Balanced Commercial Property Trust Regulatory News (BCPT)

To: RNS

Date: 10 April 2015

From: F&C Commercial Property Trust Limited

Highlights

· Net asset value total return of 22.1 per cent

· Share price total return of 18.8 per cent

· Portfolio total return of 20.3 per cent, compared with a total return of 17.9 per cent from the IPD benchmark

· Maintained dividend of 6.0p per Ordinary Share, providing a yield of 4.4 per cent based on the year-end share price

· £49.5 million raised through the issue of new Ordinary Shares at a premium to NAV

· £260 million loan refinancing with significantly reduced interest rate, fixed for ten years

· Next continuation vote in 2024 approved by Shareholders

Chairman's Statement

Introduction

2014 was a significant year for the Company as it approached the tenth anniversary of its launch in March 2005. Shareholders approved the extension of the Company's life for at least another ten years and the £230 million bonds, which had been due to mature in June 2015, were refinanced with a new ten year loan at a significantly lower interest rate. Furthermore, the Company completed its largest property acquisition since launch and delivered another year of outperformance, building further on its strong long term record.

Performance for the Year

The net asset value ('NAV') total return for the year was 22.1 per cent and the share price total return was 18.8 per cent. The total return from the portfolio was 20.3 per cent, which compares favourably with a total return of 17.9 per cent from the Investment Property Databank ('IPD') Quarterly Universe.

The share price at the year-end was 136.4p, representing a premium of 11.7 per cent to the NAV per share of 122.1p.

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 2013 105.3

Unrealised increase in valuation of direct property portfolio 19.8

Costs of refinance expensed during the year (0.8)

Other net revenue 3.8

Dividends paid (6.0)

---------

NAV per share as at 31 December 2014 122.1

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The UK commercial property sector performed well during the year. Performance was supported by the strength of the UK economy, and was widespread across sectors and regions. Demand from overseas investors for the asset class continued to be substantial and was the main reason for the high returns during the year. This led to further yield compression across the sector, with the yield gap between prime and secondary properties narrowing. There was an improvement in the occupational market during the year as the economic recovery progressed but this part of the market remains polarised, with demand still weak for much of the secondary market.

The Company completed, in March and April, the purchase of four office blocks in Prime Four Business Park, Kingswells, Aberdeen, for a combined purchase price of £95.4 million. These properties have already made a notable contribution to the portfolio, recording significant uplifts in valuation compared with their purchase cost. The Company is also benefiting from the attractive net initial yield of 6.8 per cent, the full annualised effect of which will be seen through next year's Income Statement.

During the year, the Company also purchased a new production and distribution unit at The Hive, Liverpool International Business Park, Speke, Liverpool for £11.9 million. It also acquired two units at the existing site at Sears Retail Park, Solihull, and a small property within St. Christopher's Place Estate, London W1. The combined cost of these two smaller acquisitions was £10.8 million, but as additions to existing sites owned by the Company were considered to be good strategic acquisitions, creating opportunities to add value to the portfolio.

As well as seeking opportunities to acquire new properties, the Managers have continued a strategy of investing in the existing portfolio which, given the current valuation of the property market, is viewed as a cost effective method of adding value for shareholders. Such expenditure amounted to £7.2 million in 2014 and has exceeded £13 million over a two year period. The main capital expenditure projects undertaken during the year included the refurbishment of vacant office floors at 82 King Street, Manchester, the redevelopment of a 30,000 sq. ft. retail warehouse unit at Sears Retail Park, Solihull, which was pre-let to Next at Home, and the refurbishment of office floors at Alhambra House, Glasgow, pre-let to JP Morgan. These, and other initiatives undertaken during the year, are described in more detail in the Managers' Review.

Continuation Vote and Discount Control

At a General Meeting of the Company held on 7 November 2014, shareholders approved a change to the Articles of Incorporation ('the Articles') relating to the continuation of the Company. Prior to the General Meeting, the Articles required the Board to put a resolution to shareholders at the Annual General Meeting in 2015, and five yearly thereafter, approving the continuation of the Company. In the light of the refinancing described below, the Board proposed a special resolution to amend the Articles such that the next continuation vote will not be required until 2024, when the L&G loan (see below) is due to mature.

At the same time as extending the life of the Company, the Board amended the Company's discount control policy to reflect market conditions better. The Board believes that the new arrangements are more appropriate for a listed property investment company and are in line with the wider listed Real Estate Investment Trust ('REIT') and property company sector. Further details of both the continuation vote and the new discount control policy are included in the Annual Report.

