Interim Results
ISIS Property Trust 2 Limited
20 February 2008
To: RNS
Date: 20 February 2008
From: ISIS Property Trust 2 Limited
Interim results in respect of the period ended 31 December 2007
• Net asset value total return since launch of 63.9 per cent
• Net asset value per share decreased by 17.0 per cent
• Dividend yield of 8.1 per cent, based on period end share price
• Dividend of 3.6 pence per share for the period, an increase of 4.0 per
cent
The Chairman, Quentin Spicer, stated:
'Results
The six months to 31 December 2007 witnessed a fall in property values, as a
widely expected market correction commenced. The Company's net asset value total
return for the period was -14.9 per cent with the net asset value ('NAV') per
share falling to 132.5 pence.
The share price fell by 29.5 per cent to 88.5 pence per share, representing a
discount of 33.2 per cent to NAV as at 31 December 2007. This trend was
experienced across the offshore property investment company sector and the wider
UK Real Estate sector as a whole, as sentiment towards UK commercial property
deteriorated.
The fall in the share prices was initially triggered by a belief that property
yields were unsustainable, as they had fallen below returns available on
risk-free gilts. The price adjustment which followed was exacerbated by concerns
over the level of borrowings in the sector, amidst fears that companies were
going to breach their covenants and would be unable to sustain the rate of their
dividends.
Dividends
As explained in the Chairman's Statement for the year ended 30 June 2007, the
Board took the decision to increase the quarterly interim dividends to 1.80
pence per share with the first interim dividend at the new rate being paid in
December 2007. A second interim dividend of 1.80 pence per share will be paid on
11 April 2008 to shareholders on the register on 14 March 2008 and, in the
absence of unforeseen circumstances, it is the intention of the Board to
maintain the quarterly dividends at 1.80 pence per share. This will result in a
total dividend for the year ending 30 June 2008 of 7.20 pence per share, an
increase of 2.9 per cent on the prior year.
Borrowings
As mentioned in my previous Chairman's Statement, the Company re-financed its
borrowings in January 2007, entering into a new facility while reducing the
level of borrowings from £70.7m to £60m on a revolving credit facility of £75m.
As at 31 December 2007, the Company had gearing, net of cash, of 28.1 per cent.
The maximum level of borrowings permitted under the loan agreement is 60 per
cent of gross assets, a limit which is comfortably met.
Property Market
The consistent positive returns achieved by the property market over the last 15
years saw a dramatic reversal of fortune in 2007 with total returns of -5.5%,
according to the Investment Property Databank ('IPD') UK Monthly Index. The
downturn, which principally occurred in the second half of 2007 and accelerated
in the last quarter, affected all sectors of the market and both prime and
secondary stock. The adjustment was swifter and more severe than in previous
cycles with the IPD All Property Yield moving out from an historic low of 4.57
per cent in July 2007 to 5.19 per cent in December 2007.
Portfolio
The property portfolio recorded a capital return of -11.0 per cent for the six
month period to 31 December 2007, which compared with a capital return of -11.7
per cent as measured by the IPD UK Monthly Index. Further out-performance
against IPD income returns meant that the total property return for the Company
for the period was -8.5 per cent, compared with an IPD UK Monthly Index total
return of -9.5 per cent.
The Company sold two properties in November 2007. These were small lot sizes and
were sold in accordance with the strategy of disposing of smaller, mainly retail
properties which, due to their lot sizes, were unlikely to contribute
meaningfully to portfolio performance.
A single retail property at 9, High Street, Hereford was sold at auction for
£1.7m, which compared to its book cost of £1.5m and its previous valuation of
£1.9m. The sale price reflected a yield of 6 per cent and the property had a
lease expiry in 2010. A single retail property at 97, High Street, Sutton was
also sold at auction for £1.0m, compared with its book cost of £0.9m and its
previous valuation of £1.1m. The sale price reflected a yield of 5.7 per cent
and the property was let until 2014.
The Company purchased 1 and 2, Lochside Way, Edinburgh Park, Edinburgh, a modern
headquarters office building of 41,277 sq. ft. for £15.2m, including purchase
costs, reflecting a yield of 5.5 per cent. The property is let to HSBC
Securities Services (UK) Limited and guaranteed by HSBC Bank plc, until August
2014, with a rent review in 2009. The current rent is £837,380 p.a. which
equates to just over £20 per sq. ft.
The void rate within the property portfolio was 2.0 per cent at 31 December
2007, significantly lower than the IPD All Property average of 7.6 per cent. In
order to take advantage of this vacant space, a number of initiatives are being
pursued. Following a lease expiry of the fifth floor of the office building at
48/49 St James's Street, London, the Manager is taking the opportunity to carry
out a scheme of refurbishment at an approximate cost of £210,000 with a view to
re-letting on completion at a significantly improved rent, thereby enhancing the
capital value of the whole building. In similar vein, there was a lease expiry
at Unit 6, Lakeside Road Industrial Estate, Colnbrook, which has enabled the
unit to be refurbished and it is now available for re-letting.
With the purchase of the property at Edinburgh Park, the risk profile of the
Company's tenants has improved. The top five tenants (including guarantors)
account for 31 per cent of the Company's rental income and are all ranked by IPD
as negligible risk.
