Trading update and NAV release

To:  Company Announcements

Date:  6 February 2023

Company:  Balanced Commercial Property Trust Limited

LEI:  213800A2B1H4ULF3K397

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

Headlines

• Net Asset Value total return of -14.3 per cent for the quarter ended 31 December 2022 (YTD total return -9.2 per cent)

• Share Price total return of +11.9 per cent for the quarter ended 31 December 2022 (YTD total return -11.7 per cent)

• Portfolio capital value decrease of 11.9 per cent over the quarter on a like-for-like basis, driven by market yield movement

• Successful asset management initiatives during the quarter resulting in the retail warehousing portfolio being fully let

• Three monthly dividends of 0.4 pence per share, equating to an annual dividend yield of 5.3 per cent based on 31 December 2022 share price

• Rent collection for Q4 2022 of 98.7 per cent, with annual collection for 2022 of 98.9 per cent stabilised at pre-pandemic levels

Net Asset Value

The unaudited net asset value (‘NAV’) per share of the Company as at 31 December 2022 was 118.5 pence. This represents a decrease of 15.1 per cent from the unaudited NAV per share as at 30 September 2022 of 139.6 pence and a NAV total return for the quarter of -14.3 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 31 December 2022 and is calculated after deduction of all dividends paid prior to that date. The EPRA Net Tangible Assets (NTA) per share as at 31 December 2022, which is adjusted to remove the fair value of the interest rate swap, was 118.4 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 September 2022 to 31 December 2022 (including the effect of gearing):

	£m	Pence per share	% of opening NAV per share
NAV as at 30 September 2022	979.2	139.6
Unrealised decrease in valuation of property portfolio	(148.2)	(21.1)	(15.1)
Movement in fair value of interest rate swap	(0.7)	(0.1)	(0.1)
Other net revenue	9.6	1.3	1.0
Dividends paid	(8.4)	(1.2)	(0.9)
NAV as at 31 December 2022	831.5	118.5	(15.1)

Valuation

The capital value of the Company’s portfolio fell by 11.9 per cent over the quarter, as the UK real estate market experienced rapid repricing in the face of economic and market pressures. The markets were particularly turbulent during October and November with the downward pressure on valuations slowing in December. The MSCI UK Monthly Index capital value by comparison decreased by 15.6 per cent over the quarter. The relative outperformance is related to the large predominantly retail holding at St. Christopher’s Place and demonstrates the value and attributes of a balanced portfolio as the market corrects in this stage of the cycle.

The current inflationary environment has seen steady increases in the Bank of England base rate which is now at 4 per cent, and significant yield expansion in the gilt markets, in turn resulting in pressure on capitalisation rates in the real estate sector. In this context, investor caution has resulted in a period of illiquidity and price discovery, causing a rapid re-rating of market values.

The early stages of 2023 have seen an improvement in sentiment as investment activity has picked up and pricing for core assets within the industrial, retail warehousing and student sub-markets in particular have begun to show initial signs of stabilisation. Furthermore, occupational markets have remained resilient, as evidenced by the reduction in the portfolio void rate from 6.4 per cent to 5.9 per cent by estimated rental value.

Portfolio

Against such a background, the Company’s industrial and logistics assets saw a decline in value of 18.0 per cent, as the equivalent yield on the portfolio assets moved out by 117 basis points. This yield correction comes despite the sector’s strong occupational market, which remains characterised by a supply-demand imbalance that continues to generate rental growth. The quarter saw the letting of Unit 2 Mason Road at the Cowdray Centre in Colchester to UK Plumbing Supplies on a new 15-year lease at a rent that shows a steady increase in the estate’s rental tone. The letting was concluded following a substantial refurbishment which significantly enhanced the unit’s ESG credentials, including a B-rated EPC, and similar works are being rolled out across the estate.

St Christopher’s Place in London, the portfolio’s largest holding, fell in value by 1.0 per cent. This prime, mixed-use holding has been in a recovery phase throughout 2022 as evidenced by a strong festive period where footfall in the last two weeks of the year was in excess of the same period in 2019.

The capital value of the Company’s prime retail warehouse parks in Newbury and Solihull fell by 13.8 per cent, driven by an 84 basis point outward movement in the equivalent yield. Footfall and occupational activity on both parks remain resilient. Sears Retail Park in Solihull is now fully occupied following the Q4 openings of Pure Gym and Mountain Warehouse. All vacant space at Newbury Retail Park is now conditionally contracted, with a letting to JD Sports having completed and works underway to hand a unit over to Cancer Research.