Borrowings and Loan Refinancing

As reported at the interim stage, the Board had been considering various options for the refinancing of the Company's £230 million secured bonds and £30 million bank loan that were both due to mature on 30 June 2015. The Board was mindful of the risk, should the refinancing of these loans, and the bonds in particular, be left until their maturity date and, in light of the availability of longer term borrowings at attractive rates of interest, decided that it was in the Company's interest for the loans to be refinanced ahead of their maturity.

Accordingly, and as previously announced, the Company entered into a £260 million ten year loan agreement with Legal & General Pensions Limited ('L&G') in November. The loan was drawn down in full on 31 December 2014 and the interest rate payable over the term of the loan has been fixed at 3.32 per cent per annum. This compares with an interest rate of 5.23 per cent per annum on the £230 million bonds.

The bonds were repaid in their entirety on 2 January 2015, although the accounting treatment followed in the financial statements effectively presents the Balance Sheet as if the bonds were repaid on 31 December 2014. This Board considers this to be a more representative picture of the Company's long-term borrowings and risk profile.

Under the terms of the bonds, the Company was required to pay an early repayment premium, based on UK Gilt yields on the date of repayment. The amount paid was £5.6 million and this has been fully recognised through finance costs for the current year, although part of this cost will be recouped in the next six months through the lower rate of interest payable on the new borrowings than would otherwise have been payable on the bonds. The £30 million bank loan was repaid on 31 December 2014 and the interest rate swap relating to this loan was broken at minimal cost.

Following the refinancing, the Group's borrowings comprise the £260 million L&G loan and a £50 million term loan facility provided by Barclays Bank plc. This amounts to £310 million and represents 24.1 per cent of the total assets (less current liabilities) of the Group as at 31 December 2014. Gearing net of cash at the year-end was 18.3 per cent. The weighted average interest rate on the Group's borrowings is 3.57 per cent.

Review of Core Principles

Following shareholder approval of the extension of the Company's life, the Board decided that it was appropriate to review the Company's core principles and objectives. We understand that shareholders view the Company as a well-balanced, conservatively-managed property investment company, with a quality non-sector-specialist portfolio, attractive level of dividend and low gearing. We concluded that the existing investment objective remains appropriate, that is: to provide an attractive level of income together with the potential for capital and income growth from investing in a diversified UK commercial property portfolio.

We also reviewed the strategic aims of the portfolio, and the Managers' investment approach in seeking to meet the objectives. We concluded that the approach adopted to date should continue, namely to:

· Focus on core/core+ properties

· Focus on sustainability and protection of income

· Invest in the existing portfolio to add value

· Acquire properties with real rental growth prospects

· Increase development exposure if the right opportunities appear (but not as a core activity)

· Appraise shorter leases, refurbishment and repositioning opportunities

These principles will be core to the management of the portfolio as we look forward to the next ten years' of the Company's life.

Dividends and Dividend Cover

Twelve monthly interim dividends, each of 0.5p per share, were paid during the year maintaining the annual dividend of 6.0p per share and providing a dividend yield of 4.4 per cent based on the year-end share price. Barring unforeseen circumstances, the Board intends that dividends in 2015 will continue to be paid monthly at the same rate.

The Company's level of dividend cover for the year (excluding capital gains on properties) was 50 per cent. However, this figure includes exceptional costs relating to the continuation vote and refinancing of the Company's long term debt arrangements. As disclosed in the accounts, total finance costs for the year, including the early repayment premium on the bonds of £5.6 million, amounted to £22.2 million. Assuming the Company's borrowings remain unchanged, its interest costs for 2015 are estimated at £11.4 million, providing a saving of £10.8 million. Adjusting the dividend cover for the current year for this expected reduction in finance charges, and removing other one-off expenses relating to the continuation vote and refinancing of £636,000, would give an adjusted dividend cover for 2014 of 75 per cent.

The Company also held a larger than normal level of cash earmarked for the acquisition of the office blocks in Aberdeen, which completed during the year. It is estimated that a full year of rental income from this property will improve dividend cover by a further 3 per cent. The Company should also benefit from the income generated from its other purchases during the year as well as the impact of recent portfolio initiatives, described in more detail in the Managers' Review. Shareholders should, however, appreciate that, during times when the Company is holding cash awaiting investment, either arising from property sales or equity raising, there will be an adverse impact on dividend cover until such time as this money is invested.

Issue of New Ordinary Shares

During the year, the Company issued 40.7 million Ordinary Shares at a premium to the prevailing NAV at the time of issue, for a net consideration of £49.5 million. The Board will seek new share issuance authority at the Annual General Meeting.

