Half-yearly Report
To: RNS
Date: 28 August 2014
From: F&C Commercial Property Trust Limited
Half Yearly Financial Report for the Period ended 30 June 2014
Highlights
* Net asset value total return of 12.2 per cent
* Share price total return of 1.9 per cent
* Dividend yield of 5.0 per cent at the period end
* Top decile performance of portfolio over 3 and 5 years within the IPD
benchmark and top quartile over 1 year
* Completion of new property acquisitions totalling £124 million
* Portfolio weighted average unexpired lease term increased from 6.9 years to
7.9 years
Chairman's Statement
The Company's net asset value (`NAV') total return for the six month period was
12.2 per cent. This compares favourably with a total return of 8.6 per cent
from the benchmark Investment Property Databank (`IPD') Quarterly Universe. The
ungeared total return from the property portfolio was 10.8 per cent. The
portfolio continues to perform strongly, recording top decile performance over
three and five years within the IPD benchmark universe and top quartile
performance over one year.
The share price total return for the period was 1.9 per cent, and the premium
of the share price to the NAV per share at the end of the period was 4.1 per
cent. There continued to be a strong level of demand for the Company's shares
during the period but rising portfolio values have reduced the premium of the
share price to NAV.
The UK commercial property market delivered a strong performance during the
period. The economic outlook would appear brighter than a year ago, and there
are some signs of improvement in the occupational market and the yield gap
against the risk free rate remains attractive. That said, in many instances the
high degree of competition for assets, and the resulting pricing levels, may
reflect an investment market that in some areas has moved ahead of underlying
economic and occupier fundamentals.
As previously reported, during the period the Company completed the purchase of
four office blocks in Prime Four Business Park, Kingswells, Aberdeen for a
combined purchase cost of £95.4 million, funded by existing cash resources and
a £30 million committed bank facility. As we have stated previously, this is a
significant transaction for the Company and provides it with exposure to one of
the most buoyant office markets in the UK as well as increasing its level of
dividend cover. The properties are all income producing, generating rental
income of £6.9 million per annum, equivalent to a net initial yield of 6.8 per
cent. The properties were all revalued at the end of the period, recording
significant gains compared with their purchase cost.
During the period the Company also purchased a brand new production and
distribution warehouse unit at The Hive, Liverpool International Business Park,
Speke, Liverpool for £11.9 million, reflecting a net initial yield of 6.5 per
cent. The Company also made two small purchases on existing sites: two units
purchased at Sears Retail Park, Solihull and a small property purchased within
St. Christopher's Place Estate, London W1.
Further information regarding the various property management activities
undertaken during the period are contained within the Managers' Review.
The following table provides an analysis of the movement in the NAV per share
for the period:
Pence
NAV per share as at 31 December 2013 105.3
Unrealised increase in valuation of direct 10.8
property portfolio
Movement in interest rate swaps 0.1
Net revenue 1.9
Dividends paid (3.0)
---------
NAV per share as at 30 June 2014 115.1
Dividends
Six monthly dividends, each of 0.5p per share, were paid during the period,
maintaining the annual dividend rate of 6.0p per share. Based on this annual
level of dividend, the dividend yield at the end of the period was 5.0 per cent
based on the closing share price of 119.8p per share. Barring unforeseen
circumstances, it is the Board's intention that the dividend will continue to
be paid monthly at the same rate.
Borrowings
At the end of the period the Company's borrowings were represented by its £230
million secured bonds which mature in June 2015 and £80 million of secured bank
loans, £50 million of which is repayable in 2017 and £30 million of which is
repayable in June 2015. Gearing, net of cash, at the end of the period was 22.3
per cent.
Maturity of Secured Bonds and Bank Loan
In light of the forthcoming maturity of both the Company's £230 million bonds
and £30 million bank loan in June 2015, the Board has been considering various
options for refinancing this debt, either on or before its maturity. The Board
has received terms from a number of potential lenders. It is the Board's
current expectation that the Company will be able to refinance successfully and
it continues to believe that the current low interest rate environment and
quality of the Company's portfolio mean that it will be well placed to
refinance these borrowings on attractive terms.
Continuation Vote
The Company is required by its Articles of Incorporation to propose an ordinary
resolution for the continuation of the Company at its Annual General Meeting in
2015. The timing of the continuation vote was set at launch in 2005 so as to
coincide with the maturity of the £230 million bonds. In the event of the bonds
and bank loan being refinanced in advance of their maturity date, the Board
intends to bring the continuation vote forward. The Board does not currently
have any reason to believe that a continuation vote would not be passed.
