Interim Management Statement

RNS Number : 5050W

F&C Commercial Property Trust Ld

19 November 2010

 



F&C Commercial Property Trust Limited

Interim Management Statement

For the Period from 1 July 2010 to 19 November 2010

Investment Objective

The investment objective of the Company 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.

Performance Summary

Total Return	For the three month period ended 30 September 2010
Net asset value per share*	2.3%
Ordinary Share price	2.6%
Investment Property Databank   All Quarterly and Monthly   Valued Funds	2.3%
FTSE All-Share Index	13.6%

Capital Values	As at  30 September 2010	As at 30 June 2010	% Change
Net asset value per share*	94.3p	93.6p	+0.7
Ordinary Share price	92.3p	91.4p	+1.0
Discount to net asset value*	2.1%	2.4%
Gearing*#	30.4%	30.5%
Net gearing*$	20.0%	19.0%

Sources: F&C Investment Business Limited, Investment Property Databank ('IPD'), Datastream.

*  Calculated under International Financial Reporting Standards ('IFRS'). Net asset value total return is calculated assuming dividends are re-invested

#  Gearing: Borrowings/total assets (less current liabilities)

$  Net gearing: (Borrowings - cash)/total assets (less current liabilities and cash)

Review of the Third Quarter

Commercial property delivered a total return of 2.3% in the third quarter of 2010, as recorded by the IPD All Quarterly and Monthly Valued Funds. This represented a slower pace of advance than the 3.4% recorded in the previous quarter. Both offices and retail delivered total returns of 2.4% during the period with industrial property lagging at 1.7%. Central London offices outperformed and total returns in the South East were higher than in the rest of the UK in all three sectors of the market.

The improvement in the market since the middle of 2009 has been largely investment-led and focused on the prime end of the market, with competition for a limited amount of prime stock hardening capitalisation yields. During the quarter there was a moderation in yield shift, with IPD initial yields edging in by only 10bps to 6.2%. Transactions totalled £8.0 billion during the quarter compared with £8.7 billion in the previous three months. Institutions and overseas investors were the main net buyers of property with occupiers and banks both net sellers. Some distressed property is coming onto the market but the unwinding of the banks' exposure to bad loans and reduction in their exposure to property still has some way to go. There was some further easing in credit conditions during the quarter but finance remains difficult to obtain, and expensive.

The occupational market has shown signs of stability with rental growth of 0.1% during the period according to IPD, following nine quarters of decline. Rental growth was strongest in the Central London office market but during the quarter rental growth broadened to other parts of the market, albeit at very modest rates. Market void rates, also according to IPD, fell to 9.3% of income from 10.1% in the previous quarter but demand remains subdued, cost-sensitive and lease-related.

Investor sentiment turned more cautious over the summer as the government implemented its austerity package and the market awaited the Comprehensive Spending Review announcement. With economic growth expected to be subdued and the scope for further inward yield shift limited, given the low gilt yield, a period of more modest performance is in prospect for next year with total returns being driven by income. Over the medium-term, as economic growth leads to spare capacity being absorbed and occupier demand recovers, rental growth is expected to become more of a driver of performance, contributing to total returns in high single figures.

The Company's portfolio recorded a total return of 2.7% over the period compared with the market return of 2.3% referred to above. Capital growth over the quarter was 1.2% compared with market growth of 0.8%. The performance of the portfolio benefitted from its overweight positioning to Central London and the South East.

There were no acquisitions or disposals during the quarter. However, the Company is committed to two significant developments. At 24-27 Great Pulteney Street, London W1, demolition has been completed and the construction of approximately 34,000 sq ft of offices has commenced. The project remains both on budget and programme with practical completion scheduled for October 2011. At Revolution Park, Chorley, the Company's most recent acquisition, the installation of the automated racking system has commenced and is also on programme and budget. This property is currently subject to a rent-free period expiring in June 2011, whereupon the rent will commence at £2.25 million per annum.

At Newbury Retail Park the letting of Unit 12 has completed to M&S Simply Food at a commencing rent of £300,000 pa. Two rent reviews were also settled on the Park, increasing the passing rent on these units by £91,000 pa, or 24%.

