Final Results

RNS Number : 2479J

F&C Commercial Property Trust Ld

26 March 2010

 



To:                   RNS

Date:               26 March 2010

From:              F&C Commercial Property Trust Limited

Results in respect of the Year Ended 31 December 2009 (audited)

Highlights

·     Net asset value total return of  8.7 per cent

·     Outperformance of portfolio compared with the benchmark IPD All Quarterly and Monthly valued funds

·     Share price total return of 57.5 per cent

·     Dividend level maintained, providing a yield of 6.7 per cent at the year end

·     Improved dividend cover through investment in new properties

·     Continuing low levels of voids and bad debts

·     Increased investment and borrowing flexibility through a group reconstruction  

Chairman's Statement

With signs of improving economic conditions during the second half of the year and an increase in investment activity driven by a demand for income, there was a recovery in the UK commercial property market in 2009. The market total return for the year, as measured by the Investment Property Databank ('IPD') All Quarterly and Monthly valued funds, was 2.8 per cent. Total returns in the last two quarters were strong, more than offsetting the falls in the first part of the year and reversing the trend of falling values which had been prevalent since the peak of the market in June 2007. 

Against this backdrop the Company performed well, with a net asset value ('NAV') total return for the year of 8.7 per cent. It is also pleasing to report an increase of 45.2 per cent in the share price, to 90.0p at the end of the year, reflecting a premium of 3.9 per cent to the NAV of 86.6p per share. This compares with a discount of 27.7 per cent as at 31 December 2008.

The following table provides an analysis of the movement in the NAV per share for the year:

                                                                                                            Pence

NAV per share as at 31 December 2008                                             85.8

Unrealised increase in valuation of direct property portfolio                   2.6  

Unrealised increase in valuation of indirect property holdings               0.1

Movement in revenue reserve                                                               (1.9)

                                                                                                            --------

NAV per share as at 31 December 2009                                           86.6

                                                                                                            --------

Property Portfolio

The total return from the direct property portfolio during the year was 9.3 per cent, significantly outperforming the total return from the benchmark IPD All Quarterly and Monthly valued funds as referred to above. The portfolio was ranked on the 15^th percentile against the benchmark. The principal reason for this outperformance was the strong returns generated from the portfolio's retail warehouse investments. This was the top performing sector in 2009 and the Company's properties also outperformed the benchmark, reinforcing the quality of the portfolio and emphasising the positive effect of good asset management. The portfolio has a significant overweight position to South East retail properties, which again was an outperforming sector, and where St. Christopher's Place Estate, London W1 remains the dominant property in the portfolio, providing a strong weighted contribution to performance. The portfolio's prime West End offices also outperformed as the demand from international investors forced capitalisation rates down. The Managers continue to be able to progress value-adding asset management opportunities and during the year successfully completed a number of initiatives.

As explained in more detail in the Managers' Review, new properties were purchased during the year for an aggregate consideration of £55 million, including costs. As well as increasing the Company's exposure to distribution warehouses, these purchases also have the effect of improving the level of dividend cover, counteracting the very low level of interest which had been received on the cash balances held previously. This investment activity has continued since the end of the year with a further purchase of a small, freehold property on the St. Christopher's Place Estate for £2.96 million.

The Company sold one of its smaller retail properties subsequent to the year end, at above valuation, for £8.8 million.

As well as improving the level of dividend cover, the net effect of this investment activity has been a significant reduction in the level of cash balances which had been built up in previous years when the Managers were concerned about the outlook for the property market.

Importantly in the current economic environment, the Company continues to maintain a low void rate and a low provision for bad debts.  Further details are provided in the Managers' Review.

Group Reconstruction

In June 2009, a prospectus and an offer document were sent to shareholders containing details of proposals to introduce a new listed holding company, now called F&C Commercial Property Trust Limited (previously called New FCPT Limited), which was incorporated for the purpose of making an offer to acquire all of the issued shares of the previous listed holding company. The offer became unconditional in July 2009 and the shares of the new holding company were admitted to listing on the Official List of the UKLA and to trading on the main market of the London Stock Exchange.

Under the offer, shareholders were offered one new share in the new listed holding company for each share in the old listed company. The effect of the transaction was that, during the year, the company now called F&C Commercial Property Trust Limited became the new holding company of the Group with the same Board of Directors.

As stated in the offer documentation, the introduction of the new holding company has the following benefits:

·     The new holding company, and any new subsidiaries outside the previous group structure, do not form part of the security structure for the Secured Bonds and are not therefore subject to the same restrictions.

·     In the event that the new holding company raises any new equity, it will have considerable flexibility over whether that cash is used within or outside the secured bond structure.

·     The new holding company has more flexibility to incur borrowings in a manner which may be more cost-effective than through the secured bond structure when the market for securitised bonds is weak.

·     The new holding company has the ability to acquire or merge with other companies or funds which may themselves have existing debt.

