Balanced Commercial Property Trust Regulatory News (BCPT)

11 Sep 2007 07:01

F&C Commercial Property Trust Ltd11 September 2007 F&C COMMERCIAL PROPERTY TRUST LIMITED RIS Embargoed until 7.00 am on 11 September 2007 RECOMMENDED PROPOSALS TO APPROVE THE CONTINUATION OF THE COMPANY Introduction and background F&C Commercial Property Trust Limited (the "Company") is a closed-ended Guernseyregistered property investment company which is listed on the Official List ofthe UK Listing Authority. It was launched on 18 March 2005. The Company's investment objective is to provide Shareholders with an attractivelevel of income together with the potential for capital and income growth frominvesting in a diversified UK commercial property portfolio. Prior to the launch of the Company, the Directors issued a prospectus whichstated that, if the market price of a Share was more than five per cent. belowthe published net asset value of a Share for a continuous period of 90 dealingdays or more, the Directors would convene an extraordinary general meeting toconsider an ordinary resolution for the continuation of the Company. On 23August 2007 the Directors announced that the Shares had traded at more than afive per cent. discount to their NAV for 90 dealing days and that the Directorswould convene an extraordinary general meeting to consider a continuationresolution. The Company has today published a circular (the "Circular") convening anExtraordinary General Meeting to be held at 12 noon on 28 September 2007 atTrafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL to consider anordinary resolution to approve the continuation of the Company. The Circular andthis announcement also explain why the Directors believe that the continuationof the Company is in the best interests of Shareholders as a whole and recommendthat Shareholders vote in favour of the Resolution at the EGM. On 23 July 2007, the Board announced that it was proposing to issue Shares inconnection with the proposed scheme of liquidation and reconstruction of The UKBalanced Property Trust Limited. The Circular and this announcement also set outdetails of the proposed issue of Shares to the shareholders in UKBPT. Performance of the Company Over the period from the launch of the Company to 30 June 2007 (being the mostrecent quarter end) the NAV total return per Share (with dividends re-invested)was 64.7 per cent. compared with the total return on the FTSE All-Share Indexover this period of 47.9 per cent. For this same period the Property Portfolio generated a total return of 56.4 percent. compared with a total return from the IPD Monthly Index of 42.7 per cent. The Share price total return (with dividends re-invested) over the period fromlaunch to 7 September 2007 was 39.7 per cent. compared with a total return of40.1 per cent. on the FTSE All-Share Index. The weighted average share pricetotal return (with dividends re-invested) for the Sector over this period was27.5 per cent. For the period from launch to 7 September 2007 the Shares have traded at anaverage premium of 3.8 per cent. to their NAV (adjusted for any quarterlydividends for which the share price has gone ex-dividend over this period). Atthe close of business on 7 September 2007 the Shares were trading at a discountof 13.5 per cent. compared with the Sector average of 15.5 per cent. (adjustedfor any dividends for which the relevant share price had gone ex-dividend). As at 30 June 2007 the Company had total assets (less current liabilities) of£1.3 billion. Investment outlook From 2003 to 2006 the UK commercial property market experienced three years ofexceptional total returns but there is now evidence of a slowing in certainsectors of the market. Yield compression, which has largely driven performanceof the market during this period, now appears to have stabilised and in certainsectors capitalisation rates have begun to fall. This moderation in returns wasexpected as the all-property initial yield of 4.56 per cent. from the IPDMonthly Index as at 30 June 2007 was below the five-year swap rate and risk freeyield on gilts. The slowdown is evident from a more moderate return of 4.4 percent. from the IPD Monthly Index for the six months to 30 June 2007 comparedwith the return of 18.1 per cent. achieved over the whole of 2006. The market is, however, still experiencing strong investment demand for primeproperties but demand is weakening for more secondary properties. In particular,overseas buyers continue to be very active in the market, especially in CentralLondon. The Board believes that the Property Portfolio comprises primeproperties in the main. The Manager's mid-year in-house forecast for the UK commercial property marketis for total returns of between 7 and 8 per cent. for 2007. However, the riskfor returns is expected to be on the downside. The Directors expect that totalreturns in the medium term are likely to be income driven but that capitalgrowth can still be enhanced by rental growth, superior stock selection andcontinued asset management. The Board believes that the Property Portfolio is well placed to outperform thewider UK commercial property market over the medium term and there are a numberof asset management opportunities to improve capital values and income returnsin the Property Portfolio. Recent activity in the Property