Real Estate Investment Trusts (`REIT') Regime
As reported in the last Annual Report, the Board has been reviewing the recent
changes to the REIT regime and how these might impact the Company. In carrying
out its review the Board has considered the impact on the Company's taxable
position, particularly in light of the forthcoming debt refinancing, and the
impact for shareholders based on converting to a REIT or maintaining the
current Group structure.
It is the Board's view that there would be no material benefit to shareholders
as a whole by converting to a REIT at the current time. The Board will,
however, continue to keep this matter under review.
Alternative Investment Fund Managers' Directive (`AIFMD')
As announced on 25 July 2014, the Board has approved the appointment of F&C
Investment Business Limited (`FCIB'), as the Company's alternative investment
fund manager (the `AIFM') on the terms of and subject to the conditions of a
new investment management agreement between the Company and the AIFM.
The Company's existing management agreement with FCIB has been replaced with
the new agreement. The management fee, performance fee and notice period
provisions remain unchanged.
F&C REIT Property Asset Management plc (`F&C REIT') will continue to act as the
Company's property manager under the terms of a delegation agreement between
the Company, FCIB and F&C REIT.
The Board has appointed J.P. Morgan Europe Limited (the `Depositary') to act as
the Company's depositary (as required by the AIFMD) on the terms of and subject
to the conditions of a depositary agreement between the Company, the AIFM and
the Depositary.
Outlook
UK commercial property is expected to remain in favour with a wide range of
investors. The further globalisation of property is likely to continue to
attract overseas buyers to the UK while funds seeking long term security of
income via long leases are also expected to remain active in the market. With a
shortage of stock and low yields in London and for prime property, more
investors may look to the outer areas of London and the regions.
The Managers believe that interest rate rises will be relatively modest and
take place within the context of a growing economy where capacity constraints
will act to support the occupational market and property performance. This
bodes well for future performance of the sector.
With this backdrop, the Board believes that the Company's portfolio is well
positioned to make further good progress in the months ahead. The Managers
continue to seek attractive investment opportunities and to add value through
pro-actively managing the existing portfolio where there are many opportunities
to enhance revenue and capital returns for shareholders.
Chris Russell
Chairman
Managers' Review
Property Market Review
The market total return for the six months to 30 June 2014 as measured by the
Investment Property Databank (`IPD') Quarterly Universe (the benchmark) was 8.6
per cent. Momentum built as the period progressed, with the final three months
showing a 4.8 per cent total return for the market as a whole.
The UK has continued to deliver broadly-based economic growth by sector, and
real GDP moved ahead of its pre-recession peak by the end of the reporting
period. Inflation has remained subdued; the Bank of England has kept interest
rates unchanged and ten year gilt yields have edged lower. The timing of the
end of quantitative easing and the current regime of exceptionally low interest
rates in the UK was a major pre-occupation for investors. The period saw
opinions shift, with sentiment moving towards the view that official rates may
start to increase earlier than previously thought.
The marked turnaround in investment performance from the same period in 2013
would appear to be due primarily to the weight of money entering the market.
More than £20 billion was invested in commercial real estate during the period
according to Property Data, with overseas investors accounting for more than £7
billion. Retail investors also actively invested in property funds over the
period and the market also benefited from an increased appetite of lenders to
the sector.
Although offices, especially those in Central London, remained in favour with
investors it was industrial property and the "other" segment, an area that
favours emerging property types, which saw the sharpest growth in investment
activity from a year earlier. Investors have continued to look more closely at
the regions and to less prime stock and forward financing in an effort to
secure higher yields.
This strength of investor demand and shortage of stock contributed to yield
compression and rising capital values. Benchmark capital values rose by 5.8 per
cent during the period while the benchmark initial yield moved in by 40 basis
points. Whilst all the IPD standard segments saw initial yields compress, the
movement was most marked for South East offices, Rest of UK offices and
Industrials.
The benchmark income return slipped slightly during the period, registering 2.7
per cent, in part reflecting the growth in capital values. IPD market data for
standing investments showed only 0.7 per cent growth in net income over the
period at the `all-property' level, underlining the challenges that remain on
the occupational side. There are signs that tenant interest is increasing,
although rental growth still remains largely focused on London and the South
East and the prime end of the market. There is increased interest in
development in areas of tight supply and a lack of Grade A stock is becoming
apparent in some locations.
London shops and offices and the South East office market generally
out-performed over the period. The retail sector outside London has continued
to under-perform the market. There are hot and cold spots in the UK with
regional cities such as Aberdeen and Cambridge doing well. Stock selection
remains critical in driving performance.
While the period witnessed strong performance, there are indications that the
investment market may have run ahead of the economic and occupier fundamentals.
Property Portfolio
The property portfolio was externally valued at £1.14 billion as at 30 June
2014.
