Final Results

RNS Number : 4113J

UK Commercial Property Trust Ltd

30 March 2010

 



UK Commercial Property Trust Limited

Final Results Announcement for the year ended 31 December 2009

Financial Highlights

• Annual dividend yield of 6.69 per cent based on the year end share price.

• Total dividend paid per Ordinary Share of 5.25p for the year to 31 December 2009.

• Cash balance of £70.2 million at the year end.

• The average unexpired lease term of the property portfolio is 9 years and 7 months.

• Voids now at 2.45 per cent.

• Property portfolio ranked in top quartile for covenant strength in the independent IPD Rental Information     Service.

• Acquisition of a new property portfolio on 30 October 2009 consisting of 10 properties with a market value of £138 million.

•Fully subscribed 195,000,000 Ordinary Share issue in January 2010 raising in excess of £150 million.

Chairman's Statement

I am pleased to present the Annual Report of the Company for the year to 31 December 2009.

Commercial Property Markets

Commercial property markets in 2009 started poorly, reflecting the pessimistic trend of 2008, before apparently bottoming out as investors, looking for any signs of a floor, decided that less "bad news" was a positive. Although worldwide securities markets began to display more optimism in the second quarter, the UK's commercial property market made a muted recovery.  Gradually the pessimistic forecasts of the first six months of the year, driven by retail administrations and slowing, if not declining, sales as well as debt and banking restrictions, began to be seen as exaggerated.   As the year progressed investors' frustration with the record low return on cash led them to return to the prime end of the property market where availability was limited.  This shortage of stock partly explains the rebound in values seen in the second half of 2009, which gathered pace towards the end of the year.

NAV/Share Price Performance

The Net Asset Value per Ordinary Share (calculated under International Financial Reporting Standards and adjusted for the provision of dividend declarations) for the year to 31 December 2009 was as follows:

Date	NAV (p)	Share Price (p)	Premium/ (Discount) %
31 December 2008	69.89	53.25	(23.81)
31 March 2009	66.30	58.50	(11.76)
30 June 2009	64.50	65.75	1.94
30 September 2009	66.40	72.00	8.43
31 December 2009	72.69	78.50	7.99

The sea change in sentiment towards the property sector over the second half of 2009 saw an uplift in both the share price and NAV. Discount became premium, with the share price up 47.4% and the NAV up 4.0% for the year.

EGM

On 10 July 2009 shareholders at an EGM approved amendments to the Company's policy on continuation votes and to the Company's gearing policy. The amendment to the continuation period will allow the manager to manage assets for the medium term, but will not prevent the Directors putting a continuation vote to Shareholders earlier, should they believe it to be in Shareholders' best interests to do so. Borrowing limits were also amended to allow the Manager to utilise all the available facility.

Share Buy Backs

As highlighted in the Interim Report, the Company bought back 28,571,429 of its own Ordinary Shares of 25p at a price of 52.5p per share on 17 March 2009. This represented a discount of 24.8 percent to the NAV at 31 December 2008. The shares bought back are being held in treasury, taking the total number of shares held in treasury to 41,445,142.

The Board will continue to use share buy backs in future where it believes that it will enhance shareholder value, while giving careful consideration to the Company's cash flows and to development and asset management opportunities as they arise.

Corporate Activity

On 6 October 2009 the Company announced proposals to acquire a portfolio of commercial properties from Phoenix Life Limited for an aggregate consideration of £146 million, comprising cash of £35 million and the issue of 163,794,000 new Ordinary Shares at 67.76p per share. The transaction was approved at an EGM on 29 October 2009 and, as noted at the time, 10 of the 11 properties in the portfolio were acquired immediately with the remaining property, Argyle Street, Glasgow, still to complete on satisfaction of all the conditions agreed at the acquisition date.

This transaction, coming as it did when there was limited prime commercial stock available in the market, offered an excellent opportunity to improve the prospects for income and capital growth in the Property Portfolio, further diversify the Portfolio and obtain the benefit of an increase in the size of the Group.

The cash element of the consideration and the issue costs were financed by the drawdown of £42.1 million from the revolving loan facility provided to the Company by Lloyds Banking Group plc. On 4 March 2010 the Company entered into an Interest Rate swap agreement with Lloyds, which set the interest rate at 3.55% (inclusive of margin costs).

Following the transaction, completed on 30 October 2009, 151,544,000 new Ordinary Shares were issued (12,250,000 withheld pending settlement of the Argyle Street, Glasgow transaction) taking the total Ordinary Shares in issue to 990,098,858 being the shares in issue at 31 December 2009.

On 21 December 2009 the Company announced a proposed equity capital raising to allow it to pursue the acquisition of further commercial properties in accordance with its investment policy. On 25 January 2010 a further announcement was made confirming that commitments and applications had been received under the Placing and Offer for 195 million new Ordinary Shares at a price of 77.1p, raising gross proceeds of £150 million. An EGM, held on 10 February 2010, approved the participation of Phoenix & London Assurance Limited in the Placing, with the new Ordinary Shares then being admitted for trading on the London Stock Exchange on 11 February 2010.