Portfolio The ungeared total return of the Property Portfolio for the six months to 30June 2007 was 6.1 per cent. which compares very favourably with the IPD MonthlyIndex return of 4.4 per cent. referred to above. Set out below is a summary ofthe recent activity in the Property Portfolio over the first six months of 2007. Retail The total return from the retail properties in the Property Portfolio during thesix-month period to 30 June 2007 was 4.7 per cent., which compares with the IPDMonthly Index all-retail total return of 2.9 per cent. Investment demand forprime shopping centres and Open A1 consented retail warehouse parks remainsstrong. However the investment market for high street shops is weakening anddemand for retail warehouses with bulky goods or restricted planning consents,especially the big DIY units, has weakened. This is evidenced by retailers'concerns over retail sales levels and the changing of formats seen in the DIYsector. This is an important year for the retail properties in the Property Portfolio,with significant rent reviews due at Newbury Retail Park, Dane Street, Rochdaleand Wimbledon Broadway, London SW19. In a more challenging environment thesenegotiations are taking considerably longer to settle, often by referral to athird party surveyor. However, the Company has received a favourable rent reviewdetermination on a unit at Sears Retail Park, Solihull, reflecting an uplift of36 per cent. over the previously contracted rent. St Christopher's Place Estate, London W1 continues to let successfully and theCompany currently has a number of quality retail lettings in solicitors' hands.This Estate also benefits from a diversified income stream with its exposure torestaurants, offices and residential units. The Estate's office elementcontinues to benefit from the significant rental growth being experienced inCentral London, with £50 per square foot now firmly established for the Estate.The Company continues to refurbish and upgrade the Estate's office content on arolling programme. Offices The total return from offices within the Property Portfolio during the six-monthperiod to 30 June 2007 was 8.0 per cent., which compares with the IPD MonthlyIndex all-office total return of 6.9 per cent. The office market continues to bethe best performing sector, being driven by Central London which is stillexperiencing strong rental growth and investor demand for properties. TheCompany has a significant exposure to Central London and is well placed tocapture rental growth. It is shortly to commence refurbishment works to threefloors of offices at Charles House, 5-11 Regent Street, London SW1 and a furtherthree floors at 7 Birchin Lane, London EC3. A resolution to grant planning consent, subject to finalising a section 106agreement, has been given for a proposed redevelopment of 24/27 Great PulteneyStreet, London W1. This is a significant opportunity for the Company to developapproximately 34,000 sq. ft. of high quality office space in Soho and to letinto a strong leasing cycle. Elsewhere in Central London, Cassini House, St James's Street, London SW1 hasperformed strongly with signed heads of terms for letting of the ground floor at£75 per square foot. The first floor in the property has recently been sub-letat £92.50 per square foot, which provides further evidence of the strength ofoccupier demand in Central London. Industrials The total return from industrial properties within the Property Portfolio duringthe six-month period to 30 June 2007 was 5.3 per cent., which compares with theIPD Monthly Index all-industrial total return of 4.2 per cent. There is someconcern that the abolition of empty rate relief from next April is not beingfactored into the current pricing of investments, especially for secondary andolder stock. A masterplan for the industrial site at The Cowdray Centre,Colchester continues to be developed with the local authority and the Companyintends to submit a planning application for redevelopment of the site. Portfolio Management 2007 is an important year for the Company, with a significant portion of itsincome subject to rent review, lease renewal or break options. The Manager isfocused on actively managing these processes. The Company's voids were measuredat 1.8 per cent. of rental value as at 30 June 2007 which is low compared withthe IPD average of 7.0 per cent., reflecting the size and nature of the PropertyPortfolio. Sales Since the beginning of the year the Company has been reducing its exposure tothe Industrial Property Investment Fund which, as at 31 December 2006, was itslargest asset. The Company has realised £45.8 million in three separatetransactions since the beginning of the year, at a premium to net asset value.The Company also realised £4.9 million from the disposal of units in The MallLP. Gearing As a result of the rise in the valuation of the Property Portfolio since theCompany's launch, the level of gearing as at 30 June 2007 was 17.6 per cent. ofthe Company's gross assets, compared with gearing of 24.4 per cent. at the dateof launch. The Company's borrowings solely comprise the Bonds which have been assigned an'Aaa' rating by Moody's Investors Service. The Bonds carry interest at a fixedrate of 5.23 per cent. per annum. Under the terms of the Bonds the Company would be required to pay an amount inexcess of