interest accrued on these accounts is paid to the tenant.

The Group's exposure to interest rate risk relates primarily to the Group's long-term debt obligations.  The Group's policy is to manage its interest rate risk using an interest rate swap, in which the Group has agreed to exchange the difference between fixed and variable interest amounts, calculated by reference to an agreed upon notional principal amount.  The swap is designed to fix the interest payable on the loan.  The interest rate swap covers £100 million of the loan and has the same duration.  Interest fixing periods are identical and on this basis the swap contract complies with IAS 39's criteria for hedge accounting.

Market price risk

As at 30 June 2013, all of the Group's financial instruments (other than the bank loan) were included in the balance sheet at fair value, which in the opinion of the Directors is not materially different from their book value.

Fair values of financial assets and liabilities

In the opinion of the Directors there is no material difference between the carrying value and fair value of assets and liabilities that are included in the financial statements on a basis other than fair value.

The Directors and Manager regularly review the principles applied by the property valuers to ensure that they comply with the Group's accounting policies and with fair value principles.

Fair value hierarchy

The interest rate swap, valued at a liability of £14,434,000 (2012: £11,438,000) is considered to be Level 2 in the hierarchy.

Explanation of fair value hierarchy:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2 - The use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data.

Level 3 - The use of a model with inputs that are not based on observable market data.

 Directors' Responsibility Statement in Respect of the Annual Financial Report

In accordance with International Financial Reporting Standards as adopted by the EU and applicable law, we confirm that to the best of our knowledge:

·      The financial statements contained within the Annual Report for the year ended 30 June 2013, 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 Group;

·      The Chairman's Statement includes 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 Group's principal risks and uncertainties; and

·      The Chairman's Statement includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

Q Spicer

Director

4 October 2013

F&C UK Real Estate Investments Limited

Notes to the Consolidated Financial Statements

for the year ended 30 June 2013

1.         The audited results of the Group which were approved by the Board on X September 2013 have been prepared on the basis of International Financial Reporting Standards and the accounting policies set out in the statutory accounts of the Group for the year ended 30 June 2013.

2.         The fourth interim dividend of 1.25p was declared on 30 August 2013 and was paid on 27 September 2013 to shareholders on the register on 13 September 2013. The ex-dividend date was 11 September 2013.

3.         There were 208,050,491 Ordinary Shares in issue at 30 June 2013. The earnings per Ordinary Share are based on the net profit for the year of £1,600,000 and on 132,148,191 Ordinary Shares, being the weighted average number of shares in issue during the year.

4.         Two properties were sold during the year for £1.5 million.

5.         The Group results consolidate those of F&C UK Real Estate Finance Limited, a wholly owned subsidiary which wholly owns IRP Holdings Limited and IPT Property Holdings Limited which hold and manage the investment properties.

6.         These are not full statutory accounts. The full audited accounts for the year ended 30 June 2013 will be sent to shareholders in October 2013, and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey, the registered office of the Company.  The full annual report and accounts will be available on the Company's websites: www.fcre.co.uk or www.fcre.gg

7.         The Annual General Meeting will be held on 19 November 2013.

 

END

 

 

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