The ungeared total return from the portfolio over the period was 10.8 per cent
(16th percentile) outperforming the 8.6 per cent return recorded by the
benchmark. The portfolio continues to deliver strong performance over the
longer term producing a history of top quartile performance over one year and
top decile over three and five years.
Retail
The total return from the Company's retail properties during the period was 8.4
per cent compared with a benchmark return of 7.3 per cent.
The Company's best performing retail segment was retail warehouses, which
recorded a total return of 9.2 per cent compared with a benchmark return of 6.9
per cent. Prime retail warehouses experienced a significant improvement in
investor sentiment during the second quarter and a re-rating of yields, which
benefitted the external valuation of the Company's properties. At Sears Retail
Park, Solihull, the former Comet unit, which extends to 30,000 sq. ft., has
been redeveloped and was recently handed over to Next Home and Garden for a
store opening later this year. Next Home and Garden has taken a 15 year lease
at a commencing rent of £800,000 per annum. The 10,000 sq. ft. former JJB
Sports unit remains vacant but it is hoped it will go under offer shortly to a
national multiple retailer.
St. Christopher's Place Estate, London W1, which is a mixed use property of
retail, office and residential space, continues to perform strongly, driven by
both a hardening in capitalisation rates and increases in its rental values as
evidenced by a recent letting of the second floor of 6-8 James Street at a rent
reflecting £70 per sq. ft. compared with the previous passing rent of £37.50
per sq. ft. There are currently no vacant shops or office suites on the Estate.
Offices
The Company's office properties produced a total return of 14.4 per cent
compared with a benchmark return of 10.4 per cent.
The total return from this part of the portfolio was driven by the recent
purchases at Prime Four Business Park, Aberdeen where all properties benefitted
from a significant revaluation in excess of their purchase price. The largest
weighted contribution to performance came from Cassini House, St. James's
Street, London, SW1, which saw both yield compression against a background of
an extremely strong Central London investment market and improving estimated
rental values. The passing rents in Cassini House equate to £57 per sq. ft. and
are subject to rent reviews this year and it is expected that notable uplifts
will be achieved on review.
There was success in the regions as well. At 82 King Street, Manchester, the
refurbishment of all the vacant floors was completed and the thirteenth floor
let to Zeus Capital at a commencing rent of £120,000 per annum. It is hoped
this letting will give an impetus to the marketing of the remaining vacant
floors. The first floor at Alhambra House, Glasgow was also refurbished and let
to JP Morgan at a commencing rent of £302,000 per annum and the vacant ground
floor office has just been refurbished and is now under offer. At 124/125
Princes Street, Edinburgh, a letting of the third floor to the Royal
Institution of Chartered Surveyors has been achieved at £105,000 per annum.
Industrial
The Company's industrial and logistics properties delivered a total return of
10.8 per cent compared with a benchmark return of 10.2 per cent.
As previously reported, the Company has had success in regearing two of its
logistics properties.
The Other Sector
The student accommodation block let to the University of Winchester is the
Company's only exposure to this sector. This property produced a total return
of 4.3 per cent compared with a benchmark return of 6.2 per cent.
The University achieved a 100 per cent occupancy of the blocks of accommodation
during the last academic year.
Purchases and Disposals
During the period, the Company completed the purchase of four office buildings
at Prime Four Business Park, Kingswells, Aberdeen for an aggregate purchase
price of £95.4 million. The properties are all income producing generating a
total rent of £6.9 million per annum, reflecting a net initial yield of 6.8 per
cent. The value of these properties is now fully reflected in the Company's net
asset value and they have produced significant uplifts in capital values upon
external valuation. These properties are all well let with fixed compound
growth at future rent reviews and will provide an attractive income stream for
the Company. During the period, the Company also completed two small purchases
on or adjoining to existing holdings: two retail warehouse units at Sears
Retail Park, Solihull at a price of £4.5 million and a small vacant property on
St. Christopher's Place Estate for £6.3 million.
The Company also acquired a long leasehold interest in a brand new distribution
and production facility at The Hive, Liverpool International Business Park,
Speke, Liverpool for a price of £11.9 million, reflecting an initial yield of
6.5 per cent. The property comprises 151,500 sq. ft. and is let in its entirety
for a term of 15 years to Johnson Controls Automotive (UK) Limited at rent of £
812,050 per annum. The lease is subject to a tenant's break at year 10 and a
rent free period expiring on 6 October 2014. Johnston Controls manufactures the
car seats for the Jaguar Land Rover (`JLR') Evoque which is manufactured at
JLR' s nearby Halewood plant. The acquisition provides a brand new purpose
built warehouse, let to a strong covenant in an established location that is
benefitting from the growth and success of the JLR Halewood plant.
There were no disposals during the period.