While there has been little in the way of positive news from the economy over the past year, it is extremely encouraging that Shareholders and other investors have supported all the corporate activity instigated by the Company. Your Board and advisors are very appreciative of this support and have worked hard to ensure that the Company is well positioned to take advantage of any further opportunities to acquire commercial properties in line with our investment policy, has a well diversified, high quality property portfolio and is utilising its competitive debt facility in the best interests of all Shareholders.

During the year it was good to welcome back Christopher Fish, Chairman of the Audit Committee, following recent illness.

Borrowing

As noted above, the Company drew down £42.1 million from the revolving loan facility provided to the Company by Lloyds Banking Group plc on 30 October 2009. On 4 March 2010 the Company entered into an Interest Rate swap agreement with Lloyds which set the interest rate at 3.55%. The balance of the £80 million revolving loan is still available to the Company.

Dividends

The Company declared and paid the following dividends during 2009:

	Ex Dividend Date	Pay Date	Dividend Rate (p)
4th interim for the prior period	11 Feb 2009	27 Feb 2009	1.3125
1st Interim	13 May 2009	29 May 2009	1.3125
2nd Interim	12 Aug 2009	28 Aug 2009	1.3125
3rd Interim*	21 Oct 2009	30 Nov 2009	1.7262
		Total	5.6637

*4 month period

On 26 January 2010 the Company declared a 4th Interim Dividend** of 0.8988p per Ordinary Share with an ex-dividend date of 3 February 2010, which was paid on 26 February 2010

**2 month period

Outlook

Market commentators are not yet sufficiently confident to predict where markets in general and property markets in particular will head during 2010 and beyond. With the UK only just coming out of recession in Q4 2009 and the Government heading towards an election, investors will need to reappraise their attitude to medium term returns with no likelihood of interest rates increasing for a while yet. The strong performance of the property sector towards the end of 2009, despite the pressure on rental values, is an indication that investors are revisiting the fundamentals of property investment, with banks looking to liquidate their bad debt property portfolios in an orderly manner, the market may well see more activity, including in the non-prime sectors.

The recent corporate activity has placed the Company in a strong and advantageous position. The capital raised together with the balance of the debt facility, is available to invest should opportunities to enhance Shareholder value emerge over the coming months. Asset management opportunities and revenue flows from the existing property stock will also need to be tightly managed to ensure that the Company can continue to deliver on its objectives to Shareholders in these difficult markets.

Consolidated Income Statement

For the year ended 31 December 2009

		Year ended 31 December 2009		Year ended 31 December 2008
	Notes	£'000		£'000
Income and gains
Rental income		48,818		45,867
Gains/ (losses) on investment properties	8	31,345		(176,090)
Interest revenue receivable		225		2,458
Total income and gains		80,388		(127,765)
Expenditure
Investment management fee	2	(4,503)		(5,326)
Other expenses	3	(2,594)		(2,792)
Total Expenditure		(7,097)		(8,118)
Net operating profit/(loss) before finance costs		73,291		(135,883)
Finance costs
Finance costs	4	(155)		-
Net profit/(loss) from ordinary activities before taxation		73,136		(135,883)
Taxation on profit/(loss) on ordinary activities	5	-		-
Net profit (loss) for the period		73,136		(135,883)
Basic and diluted earnings per share	7	8.40p		(15.67)p

The Company does not have any income or expense that is not included in the Profit for the year, and therefore the "Profit for the year" is also the "Total comprehensive income for the year", as defined in International Accounting Standard 1 (revised).

All of the profit and total comprehensive income for the year is attributable to the owners of the Company. All items in the above statement derive from continuing operations.

The accompanying notes are an integral part of this statement.

Consolidated Balance Sheet

As at 31 December 2009

		2009		2008
	Notes	£'000		£'000
Non-current assets
Investment properties	8	710,485		560,120
Current assets
Trade and other receivables	10	5,181		5,125
Cash and cash equivalents		70,163		64,610
		75,344		69,735
Total assets		785,829		629,855
Current Liabilities
Trade and other payables	11	(15,273)		(12,510)
Long Term Liabilities
Bank loan	12	(41,919)		-
Total liabilities		(57,192)		(12,510)
Net assets		728,637		617,345
Represented by:
Share capital	13	322,680		220,000
Share premium		-		267,952
Treasury Shares	13	(25,264)		(10,249)
Special reserve		646,307		386,073
Capital reserve		(215,096)		(246,441)
Revenue reserve		-		-
Equity Shareholders' funds		728,627		617,335
Minority interest		10		10
		728,637		617,345
Net asset value per share	14	73.6p		71.2p

The accompanying notes are an integral part of this statement.

Consolidated Statement of Changes in Equity

For the year ended 31 December 2009

	Share Capital £'000	Share Premium Account £'000	Treasury Shares £'000	Special Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Minority Interest £'000	Total £'000
As at 1 January 2009	220,000	267,952	(10,249)	386,073	(246,441)	-	10	617,345
Transfer*	-	(267,952)	-	267,952	-	-	-	-
Issue of Ordinary Shares	102,680	-	-	-	-	-	-	102,680
Issue costs	-	-	-	(1,641)	-	-	-	(1,641)
Shares bought back and held in Treasury	-	-	(15,015)	-	-	-	-	(15,015)
Total comprehensive income for the year	-	-	-	-	-	73,136	-	73,136
Dividends paid	-	-	-	-	-	(47,868)	-	(47,868)
Transfer in respect of gains on investment properties	-	-	-	-	31,345	(31,345)	-	-
Transfer from special distributable reserve	-	-	-	(6,077)	-	6,077	-	-
At 31 December 2009	322,680	-	(25,264)	646,307	(215,096)	-	10	728,637

* Under current regulations there is no longer a requirement to maintain a Share Premium Account. The 2009 opening Share Premium Account balance has been transferred to Special Reserves. The net proceeds from the Companies 30 October 2009 share issue has been credited to the Share Capital Account.