their principal amount of £230 million on their early repayment basedon a ''Spens'' formula. It is estimated that, as at 7 September 2007, thecurrent cost for full prepayment of the Bonds would amount to £241.9 million(i.e. an excess of £11.9 million). The Directors intend to keep the level of the Company's borrowings under review.The Directors are currently of the view that retaining the current borrowings ofthe Company will enhance the returns for Shareholders over the long term. Discount and share buy backs For the period from launch to 7 September 2007, the Shares have traded at anaverage premium of 3.8 per cent. to their NAV (adjusted for any quarterlydividends for which the share price has gone ex-dividend over this period).However, as a reflection of the more challenging environment for property as anasset class and increases in interest rates, and in common with the Sector andthe wider quoted property sector over recent months, the Company's shares havetraded at a discount to NAV since January 2007. At close of business on 7September 2007, the discount was 13.5 per cent. (adjusted for the first interimdividend which was paid on 27 July 2007, after the last quarterly NAVvaluation). Since May 2007 the Company has bought back seven million Shares, equivalent to0.95 per cent. of the issued share capital prior to the share buy backs. TheShares were bought back at an average discount of 9.3 per cent. to the publishedNAV (adjusted for any quarterly dividends which had gone ex-dividend) andprovided an enhancement of 0.14p per Share to the NAV. The Shares were boughtback to be held in treasury, for subsequent re-issue at a premium to NAV. Incarrying out these share buy backs the Board gave careful consideration to theCompany's cashflow and Bond covenant constraints as well as amounts committed tofuture development opportunities. The Company's original prospectus, published in 2005, contains a statement thatthe Directors intend to use the share buy back authority to purchase Shares(subject to the income and cash flow requirements of the Company) if the shareprice is more than five per cent. below the published NAV for a continuousperiod of 20 dealing days or more. To ensure a fair comparison, the Directorsbelieve that such discount should be calculated by adjusting the published NAVfor any quarterly dividends for which the share price has gone ex-dividend. It is the Board's intention that it will continue to consider share buy backswhile the discount is in excess of five per cent. In addition to taking intoaccount the income and cash flow requirements of the Company, the Directors willseek to ensure that any share buy backs are undertaken at prices which are inthe best interests of all Shareholders. Majority Shareholder voting intention Friends Provident plc's life insurance subsidiaries are entitled to exercise thevotes attached to 386,300,000 shares (being 53.1 per cent. of the issued sharecapital) and have indicated that they currently intend to vote in favour of theResolution. Shareholders should note that, as stated in the Company's original prospectuspublished in 2005, in the event that a person or persons, other than FriendsProvident plc and its associates, obtains or arranges to obtain more than 50 percent. of the issued Shares within three years of the launch of the Company inMarch 2005, the Company will be liable to pay additional stamp duty land tax of£21 million. Issue of Shares On 23 July 2007 the Board announced that it was proposing to issue Shares inconnection with the proposed scheme of liquidation and reconstruction (the''Scheme'') of The UK Balanced Property Trust Limited. Under the Scheme, it is intended that shareholders in UKBPT will have theopportunity to roll-over their investment into the Company. The Company willalso be the default option for shareholders in UKBPT who make no election inrespect of the Scheme. Shares will be issued to shareholders in UKBPT at anissue price equal to the NAV as at 30 September 2007, adjusted for any accrueddividends in the Company to which the rollover shareholders may or may not beentitled. It is expected that the Scheme will become effective in mid-October2007. It is intended that the dividend for the quarter ended 30 September 2007 will goex-dividend prior to the issue of Shares in connection with the Scheme but willbe paid to existing Shareholders in January 2008 in accordance with the usualtimetable for the payment of dividends. Accordingly, Shareholders of UKBPT willnot be entitled to the dividend in respect of the quarter to 30 September 2007and the first dividend that they will be entitled to will be for the quarterended 31 December 2007. The Manager has agreed to make a contribution to the costs to the Company of theroll-over which will cover the costs to the Company of participating in theScheme. As such, the Company's participation in the Scheme will not be dilutiveto the NAV per Share. It is the intention that the number of Shares to be issuedwill be limited to 44.5 million. Subsidiaries of Friends Provident plc willretain over 50 per cent. of the issued Shares in the Company following theScheme becoming effective. The Directors believe that the issue of Shares in connection with the Scheme isin the best interests of the Shareholders of the Company. The Directors believethat the