Trading update and NAV release

To:  Company Announcements
Date:  31 October 2022
Company:  Balanced Commercial Property Trust Limited
LEI:  213800A2B1H4ULF3K397

Subject:   NAV release for Balanced Commercial Property Trust Ltd (the "Company” or “BCPT”)

Headlines

• Net Asset Value total return of -5.2 per cent for the quarter ended 30 September 2022 (YTD total return 11.7 per cent)

• Share Price total return of -27.2 per cent for the quarter ended 30 September 2022 (YTD total return -21.2 per cent)

• Three monthly dividends of 0.4 pence per share, equating to an annualised dividend yield of 6.0 per cent based on 30 September 2022 share price.

Net Asset Value

The unaudited net asset value (‘NAV’) per share of the Company as at 30 September 2022 was 139.6 pence. This represents a decrease of 6.1 per cent from the unaudited NAV per share as at 30 June 2022 of 148.6 pence and a NAV total return for the quarter of -5.2 per cent.

The NAV has been calculated under International Financial Reporting Standards (‘IFRS’). It is based on the external valuation of the Company’s property portfolio which has been prepared by CBRE Limited.

The NAV includes all income to 30 September 2022 and is calculated after deduction of all dividends paid prior to that date. The EPRA Net Tangible Assets (NTA) per share as at 30 September 2022, which is adjusted to remove the fair value of the interest rate swap, was 139.3 pence per share.

Analysis of Movement in NAV

The following table provides an analysis of the movement in the unaudited NAV per share for the period from 30 June 2022 to 30 September 2022 (including the effect of gearing):

	£m	Pence per share	% of opening NAV per share
NAV as at 30 June 2022	1,069.6	148.6
Unrealised decrease in valuation of property portfolio	(70.2)	(9.8)	(6.7)
Movement in fair value of interest rate swap	0.7	0.1	0.1
Share buy-backs	(20.7)	0.7	0.5
Other net revenue	8.3	1.2	0.8
Dividends paid	(8.5)	(1.2)	(0.8)
NAV as at 30 September 2022	979.2	139.6	(6.1)

Valuation

The capital value of the Company's portfolio decreased by 5.4 per cent over the quarter. Sentiment towards real estate turned negative over the period in the face of, in particular, significant inflationary pressures and increasing interest rates. The Government’s mini budget further fuelled the negative sentiment as the reaction of the bond market triggered a liquidity event for pension funds. We are already beginning to witness more property coming to the market as pension funds look to raise liquidity and this is likely to put further downward pressure on future valuations.

Industrial and logistics, comprising 31.4 per cent of the portfolio, where yields had been bid down to historically low levels were impacted by the rising costs of finance and increasing gilt yields. The capital markets reacted to these increases and pricing softened. The equivalent yield on the Company’s industrial and logistics properties moved out 65 basis points resulting in a fall in value of 12 per cent. The occupational market remains resilient recording historically low rates of vacant space.

Against this backdrop, the Company’s retail warehouses which had also experienced significant yield compression in the last 12 months, were subject to a pricing rebase, leading to valuation falls of 7.4 per cent and a 41 basis point outward movement on the sub-sector equivalent yield. At Newbury Retail Park, a new letting to Pets at Home contracted which brings another new retailer use to the park.

Whilst downward valuation movements in the industrial and retail warehousing sectors are meaningful in isolation, they represent only a partial reversal of capital gains generated in the first half of 2022 of 16.4 per cent and 21.9 per cent respectively.

St Christopher’s Place increased in value by 0.3 per cent. Activity and footfall continue to improve as office workers return and tourist visits increase.

The valuation of the office portfolio fell by 1.6 cent reflecting a 10 basis point shift in the sector’s equivalent yield.

Share Price

Negative share price returns have been experienced across the REIT sector with additional downward pressure in the aftermath of the mini budget. As at 30 September 2022, the share price was 80.2 pence per share, which represented a discount of 42.6 per cent to the NAV per share. The share price total return for the quarter to 30 September 2022 was -27.2 per cent.