For the year ended 31 December 2008

	Share Capital £'000	Share Premium Account £'000	Treasury Shares £'000	Special Distributable Reserve £'000	Capital Reserve £'000	Revenue Reserve £'000	Minority Interest £'000	Total £'000
As at 1 January 2008	220,000	267,952	(10,249)	388,306	(70,351)	3,084	10	798,752
Total comprehensive income for the year	-	-	-	-	-	(135,883)	-	(135,883)
Dividends paid	-	-	-	-	-	(45,524)	-	(45,524)
Transfer in respect of losses on investment properties	-	-	-	-	(176,090)	176,090	-	-
Transfer from special distributable reserve	-	-	-	(2,233)	-	2,233	-	-
At 31 December 2008	220,000	267,952	(10,249)	386,073	(246,441)	-	10	617,345

The accompanying notes are an integral part of this statement.

Consolidated Cash Flow Statement

For the year ended 31 December 2009

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£'000
Cash flows from operating activities
Net operating profit/(loss) before tax for the year	73,136	(135,883)
Adjustments for:
(Gains)/losses on investment properties	(31,345)	176,090
(Increase)/decrease in operating trade and other receivables	(56)	1,340
Increase/(decrease) in operating trade and other payables	2,763	(1,891)
Net cash inflow from operating activities	44,498	39,656
Cash flows from investing
Purchase of investment properties	(176,595)	-
Sale of investment properties	60,265	42,587
Capital expenditure	(2,690)	(5,702)
Net cash (outflow)/inflow from investing activities	(119,020)	36,885
Cash flows from financing activities
Proceeds from issue of Ordinary Shares	102,680	-
Net proceeds from utilisation of bank loan after set up costs	41,919	-
Issue costs of ordinary share capital	(1,641)	-
Share buyback	(15,015)	-
Dividends paid	(47,868)	(45,524)
Net cash inflow/(outflow) from financing activities	80,075	(45,524)
Opening cash and cash equivalents	64,610	33,593
Closing cash and cash equivalents	70,163	64,610

The accompanying notes are an integral part of this statement.

Notes to the Accounts

1. Accounting Policies

A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.

(a) Basis of Accounting

The consolidated accounts have been prepared in accordance with International Financial Reporting Standards issued by, or adopted by, the International Accounting Standards Board (the

IASB), interpretations issued by the International Financial Reporting Standards Committee, that remain in effect, and to the extent that they have been adopted by the European Union, applicable legal and regulatory requirements of Guernsey law and the Listing Rules of the UK Listing Authority.

Changes in accounting policies and disclosures

IAS1 (revised) Presentation of Financial Statements separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes, if any, in equity presented in a single line. In addition, the standard introduces the statements of comprehensive income. It presents all items of recognised income and expense, either in one single statement or in two linked statements. The Company has elected to present one single statement.

IFRS7 (amendment) financial instruments: disclosures, this amendment requires an entity to provide quantitative and qualitative analysis of those instruments recognised at fair value based on a three level measurement hierarchy. Furthermore, for those instruments which have significant unobservable inputs (classified as level 3), the amendment requires disclosures on the transfers into and out of level 3, a reconciliation of the opening and closing balances, total gains and losses for the period split between those recognised in other comprehensive income, purchases, sales issues and settlements, and sensitivity analysis of reasonably possible changes in assumptions. In addition, disclosure is required of the movements between different levels of the fair value hierarchy and the reason for those movements. Finally, the standard amends the previous liquidity risk disclosures as required under IFRS7 for non-derivative and derivative financial liabilities.

IFRS 8 operating segments which became effective for periods commencing on or after 1 January 2009 requires disclosure on the financial performance of the Group's operating segments. The Group has only one operating segment being property investment in the United Kingdom.

(b) Basis of Consolidation

The consolidated accounts comprise the accounts of the Company and its subsidiaries drawn up to 31 December each year. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.

(c) Functional and Presentation currency

Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The financial statements are presented in pounds sterling, which is the Group's presentational currency. All figures in the financial statements are rounded to the nearest thousand.

(d) Revenue Recognition

Rental income, excluding VAT, arising on investment properties is accounted for in the Income Statement on a straight line basis over the lease term of ongoing leases. Surrender lease premiums paid are required to be recorded as a current asset and amortised over the period from the date of the lease commencement to the earliest termination date. Interest income is accounted on an accruals basis.

(e) Expenses

Expenses are accounted for on an accruals basis. The Group's investment management and administration fees, finance costs and all other expenses are charged through the Income Statement.