Property Management
The management of income remains a key activity. Void levels over the period
reduced marginally from 6.0 per cent to 5.6 per cent of estimated rental value
(excluding properties held for development). This compares with the benchmark
rate of 7.5 per cent.
The provision of overdue debt (90 days) is 1.0 per cent of gross annualised
rents, which is a decrease over the period. The main provision for bad debts
relates, as previously reported, to the defaults of JJB Sports and Comet Group
at Solihull.
Outlook
Investor sentiment has improved but downside risks and uncertainties remain.
The potential path of UK interest rates and their effect on the economy and
property yields is a major area of debate. The outcome of the referendum on
Scottish independence in September, the UK general election in 2015, and a
possible EU referendum are other areas of uncertainty. In the international
sphere, the debt crisis and stresses in the banking sector are still unwinding,
while economic weakness in the Eurozone and some emerging markets, plus
political unrest in the Middle East and Ukraine, underline the fragile nature
of the upturn. In the absence of external shocks and if the UK economy performs
in line with expectations, the prospects for property performance would appear
sound. While the total return of the past six months is unlikely to be
sustained for the remainder of the year, the gradual elimination of excess
capacity in the UK, a broadening of rental growth and continued strength in
investor demand are predicted to lead to a period of positive total returns in
the high single digits. We expect London and the South East to continue to
out-perform and for the income return to become an increasingly important
driver of performance.
Richard Kirby
Investment Manager
F&C REIT Property Asset Management plc
F&C Commercial Property Trust Limited
Condensed Consolidated Statement of Comprehensive Income (unaudited)
for the six months to 30 June 2014
Six months Six months Year to
to 30 June to 30 June 31 December
2014 2013 2013*
£`000 £`000 £`000
Revenue
Rental income 27,777 25,426 52,558
Gains/(losses) on investments
Unrealised gains on revaluation of 82,281 15,107 66,765
investment properties
Losses on sale of investment properties - (198) (198)
realised
Total income 110,058 40,335 119,125
Expenditure
Investment management fee (2,004) (1,776) (3,731)
Investment performance fee (1,484) (1,334) (2,571)
Direct operating expenses of let rental (1,834) (2,818) (5,209)
property
Valuation and other professional fees (324) (225) (528)
Directors' fees (124) (113) (240)
Administration fee (70) (70) (140)
Other expenses (225) (344) (685)
Total expenditure (6,065) (6,680) (13,104)
Operating profit before finance costs and 103,993 33,655 106,021
taxation
Net finance costs
Interest receivable 227 500 958
Finance costs (7,780) (7,348) (14,716)
(7,553) (6,848) (13,758)
Profit before taxation 94,440 26,807 92,263
Taxation (15) (123) (278)
Profit for the period 96,425 26,684 91,985
Other comprehensive income
Items that are or may be reclassified
subsequently to profit or loss
Movement in fair value of interest rate 418 1,265 2,317
swaps
Total comprehensive income for the period 96,843 27,949 94,302
Basic and diluted earnings per share 12.7p 3.5p 12.2p
All of the total comprehensive income for the period is attributable to the
owners of the Company.
All items in the above statement derive from continuing operations.
* These figures are audited.
F&C Commercial Property Trust Limited
Condensed Consolidated Balance Sheet (unaudited)
as at 30 June 2014
30 June 30 June 31 Dec
2014 2013 2013*
£'000 £'000 £'000
Non-current assets
Investment properties 1,125,008 855,020 914,183
1,125,008 855,020 914,183
Current assets
Trade and other receivables 19,418 15,458 22,845
Cash and cash equivalents 60,319 182,908 160,937
79,737 198,366 183,782
Total assets 1,204,745 1,053,386 1,097,965
Current liabilities
Interest-bearing bonds (229,882) - -
Interest-bearing bank loan (29,453) - -
Interest rate swap (46) - -
Trade and other payables (20,596) (15,614) (17,530)
(279,977) (15,614) (17,530)
Non-current liabilities
Interest-bearing bonds - (229,743) (229,811)
Interest-bearing bank loan (49,733) (49,151) (49,207)
Interest rate swaps (1,939) (3,455) (2,403)
(51,672) (282,349) (281,421)
Total liabilities (331,649) (297,963) (298,951)
Net assets 873,096 755,423 799,014
Represented by:
Share capital 7,587 7,587 7,587
Share premium 78,566 78,566 78,566
Reverse acquisition reserve 831 831 831
Special reserve 546,695 562,366 556,082
Capital reserves 171,848 37,909 89,567
Hedging reserve (1,985) (3,455) (2,403)
Revenue reserve 69,554 71,619 68,784
Equity shareholders' funds 873,096 755,423 799,014
Net asset value per share 115.1p 99.6p 105.3p
* These figures are audited.