·     The new holding company's investment policy provides it with flexibility to invest in listed property companies where the Board believes that it is in the best interests of shareholders to do so. It should be noted that that Board does not have any immediate intention to invest in listed property companies.

·     The new holding company is not subject to the same restrictions as were imposed previously on the use of any surplus cash to pay dividends, buy back shares or otherwise return capital to shareholders.

Dividends

In accordance with the Board's announcement in November 2008 that dividends would in future be paid monthly, rather than quarterly, twelve dividends, each of 0.5p per share, were paid during the year. The annual dividend of 6.0p per share has been maintained since the Company's launch in 2005. The Board intends that dividends will continue to be paid monthly.

The Company's rental flows remained healthy during the year and, in the latter part of the period, benefited from the investment in new properties as described above which yield significantly more than the cash balances which had been held previously.

Borrowings

The Company has borrowings in the form of £230 million Secured Bonds due 2017 which have been assigned an 'Aaa' rating by Moody's Investor Services. The bonds carry interest at a fixed rate of 5.23 per cent per annum.

As at 31 December 2009, the Company level of gearing, net of cash, was 18.5 per cent. This compares with 10.3 per cent as at 31 December 2008.

Discount, Share Buy Backs and Continuation Vote

The Company did not buy back any shares during the year, and it will seek to renew its share buy back authority at the forthcoming Annual General Meeting.

In accordance with the Company's discount policy, an Extraordinary General Meeting was held on 1 May 2009 at which a resolution was proposed to approve the continuation of the Company. The Board was pleased to announce that the resolution was passed by shareholders.

Amendment to Investment Management Agreement

During the year the Board announced an amendment to the investment management agreement between the Company and the Managers, such that each party shall be entitled to terminate the agreement on not less than six months' notice. Previously 12 months' notice had been required.

Board Composition

As a result of the acquisition during the year of the Company's majority shareholder, Friends Provident Group plc, by Resolution Limited, the previous Chairman of the Board, Mr Peter Niven, who is a non-executive director of Resolution Limited, was no longer considered to be independent under the Combined Code. Mr Niven therefore stepped down as Chairman on 31 October 2009 and, with the unanimous support of the Board, is continuing as a Director of the Company, subject to annual re-election as a non-independent non-executive Director. On behalf of the Board I would like to thank Peter for his valuable contributions to the Company as Chairman since launch, and the Board is looking forward to continuing to benefit from his wise counsel as a Director.

During the year the Board also announced the appointment of two independent non-executive Directors, Mr Jonathan Hooley and Mr Chris Russell, who both joined the Board on 31 October 2009, and the retirement on the same date of Mr Donald Adamson. 

Outlook

Although GDP growth resumed in the final quarter of 2009, the economic recovery is fragile and likely to be long and slow. Consequently, there is a high degree of uncertainty about the potential for returns in the commercial property market in the short term. Total return forecasts for 2010 are being revised upwards with double digit total returns now being predicted in the latest Investment Property Forum consensus forecasts. There may be some slippage for 2011 on concerns about the extent of fiscal and monetary tightening, the fundamentals of the occupational market and the scope for further yield falls as the yield gap against gilts narrows.  In the longer term, returns are likely to be largely income driven with only modest capital growth.

The Board believes that, in this environment, the Company continues to be relatively well placed, and that the combination of its quality portfolio, diversity of tenants, low levels of voids and bad debts and continuing property asset management initiatives will all be beneficial to performance over the longer term.

John Stephen

Chairman

Managers' Review

Property Market Review

The commercial property market delivered total returns of 2.8 per cent in 2009 according to the Investment Property Databank ('IPD') All Quarterly and Monthly valued funds. After a weak first half when total returns were negative, the market rallied strongly in the second half of 2009 and, by the fourth quarter, total returns were 9.6 per cent, a quarterly record for this series by some margin.

The upturn was largely investment driven. By mid-year, yields had reached high levels by historic standards and capital values had dropped by more than 40 per cent from the market peak in 2007. This attracted opportunistic funds and also made property attractive to income investors - provided that the income stream was secure. Investor activity was focused on prime stock but there was little such property available. The nature of the investment market was transformed during the year from one dominated by fund outflows, forced sales and limited buyer interest, to one where there was competitive bidding for stock, fund inflows and sharply rising prices. The year saw overseas investors providing a major support to property, especially in Central London, but as investor interest grew, they were joined by institutional investors who became net investors in property by the fourth quarter, private investors who were seeking a better return than that available on cash, and quoted companies which were investing the proceeds of recent rights issues.

Although the lack of prime property did push some investors further up the yield curve in order to secure stock, with some secondary yields moving inwards as a consequence, secondary property generally remained out of favour during the year. The intensity of investment activity moved initial yields down to 6.9 per cent from a 7.7 per cent peak, and leaving yields at the end of 2009 unchanged from a year earlier.