(f) Taxation

The exempt status for category D companies has been abolished and the standard rate of income tax for Guernsey companies reduced to zero per cent. However, the Company is still able to continue to apply for tax exemption under the Income Tax (Exempt Bodies) (Guernsey) ordinance, 1989 as a category B collective investment vehicle, as will its subsidiaries. A fixed annual fee of £600 is payable to the States of Guernsey in respect of this exemption. Capital gains are not taxable in Guernsey.

The Directors intend to conduct the Group's affairs such that the management and control is not exercised in the United Kingdom and so neither the Company nor any of its subsidiaries carries on any trade in the United Kingdom. Accordingly, the Company and its subsidiaries will not be liable for United Kingdom taxation on their income or gains other than certain income deriving from a United Kingdom source.

The Company and its subsidiaries are subject to United Kingdom income tax on income arising on the property portfolio after deduction of its allowable debt financing costs and other allowable expenses.

(g) Investment Properties

Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period during which the expenditure is incurred and included within the book cost of the property. After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in the Income Statement and transferred to the Capital Reserve. Fair value is based on the open market valuation provided by CB Richard Ellis Limited, chartered surveyors, at the Balance Sheet date. On derecognition, realised gains and losses on disposals of investment properties are recognised in the Income Statement and transferred to the Capital Reserve.

Recognition and derecognition occurs on the exchange of signed contracts between a willing buyer and a willing seller.

(h) Share Issue Expenses

Incremental external costs directly attributable to the issue of shares that would otherwise have been avoided are written off to reserves.

(i) Segmental Reporting

The Directors are of the opinion that the Group is engaged in a single segment of business being property investment in the United Kingdom.

(j) Cash and Cash Equivalents

Cash in banks and short term deposits that are held to maturity are carried at cost. Cash and cash equivalents consist of cash in hand and short term deposits in banks with an original maturity of three months or less.

 (k) Trade and Other Receivables

Trade receivables, which are generally due for settlement at the relevant quarter end are recognised and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

(l) Reserves

Special Reserve

The special reserve is a distributable reserve to be used for all purposes permitted under Guernsey law, including the buyback of shares and the payment of dividends.

Capital Reserve

The following are accounted for in this reserve:

- gains and losses on the disposal of investment properties

- increases and decreases in the fair value of investment properties held at the year end

Revenue Reserve

Any surplus arising from the net profit on ordinary activities after taxation and payment of dividends is taken to this reserve, with any deficit charged to the special reserve.

Share Premium

Any premium arising from the issue of Ordinary Shares of 25 pence each up to 31 December 2008 is credited to this account.

Treasury Share Reserve

This represents the cost of shares bought back by the Company and held in treasury.

(m) Interest-bearing borrowings

All bank loans and borrowings are initially recognised at cost, being their fair value of the considerations received net of arrangement costs associated with the borrowing. After initial recognition, all interest bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any loan arrangement costs and any discount or premium on settlement.

On maturity, bank loans are recognised at par, which is equivalent to amortised cost. Bank loans redeemed before maturity are recognised at amortised cost with any charges associated with early redemptions being taken to the income statement.

(n) New standards not applied

The following new standards have been issued but they are not effective for this accounting period and have not been early adopted:

IFRS3 (Revised) business combinations and IAS 27 (Amended) Consolidated and Separate Financial Statements

Effective prospectively for business combinations affected in financial periods beginning on or after 1 July 2009. IFRS 3 Revised introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. IAS27 requires that a change in the ownership interest of a subsidiary (without loss of control) to be accounted for as an equity transaction. Therefore, such a transaction would no longer give rise to goodwill, nor give rise to a gain or loss.

IAS17 Leases- amendment

Effective for financial periods beginning on or after 1 January 2010.This amendment deletes much of the existing wording in the standard to the effect all leases of land (where title does not pass) were operating leases. The amendment requires that in determining whether the lease of land (either separately or in combination with other property) is an operating or a finance lease, the same criteria are applied as for any other asset. This may have the impact in the future that more leases of land will be treated as finance leases rather than operating leases.

IAS 39 Financial instruments: Recognition and Measurement- Eligible Hedged Items

This amendment was issued in July 2008 and is effective for financial years beginning on or after 1 July 2009. the amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations.

IFRS9 - Financial Instruments- becomes effective for accounting periods commencing on or after 1/1/2013. This represents the first in a 3 part project to replace IAS39 "Financial Instruments: Recognition & Measurement". The objective of this standard is to enhance the ability of investors and other users of financial information to understand the accounting of financial assets and reduce complexity.

IAS 24 - Related Party Disclosures- The International Accounting Standards Board revised IAS 24 in Nov 2009 by: (a)     simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition. (b)     providing a partial exemption from the disclosure requirements for government-related entities.

The Group does not consider that the future adoption of International Financial Reporting Standards, in the form currently available, will have any material impact on the financial statements presented.

2. Fees

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£'000
Investment management fee	4,503	5,326

Investment management fee

The company's Investment Managers, Ignis Investment Services Limited, receive an aggregate annual fee from the Group at an annual rate of 0.75 per cent. of the Total Assets, less the amount of the Group's borrowings, plus an amount calculated at the rate of 0.50 per cent. of the value of the assets of the Group represented by borrowings. The Investment Manager is also entitled to an administration fee of £107,670 per annum (which will increase annually in line with inflation) (see note 3). Both fees are payable quarterly in arrears. The fees of any managing agents appointed by the Investment Managers will be payable out of the Investment Management fee. The Investment Management is terminable by any of the parties to it on 12 months' notice.

