Final Results
ISIS Property Trust 2 Limited
17 September 2007
To: RNS
Date: 17 September 2007
From: ISIS Property Trust 2 Limited
Results in respect of the Year Ended 30 June 2007
Financial Highlights
• Net asset value total return since launch of 92.5 per cent
• Net asset value per share increased by 12.2 per cent to 159.6 pence
• Dividend yield of 5.6 per cent based on year end share price
• Dividend of 7.0 pence per share for the year, an increase of 3.7 per
cent
Chairman's Statement
The Chairman, Quentin Spicer, stated:
The Company had another excellent year, recording a net asset value total return
of 17.4 per cent. The Company's property portfolio produced an un-geared total
return of 13.2 per cent, which compared favourably against a total return of
12.4 per cent for the Investment Property Databank UK Monthly Index (the 'IPD'
Monthly Index) over the same period. The additional returns on net asset value
can be attributed to the positive effects of gearing and an increase in the swap
valuation.
Net asset value total return since launch is 92.5 per cent, significantly ahead
of forecasts at that time.
However, in a tougher environment for property as an asset class, the Company's
share price fell 11.9 per cent over the year from 142.50 pence per share at 30
June 2006 to 125.50 pence at 30 June 2007. This fall resulted in the shares
showing a discount of 21.4 per cent, against a premium of 0.2 per cent a year
earlier, a trend that has been seen across the peer group and the wider quoted
property sector. Interest rates in the UK have increased five times during the
last twelve months, by 1.25 per cent in total and the all-property initial yield
is now lagging that of risk-free gilts. This has been a key factor behind the
widening of discounts.
Property Market and Portfolio
The UK property market experienced a change in sentiment during the year, as
higher interest rates started to slow capital growth. Secondary property in
particular is becoming vulnerable to a correction in market values, with town
centre retail being the most susceptible. Offices, especially in Central London,
are the leading sector and are expected to continue to outperform.
Having experienced three years of exceptional capital returns, the possibility
of further yield compression to support this seems limited. Despite this change,
there has still been considerable activity in direct property, with sizeable
sums invested in the first half of 2007, particularly by overseas investors.
This interest is mainly in prime property with secondary properties experiencing
a weakening demand.
The Managers continued with their strategy of repositioning the portfolio away
from standard retail units and concentrating further investment in additional
high quality properties, with the emphasis on out of town retail and regional
offices. Three properties were sold during the year for an aggregate of £26.6
million. These sales were all in excess of their market valuations and realised
gains of £8.8 million against their original purchase price.
Although there were no purchases during the year, the Company completed the
purchase of an office building, post year end, at a cost of £14.4 million. This
building is in Edinburgh and offers good prospects of rental growth and some
definite opportunities for asset management.
The void rate within the Company's property portfolio fell from 3.2 per cent at
30 June 2006 to a very low level of 0.3 per cent at the year end, the Managers
having successfully let all but the smallest of vacant space, an indication of
the high quality of the portfolio. This level of void sits substantially below
the IPD average of 7.0 per cent and is extremely encouraging.
The amount of rental income from negligible and low risk tenants was 66.4 per
cent as at 30 June 2007, which compares with the industry average of 68.5 per
cent, although the recent purchase in Edinburgh will improve the risk profile of
the portfolio. The average lease length of the portfolio fell during the year to
9.1 years, assuming all breaks implemented, compared with 10.1 years at 30 June
2006. A number of rent negotiations are ongoing which should increase this
figure in the longer term.
Dividends
Three interim dividends of 1.73 pence per share have been paid during the year.
After taking account of rental growth achieved since launch, combined with the
interest rate savings achieved from the loan refinancing in January 2007, the
Board has taken the decision to increase the fourth interim dividend by 4.6 per
cent to 1.81 pence per share, giving a total dividend for the year ended 30 June
2007 of 7.0 pence per share. As previously announced, this dividend will be paid
on 28 September 2007 to shareholders on the register on 7 September 2007.
In the absence of a material change in circumstances, it is the intention of the
Board to maintain the quarterly dividend at 1.80 pence per share, giving a total
dividend for the year ending 30 June 2008 of 7.2 pence per share.
Borrowings
The use of borrowings continued to be an effective strategy during the year in a
market of increasing property values, providing enhanced returns to
shareholders. The gearing level as at 30 June 2007 was 25.5 per cent, which
compares with 30.9 per cent as at 30 June 2006 and 40.0 per cent at launch on 1
June 2004.