F&C Commercial Property Trust Limited
Condensed Consolidated Statement of Changes in Equity (unaudited)
for the six months to 30 June 2014
Reverse
Share Share Acquisition Special Capital Hedging Revenue
Capital Premium Reserve Reserve Reserves Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 7,587 78,566 831 556,082 89,567 (2,403) 68,784 799,014
2014
Total
comprehensive
income for
the period
Profit for - - - - - - 96,425 96,425
the period
Movement in - - - - - 418 - 418
fair value of
interest rate
swaps
Transfer in - - - - 82,281 - (82,281) -
respect of
unrealised
gains on
investment
properties
Transfer from - - - (9,387) - - 9,387
special
reserve
Total - - - (9,387) 82,281 418 23,531 96,843
comprehensive
income for
the period
Transactions
with owners
of the
Company
recognised
directly in
equity
Dividends - - - - - - (22,761) (22,761)
paid
At 30 June 7,587 78,566 831 546,695 171,848 (1,985) 69,554 873,096
2014
F&C Commercial Property Trust Limited
Condensed Consolidated Statement of Changes in Equity (unaudited)
for the six months to 30 June 2013
Reverse
Share Share Acquisition Special Capital Hedging Revenue
Capital Premium Reserve Reserve Reserves Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 7,447 64,612 831 562,366 23,000 (4,720) 82,495 736,031
2013
Total
comprehensive
income for
the period
Profit for - - - - - - 26,684 26,684
the period
Movement in - - - - - 1,265 - 1,265
fair value of
interest rate
swaps
Transfer in - - - - 15,107 - (15,107) -
respect of
unrealised
gains on
investment
properties
Losses on - - - - (198) - 198 -
sale of
investment
properties
realised
Total - - - - 14,909 1,265 11,775 27,949
comprehensive
income for
the period
Transactions
with owners
of the
Company
recognised
directly in
equity
Issue of 140 13,954 - - - - - 14,094
ordinary
share capital
Dividends - - - - - - (22,651) (22,651)
paid
At 30 June 7,587 78,566 831 562,366 37,909 (3,455) 71,619 755,423
2013
F&C Commercial Property Trust Limited
Condensed Consolidated Statement of Changes in Equity (unaudited)
for the year to 31 December 2013*
Reverse
Share Share Acquisition Special Capital Hedging Revenue
Capital Premium Reserve Reserve Reserves Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 7,447 64,612 831 562,366 23,000 (4,720) 82,495 736,031
2013
Total
comprehensive
income for the
year
Profit for the - - - - - - 91,985 91,985
year
Movement in - - - - - 2,317 - 2,317
fair value of
interest rate
swap
Transfer in - - - - 66,765 - (66,765) -
respect of
unrealised
gains on
investment
properties
Losses on sale - - - - (198) - 198 -
of investment
properties -
realised
Transfer from - - - (6,284) - - 6,284 -
special
reserve
Total comprehe - - - (6,284) 66,567 2,317 31,702 94,302
nsive income
for the year
Transactions
with owners of
the Company
recognised
directly in
equity
Issue of 140 13,954 - - - - - 14,094
ordinary share
capital
Dividends paid - - - - - - (45,413) (45,413)
At 31 December 7,587 78,566 831 556,082 89,567 (2,403) 66,784 799,014
2013
* These figures are audited.
F&C Commercial Property Trust Limited
Condensed Consolidated Statement of Cash Flows (unaudited)
for the six months to 30 June 2014
Six months Six months Year to
to 30 June to 30 June 31 December
2014 2013 2013*
£'000 £'000 £'000
Cash flows from operating activities
Profit for the period before taxation 96,440 26,807 92,263
Adjustments for:
Finance costs 7,780 7,348 14,716
Interest receivable (227) (500) (958)
Unrealised gains on revaluation of (82,281) (15,107) (66,765)
investment properties
Losses on sale of investment properties - 198 198
realised
Decrease/(increase) in operating trade and 3,427 117 (7,270)
other receivables
Increase/(decrease) in operating trade and 3,354 (2,759) (908)
other payables
28,493 16,104 31,276
Interest received 227 500 958
Interest paid (7,496) (7,215) (14,472)
Taxation paid (305) (103) (180)
(7,574) (6,818) (13,694)
Net cash inflow from operating activities 20,919 9,286 17,582
Cash flows from investing activities
Purchase/development of investment (123,732) (3,929) (8,523)
properties
Capital expenditure (4,812) (3,035) (5,946)
Sale of investment properties - 36,000 36,000
Net cash (outflow)/inflow from investing (128,544) 29,036 21,531
activities
Cash flows from financing activities
Shares issued (net of costs) - 14,094 14,094
Dividends paid (22,761) (22,651) (45,413)
Drawdown of bank facility (net of costs) 29,768 - -
Net cash inflow/(outflow) from financing 7,007 (8,557) (31,319)
activities
Net (decrease)/increase in cash and cash (100,618) 29,765 7,794
equivalents
Opening cash and cash equivalents 160,937 153,143 153,143
Closing cash and cash equivalents 60,319 182,908 160,937
* These figures are audited
F&C Commercial Property Trust Limited
Notes to the Consolidated Financial Statements
for the six months to 30 June 2014
1. The condensed consolidated financial statements have been prepared in
accordance with International Financial Reporting Standard (`IFRS') IAS 34
`Interim Financial Reporting' and, except as described below, the
accounting policies set out in the statutory accounts of the Group for the
year ended 31 December 2013. The condensed consolidated financial
statements do not include all of the information required for a complete
set of IFRS financial statements and should be read in conjunction with the
consolidated financial statements of the Group for the year ended 31
December 2013, which were prepared under full IFRS requirements.