3. Other expenses

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£ 000
Direct operating expenses of let property	942	1,103
Valuation and other professional fees	834	883
Bad debt provision	49	115
Directors' fees*	125	105
Administration fee	107	105
Facility  Fees	148	104
Administrator/ Company Secretary fees	55	60
Regulatory fees	70	48
Auditors' remuneration for:**
Statutory audit	43	39
Tax services	20	29
Other	201	201
	2,594	2,792

* Other than Mr Robertson, the Directors received an additional £5,000 each in relation to the 30 October 2009 share issue. This £20,000 was charged to reserves as part of launch costs for said share issue.

** Total non audit fees for 2009 were £92,844, £73,050 of which was charged to reserves as part of the October 2009 share issue launch costs.

4. Finance costs

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£ 000
Loan Interest	83	-
Amortisation of set up fees	72	-
	155	-

5. Taxation

UK Commercial Property Trust Limited owns two Guernsey tax exempt subsidiaries, UK Commercial Property GP Limited and UK Commercial Property Holdings Limited. The two subsidiaries are partners in a Guernsey Limited Partnership and own a Jersey Property Unit Trust. Both the Partnership and UK Commercial Property Holdings Limited own a portfolio of UK properties and derived rental income from those properties. As both the Partnership and Trust property holding entities are considered tax transparent in the UK, their taxable results are taxed in the two subsidiaries. Both are liable to UK income tax at the rate of 20 per cent on their respective net rental income.

A reconciliation of the income tax charge applicable to the results from ordinary activities at the statutory income tax rate to the charge for the year is as follows:

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£ 000
Net profit/(loss) before tax	73,136	(135,883)
UK income tax at a rate of 20 per cent (2008: 20.5 per cent)	14,627	(27,856)
Effect of:
Capital (gains)/losses on revaluation of investment properties not taxable	(9,092)	33,760
Capital losses realised not taxable	2,823	2,339
Income not taxable	(45)	(504)
Inter company loan interest	(9,032)	(9,281)
Expenditure not allowed for income tax purposes (including set up costs)	538	1,169
Deferred tax asset not provided for	181	373
Total tax charge	-	-

The Group has not recognised a deferred tax asset of £12,223,000 arising as a result of the tax loss carried forward. This will only be utilised if the Group has profits chargeable to income tax in the future.

6. Dividends

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£ 000
Dividends on Ordinary Shares:
Fourth interim of 1.3125p per share paid on 27 February 2009	11,381	-
First interim of 1.3125p per share paid on 29 May 2009 (2008:1.31p)	11,006	11,381
Second interim of 1.3125p per share paid on 28 August 2009 (2008: 1.31p)	11,006	11,381
Third interim of 1.7262p per share paid on 30 November 2009 (2008: 1.31p)	14,475	11,381
Sixth interim of 1.3125p per share paid on 29 February 2008	-	11,381
	47,868	45,524

A fourth interim dividend of 0.8988p was paid on 26 February 2010 to shareholders on the register on 12 February 2010. Although this payment relates to the year ended 31 December 2008, under International Financial Reporting Standards it will be accounted for in the year ending 31 December 2010.

7. Basic and diluted Earnings per Share

The earnings per share are based on the net profit for the year of £73,136,000 (2008: £(135,883,000)) and on 870,582,609 (2008: 867,126,287)) Ordinary Shares, being the weighted average number of shares in issue during the year. As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical.

8. Investment Properties

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£ 000
Freehold and leasehold properties
Opening valuation	560,120	773,095
Purchases at cost	176,595	-
Capital expenditure	2,690	5,702
Fair value adjustments	28,110	(173,892)
Disposals	(57,030)	(44,785)
Closing valuation	710,485	560,120

Gains/ (losses) on investment properties at fair value comprise
Fair value adjustments	28,110	(173,892)
Gains/(losses) on disposals	3,235	(2,198)
	31,345	(176,090)

Gains/ (losses) on investment property disposals

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£ 000
Original cost of investment properties sold	(74,381)	(53,995)
Sale proceeds	60,265	42,587
Losses on investment properties sold	(14,116)	(11,408)
Recognised in previous periods	(17,351)	(9,210)
Recognised in current period	3,235	(2,198)
	(14,116)	(11,408)

CB Richard Ellis Limited completed a valuation of Group investment properties at 31 December 2009 on an open market basis in accordance with the requirements of the Appraisal and Valuation Manual published by the Royal Institution of Chartered Surveyors, which is deemed to equate to fair value. Fair value is determined by reference to market based evidence, which is the amounts for which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms length transaction as at the valuation date. The market value of these investment properties amounted to £710,485,000 (2008: £560,120,000) which is also the fair value.

The property valuer is external to the Group. The property valuer takes account of deleterious materials included in the construction of the investment properties in arriving at its estimate of open market valuation when the Investment Managers advise of the presence of such materials. The Group has entered into leases on its property portfolio as lesser (See note 18 for further information). No one property accounts for more than 15 per cent of the gross assets of the Group. All leasehold properties have more than 60 years remaining on the lease term. There are no restrictions on the realisability of the Group's investment properties or on the remittance of income or proceeds of disposal. However, the Group's investments comprise UK commercial property, which may be difficult to realise. Property and property related assets are inherently difficult to value due to the individual nature of such property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where the actual sales occur shortly after the valuation date.