As described in my interim Chairman's Statement, on 10 January 2007 the Company
repaid in full its existing debt facility of £70.7 million with The Royal Bank
of Scotland plc ('RBS') and entered into a new £75 million facility with Lloyds
TSB Scotland plc ('LTSB'). The term of this facility is until January 2017. The
margin under the new debt facility is 50 basis points over LIBOR for the first
three years and 45 basis points over LIBOR for the remaining period. The other
terms of the facility are substantially identical to the terms of the previous f
acility with RBS. The Company has initially drawn down £60 million under the new
facility.
At the same time, the Company terminated the interest rate swap with RBS and
entered into a new interest rate swap transaction with LTSB. Under this
agreement, the interest on the amount initially drawn down under the new
facility has been fixed at an aggregate interest rate (including margin) of
5.655 per cent per annum for the first three years and 5.605 per cent per annum
thereafter. This compares to a fixed rate of interest of 6.265 per cent under
the previous facility.
The Board is pleased with the fixed rate of interest achieved, which is
currently below The Bank of England base rate and the interest rate swap is
therefore shown as an asset in the Balance Sheet. The Board is comfortable with
the current level of gearing, particularly as the borrowings are on a revolving
credit facility, giving the Company additional flexibility to manage the
ongoing level of debt in an efficient manner.
Outlook
The UK commercial property market has already started to show signs of a
slowdown so far in 2007 and the Managers forecast is for single digit total
returns in the next couple of years. Good property selection, active asset
management and strength of tenant covenant will be crucial in driving
performance.
The Managers are considering various asset enhancing initiatives as they look to
refresh the portfolio in the coming months. They will look to sell some targeted
properties and repurchase high quality stock over the longer term. They will
remain focussed on keeping voids at their current low rate and limiting risk by
improving the covenant strength where opportunities arise.
The Company is well placed to perform, with flexible borrowings at a low fixed
rate of interest in the current market. This takes the pressure off having to
reinvest any sales proceeds immediately and the Managers can therefore
concentrate on identifying the right type of property, with clear growth
prospects and good letting potential.
All enquiries to:
Ian McBryde
F&C Asset Management plc
Tel: 0131 465 1000
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Tel: 01481 745001
ISIS Property Trust 2 Limited
Consolidated Income Statement
for the year ended 30 June 2007
Year ended 30 June 2007 Year ended 30 June 2006
(unaudited) (audited)
£'000 £'000
Revenue
Rental income 11,809 12,547
Gains on
investment
properties 16,832 31,158
--------- ---------
Total income 28,641 43,705
--------- ---------
Expenditure
Investment
management fee (2,006) (1,883)
Other expenses (956) (913)
--------- ---------
Total
expenditure (2,962) (2,796)
--------- ---------
Net operating
profit before
finance costs 25,679 40,909
--------- ---------
Net finance costs
Interest
revenue
receivable 747 201
Finance costs (4,024) (4,508)
Loss on
termination of
interest rate
swap (1,610) -
--------- ---------
(4,887) (4,307)
--------- ---------
Net profit
from ordinary
activities
before
taxation 20,792 36,602
Taxation on profit on - -
ordinary activities
--------- ---------
Net profit for
the year 20,792 36,602
========= =========
Earnings per
share 18.8p 33.1p
ISIS Property Trust 2 Limited
Consolidated Balance Sheet as at 30 June 2007
30 June 2007 30 June 2006 (audited)
(unaudited) £'000 £'000
Non-current assets
Investment properties 218,025 227,293
Interest rate swap 3,397 -
--------- ---------
221,422 227,293
Current assets
Trade and other receivables 2,870 2,939
Cash and cash equivalents 16,945 5,051
--------- ---------
19,815 7,990
--------- ---------
Total assets 241,237 235,283
----------- -----------
Non-current liabilities
Interest-bearing bank loan (60,326) (71,330)
Interest rate swap - (2,652)
--------- ---------
(60,326) (73,982)
Current liabilities
Trade and other payables (4,534) (4,165)
--------- ---------
Total liabilities (64,860) (78,147)
--------- ---------
--------- ---------
Net assets 176,377 157,136
========= =========
Represented by:
Share capital 1,105 1,105
Special distributable reserve 99,648 103,288
Capital reserve 72,227 55,395
Other reserve 3,397 (2,652)
--------- ---------
Equity shareholders' funds 176,377 157,136
========= =========
Net asset value per share 159.6p 142.2p
ISIS Property Trust 2 Limited
Consolidated Statement of Changes in Equity
For the year ended 30 June 2007 (unaudited)