Outlook
The UK commercial property sector has experienced a turbulent six months. There
is uncertainty as to how much further property values will fall and some believe
that most of the correction has taken place, with property offering fair value.
This is backed up by the number of new buyers now entering the market.
However, concerns over the availability of debt and doubts over the state of the
UK economy continue to loom, with growth, both in the UK and globally, predicted
to slow in 2008. If this deterioration is more marked than currently predicted,
this could affect the occupational property market.
The Managers predict another weak year with the market eventually levelling out.
Thereafter, it is expected that there will be positive real rates of return,
with performance being largely income driven.
The Company's performance in 2008 should be driven by income protection, income
enhancement and prudent property selection. The Company has a significant level
of distributable reserves and no pressures with regards to its existing
borrowings. It also has a reliable income stream with an average lease length of
8.9 years and has a very low level of un-let property in the portfolio. The
Manager will continue to work on enhancing income returns within the existing
portfolio and will proceed cautiously with regards to any capital transactions
until it is clear that value can be added.'
Enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
I McBryde, S Macrae
F&C Investment Business Limited
Tel: 0207 628 8000
Fax: 0131 225 2375
ISIS Property Trust 2 Limited
Consolidated Income Statement
for the six months to 31 December 2007
Six months to Six months to Year to
31 December 31 December 30 June
2007 2006 2007
Notes (unaudited) (unaudited) (audited)
£'000 £'000 £'000
Revenue
Rental income 6,228 6,106 11,809
(Losses) / gains on investment
properties 2 (25,459) 11,173 16,832
________________________________________
Total income (19,231) 17,279 28,641
________________________________________
Expenditure
Investment management fee (946) (1,024) (2,006)
Direct operating expenses of let
rental property (143) (240) (416)
Administrative fee (33) (32) (64)
Valuation and other professional
fees (79) (78) (170)
Directors' fees (52) (52) (105)
Other expenses (79) (94) (201)
________________________________________
Total expenditure (1,332) (1,520) (2,962)
________________________________________
Net operating (loss) / profit
before finance costs (20,563) 15,759 25,679
________________________________________
Net finance costs
Interest revenue receivable 227 187 747
Interest payable (1,751) (2,265) (4,024)
Loss on termination of interest
rate swap - - (1,610)
________________________________________
(1,524) (2,078) (4,887)
________________________________________
Net (loss) / profit from ordinary
activities before taxation (22,087) 13,681 20,792
Taxation on profit on ordinary
activities - - -
________________________________________
Net (loss) / profit for the
period (22,087) 13,681 20,792
________________________________________
Earnings per share 3 (20.0)p 12.4p 18.8p
ISIS Property Trust 2 Limited
Consolidated Balance Sheet as at 31 December 2007
31 December 31 December 30 June
2007 2006 2007
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Non-current assets
Investment properties 205,249 212,471 218,025
Interest rate swap - - 3,397
________________________________________
205,249 212,471 221,422
Current assets
Trade and other receivables 2,893 3,306 2,870
Cash and cash equivalents 3,681 28,822 16,945
________________________________________
6,574 32,128 19,815
________________________________________
Total assets 211,823 244,599 241,237
________________________________________
Non-current liabilities
Interest-bearing bank loan (60,408) (70,725) (60,326)
Interest rate swap (514) (1,807) -
________________________________________
(60,922) (72,532) (60,326)
Current liabilities
Trade and other payables (4,511) (4,181) (4,534)
________________________________________
Total liabilities (65,433) (76,713) (64,860)
________________________________________
________________________________________
Net assets 146,390 167,886 176,377
________________________________________
Represented by:
Share capital 1,105 1,105 1,105
Special distributable reserve 99,648 103,288 99,648
Capital reserve 46,768 66,568 72,227
Revenue reserve (617) (1,268) -
Other reserve (514) (1,807) 3,397
________________________________________
Equity shareholders' funds 146,390 167,886 176,377
________________________________________
Net asset value per share 5 132.5p 151.9p 159.6p
ISIS Property Trust 2 Limited
Consolidated Statement of Changes in Equity
for the six months to 31 December 2007
31 December 31 December 30 June
2007 2006 2007
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Opening net assets 176,377 157,136 157,136
Net (loss) / profit for the
period (22,087) 13,681 20,792
Dividends paid 6 (3,989) (3,776) (7,600)
Movement in other reserve (3,911) 845 6,049
________________________________________
Closing net assets 146,390 167,886 176,377
________________________________________
ISIS Property Trust 2 Limited
Consolidated Statement of Cash Flows
for the six months to 31 December 2007
Six months Six months
to 31 to 31 Year
December December to 30
2007 2006 June 2007
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash flows from operating activities
Net operating (loss) / profit for the period
before finance costs (20,563) 15,759 25,679
Adjustments for:
Losses / (gains) on investment properties 25,459 (11,173) (16,832)
(Increase) / decrease in operating trade and
other receivables (190) (367) (176)
(Decrease) / increase in operating trade and
other payables (24) 87 207
_________________________________
4,682 4,306 9,230