The occupational market, affected by a steep and sudden economic downturn, remained weak throughout 2009. Rents fell by 8.1 per cent during the year with offices affected the most. The year witnessed a rise in incentives from landlords in an attempt to secure or retain tenants. Despite this, void rates moved up during the year, putting pressure on income streams which were down 1.4 per cent over the course of the year.

The year saw retail and industrial property moving to deliver positive total returns and offices only marginally negative. The income return moved up to 7.4 per cent from 5.7 per cent during the course of the year, underpinning property's attraction for income focused investors.

Portfolio

During 2009 the Company's portfolio, including purchases, increased in value by £78.0 million to £737.3 million. This represents an ungeared capital increase, net of purchases and capital expenditure, of 3.1 per cent.

The Company's direct property portfolio recorded a total return of 9.3 per cent over the period, compared with the return from the IPD All Quarterly and Monthly valued funds (comprising directly held properties only) of 2.8 per cent. This strong absolute and relative outperformance of the benchmark is reflected in the portfolio being ranked 34 out of the 223 funds contributing to the benchmark, and on the 15^th percentile. Looking at longer term performance, the Company's portfolio has now outperformed by 2.3 per cent relative to its benchmark on an annualised three-year basis.

Retail

The Retail sector as a whole recorded total returns of 4.5 per cent for the year, but it was the strong performance coming through in the final quarter producing a total return of 11.2 per cent which drove returns. The retail property sector was the strongest performing sector in 2009, driven by a strong re-pricing of the retail warehouse sector which produced a total return of 11.1 per cent. Retails - South East also outperformed recording a return of 10.0 per cent. Conversely, Shopping Centres was a relatively weak sector, underperforming by recording a total return of -7.1 per cent for the year.

Rental values across the sector remained under pressure as retailers taking new space or negotiating lease renewals were able to leverage their position to negotiate flexible lease terms backed by significant landlord incentives.

The Company's direct retail properties produced a total return of 14.0 per cent for the year.

The focus of activity in the retail portfolio centred around protecting income and letting vacant units. At the beginning of the period the Company's largest void was a large shop unit at 124/125 Princes Street, Edinburgh where Zavvi vacated on lease expiry in December 2008. The Company secured a letting to Urban Outfitters for a term of 15 years at a commencing rent of £515,000 per annum, with fixed uplifts in rent for the first ten years of the term. Refurbishment works were undertaken to improve both the facade, by introducing a double height shop front, and the layout of the store. This unit now provides a "flagship" store for Urban Outfitters and opened to trade in December 2009. St. Christopher's Place Estate, London W1, the Company's largest asset, is categorised as retail but it benefits from a diversity of uses; retailers, restaurants, offices and residential . Two shop units were let on flexible leases on five year terms to Kookai and Adili (trading as Ascension) at a combined rent of £130,000 per annum. We are now looking to aggressively manage and enhance the tenant mix on the estate.

The Company's retail warehouses saw a significant re-rating over the period producing a total return of 16.9 per cent including capital growth of 8.6 per cent, with the bulk of this once again having been delivered in the final quarter. This sector saw the most profound turnaround in 2009, having started the year with investors having significant concerns over the covenant strength of tenants, rental levels and the letability of void units. Many retail parks were marked out in valuation terms to capitalisation rates of 8.5 per cent to 9 per cent. Investor sentiment to the sector changed in the summer with many of the open-ended funds re-entering the market and, as these purchasers chased stock, prices moved dramatically in the final quarter. The Company holds three prime assets in this sector, all of which benefitted from a yield shift of around 150-200 basis points. Turning to asset management initiatives, at Newbury Retail Park, Newbury where Roseby's fell into administration late in 2008 having occupied a 10,000 sq ft unit, a planning consent was secured to split the unit and to permit a change of use. Thereafter, lettings were contracted to Peacocks (7,825 sq ft) at a rent of £195,625 per annum (£25 psf) for a term of ten years; and Costa Coffee at a rent of £58,500 per annum (£32.50 psf) for a term of ten years with a break at year five. Both these units are trading successfully.

The Company does not directly hold any shopping centres having sold its only asset in 2008 and thereby benefiting from not being exposed to this sector.

Offices

The Office sector produced a total return of -0.8 per cent. Within this, the sector recorded a range of returns with the City producing -3.1 per cent, South East Offices -2.2 per cent, Rest of UK 0.1 per cent and the West End, the star performer, at 2.1 per cent.

The Company's Offices produced a total return of 6.2 per cent, a significant outperformance of the benchmark. The performance was driven by an overweight position to West End Offices where the Company's holdings produced a positive total return of 9.6 per cent whilst all the Company's other Office sub-sectors produced positive total returns.