Board Composition

The Board has previously stated that it did not anticipate making any significant changes to its composition in advance of the refinancing of the bonds and continuation vote. Following the successful outcome of both of these matters, we conducted a review of Board composition and have put in place a plan of refreshment.

At the year-end, the Board comprised six Directors, three of whom had served since the Company's launch in 2005. All three have indicated that they will retire in succession which allows refreshment of the Board without loss at one time of the embedded industry, Company and shareholder knowledge and experience they each represent.

Nick Tostevin, who has been a Director since 2005, will retire from the Board at the Annual General Meeting on 28 May 2015. On behalf of the Board, I would like to thank Nick for his outstanding contribution and commitment to the Company over this time, both as a Director and as the Chairman of the Audit Committee.

Following a formal recruitment process, the Board is pleased to announce the appointment of two new independent non-executive Directors, Peter Cornell and David Preston, both of whom will join the Board on 1 May 2015 andstand for election at the Annual General Meeting.

Peter Cornell was, until 2006, Global Managing Partner of Clifford Chance. He then joined Terra Firma Capital Partners where he was Managing Director until 2011. He was a non-executive director of Circle Holdings plc from 2011 to 2013. Peter is a founding partner of Metric Capital Partners in Guernsey and has a wealth of legal and commercial experience which will be of significant benefit to the Board.

David Preston is Managing Director of First Names (Guernsey) Limited, a Guernsey based fiduciary and fund services business. He is a director of a number of regulated, un-listed open and closed-end real estate funds invested in the UK, Europe, Asia and the USA. He is a Chartered Accountant and has significant property, financial, corporate administration and regulatory experience.

Following these appointments and Nick's retirement, the Board will comprise seven Directors for a transitional period. One further long serving Director will retire at the Annual General Meeting in 2016, thereby taking the number of Directors back to six. It is the Board's intention to continue to review and refresh its composition mindful that, with a Guernsey resident majority established, the next replacement can be made from a broader and diverse universe of non-executive directors irrespective of whether or not conversion to onshore UK REIT status becomes in the best interests of shareholders.

Trudi Clark will become Chairman of the Audit Committee following Nick's retirement and the Board has also decided that, in accordance with best practice for FTSE 250 companies, it should appoint a Senior Independent Director. Martin Moore will be appointed to this position immediately following his re-election at the Annual General Meeting.

Annual General Meeting

The Annual General Meeting will be held at 12.30pm on Thursday 28 May 2015 at Trafalgar Court, Les Banques, St. Peter Port, Guernsey.

Outlook

Although there are short term uncertainties, including the General Election in May and the possibility of a referendum on the UK's membership of the EU, the Board believes that the outlook for UK commercial property remains positive. The sector should benefit from the strengthening economy and, with interest rates remaining low, investor demand in the asset class is expected to continue, particularly from overseas investors. The Managers expect London and the South East to continue to out-perform the wider market, but to see good performance from some of the stronger regional markets. The quality and security of the income stream will be key to delivering good performance.

The Board believes that this is an attractive backdrop which will provide some good investment opportunities. In reviewing these opportunities, the Company will apply its core principles, focusing on new investments and investing in the existing portfolio. Sustainability and protection of income remain key factors. With the successful loan refinancing and removal of any short term continuation vote requirements, the Board believes that the Company is well positioned to make further good progress towards meeting its objectives over the next year.

Chris Russell

Chairman

Managers' Review

Highlights over the Year

· Total portfolio relative return outperformance of 2.0 per cent.

· Capital growth from the standing investments within the portfolio was 13.0 per cent, compared with 12.1 per cent from the benchmark.

· Void levels of 4.5 per cent compared with the benchmark rate of 6.8 per cent.

· Completion of the acquisition of four properties in Aberdeen for £95.4 million, with a significant capital uplift on the pre-agreed purchase price subsequently recognised

· Re-development of 30,000 square feet of space, successful leasing activity and the purchase of two additional adjoining units at Sears Retail Park, Solihull.

Property Market Review

The market portfolio total return for the year, as measured by the Investment Property Databank ('IPD') Quarterly Universe was 17.9 per cent. This strong return was supported by sustained growth in the UK economy, modest inflation and some improvement in the occupational market, but the weight of capital invested into property was a major driver.

Investment activity in 2014 exceeded £62 billion, with a record amount invested during the final quarter. Overseas investors continued to be the largest single group of purchasers but UK institutions were also net investors. While Central London remained in favour, interest broadened to the regions, with investment in regional offices and industrials gathering momentum during the year. Retail investment was boosted by several large shopping centre purchases, as well as by the continued strength of the Central London retail market.