The Group has adopted the following new standards and amendments to standards,
including any consequential amendments to other standards, with a date of
initial application of 1 January 2014. The following changes in accounting
standards are also expected to be reflected in the Group's consolidated
financial statements as at and for the year ending 31 December 2014.
* In October 2012, the IASB issued amendments to IFRS 10 `Consolidated
financial statements', IFRS 12 `Disclosure of interests in other entities'
and IAS 27 `Separate financial statements' - Investment entities: The
amendments define an investment entity and introduce an exception to
consolidating particular subsidiaries for investment entities. These
amendments require an investment entity to measure those subsidiaries at
fair value through profit or loss in accordance with IFRS 9 `Financial
Instruments' in its consolidated and separate financial statements. The
amendments also introduce new disclosure requirements in the Annual Report
for investment entities in IFRS 12 and IAS 27. The adoption of these
amendments does not have any material impact on the consolidated financial
statements as presented.
* In May 2013, the IASB issued IFRIC Interpretation 21 `Levies', an
Interpretation on the accounting for levies imposed by governments. The
Interpretation clarifies that the obligating event that gives rise to a
liability to pay a levy is the activity described in the relevant
legislation that triggers the payment of the levy. The adoption of this
Interpretation may result in changes in the accounting treatment of certain
property taxes paid by the Group in future periods but does not have any
material impact on the consolidated financial statements as presented for
the current, or comparative, reporting periods.
After making enquiries, and bearing in mind the nature of the Company's
business and assets, the Directors consider that the Company has adequate
resources to continue in operational existence for the foreseeable future. In
assessing the going concern basis of accounting the Directors have had regard
to the guidance issued by the Financial Reporting Council. They have considered
the current cash position of the Group, forecast rental income and other
forecast cash flows. The Group has agreements relating to its borrowing
facilities with which it has complied during the year. Although some of these
borrowing facilities fall repayable within twelve months of the date of
approval of the interim accounts, the Board has received terms from a number of
potential lenders enabling it to consider various options for refinancing this
debt and it is the Board's current expectation that the Group will be able to
refinance this debt successfully. As the Directors believe that the Group has
the ability to meet its financial obligations as they fall due for a period of
at least twelve months from the date of approval of the accounts, they continue
to adopt the going concern basis in preparing the accounts.
2. Earnings per Ordinary Share are based on 758,715,702 shares, being the
weighted average number of shares in issue during the period (period to 30
June 2013 - 754,837,249; year to 31 December 2013 - 756,792,414).
3. Earnings for the six months to 30 June 2014 should not be taken as a guide
to the results for the year to 31 December 2014.
4. Dividends
Six months Six months Year to
to 30 June to 30 June 31 December
2014 2013 2013*
Total Total Total
£'000 £'000 £'000
In respect of the previous
period:
Ninth interim (0.5p per 3,793 3,738 3,738
share)
Tenth interim (0.5p per 3,793 3,753 3,753
share)
Eleventh interim (0.5p per 3,793 3,778 3,778
share)
Twelfth interim (0.5p per 3,794 3,794 3,794
share)
In respect of the period
under review:
First interim (0.5p per 3,794 3,794 3,794
share)
Second interim (0.5p per 3,794 3,794 3,794
share)
Third interim (0.5p per - - 3,794
share)
Fourth interim (0.5p per - - 3,794
share)
Fifth interim (0.5p per - - 3,794
share)
Sixth interim (0.5p per - - 3,794
share)
Seventh interim (0.5p per - - 3,793
share)
Eighth interim (0.5p per - - 3,793
share)
22,761 22,651 45,413
A third interim dividend for the year to 31 December 2014, of 0.5 pence per
share totalling £3,794,000 was paid on 31 July 2014. A fourth interim dividend
of 0.5 pence per share will be paid on 29 August 2014 to shareholders on the
register on 15 August 2014.