Rental levels in Central London fell steeply from the fourth quarter of 2008 well into 2009. Landlords were quick to react and re-base quoting rents in a falling market. In order to mitigate the cost of empty rates and void service charge costs, the Company took a pragmatic view to leasing vacant space in Central London. During the first half of 2009, it completed the letting of three floors at 7 Birchin Lane, London EC3 and 17a Curzon Street, London W1, all on short-term leases of five years, all with tenant breaks at year three and at an aggregate rent of £302,644 per annum. Additionally, two floors at 6-8 James Street, London W1 were let to Target Corporation and LPK Limited at a combined rent of £147,977 per annum. The Company completed the refurbishment of the second floor at Charles House, 5-11 Regent Street, London SW1 (4,692 sq ft) and let the newly refurbished space to Lunson Mitchenall at a commencing rent of £185,344 per annum (£39.50 psf) for a term of 10 years with a break at year six. This property is now fully let and the Company has undertaken the refurbishment of the entrance hall, common areas and five of the seven office floors. At the end of the period the Company had only one significant void in Central London which is the second floor at 2-4 King Street, London SW1 which comprises 2,645 sq ft.

The regional office markets have proved more difficult to secure lettings. The Company's largest void is at 82 King Street, Manchester which comprises part second, fifth, eighth and eleventh floors. The occupational market in Manchester remains weak with landlords offering very competitive terms and incentives to take space. In response to such conditions the property has been subject to a refurbishment of the entrance hall and common parts which were looking tired and in need of an upgrade. The property was re-launched to the market in March 2010 and it is hoped the refurbishment will enable the property to regain its position in the local market and for lettings to be contracted. On the positive side, lease re-gearings with both Chubb and Rothschild were agreed during 2009 which secured their longer term occupation of space within the building.

In last year's review it was stated that the development of 24-27 Great Pulteney Street, London W1 had been delayed against a background of global economic and financial uncertainty. During 2009 the fundamentals for speculative developments in Central London improved as forecasts of rental growth across the sector were markedly increased and very few, if any, developments were started.

Research and analysis of the development pipeline identifies an acute lack of new Grade A space due to be delivered to the market in late 2011 and 2012. Against such a backdrop we now believe the fundamentals have turned and a commitment to the development of Great Pulteney Street offers an opportunity to take advantage of competitive building tenders and to deliver a highly specified building into a market that will be starved of new Grade A space. The development of this property started on site in February 2010.

Industrials

Industrial property delivered a total return of 3.8 per cent in 2009.

The Company's industrial properties produced a total return of 3.1 per cent. This underperformance was, in the main, due to the capital costs of acquisition of four distribution warehouses during the second half of the year. The portfolio has been underweight to the industrial sector since the reduction of its holding in the Industrial Property Investment Fund in 2008. The Company acquired four properties in the sector, as detailed below, with the acquisitions increasing the weighting to the sector from 5.4 per cent in 2008 to 12.7 per cent at 31 December 2009.

At the Cowdray Centre, Colchester, the master plan for the area continues to be a matter of negotiation with the Local Planning Authority. The Company has received some interesting approaches on this site and it is hoped there will be some tangible progress in 2010. In the meantime, income, albeit short-term, is being managed and maintained.

Purchases and Disposals

The Company started the year with a significant cash balance and the focus of activity has been to secure suitable stock in challenging market conditions. In July, the Company completed its first purchase since launch in March 2005: Site E4, Daventry International Rail Freight Terminal ('DIRFT') Logistics Park was purchased for £17.25 million, representing a net initial yield of 9.05 per cent. DIRFT Logistics Park is one of the UK's premier distribution and logistics parks located adjacent to Junction 18 of the M1 motorway. The unit, constructed in 2005, comprises a well-specified distribution warehouse of approximately 300,000 sq ft and is let to Exel Europe Limited until 31 May 2015 at a current rent passing of £1,650,000 per annum. The tenant operates, under contract, Mothercare's national distribution centre from the property. In October, the Company acquired three separate distribution warehouses at Hams Hall, National Distribution Centre, Birmingham for £34.85 million in aggregate, delivering a net initial yield of 9.0 per cent. Hams Hall is another established distribution and logistics park located adjacent to Junction 9 of the M42 motorway. These three acquisitions of properties constructed between 2000 and 2002 provide, in aggregate, more than 600,000 sq ft of modern well-specified distribution units. The first property, Unit 6a, comprises 127,069 sq ft and is let to Bell Micro Products Limited until April 2019 (tenant break 2016) at a current rent passing of £707,172 per annum. Unit 8 comprises 264,369 sq ft in a mix of high and low bay accommodation and is let to Wincanton Holdings Limited until April 2025 (tenant break April 2015) at a current rent passing of £1,500,000 per annum. The third property comprises 225,808 sq ft and is let to Arvato SCM Limited, guaranteed by Bertelsmann AG, for a term expiring in July 2016, at a current rent passing of £1,130,890 per annum.

Since the end of the year, the Company has completed the purchase of 77/77a Wigmore Street, London W1 for £2.96 million, reflecting a net initial yield of 4.55 per cent. This small freehold property occupies an important corner position on the St. Christopher's Place Estate and was one of the few properties on the estate not owned by the Company. The property comprises a basement and ground floor restaurant and four upper floors of offices, comprising 3,808 sq ft in total. It is let to two tenants; Tunisian National Office of Tourism and Ayoush Restaurant, on leases expiring in 2014 and 2023.