The Burma Road Student Village in Winchester saw a 16.0 per cent fall in valuation. While the student housing asset class retains strong fundamentals based on both demographic and economic trends, the asset’s long-term, index-linked leasing structure was particularly correlated to the gilt markets and the equivalent yield on the asset was moved out by 72 basis points over the quarter.

The Company’s office assets saw a fall in capital value of 9.9 per cent, reflecting a 61 basis point movement in the sector’s equivalent yield.  The office sector continues to experience a structural shift in favour of prime assets with strong underlying ESG credentials. The occupational market for good quality stock remains robust, as illustrated by a number of accretive leasing deals concluded within the quarter, including a reversionary lease to Quaero Capital at 2-4 King Street, London, delivered at a substantial uplift to the passing rent. A new lease was also completed with JZ International at 17A Curzon Street, London.

Share Price

As at 31 December 2022, the share price was 88.5 pence per share, which represented a discount of 25.3 per cent to the NAV per share. The share price total return for the quarter to 31 December 2022 was 11.9 per cent.

Cash and Borrowings

The Company had £54.8 million of available cash as at 31 December 2022. 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 31 December 2022, the Company’s loan to value, net of cash (‘LTV’) was 23.4 per cent.

Dividend

The Company continued to pay monthly property income distributions at a rate of 0.4 pence per share during the quarter.

Portfolio Analysis – Sector Breakdown

	Portfolio Value £m	% of portfolio as at 31 December 2022	% capital value shift (including purchases and CAPEX)
Offices	346.9	31.6	-8.6
West End	87.0	7.9	-3.1
South East	53.7	4.9	-17.8
South West	25.5	2.3	-15.1
Rest of UK	162.2	14.8	-7.4
City	18.5	1.7	-5.9
Retail	190.4	17.4	0.8
West End	163.2	14.9	2.0
South East	27.2	2.5	-5.6
Industrial	317.4	28.9	-20.5
South East	50.2	4.6	-14.0
Rest of UK	267.2	24.3	-21.6
Retail Warehouse	127.5	11.6	-14.2
Alternatives	114.9	10.5	-11.8
Total Property Portfolio	1,097.1	100.0	-11.9

Portfolio Analysis – Geographic Breakdown

	Market Value £m	% of portfolio as at 31 December 2022
West End	302.1	27.5
South East	255.9	23.4
Midlands	234.0	21.3
North West	133.9	12.2
Scotland	127.2	11.6
South West	25.5	2.3
Rest of London	18.5	1.7
Total Property Portfolio	1,097.1	100.0

Top Ten Investments

	Sector
Properties valued in excess of £200 million
London W1, St Christopher’s Place Estate *	Mixed
Properties valued between £50 million and £70 million
Newbury, Newbury Retail Park	Retail Warehouse
Solihull, Sears Retail Park	Retail Warehouse
Properties valued between £40 million and £50 million
London SW19, Wimbledon Broadway ** Winchester, Burma Road Properties valued between £30 million and £40 million Chorley, Unit 6 and 8 Revolution Park Liverpool, Unit 1, G.Park Markham Vale, Orion 1 & 2 Manchester, 82 King Street Birmingham, Unit 8 Hams Hall	Mixed Alternative Industrial Industrial Industrial Office 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	1,097.1	156.4	131.9
Adjustment for lease incentives	(22.0)	(3.2)	(2.6)
Fair Value of Property Portfolio	1,075.1	153.2	129.3
Trade and other receivables	32.9	4.7	4.0
Cash and cash equivalents	54.8	7.8	6.6
Current Liabilities	(19.9)	(2.8)	(2.4)
Total Assets (less current liabilities)	1,142.9	162.9	137.5
Non-current liabilities	(2.1)	(0.3)	(0.3)
Interest-bearing loans	(309.3)	(44.1)	(37.2)
Net Assets at 31 December 2022	831.5	118.5	100.0

The next quarterly valuation of the property portfolio will be conducted by CBRE Limited during March 2023 and it is expected that the unaudited NAV per share as at 31 March 2023 will be announced in April 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
CT REP AM plc
Tel: [phone]

Innes Urquhart
Winterflood Securities Limited
Tel: [phone]