Industrials were the strongest performing sector during the year delivering a benchmark total return of 22.7 per cent, closely followed by offices at 22.2 per cent with retail lagging at 14.3 per cent. Index-linked long-leases were still favoured as an alternative to low yielding gilts but investors have been increasingly prepared to consider shorter leases for prime assets and move towards a more growth-focused strategy.

The income return for the year was 5.2 per cent, edging lower in large part to the rise in capital values. Benchmark capital values rose by 12.1 per cent, driven by West End offices and South East offices and industrials. However, while capital values for West End offices surpassed their pre-crisis peak during 2014, standard retail property outside the South East recorded a relatively modest 2.5 per cent benchmark increase in capital values in 2014 which is still around 30 per cent below the 2007 peak.

Overall rental growth was 3.2 per cent in 2014 and the year was notable for the broadening of rental growth beyond London. Rental growth was still significantly higher in London where City and West End offices both recorded double digit increases. The South East registered real rental growth in aggregate for offices and industrials but, in the regions, some town centres are still recording retail rental decline. Occupier demand has seen signs of improvement as the economic recovery progresses and the dearth of new supply in the downturn is starting to be felt in some core locations. There has been some revival in development, including a few speculative starts.

The market vacancy rate moved lower during the year from 7.4 per cent to 6.8 per cent with improvements seen in most parts of the market. Net income growth has improved but remains weak by past standards.

The strength of investment demand led to further yield compression during the year and a narrowing of the yield gap between prime and secondary property. IPD market data shows secondary assets out-performing some prime assets in several segments. In contrast, pressure on the income stream remains significant at the secondary end of the IPD Universe, with double digit annual falls seen in some categories.

2014 was a year of strong performance, building on the previous year's recovery. The improvement was widespread between sectors and regions. The outlook for the occupational market appears to be brightening but there is still polarisation. We remain concerned about the disparity between the strength of investment demand and pricing when measured against the fundamentals of the occupier market, especially at the secondary end.

Property Portfolio

The property portfolio was externally valued by CBRE Limited at £1,212.6 million as at 31 December 2014.

The total return from the portfolio over the year was 20.3 per cent (26th percentile) against the 17.9 per cent benchmark return. The portfolio's returns over the longer term remain strong and over five years it has produced an annualised total return of 13.6 per cent (7th percentile) compared with a benchmark return of 10.8 per cent.

Positioning of Portfolio & Strategy

One feature of the market during the year was the significant compression in capitalisation rates and intense competition for suitable investment properties. The Company is competing for properties against investors whose cost of capital is much lower than this Company's and are further motivated to buy to avoid "cash drag". Throughout the period we have maintained a disciplined and robust appraisal process and will only bid at pricing levels we believe to be realistic and which are commensurate with our overall investment objective.

Whilst unsurprisingly we have had limited success in acquiring new property over the period, we have reinforced the focus on the deployment of capital into the existing portfolio to drive returns. During the period £7.2 million of capital expenditure was invested in the portfolio. The most significant projects included the refurbishment of office floors at Alhambra House, Glasgow and 82 King Street, Manchester; the construction of a new 30,000 square feet unit for Next Home and Garden at Sears Retail Park, Solihull and various projects within St. Christopher's Place Estate, London W1.

Looking forward the limited stock of suitable opportunities at current levels of pricing means that few acquisition opportunities are supportive of increasing dividend cover. Therefore the existing portfolio will remain the first "port of call" for investment which has the added attraction of avoiding expensive transactional costs which are detrimental to returns.

The portfolio remains focussed on London and the South East especially given the higher expectations of rental growth. Although pricing in Central London is expensive and capitalisation yields are low we are still appraising stock where we believe relative rents are low or where we believe we can add value through asset management. As the economy improves, there are pockets of growth beyond London and we are actively seeking opportunities to take advantage of this. Coupled with investing in the existing portfolio, we are also seeking new development opportunities where we believe we can leverage the Company's equity further. In the past we have promoted the protection and sustainability of income. In an environment of an improving economy and occupational market, we believe the bias of strategy should now be to implement initiatives to capture rental growth.

* Includes West End Retail

Retail

The retail sector IPD benchmark portfolio total return was a significant improvement on the 2013 out-turn of 8.3 per cent, but still the weakest of the three main property sectors. IPD market data showed continued disparity between West End retail and retail property in regions outside Central London. However, both Shopping Centres and Retail Warehouses showed significant improvement recording 14.9 per cent and 14.2 per cent respectively, double the returns of 2013.