The Company sold one property, 27/28 Commercial Street, Leeds, a shop unit which was well located but considered ex-growth. The sale exchanged in late December and completed in January 2010 for £8.8 million (initial yield 5.74%), an uplift of 9.0 per cent over the last external valuation undertaken in October 2009.

Property Management

The Company documented 13 lease events during the year, increasing the rent passing by £271,926 per annum. The Company was successful in letting void space, as highlighted above, and vacancy levels were reduced from 4.3 per cent (excluding developments) to close to 2.5 per cent, significantly better than the IPD rate of 12.1 per cent. Rent arrears and overdue debt have been constantly and persistently managed and, at 1.6 per cent, remain extremely low for a portfolio of this size, which reflects the quality of its property assets.

Property Market Outlook

The strong recovery in the capital markets and investment performance seen in the last quarter of 2009 appears to be unsustainable. However, the momentum and weight of money chasing property has carried into 2010 and looks to be set fair for the early months. However, due to a combination of a sluggish economic recovery coupled with concerns over the UK's fiscal position and credit rating, the outlook beyond the timing of a general election remains highly uncertain. The occupational markets remain poor and the general outlook for rental growth remains negative. However, Central London rents, which reacted quicker to the downturn, would appear to be at the bottom of the cycle with significant growth anticipated.

Total returns in 2010 are expected to be front-loaded with returns slowing in the second half of 2010 to be income driven. It is anticipated the second half of the year could see more stock offered to the market, which could lead to opportunities to acquire good quality and attractively priced properties.

Richard Kirby

Investment Manager

F&C Commercial Property Trust Limited

Consolidated Income Statement (audited)

		Year ended 31 December 2009	Year ended 31 December 2008
		£'000	£'000
Revenue
Rental income		50,056	51,629
Income from indirect property funds		145	5,533
		-----------	-----------
Total revenue		50,201	57,162
Gains/(losses) on investments
Unrealised gains/(losses) on revaluation of investment properties		17,764	(251,874)
Unrealised gains/(losses) on revaluation of indirect property funds		956	(35,553)
Gains/(losses) on sale of investment properties realised		308	(4,137)
Gains/(losses) on sale of indirect property funds realised		11	(34,192)
		-----------	-----------
Total income/(expense)		69,240	(268,594)
		-----------	-----------
Expenditure
Investment management fee		(7,688)	(5,862)
Other expenses		(4,303)	(4,097)
		-----------	-----------
Total expenditure		(11,991)	(9,959)
		-----------	-----------
Operating profit/(loss) before finance costs		57,249	(278,553)
		-----------	-----------
Net finance costs
Interest receivable		1,532	5,717
Finance costs		(12,139)	(12,133)
		-----------	-----------
		(10,607)	(6,416)
		-----------	-----------
Profit/(loss) before taxation		46,642	(284,969)
Taxation		(238)	850
		-----------	-----------
Profit/(loss) and total comprehensive income for the year		46,404	(284,119)
		-----------	-----------
Basic and diluted earnings/(losses) per share		6.8p	(39.8)p

The Group does not have any income or expense that is not included in the profit/(loss) for the year, and therefore the 'profit/(loss) 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.

F&C Commercial Property Trust Limited

Consolidated Balance Sheet (audited)

	As at 31 December 2009 £'000	As at 31 December 2008 £'000
Non-current assets
Investment properties	722,536	654,155
Investments in indirect property funds held at fair value	6,072	5,116
	-----------	-----------
	728,608	659,271
	-----------	-----------
Current assets
Properties held for sale	8,694	-
Trade and other receivables	5,400	6,193
Cash and cash equivalents	95,138	162,336
	-----------	-----------
	109,232	168,529
	-----------	-----------
Total assets	837,840	827,800
	-----------	-----------
Current liabilities
Trade and other payables	(18,518)	(13,859)
	-----------	-----------
Non-current liabilities
Interest-bearing bonds	(229,308)	(229,197)
Deferred taxation	(626)	(561)
	-----------	-----------
	(229,934)	(229,758)
	-----------	-----------
Total liabilities	(248,452)	(243,617)
	-----------	-----------
NET ASSETS	589,388	584,183
	-----------	-----------
Represented by:
Share capital	6,805	7,531
Reverse acquisition reserve	831	-
Capital redemption reserve	-	105
Share premium account	-	-
Special reserve	664,063	673,010
Capital reserve - investments sold	(20,974)	(21,293)
Capital reserve - investments held	(71,970)	(90,690)
Revenue reserve	10,633	15,520
	-----------	-----------
Equity SHAREHOLDERS' FUNDS	589,388	584,183
	-----------	-----------
Net asset value per share	86.6p	85.8p

F&C Commercial Property Trust Limited

Consolidated Statement of Changes in Equity

for the year ended 31 December 2009 (audited)