Although these payments relate to the period ended 30 June 2014, under IFRS
they will be accounted for in the six months ending 31 December 2014, being the
period during which they are paid.
5. Investment properties
£'000
Opening book cost 805,760
Opening fair value adjustment 108,423
Opening fair value 914,183
Purchases 123,732
Capital expenditure 4,812
Movement in fair value 82,281
1,125,008
Closing book cost 934,304
Closing fair value adjustment 190,704
Closing fair value 1,125,008
All the Group's investment properties were valued as at 30 June 2014 by RICS
Registered Valuers working for the company of CBRE Limited (`CBRE'), commercial
real estate advisors, acting in the capacity of external valuers using
recognised valuation techniques. All such valuers are Chartered Surveyors,
being members of the Royal Institute of Chartered Surveyors (`RICS'). There
were no significant changes to the valuation techniques used during the period,
further details on which were included in the consolidated financial statements
of the Group for the year ended 31 December 2013. The CBRE valuation report is
dated 11 July 2014 (the "Valuation Report").
The fair value of the Group's investment properties per the Valuation Report
amounted to £1,140,120,000 (30 June 2013 - £866,270,000; 31 December 2013 - £
927,940,000). The difference between the fair value of the investment
properties per the Valuation Report and the fair value per the balance sheet of
£1,125,008,000 (30 June 2013 - £855,020,000; 31 December 2013 - £914,183,000)
consists of capital incentives paid to tenants totally £4,365,000 and accrued
income relating to pre-payment for rent-free periods recognised over the life
of the lease totalling £10,747,000, both of which are separately recorded in
the accounts within current assets.
There are fixed charges over all of the Group's properties, including those
purchased during the period, in relation to the Group's interest-bearing bonds
and bank loans.
6. The Group's £30 million loan facility from Barclays Bank plc was drawn down
on 20 March 2014 and used to partially finance the purchases of Blocks 1
and 2, Prime Four Business Park, Kingswells, Aberdeen. This loan is
repayable on 30 June 2015. The Company's forward interest rate swap entered
into to hedge the interest rate exposure on this loan commenced on 31 July
2014.
7. There were 758,715,702 Ordinary Shares in issue at 30 June 2014 (30 June
2013 - 758,715,702; 31 December 2013 - 758,715,702).
During the six months to 30 June 2014 the Company did not issue any Ordinary
Shares (period to 30 June 2013 - 14,000,000; year to 31 December 2013 -
14,000,000).
The Company has not issued any further Ordinary Shares since 30 June 2014.
8. At 30 June 2014 the Company had received notification under the Financial
Conduct Authority's Disclosure and Transparency Rules that Friends Life
Group Limited, through a number of subsidiaries, owned 24.96 per cent of
the Company's ordinary share capital (31 December 2013: 26.8 per cent). The
Directors consider Friends Life Group Limited to be a related party of the
Company.
9. The Group results consolidate the results of the following companies:
+ FCPT Holdings Limited (the parent company of F&C Commercial Property
Holdings Limited)
+ F&C Commercial Property Holdings Limited (a company which invests in
properties)
+ SCP Estate Holdings Limited (the parent company of SCP Estate Limited
and Prime Four Limited)
+ SCP Estate Limited (a company which invests in properties)
+ Prime Four Limited (a company which invests in properties)
+ F&C Commercial Property Finance Limited (a special purpose company
which has issued the £230 million Secured Bonds)
+ Winchester Burma Limited (a company which invests in properties)
+ Accede Limited (a dormant company)
All of the above named companies are registered in Guernsey except Accede
Limited which is registered in England and Wales.
The Group's ultimate parent company is F&C Commercial Property Trust Limited.
10. The fair value measurements for financial assets and financial liabilities
are categorised into different levels in the fair value hierarchy based on
the inputs to valuation techniques used. The different levels are defined
as follows:
* Level 1 - Unadjusted, fully accessible and current quoted prices in active
markets for identical assets or liabilities. Examples of such instruments
would be investments listed or quoted on any recognised stock exchange. The
fair value of the interest-bearing bonds issued by the Group, as disclosed
below, is included in Level 1.
* Level 2 - Quoted prices for similar assets or liabilities, or other
directly or indirectly observable inputs which exist for the duration of
the period of investment. Examples of such instruments would be those for
which the quoted price has been suspended, forward interest rate swaps and
certain other derivative instruments. The interest rate swap entered into
in order to hedge the interest rate on the £50 million bank loan and the
forward interest rate swap entered into in order to hedge the interest rate
on the £30 million bank loan are included in Level 2. The combined fair
value of these instruments at 30 June 2014 was £1,985,000 (30 June 2013: £
3,455,000; 31 December 2013: £2,403,000).