During the period the Company completed five lettings, securing a rent in aggregate of £405,000 pa subject to rent-free periods. Income protection remains a key focus and void rates remain low at 2.5% (excluding properties held or in the course of development) which is significantly below the IPD rate of 9.3% as reported above. Rent arrears and overdue debt continue to be managed well and, at 1.5% of gross annualised rent, remain low for a portfolio of this size.

Top Ten Holdings

Property	Sector	30/09/2010 Percentage of portfolio
London W1, St Christopher's Place Estate	Retail	16.1
Newbury, Newbury Retail Park	Retail Warehouse	8.6
London SW1, Cassini House, St James's Street	Offices	7.4
Solihull, Sears Retail Park	Retail Warehouse	6.8
London SW19, Wimbledon Broadway	Retail	6.1
London SW1, 84 Eccleston Square	Offices	5.2
Uxbridge, 3 The Square, Stockley Park	Offices	4.5
Rochdale, Dane Street	Retail Warehouse	4.3
London SW1, Charles House, 5-11 Regent Street	Offices	4.1
Glasgow, Alhambra House, Wellington Street	Offices	3.3
Total		66.4

Geographical Analysis

Location	30/09/2010 Percentage of portfolio		30/06/2010 Percentage of portfolio
London - West End	40.2		39.7
South East	27.2		27.4
Midlands	13.9		16.3
North West	9.3		7.0
Scotland	6.1		6.3
Eastern	2.2		2.2
Rest of London	1.0		1.0
Other	0.1		0.1
Total	100.0		100.0

Sector Analysis

Sector	30/09/2010 Percentage of portfolio		30/06/2010 Percentage of portfolio
Offices	41.0		41.3
Retail	26.0		25.8
Retail Warehouses	19.6		19.5
Industrial	13.4		13.4
Total	100.0		100.0

Dividends

Interim dividends, in respect of the year ending 31 December 2010, each of 0.5 pence per share, were paid on 30 July, 10 September and 30 September 2010.

The Company's policy is to pay dividends monthly. However, as a result of the proposals referred to below, a dividend was not paid in August. Two dividends were instead paid in September. It is the Board's intention that the Company will continue to pay dividends monthly.

Proposals Relating to the Company  

On 23 April 2010 the Board announced that it had received a proposal which would have resulted in the merger of the Company with UK Commercial Property Trust Limited. The proposals were conditional upon the support of a majority of the Company's independent shareholders. However, at an Extraordinary General Meeting held on 9 August 2010 the majority of the Company's independent shareholders voted against the proposals and therefore the merger did not take effect.

Management Arrangements

On 16 September 2010 the Board announced that, following the rejection by independent shareholders of the proposed merger with UK Commercial Property Trust Limited, it had agreed new terms on which F&C REIT Property Asset Management plc ('the Managers') would continue to manage the Company's property portfolio. 

As previously announced, the key elements of the revised fee terms for portfolio management are as follows:

·      Annual management fees, including performance fees, will be capped at 0.60% of average total assets, reduced from the previous cap of 1.0%.

·      The base management fee will be 0.50% per annum of net assets (reduced from the previous base fee of 0.60% per annum of the gross value of invested assets) and reduced to 0.25% per annum on cash net of gearing in excess of 5% of net assets.

·      The annual performance fee will be subject to the above cap but will be otherwise unchanged, save that the performance fee will be rebased as at 1 October 2010. The Managers have agreed to waive the carry forward of any excess out-performance as at 30 September 2010.

The amendments to the management arrangements took effect from 1 October 2010.

The Board is not aware of any other significant events or transactions which have occurred since 30 September 2010 and the date of publication of this statement which would have a material impact on the financial position of the Company.

Quarterly and Key Information

This statement and further information regarding the Company, including movements in the share price since the end of the period and the Group's most recent annual and interim reports, can be found at the Company's website www.fccpt.co.uk.

Enquiries:

Richard Kirby

F&C REIT Property Asset Management plc

Tel: [phone]

 

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