	Share Capital £'000	Reverse Acquisition Reserve £'000	Capital Redemption Reserve £'000	Special Reserve £'000	Capital  Reserve - Investments Sold £'000	Capital Reserve -  Investments Held £'000	Revenue Reserve £'000	Total £'000
At 1 January 2009	7,531	-	105	673,010	(21,293)	(90,690)	15,520	584,183
Group reconstruction	(726)	831	(105)	(367)	-	-	-	(367)
Profit and total comprehensive  income for the year	-	-	-	-	-	-	46,404	46,404
Dividends paid	-	-	-	-	-	-	(40,832)	(40,832)
Transfer in respect of unrealised gains on investment properties	-	-	-	-	-	17,764	(17,764)	-
Transfer in respect of unrealised gains on indirect property funds	-	-	-	-	-	956	(956)	-
Gains on sale of investment properties realised	-	-	-	-	308	-	(308)	-
Gains on sale of indirect property funds realised	-	-	-	-	11	-	(11)	-
Transfer from special reserve	-	-	-	(8,580)	-	-	8,580	-
At 31 December 2009	6,805	831	-	664,063	(20,974)	(71,970)	10,633	589,388

Consolidated Statement of Changes in Equity

for the year ended 31 December 2008 (audited)

	Share Capital £'000	Capital Redemption Reserve £'000	Share Premium Account £'000	Special Reserve £'000	Capital  Reserve - Investments Sold £'000	Capital Reserve -  Investments Held £'000	Revenue Reserve £'000	Total £'000
At 1 January 2008	687,224	-	14,390	34,043	325	213,448	8,657	958,087
Court reduction of share capital	(679,588)	-	(14,390)	693,978	-	-	-	-
Loss and total comprehensive income for the year	-	-	-	-	-	-	(284,119)	(284,119)
Dividends paid	-	-	-	-	-	-	(49,922)	(49,922)
Transfer in respect of unrealised losses on investment properties	-	-	-	-	-	(251,874)	251,874	-
Transfer in respect of unrealised losses on indirect property funds	-	-	-	-	-	(35,553)	35,553	-
Losses on sale of investment properties realised	-	-	-	-	(4,137)	-	4,137	-
Losses on sale on indirect property funds realised	-	-	-	-	(34,192)	-	34,192	-
Transfer of prior years' revaluation to realised reserve	-	-	-	-	16,711	(16,711)	-	-
Shares bought back	(105)	105	-	(39,863)	-	-	-	(39,863)
Transfer from special reserve	-	-	-	(15,148)	-	-	15,148	-
At 31 December 2008	7,531	105	-	673,010	(21,293)	(90,690)	15,520	584,183

F&C Commercial Property Trust Limited

Consolidated Cash Flow Statement (audited)

	Year ended 31 December 2009	Year ended 31 December 2008
	£'000	£'000
Cash flows from operating activities
Operating profit/(loss) for the year before finance costs and taxation	57,249	(278,553)
Adjustments for:
Unrealised (gains)/losses on revaluation of investment properties	(17,764)	251,874
Unrealised (gains)/losses on revaluation of indirect property funds	(956)	35,553
(Gains)/losses on sale of investment properties realised	(308)	4,137
(Gains)/losses on sale of indirect property funds realised	(11)	34,192
(Increase)/decrease in operating trade and other receivables	(195)	472
Increase/(decrease) in operating trade and other payables	4,409	(4,631)
	-----------	-----------
	42,424	43,044
	-----------	-----------
Interest received	1,532	5,717
Interest paid	(12,029)	(12,029)
Taxation refunded/(paid)	1,066	(551)
	-----------	-----------
	(9,431)	(6,863)
	-----------	-----------
Net cash inflow from operating activities	32,993	36,181
	-----------	-----------
Cash flows from investing activities
Purchases of investment properties	(54,785)	-
Sale of investment properties	320	71,302
Sale of indirect property funds	11	43,790
Capital expenditure	(4,538)	(3,043)
	-----------	-----------
Net cash (outflow)/inflow from investing activities	(58,992)	112,049
	-----------	-----------
Cash flows from financing activities
Costs of share reconstruction charged to capital	(367)	-
Dividends paid	(40,832)	(49,922)
Share buy backs	-	(39,863)
	-----------	-----------
Net cash outflow from financing activities	(41,199)	(89,785)
	-----------	-----------
Net (decrease)/increase in cash and cash equivalents	(67,198)	58,445
Opening cash and cash equivalents	162,336	103,891
	-----------	-----------
Closing cash and cash equivalents	95,138	162,336
	-----------	-----------

F&C Commercial Property Trust Limited

Principal Risks and Risk Management

The Company's assets comprise direct and indirect investments in UK commercial property, although market uncertainty last year resulted in more cash being held for several months. Its principal risks are therefore related to the commercial property market in general and its investment properties. More detailed explanations of these risks and the way in which they are managed are contained in note 3. The Managers also seek to mitigate these risks through active asset management initiatives and carrying out due diligence work on potential tenants before entering into any new lease agreements. All of the properties in the portfolio are insured.