proceeds of the issue of Shares will provide some financial flexibilityto the Board in considering opportunities to enhance returns for Shareholdersand that Shareholders will not suffer any costs in connection with the issue.Shareholders should note that, given the discount at which the Shares currentlytrade, the demand from UKBPT shareholders for Shares may be limited given theopportunity to elect for cash in the Scheme. Donald Adamson, a Director of the Company, is married to Nicola Adamson, who isa director of UKBPT. Accordingly, Mr Adamson has taken no part in anydiscussions or resolutions in relation to the proposed arrangements with UKBPT. The Directors of the Company cannot, and do not, offer any advice to UKBPTshareholders as to whether they should elect to receive Shares in the Company.Such shareholders should consult their own stockbroker, bank manager, solicitor,accountant or other independent professional adviser duly authorised under theFinancial Services and Markets Act 2000. Attractions of the Company and the Shares The Directors believe that there are a number of advantages for Shareholders invoting for a continuation of the Company: - The Company has performed strongly since its launch in 2005. - The Property Portfolio is well positioned to outperform the wider UKcommercial property market over the medium term. - There are a number of asset management opportunities in the Property Portfoliothat should assist the performance of the Company over the next two to threeyears. - The Company has consistently been one of the most highly rated companies inthe Sector. - The Company was the first company in the Sector to undertake share buy backs. - The Company has the largest free float of shares in the Sector. Extraordinary General Meeting The Extraordinary General Meeting has been convened for 12 noon on Friday, 28September 2007, to be held at Trafalgar Court, Les Banques, St. Peter Port,Guernsey GY1 3QL. All Shareholders are entitled to attend and vote on theResolution to be proposed at the EGM, which will be proposed as an ordinaryresolution. If the Resolution is not passed, the Directors will convene a furtherextraordinary general meeting of the Company to be held within six months of thedate of the EGM to consider the winding up of the Company or a reconstruction ofthe Company, which will offer all Shareholders the opportunity to realise theirinvestment. If the Resolution is passed, the Directors would not intend to convene anotherextraordinary general meeting to consider the continuation of the Company unlessthe Shares trade at a discount of over 5 per cent., calculated as describedabove, for 90 dealing days or more following the first anniversary of the EGM. Recommendation The Board, which has been advised by Dickson Minto W.S., considers that thecontinuation of the Company is in the best interests of the Shareholders as awhole. Accordingly, the Board unanimously recommends all Shareholders to vote infavour of the Resolution to be proposed at the Extraordinary General Meeting. The Directors, who in aggregate have an interest in 110,466 Shares (being 0.015per cent. of the issued share capital), intend to vote their entire beneficialholdings in favour of the Resolution. Definitions ''Board''or ''Directors'' the board of directors of the Company ''Bonds'' the £230 million fixed rate secured bonds due 2017 issued by a specialpurpose vehicle, F&C Commercial Property Finance Limited, which was establishedto issue the interest bearing bonds ''Company'' F&C Commercial Property Trust Limited ''EGM''or ''Extraordinary General Meeting'' the extraordinary general meeting ofthe Company convened for 12 noon on 28 September 2007 (or any adjournmentthereof) notice of which is set out in the circular published by the Company on4 September 2007 ''IFRS'' International Financial Reporting Standards as adopted in the EuropeanUnion ''IPD'' Investment Property Databank Limited ''IPD Monthly Index'' the IPD UK Monthly Index prepared by IPD ''Manager'' F&C Investment Business Limited ''NAV'' the net asset value of a Share calculated under IFRS ''Property Portfolio'' the direct and indirect property assets of the Company ''Resolution'' the resolution to approve the continuation of the Company set outin the notice of the EGM in the circular published by the Company on 4 September2007 ''Sector'' the sector comprising offshore incorporated, main market Londonlisted property investment companies invested principally in mainstream UKcommercial property, being the Company, ING UK Real Estate Income Trust Limited,Invista Foundation Property Trust Limited, ISIS Property Trust Limited, ISISProperty Trust 2 Limited, Standard Life Investments Property Income TrustLimited, Teesland Advantage Property Income Trust Limited and UK CommercialProperty Trust Limited ''Shareholders'' the holders of Shares ''Shares'' ordinary shares of 90p each in the capital of the Company ''UKBPT'' The UK Balanced Property Trust Limited All enquiries: Douglas Armstrong, Dickson Minto WS 0207 628 4455 Nigel Russell/Graeme Caton/Graham Reaves, G&N Collective Funds Services Limited 0131 226 4411 The Company Secretary, Northern Trust International Fund Administration Services(Guernsey) Limited 01481 745338 This information is provided by RNS The company news service from the London Stock Exchange