In addition to the above, the property portfolio market value as at 31 December 2009 is partly based on the following:

·      The Estimated Net Annual Rent for each property, which is based on the current rental value of each of the properties, which reflects the terms of the leases where the property, or part of the property, are let at the date of valuation.  If the property, or parts thereof, are vacant at the date of valuation, the rental value reflects the rent the valuer considers would be obtainable on an open market letting as at the date of valuation

·      The valuer has assumed that all rent reviews are upward only and are to be assessed by reference to full current rents.  Also there is the assumption that all tenants will meet their obligations under their leases, and are responsible for insurance, payment of business rates, and all repairs, whether directly or by means of a service charge.

·      The valuer has not made any adjustments to reflect any liability to taxation that may arise on disposal, nor any costs associated with disposals incurred by the owner.

·      The valuer assumes an initial yield in the region of 5 to 7% for the majority of the properties, with the reversionary yield being in the region of 7%.

The majority of the leases are on a full repairing basis and as such the Group is not liable for costs in respect of repairs, maintenance or enhancements to its investment properties.

Included within the total market value of the property portfolio, are;

Units in the Kensington High Street Jersey Property Unit Trust which holds the property at Kensington High Street, London. 99.5 per cent of the units in this Unit Trust are held by UKCPT Limited Partnership and 0.5 per cent is held by UK Commercial Property Holdings limited.

Units in the Kew Jersey Property Unit Trust which holds the property at Kew Retail Park, Richmond. 58 per cent of the units in this Trust are held by UKCPT Limited Partnership and 42 per cent is held by UK Commercial Property Holdings Limited.

Units in the W-S-M Jersey Property Unit Trust which holds the property at Weston-super-Mare. 99.5 per cent of the units in this Trust are held by UK Commercial Property Holdings Limited and 0.5 per cent is held by UKCPT Limited Partnership.

9. Investment in Subsidiary Undertakings

The Company owns 100 per cent of the issued ordinary share capital of UK Commercial Property Holdings Limited (UKCPH), a Company incorporated in Guernsey whose principal business is that of an investment and property company.

In addition to its investment in the shares of UKCPH, the Company had lent £277.8 million on 28 February 2007 and £115.1 million on 30 October 2009 to UKCPH, all of which remains outstanding as at 31 December 2009. These loans are repayable in 2016 and are unsecured. Interest is payable quarterly in arrears at a fixed rate of 6.7 per cent per annum and 5.99 per cent per annum respectively, compounded on a quarterly basis. Total interest on these loans for the year amounted to £19.5 million (2008: £18.7 million), of which £3.7 million (2008: £3.4 million) remained payable as at 31 December 2009.

The Company owns 100 per cent of the issued share capital of UK Commercial Property GP Limited, (GP), a Company incorporated in Guernsey whose principal business is that of an investment and property company.

UKCPT Limited Partnership, (GLP), is a Guernsey limited partnership, and it holds the properties comprised in the initial property portfolio. UKCPH and GP, have a partnership interest of 98.99 and 1 per cent respectively in the GLP. The remaining 0.01 per cent partnership interest is held by The Droit Purpose Trust, which is a Jersey purpose trust. The GP is the general partner and UKCPH is a limited partner of the GLP.

The company had lent £406 million on 22 September and £0.2 million on 30 October 2009 to the GLP, £391.2 million of which remains outstanding as at 31 December 2009. These loans are repayable in 2016 and are unsecured. Interest is payable quarterly in arrears at a fixed rate of 6.5 per cent per annum and  5.99 per cent per annum respectively, compounded on a quarterly basis. Total interest on this loan for the year amounted to £25.4 million (2008: £26.5 million), of which £6.4 million (2008: £6.7 million) remained payable as at 31 December 2009.

10. Trade and Other Receivables

	2009	2008
	£'000	£ 000
Rents receivable (net of provision for bad debts)	1,644	898
Other debtors and prepayments	3,537	4,227
	5,181	5,125

Rents receivable, which are generally due for settlement at the relevant quarter end are recognised and carried at the original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

11. Trade and Other Payables

	2009	2008
	£'000	£ 000's
Rental income received in advance	12,478	10,120
Investment Managers' fees payable	1,334	1,160
VAT payable	1,048	1,055
Other payables	413	175
	15,273	12,510

The Group's payment policy is to ensure settlement of supplier invoices in accordance with stated terms.

12. Bank Loan

	2009	2008
	£'000	£'000
Facility	80,000	80,000
Drawn down	42,100	-
Set up costs	(336)	-
Accumulated amortisation of set up costs	72	-
Accrued variable rate interest on bank loan	83	-
Total due	41,919	-

The Company has a 7 year £80 million facility with Lloyds Banking Group plc, of which £42.1 million is drawn down. As at 31 December 2009 the effective interest rate was 1.15%.