Other risks faced by the Company include the following:

·     Economic - inflation or deflation, economic recessions and movements in interest rates could affect property valuations.

·     Investment and strategic - incorrect strategy, including sector and geographic allocations and use of gearing could lead to poor returns for shareholders.

·     Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.

·     Management and control - changes that cause the management and control of the Company to be exercised in the United Kingdom could lead to the Company becoming liable to United Kingdom taxation on income and capital gains.

·     Operational - failure of the Managers' accounting systems or disruption to the Managers' business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.

·     Financial - inadequate controls by the Managers or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to a qualified audit report, misreporting or breaches of regulations. Breaching bond covenants could lead to a downgrading of the Secured Bonds, a loss of shareholders' confidence and financial loss for shareholders.

The Board seeks to mitigate and manage these risks through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Company's property portfolio, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:

·      The financial statements contained within the Annual Report for the year ended 31 December 2009, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·      The Chairman's Statement and Managers' Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

·      'Principal Risks and Risk Management' includes a description of the Company's principal risks and uncertainties; and

·      The Annual Report includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

N J M Tostevin                                                 

Director                                                           

25 March 2010

F&C Commercial Property Trust Limited

Notes to the audited Consolidated Financial Statements

for the year to 31 December 2009

1.         The Board has declared a twelfth, and last, interim dividend for the year of 0.50p per share to be paid on 30 April 2010 to shareholders on the register on 16 April 2010. The ex-dividend date will be 14 April 2010.

It is the Directors' intention that the Company will continue to pay dividends monthly.

2.         Group Reconstruction

On 5 June 2009, a prospectus and an offer document were sent to shareholders containing details of proposals to introduce a new listed holding company, now called F&C Commercial Property Trust Limited (previously called New FCPT Limited), which was incorporated for the purpose of making an offer to acquire all of the previous listed holding company's (now called FCPT Holdings Limited) issued shares. The offer became unconditional on 3 July 2009 and, on 7 July 2009, the shares of the new holding company were admitted to listing on the Official List of the UKLA and to trading on the main market of the London Stock Exchange.

Also on 7 July 2009, the listing of the shares of the old holding company on the Official Lists of the UKLA and the Channel Islands Stock Exchange, and the trading in its shares on the London Stock Exchange and the Channel Islands Stock Exchange, were suspended. The listings were cancelled on 4 August 2009.

Under the offer, shareholders were offered one new share in the new listed holding company for each share in the old listed company. The effect of the transaction was that, during the period under review, the company now called F&C Commercial Property Trust Limited became the new holding company of the Group with the same Board of Directors. On 9 November 2009 the Board announced that, pursuant to the statutory compulsory acquisition procedure under Guernsey law, F&C Commercial Property Trust Limited had acquired 100 per cent of the issued share capital of FCPT

Holdings Limited, and that the offer was therefore closed and was no longer capable of acceptance.

Following the completion of the group reconstruction, the shareholders in the new legal parent company were substantially the same as those of the previous listed holdings company. The consolidated financial statements, of which this statement of results is an extract, have therefore been prepared under IFRS 3 using the 'reverse acquisition' basis of accounting. Under this basis, the consolidated financial statements have been prepared under the name of F&C Commercial Property Trust Limited but represent a continuation of the financial statements of the legal subsidiary, now called FCPT Holdings Limited.

The comparative information presented in the financial statements, including the equity structure at the end of the comparative period, is that of the legal subsidiary, FCPT Holdings Limited, as at 31 December 2008. At 31 December 2009, the equity structure reflects that of the new legal parent, F&C Commercial Property Trust Limited. All other reserves recognised in the consolidated financial statements reflect a continuation of the reserves of the legal subsidiary, FCPT Holdings Limited, immediately before the reconstruction. The difference arising between the nominal value of the total issued share capital (including the capital redemption reserve) immediately before and after the reconstruction has been recognised through the reverse acquisition reserve.

Following the reconstruction the Company owns 100 per cent of the issued ordinary share capital of FCPT Holdings Limited, a company incorporated in Guernsey which was, until the group reconstruction, the top company in the group structure. The principal activity of FCPT Holdings Limited is now to act as a holding company and owns 100 per cent of the ordinary share capital of F&C Commercial Property Holdings Limited.

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

The Group also consolidates the results of F&C Commercial Property Finance Limited, a special purpose vehicle incorporated in Guernsey to issue the interest-bearing bonds.

3.         Financial Instruments

The Company's investment objective is to provide ordinary shareholders with an attractive level of income together with the potential for capital and income 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 comprise interest bearing bonds, cash, and receivables and payables that arise directly from its operations. The Group does not have exposure to any derivative instruments.

The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as all assets and liabilities of the Group are maintained in pounds sterling.

The Board reviews and agrees policies for managing the Group's risk exposure. These policies are summarised below and have remained unchanged for the year under review.

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.

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. 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.