_________________________________
Interest received 182 187 702
Bank loan interest paid (1,953) (2,611) (3,759)
Receipts / (payments) under interest rate
swap arrangement 497 (330) (380)
_________________________________
(1,274) (2,754) (3,437)
_________________________________
Net cash inflow from operating activities 3,408 1,552 5,793
_________________________________
Cash flows from investing activities
Purchase of investment properties (15,164) - -
Capital expenditure (197) (615) (510)
Sale of investment properties 2,678 26,610 26,610
_________________________________
Net cash (outflow) / inflow from investing
activities (12,683) 25,995 26,100
_________________________________
Cash flows from financing activities
Repayment of previous bank loan - - (70,662)
Drawdown on new bank loan - - 60,000
New loan set-up costs paid - - (127)
Payment on termination of interest rate swap - - (1,610)
Dividends paid (3,989) (3,776) (7,600)
_________________________________
Net cash outflow from financing activities (3,989) (3,776) (19,999)
Net (decrease) / increase in cash and cash
equivalents (13,264) 23,771 11,894
_________________________________
Opening cash and cash equivalents 16,945 5,051 5,051
_________________________________
Closing cash and cash equivalents 3,681 28,822 16,945
_________________________________
ISIS Property Trust 2 Limited
Notes to the Consolidated Financial Statements
for the six months to 31 December 2007
1. The unaudited interim results have been prepared on the basis of
International Financial Reporting Standards as adopted by the European
Union, in compliance with IAS34 and the accounting policies set out in the
statutory accounts of the group for the year ended 30 June 2007.
2. Investment properties
Six month period to
31 December 2007
£'000
____________________
Opening valuation 218,025
Purchases at cost 15,164
Capital Expenditure 197
Sales proceeds (2,678)
Losses on investment properties (25,459)
____________________
Closing valuation 205,249
________________________________________________________________________
Gains / (losses) on investments disposed in period
Original cost of investment properties sold 2,418
Market value of investment properties sold as at
30 June 2007 3,075
Sale proceeds 2,678
Gain / (loss) on disposal calculated with
reference to
- original cost 260
- 30 June 2007 valuation (397)
3. Earnings per Ordinary Share are based on 110,500,000 shares, being the
weighted average number of shares in issue during the period (31 December
2006 - 110,500,000 and 30 June 2007 - 110,500,000).
4. Earnings for the six months to 31 December 2007 should not be taken as a
guide to the results for the year to 30 June 2008.
5. The net asset value per ordinary share is based on net assets of £146,390,000
(31 December 2006 - £167,886,000 and 30 June 2007 - £176,377,000) and
110,500,000 ordinary shares (31 December 2006 - 110,500,000 and 30 June 2007
- 110,500,000), being the number of shares in issue at the period end.
6. Dividends
+--------------------+------------------+------------------+------------------+
| | Six months to | Six months to |Year ended 30 June|
| | | | 2007 |
| | 31 December 2007 | 31 December 2006 | |
+--------------------+--------+---------+-------+----------+----------+-------+
|Fourth interim |2,000 |1.81 | 1,864 | 1.6875 |1,864 |1.6875 |
|dividend | | | | | | |
+--------------------+--------+---------+-------+----------+----------+-------+
|First interim |1,989 |1.80 | 1,912 | 1.73 |1,912 |1.73 |
|dividend | | | | | | |
+--------------------+--------+---------+-------+----------+----------+-------+
|Second interim | | | | |1,912 |1.73 |
|dividend | | | | | | |
+--------------------+--------+---------+-------+----------+----------+-------+
|Third interim | | | | |1,912 |1.73 |
|dividend | | | | | | |
+--------------------+--------+---------+-------+----------+----------+-------+
| |3,989 |3.61 | 3,776 | 3.4175 |7,600 |6.8775 |
+--------------------+--------+---------+-------+----------+----------+-------+
A second interim dividend for the year ended 30 June 2008, of 1.80 pence per
share, will be paid on 11 April 2008 to shareholders on the register at close of
business on 14 March 2008.
7. No Director has any interest in any transactions which are or were unusual in
their nature or significant to the Group. F&C Investment Business Limited
received fees for its services as Investment Managers. The total charge to
the Income Statement during the period was £979,000 of which £466,000
remained payable at the period end.
The Directors of the Company received fees for their services totalling £52,500,
of which £26,250 remained payable at the period end.
8. The Group results consolidate those of IPT2 Property Holdings Limited
('IPH'), a wholly owned subsidiary. IPH is incorporated in Guernsey and its
principal business is that of an investment and property company.
9. The Interim Report will be posted to shareholders during February 2008
Directors' Responsibility Statement in Respect of the Half-yearly Financial
Report
We confirm that to the best of our knowledge:
• The condensed set of financial statements have been prepared in
accordance with the Statement 'Half-yearly financial reports' issued by the UK
Accounting Standards Board;
• The Interim Management Report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the financial
year and their impact on the condensed set of financial statements' and a
description of the principal risks and uncertainties for the remaining six
months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position of
performance of the company during that period; and any changes in the related
party transactions described in the last Annual Report that could do so.
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