Cash and Borrowings

The Company had £64.3 million of available cash as at 30 September 2022 and has committed approximately £18 million of this to development opportunities. As previously announced, this is primarily at Burton-Upon-Trent and there is also a development at Estuary Business Park, Speke, Liverpool where construction cost is expected to be in the region of £4.8 million and a redevelopment of an obsolete warehouse unit at the Cowdray Centre, Colchester with costs estimated to be in the region of £5.7million.

There is a £260 million term loan in place with L&G which matures in December 2024. The Company also has a £50 million term loan with Barclays, along with an additional undrawn £50 million revolving credit facility. The Barclays facility expires on 31 July 2023, with the option of a one-year extension. As at 30 September 2022, the Company’s loan to value, net of cash (‘LTV’) was 20.0 per cent.

Dividend

The Company paid three monthly property income distributions at a rate of 0.4 pence per share during the quarter.

Share Buybacks

The Company bought back 18,335,738 ordinary shares during the quarter. As at 30 September 2022 the Company had 97,815,921 shares held in treasury, acquired at an average discount to NAV of 20.8 per cent.

Portfolio Analysis – Sector Breakdown

	Portfolio Value £m	% of portfolio as at 30 September 2022	% capital value shift (including purchases and CAPEX)
Offices	379.8	30.7	-1.6
West End	89.8	7.3	0.3
South East	65.3	5.3	-4.3
South West	30.1	2.4	-2.3
Rest of UK	175.3	14.1	-1.4
City	19.3	1.6	-4.0
Retail	188.7	15.3	0.2
West End	159.9	13.0	0.2
South East	28.8	2.3	0.0
Industrial	387.2	31.4	-12.0
South East	57.7	4.7	-11.6
Rest of UK	329.5	26.7	-12.1
Retail Warehouse	148.0	12.0	-7.4
Alternatives	130.2	10.6	0.6
Total Property Portfolio	1,233.9	100.0	-5.4

Portfolio Analysis – Geographic Breakdown

	Market Value £m	% of portfolio as at 30 September 2022
West End	308.2	25.0
South East	296.3	24.0
Midlands	282.7	22.9
North West	161.1	13.1
Scotland	136.2	11.0
South West	30.1	2.4
Rest of London	19.3	1.6
Total Property Portfolio	1,233.9	100.0

Top Ten Investments

	Sector
Properties valued in excess of £200 million
London W1, St Christopher’s Place Estate *	Mixed
Properties valued between £70 million and £100 million
Newbury, Newbury Retail Park	Retail Warehouse
Solihull, Sears Retail Park	Retail Warehouse
Properties valued between £50 million and £70 million
Winchester, Burma Road	Alternative
Properties valued between £40 million and £50 million
Chorley, Unit 6 and 8 Revolution Park London SW19, Wimbledon Broadway ** Liverpool, Unit 1, G.Park Birmingham, Unit 8 Hams Hall Markham Vale, Orion 1 & 2 Daventry, Site E4, DIRFT	Industrial Mixed Industrial Industrial Industrial Industrial

*  Mixed use property of retail, office, food/beverage, and residential space.

** Mixed use property of retail, food/beverage, and leisure space.

Summary Balance Sheet

	£m	Pence per share	% of Net Assets
Property Portfolio	1,233.9	176.0	126.0
Adjustment for lease incentives	(21.1)	(3.0)	(2.1)
Fair Value of Property Portfolio	1,212.8	173.0	123.9
Trade and other receivables	30.3	4.3	3.1
Cash and cash equivalents	64.3	9.2	6.6
Current Liabilities	(17.0)	(2.4)	(1.7)
Total Assets (less current liabilities)	1,290.4	184.1	131.9
Non-Current liabilities	(2.1)	(0.3)	(0.2)
Interest-bearing loans	(309.1)	(44.2)	(31.7)
Net Assets at 30 September 2022	979.2	139.6	100.0

The next quarterly valuation of the property portfolio will be conducted by CBRE Limited during December 2022 and it is expected that the unaudited NAV per share as at 31 December 2022 will be announced in January 2023.

Important information

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

Enquiries:
Richard Kirby
Columbia Threadneedle REP AM plc
Tel: [phone]

Innes Urquhart
Winterflood Securities Limited
Tel: [phone]