All of the Group's cash is placed with financial institutions with a long term credit rating of AA or better. Bankruptcy or insolvency of such financial institutions 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, cash holdings would be moved to another bank.

During the year, due to the quantum of cash balances held, counterparty risk was spread by placing cash across a number of different financial institutions.

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 in which the Group invests are not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate quickly its investments in these properties at an amount close to their fair value in order to meet its liquidity requirements.

The Group's liquidity risk is managed on an ongoing basis by the Managers and monitored on a quarterly basis by the Board. In order to mitigate liquidity risk the Group aims to have sufficient cash balances (including the expected proceeds of any property sales) to meet its obligations for a period of at least twelve months.

The Group's investments include investments in indirect property funds which are not traded in an organised public market and which generally may be illiquid. As a result, similar to the directly held properties, the Group may not be able to liquidate quickly some of its investments in those instruments in order to meet its liquidity requirements.

Interest rate risk

Some of the Group's financial instruments are interest bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Group is exposed to interest rate risk due to fluctuations in the prevailing market rate.

The Group's exposure to interest rate risk relates primarily to the Group's long-term debt obligations. Interest rate risk on long-term debt obligations is managed by fixing the interest rate on such borrowings. Long term debt obligations and the interest rate risk they confer to the Group is considered by the Board on a quarterly basis. Long term debt obligations consist of £230 million Secured Bonds due 2017 on which the rate has been fixed at 5.23 per cent until the expected maturity date of 30 June 2015. If the bonds are not redeemed at this date they will carry interest at 0.6 per cent over LIBOR until the final maturity date of 30 June 2017.

When the Group retains cash balances, they are ordinarily held on interest bearing deposit accounts. The benchmark which determines the interest income received on interest bearing cash balances is the bank base rate which was 0.5 per cent as at 31 December 2009 (2008: 2.0 per cent). The Company's policy is to hold cash in variable rate or short term fixed rate bank accounts and not usually in fixed rate securities with a term greater than three months.

Market price risk

The Group's strategy for the management of market price risk is driven by the investment policy. The management of market price risk is part of the investment management process and is typical of commercial property investment. The portfolio is managed with an awareness of the effects of adverse valuation movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in 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. Such risk is minimised through the appointment of external property valuers.

The Group also holds investments in indirect property funds which in turn invest directly in commercial property. The underlying assets in such funds are valued by external property valuers appointed by the investment managers of the indirect property funds. In addition to the price risk attaching to the underlying assets, such funds also carry the risk that the investment cannot be disposed of at its net asset value due to a lack of liquidity. In order to address the fact that the likely realisable value of the indirect property holdings at the balance sheet date may not be equal to each fund's underlying net asset value, the Board has appointed an indirect valuer to obtain estimated market values for these holdings. The fair value of these investments is deemed to be the Directors' valuation, which reflects these independently produced market values.

4.         There were 680,537,003 Ordinary Shares in issue at 31 December 2009, excluding shares held in Treasury (2008: 680,537,003).

As detailed in note 2 a group reconstruction was conducted during the year. As a result of this reconstruction, one new Ordinary Share in the new legal parent, F&C Commercial Property Trust Limited, was issued for each one Ordinary Share in issue in FCPT Holdings Limited. F&C Commercial Property Trust Limited therefore issued 680,537,003 new Ordinary shares during the year. The comparative figure shown above regarding the equity structure at the end of the comparative period is that of the legal subsidiary, FCPT Holdings Limited. Apart from the shares issued as part of the reconstruction, the Company did not issue or repurchase any Ordinary Shares during the year.

At 31 December 2009, the Company did not hold any Ordinary Shares in treasury. At 31 December 2008, the legal subsidiary held 72,545,013 shares in treasury. The shares held in treasury did not form part of the group reconstruction and were therefore not transferred to the new legal parent.

5.         The basic and diluted earnings/(losses) per Ordinary Share are based on the profit for the year of £46,404,000 (2008: loss of £284,119,000) and on 680,537,003 (2008: 713,355,033) Ordinary Shares, being the weighted average number of shares in issue during the year.

6.         The Group results consolidate those of FCPT Holdings Limited, a wholly owned subsidiary which acts as a holding company for F&C Commercial Property Holdings Limited.

The Group results also consolidate those of F&C Commercial Property Holdings Limited, a wholly owned subsidiary of FCPT Holdings Limited, which invests in properties, and F&C Commercial Property Finance Limited, a special purpose vehicle incorporated to issue the interest bearing bonds.

7.         These are not full statutory accounts. The full audited accounts for the year to 31 December 2009 will be sent to shareholders and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey, the registered office of the Company and from the Company's website www.fccpt.co.uk.

All enquiries to:

The Company Secretary

Northern Trust International Fund Administration (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

Guernsey GY1 3QL

Tel:      [phone]

Fax:     [phone]

Richard Kirby

F&C REIT Asset Management LLP

Tel:      [phone]

 

END

 

 

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