The bank loan is secured on the property portfolio of the Group. Under bank covenants related to the loan the Company is to ensure that at all times:

·      The loan to value percentage does not exceed 50 per cent (this is defined as the ratio of the loan compared to the aggregate of the open market property valuations plus any cash deposits);

·      The qualifying adjusted net rental income for any calculation period (any 3 month period) is not less than 175 per cent of the projected finance costs for that period;

·      No single tenant accounts for more than 30 per cent of the total net rental income;

·      The five largest tenants do not account for more than 50 per cent of total net rental income;

·      No single property accounts for more than 25 per cent of the gross secured asset value (this is defined as the sum of the value of the properties as stated in the latest valuations plus any cash deposits);

The Company met the covenant tests during the year

Interest is payable by the Company at a rate equal to the aggregate of LIBOR, mandatory costs of the Bank and a margin. The applicable margin depends on the ratio of all loans made available to the Company (under the Bank Facility or otherwise) to the "Gross Assets Value", expressed as a percentage (the "LTV Percentage"). "Gross Assets Value" takes onto account the value of the properties and any other assets held by the Company and the Guarantors (currently UK Commercial Property Holdings Limited, UK Commercial Property GP Limited and UKCPT Limited Partnership) as well as unsecured cash, if the LTV Percentage is greater than 5 per cent. and does not exceed 10 per cent., the margin is 0.55 per cent. per annum. If the LTV Percentage is greater than 10 per cent. and does not exceed 40 per cent., the margin is 0.60 per cent. per annum. If the LTV Percentage is greater than 40 per cent. and does not exceed 50 per cent., the margin is 0.70 per cent. per annum.

On 4 March 2010 the Company entered into an interest rate swap agreement with Lloyds which set the interest rate at 3.55% on the £42.1 million loan.

13. Share capital accounts

	2009	2008
	£'000	£'000
Authorised share capital
1,400,000,000 Ordinary Shares of 25 pence each	350,000	350,000
Share capital
880,000,000 Ordinary Shares of 25 pence each	220,000	220,000
151,544,000 Ordinary Shares of 25 pence each issued on 30 October 2009	102,680	-
Share capital as at 31 December	322,680	220,000
(number of shares in issue at the year end being 1,031,544,000)
Treasury shares
As at 31 December 2008, 12,873,713 Ordinary Shares of 25 pence each	(10,249)	(10,249)
17 March 2009 share buyback of 28,571,429 Ordinary Shares of 25 pence each	(15,015)
Balance in Treasury account as at 31 December	(25,264)	(10,249)
(number of shares held in treasury being 41,445,142 Ordinary Shares of 25 pence each at the 31 December 2009)

Total issue costs, including stamp duty land tax of £5,696,000 for the 30 October 2009 placing amounted to £7.3 million, which was in line with what was stated in the prospectus. Except for the stamp duty land tax (which has been included in purchases at cost for the year), this has been charged in full against the Special Reserve.

14. Net Asset Value per Share

The net asset value per Ordinary Share is based on net assets of £728,627,000 (2008: £617,335,000) and 990,098,858 (2008: 867,126,287) Ordinary Shares, being the number of Ordinary Shares in issue at the year end.

15. Related Party Transactions

No Director has an interest in any transactions which are or were unusual in their nature or significant to the nature of the Group.

Ignis Investment Services Limited received fees for its services as investment managers. Further details are provided in notes 2 and 3. The total management fee charge to the income statement during the year was £4,503,000 (2008: £5,326,000) of which £1,334,000 (2008: £1,160,000) remained payable at the year end. The investment manager also receives an administration fee of £107,000 (2008:£105,000) per annum, of which £27,000 (2008: £26,500) remained payable at the year end.

The Directors of the Company received fees for their services. Total fees for the year were £145,250 (2008: £105,000), none of which remained payable at the year end, (2008: nil). As noted in the report of the Directors Mr Robertson's fees are paid directly to Ignis Investment Services.

The company has various intercompany loans in place with fellow group entities, details of which are set out in note 9 of the accounts.

16. Financial Instruments

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 consist of cash, receivables and payables that arise directly from its operations.

The main risks arising from the Group's financial instruments are credit risk, liquidity risk and interest rate risk. The Board reviews and agrees policies for managing its risk exposure. These policies are summarised below and remained unchanged during the year.

Fair values

The fair value of financial assets and liabilities is not different from the carrying value in the financial statements.

Market risk
A 10 per cent increase in the value of the investment properties held as at 31 December 2009 would have increase net assets available to shareholders and increased the net profit by £71.0 million (2008 £56.0 million). A 10 per cent decrease in value would have reduced net assets available to shareholders and reduced the net profit by £71.0 million (2008: £56.0 million).
 
The calculations above are based on investment property valuations at the respective balance sheet dates and are not representative of the year as a whole, nor reflective of future market conditions.

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.

At the reporting date, the maturity of the Group's financial assets was:

Financial Assets 2009	3 months or less	More than 3 months but less than one year	More than one year	Total
	£'000	£'000	£'000	£'000
Cash	70,163	-	-	70,163
Rent receivable	1,644	-	-	1,644
Other debtors	23	-	508	531
	71,830	-	508	72,338

Financial Assets 2008	3 months or less	More than 3 months but less than one year	More than one year	Total
	£'000	£'000	£'000	£'000
Cash	64,610	-	-	64,610
Rent receivable	898	-	-	898
Other debtors	600	53	497	1,150
	66,108	53	497	66,658

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 Managers monitor such reports in order to anticipate and minimise the impact of defaults by occupational tenants.