Special
Share Distributable Capital Other Revenue
Capital Reserve Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
----------------------------------------------------------------
At 1 July 1,105 103,288 55,395 (2,652) - 157,136
2006
Net profit
for - - - - 20,792 20,792
the year
Dividends - - - - (7,600) (7,600)
paid
Transfer in
respect of
gains on
investment
properties - - 16,832 - (16,832) -
Transfer from
special
distributable
reserve - (3,640) - - 3,640 -
Realised loss
on interest
rate swap - - - 1,610 - 1,610
Movement in
fair value of
interest rate
swaps - - - 4,439 - 4,439
----------------------------------------------------------------
At 30 June
2007 1,105 99,648 77,227 3,397 - 176,377
================================================================
For the year ended 30 June 2006 (audited)
Special
Share Distributable Capital Other Revenue
Capital Reserve Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
----------------------------------------------------------------
As at 1 July
2005 1,105 105,303 24,237 (6,137) - 124,478
Net profit
for - - - - 36,602 36,602
the year
Dividends - - - - (7,459) (7,459)
paid
Transfer in
respect of
investment
properties - - 31,158 - (31,158) -
Transfer from
special
distributable
reserve - (2,015) - - 2,015 -
Loss on
interest rate
swap - - - 3,515 - 3,515
----------------------------------------------------------------
At 30 June
2006 1,105 103,288 55,395 (2,652) - 157,136
================================================================
ISIS Property Trust 2 Limited
Consolidated Cash Flow Statement
for the year ended 30 June 2007
Year ended Year ended 30
30 June 2007 June 2006
(unaudited) (audited)
£'000 £'000
Cash flows
from operating
activities 25,679 40,909
Net operating profit for the year
before finance costs
Adjustments for:
Gains on
investment
properties (16,832) (31,158)
Decrease/
(increase) in
operating
trade and
other
receivables 176 (1,635)
Increase/
(decrease) in
operating
trade and
other payables 207 (326)
------------------------------
9,230 7,790
------------------------------
Interest
received 702 201
Bank loan
interest paid (3,759) (3,927)
Payments under
interest rate
swap agreement (380) (569)
------------------------------
(3,437) (4,295)
------------------------------
Net cash
inflow from
operating
activities 5,793 3,495
------------------------------
Cash flows from investing
activities
Capital
expenditure (510) (85)
Sales of
investment
properties 26,610 5,000
------------------------------
Net cash
inflow from
investing
activities 26,100 4,915
------------------------------
Cash flows from financing
activities
Repayment of
previous bank
loan (70,662) -
Draw down of
new bank loan 60,000 -
New loan
set-up costs
paid (127) -
Payment on
redemption of
interest rate
swap (1,610) -
Dividends paid (7,600) (7,459)
------------------------------
Net cash
outflow from
financing
activities (19,999) (7,459)
------------------------------
Net increase
in cash and
cash
equivalents 11,894 951
Opening cash
and cash
equivalents 5,051 4,100
------------------------------
Closing cash
and cash
equivalents 16,945 5,051
==============================
ISIS Property Trust 2 Limited
Notes to the Consolidated Financial Statements
for the year ended 30 June 2007
1. The unaudited results of the Group which were approved by the Board on
17 September 2007 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 2007.
2. The fourth interim dividend of 1.81p was declared on 7 August 2007 and will
be paid on 28 September 2007 to shareholders on the register on 7 September
2007. The ex-dividend date will be 5 September 2007.
3. There were 110,500,000 Ordinary Shares in issue at 30 June 2007. The
earnings per Ordinary Share are based on the net profit for the year of
£20,792,000 and on 110,500,000 Ordinary Shares, being the weighted average
number of shares in issue during the year.
4. Three properties were sold during the year for an aggregate of £26.6
million. These sales were all in excess of their market valuations and
realised gains of £8.8 million against their original purchase price.
Although there were no purchases during the year, the Company completed the
purchase of an office building, post year end, at a cost of £14.4 million. This
building is in Edinburgh and offers good prospects of rental growth and some
definite opportunities for asset management.
5. The Group results consolidate those of IPT2 Property Holdings Limited, a
wholly owned subsidiary which invests in properties.
6. These are not full statutory accounts. The full audited accounts for the
year ended 30 June 2007 will be sent to shareholders in September 2007,
and will be available for inspection at Trafalgar Court, Les Banques,
St Peter Port, Guernsey, the registered office of the Company.
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