* Level 3 - External inputs are unobservable. Value is the Directors' best
estimate, based on advice from relevant knowledgeable experts, use of
recognised valuation techniques and on assumptions as to what inputs other
market participants would apply in pricing the same or similar instrument.
All investments in direct property are included in Level 3.
There were no transfers between levels of the fair value hierarchy during the
six months ended 30 June 2014.
The fair value of the 5.23 per cent Secured Bonds, based on mid-market price,
at 30 June 2014 was £238,425,000 (30 June 2013: £244,462,000, 31 December 2013:
£241,247,000). The fair value of all other financial assets and liabilities is
not materially different from their carrying value in the financial statements.
The Group's financial risk management objectives and policies are consistent
with those disclosed in the consolidated financial statements for the year
ended 31 December 2013.
11. Certain statements in this report are forward looking statements. By their
nature, forward looking statements involve a number of risks, uncertainties
or assumptions that could cause actual results or events to differ
materially from those expressed or implied by those statements. Forward
looking statements regarding past trends or activities should not be taken
as representation that such trends or activities will continue in the
future. Accordingly, undue reliance should not be placed on forward looking
statements.
12. The Board has considered the requirements of IFRS 8 'Operating Segments'.
The Board is of the view that the Group is engaged in a single segment of
business, being property investment, and in one geographical area, the
United Kingdom, and that therefore the Company has only a single operating
segment. The Board of Directors, as a whole, has been identified as
constituting the chief operating decision maker of the Company. The key
measure of performance used by the Board to assess the Company's
performance is the total return on the Company's net asset value, as
calculated under IFRS, and therefore no reconciliation is required between
the measure of profit or loss used by the Board and that contained in the
condensed consolidated financial statements.
F&C Commercial Property Trust Limited
Statement of Principal Risks and Uncertainties
The Company's assets comprise mainly direct investments in UK commercial
property. Its principal risks are therefore related to the commercial property
market in general. Other risks faced by the Company include investment and
strategic, regulatory, management and control, operational, and financial
risks. The Company is also exposed to risks in relation to its financial
instruments. These risks, and the way in which they are managed, are described
in more detail under the heading `Principal Risks and Risk Management' within
the Business Model and Strategy in the Company's Annual Report for the year
ended 31 December 2013. The Company's principal risks and uncertainties have
not changed materially since the date of that report and are not expected to
change materially for the remainder of the Group's financial year.
Statement of Directors' Responsibilities in Respect of the Half Yearly
Financial Report
We confirm that to the best of our knowledge:
* the condensed set of consolidated financial statements has been prepared in
accordance with IAS 34 `Interim Financial Reporting';
* the Chairman's Statement and Managers' Review (together constituting the
Interim Management Report) together with the Statement of Principal Risks
and Uncertainties above include a fair review of the information required
by the Disclosure and Transparency Rules (`DTR') 4.2.7R, 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
consolidated financial statements; and
* the Chairman's Statement together with the condensed set of consolidated
financial statements include a fair review of the information required by
DTR 4.2.8R, 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 or 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.
On behalf of the Board
Chris Russell
Director
F&C Commercial Property Trust Limited
Independent Review Report to F&C Commercial Property Trust Limited
Introduction
We have been engaged by F&C Commercial Property Trust Limited (`the Company')
to review the condensed set of financial statements in the Interim Report for
the six months ended 30 June 2014 which comprises the Unaudited Condensed
Consolidated Statement of Comprehensive Income, the Unaudited Condensed
Consolidated Balance Sheet, the Unaudited Condensed Consolidated Statement of
Changes in Equity, the Unaudited Condensed Consolidated Statement of Cash Flows
and the related notes. We have read the other information contained in the
Interim Report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Disclosure
and Transparency Rules (`the DTR') of the UK's Financial Conduct Authority
(`the UK FCA'). Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company for our review work, for
this report, or for the conclusions we have reached.
Directors' Responsibilities
The Interim Report is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the Interim Report in
accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Company are
prepared in accordance with IFRS. The condensed set of financial statements
included in this Interim Report has been prepared in accordance with IAS 34
`Interim Financial Reporting'.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the Interim Report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 `Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently does
not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the Interim Report
for the six months ended 30 June 2014 is not prepared, in all material
respects, in accordance with IAS 34 and the DTR of the UK FCA.
Heather J MacCallum
For and on behalf of
KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
All 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 745324
Fax: 01481 745051
Richard Kirby
F&C REIT Property Asset Management plc
Tel: 0207 499 2244
Graeme Caton
Winterflood Securities Limited
Tel: 0203 100 0268
Tuesday, 14th May 2024
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