The Company has a diversified tenant portfolio. The maximum credit risk from the rent receivables of the Group at 31 December 2009 is £1,644,000 (2008:£898,000). The Group holds rental deposits of £508,000 (2008: £425,000) held as collateral against tenant arrears/defaults. There is no credit risk associated with the financial liabilities of the Group.

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.

There are no significant concentrations of credit risk within the Group.

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 and property related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date.

The Group's liquidity risk is managed on an ongoing basis by the Managers 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 31 December 2009 the cash balance was £70,163,000 (2008: 64,610,000).

At the reporting date, the maturity of the Group's liabilities was: 

Financial Liabilities 2009	3 months or less	More than 3 months but less than one year	More than one year	Total
	£'000	£'000	£'000	£'000
Bank loan	121	362	44,251	44,734
Other Creditors	12,255	1,416	508	14,179
	12,376	1,778	44,759	58,913

Financial Liabilities 2008	3 months or less	More than 3 months but less than one year	More than one year	Total
	£'000	£'000	£'000	£'000
Other Creditors	9,960	1,059	436	11,455

Interest rate risk

The cash balance as shown in the Balance Sheet, is its carrying amount and has a maturity of less than 1 year.

Interest is receivable on cash at a variable rate ranging between 0.2 per cent to 0.5 per cent at the year end and deposits are re-priced at intervals of less than one year.

An increase of 1 per cent in interest rates as at the reporting date would have increased the reported profit by £280,000 (2008: reduced the reported loss £646,000). A decrease of 1 per cent would have increased the reported profit by £280,000 (2008: increased the reported loss by £646,000). The effect on equity is nil (excluding the impact of a charge in retained earnings as a result of a change in net profit).

The other financial assets and liabilities of Group are non-interest bearing and are therefore not subject to interest rate risk.

Foreign Currency Risk

There was no foreign currency risk as at 31 December 2009 or 31 December 2008 as assets and liabilities of the Group are maintained in pounds Sterling.

Capital Management Policies

The Group's capital is managed in accordance with investment policy which is to hold a diversified property portfolio of freehold and long leasehold UK commercial properties. The Group intends to invest in income producing investments. The Group will principally invest in three commercial property sectors: office, retail and industrial. The Group will be permitted to invest up to 15 per cent. of its Total Assets in indirect property funds but will not invest in other listed investment companies. The Group will be permitted to invest cash, held by it for working capital purposes and awaiting investments, in cash deposits, gilts and money market funds.

17. Capital Commitments

The Company has committed to spend approximately £16 million on the redevelopment of the Swindon property as at 31 December 2009. (2008: nil)

18. Lease Length

The Group leases out its investment properties under operating leases.

The future annual income based on the unexpired lessor lease length at the year end was as follows (based on total rentals):

	31 December 2009	31 December 2008
	£'000	£ 000
Less than one year	1,619	452
Between one and five years	50,480	37,282
Over five years	484,794	482,036
Total	536,893	519,770

The largest single tenant at the year end accounted for 7.68 per cent (2008: 9.57 per cent) of the current annual rental income.

The unoccupied property expressed as a percentage of estimated total rental value was 2.45 per cent (2008: 3.25 per cent) at the year end.

The Group has entered into commercial property leases on its investment property portfolio. These properties, held under operating leases, are measured under the fair value model as the properties are held to earn rentals. The majority of these non-cancellable leases have remaining non-cancellable lease terms of between 5 and 15 years.

19. Service charge

A summary of the service charge during the year is as follows

	2009	2008
	£'000	£'000
Total service charge expenditure incurred	4,437	3,940
Total service charge billed to tenants	3,506	3,716
Service charge billed to the Group in respect of void units	351	396
Service charge due (to)/from tenants as at 31 December	185	185

The Companys' managing agents Jones Lang LaSalle manage service charge accounts for all the Companys' properties. The Company pays the service charge on any vacant units. Service charges on rented properties are recharged to tenants.

20. Post Balance Sheet Events

On 11 February 2010 the Company issued 195,000,000 Ordinary Shares of 25p each at a price of 77.1p per share. Following this the total issued share capital is 1,226,544,000 Ordinary Shares of 25p per share. The total number of shares with voting rights after the issue is 1,185,098,898.

On 4 March 2010 the Company entered into an interest rate swap agreement with Lloyds Bank Group plc which set the interest rate at 3.55% on the current £42.1 million loan with the same bank.

Following the announcement on 18 March 2010 the Company has completed the purchase of 3 shopping centres, the Riverside Shopping Centre and Riverside Medical Centre, the Charles Darwin Centre and the Pride Hill Shopping Centre which are all located in Shrewsbury for an aggregate purchase price of over £61 million. 

On 25 March 2010 the Company completed the purchase of J27 retail Park, Leeds for £56.6 million.

The year end Report and Accounts to 31 December 2009 will be mailed to shareholders by 16 April 2010.

All enquiries:

Nigel Russell/Graeme Caton/Graham Reaves, G&N Collective Funds Services Limited

0131 226 4411

The Company Secretary, Northern Trust International Fund Administration Services (Guernsey) Limited

01481 745529

Announcement Ends

 

END

 

 

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