Bright spots outside the capital have materialised, but are limited to dominant regional towns with affluent catchments. The sector's structural change and evolution has been affected by the impact of trade diversion from traditional stores to other forms of retailing. The improvement in employment, rising house prices and lower inflation has supported high end and budget retailers. The mid-market retailers have generally remained cautious and cost sensitive. Despite the rebasing of rents throughout 2013, secondary property continued to show negative rental growth during 2014. Outside a thriving central London market, growth has been limited to prime stock in the best towns.

The Company's best performing retail asset during the year was once again 16 Conduit Street, London W1, which delivered an outstanding return of 53.2 per cent. Following the re-letting of the shop to Christian Dior in 2013, rental values in the street rose by a further 30 per cent and capitalisation rates have continued to compress for premium central London retail investments.

St. Christopher's Place Estate experienced significant rental growth across all sub-sectors, particularly its offices. At 6 James Street an early surrender was taken of the 2nd floor offices where the rent passing was £75,400 per annum (£37.50 per square foot) and the space was immediately re-let to ESPP at a headline rent of £140,840 per annum (£70.00 per square foot). Another key transaction during the year was the letting of 54 James Street which secured a record rent for restaurants on this street. Meanwhile, in the retail sector, three lettings were completed in St. Christopher's Place itself reinforcing a Zone A rental level for the street of £186 per square foot and generating an average rental growth of 8 per cent.

The redevelopment of 71-77 Wigmore Street has now begun and the project will deliver two new restaurant/retail units and eight apartments for occupation in mid-2016. The estimated capital expenditure for this project is approximately £12.1 million and the commercial element of the scheme has already generated keen occupier interest. The purchase of 1 Barrett Street was also completed in the summer of 2014 and this will unlock an excellent medium term opportunity for the redevelopment of an entire corner of the Barrett Street piazza.

At the Company's retail and leisure holding in Wimbledon, the occupier profile was improved during the year by lettings to two operators who have improved the food and beverage provision and enhanced the public space.

Turning to the out of town retail sector, activity focussed on Sears Retail Park, Solihull where, following the 2013 collapse and default of both Comet and JJB Sports, some 45,000 square feet of space became vacant. The former 30,000 square feet Comet unit has been redeveloped at a cost of approximately £3 million and re-let to Next Home and Garden on a new 15 year lease at a rent passing of £800,000 per annum, well above the independent valuer's ERV at that time. This new flagship store is a significant footfall generator for the remainder of the retail park. The opening of the new Next Home and Garden, and the previously announced M&S Simply Food and Homesense stores, have attracted attention from other retailers, mainly those in the fashion and sports sectors. There is also interest from smaller format operators for "pod" units. Marketing the former JJB Sports store resulted in a conditional agreement for a new 15 year lease at £380,000 per annum (in excess of the previous passing rent) being agreed with TK Maxx. Planning consent has been granted to widen the permitted user, to construct a mezzanine floor and undertake construction works to the front elevation. This agreement is now unconditional and work will start shortly on site.

Offices

The office market as a whole delivered an IPD portfolio benchmark total return of 22.2 per cent in 2014. Within the sector, West End offices delivered a benchmark total return of 24.3 per cent reflecting strong investor appetite from UK institutions and an increasing weight of money from overseas investors. Lack of supply combined with increasing occupational demand led to rental growth and the potential arbitrage of converting to residential use also amplified investor demand.

The City out-performed the all-property market with a benchmark total return of 19.3 per cent but lagged behind some more fringe areas of the capital and the office market as a whole. The Rest of the South East office market also registered outperformance with a benchmark total return of 23.4 per cent, following improved tenant demand, very low new supply and increased investor interest. The office market outside London and the South East, saw a marked turnaround in the year, benefiting from some improvement in occupational demand and investors seeking higher yields outside London.

The total return on the Company's office market portfolio was 22.9 per cent, comparing favourably with an IPD portfolio benchmark total return of 22.2 per cent. The portfolio's performance was supported by capital returns from the assets located in the City of London and Rest of UK offices.

The total return on the Company's Rest of UK offices was 24.5 per cent compared to the benchmark return of 17.4 per cent. Unit 1, Prime Four Business Park, Aberdeen delivered a total return of 27.7 per cent, largely attributed to capital growth of 22.0 per cent. At Unit 4, the Company has agreed an assignment of 25,393 square feet to Maersk.

With regard to activity in the portfolio, over the period the Company completed the refurbishment of 3rd, 4th and 5th floors at 125 Princes Street, Edinburgh. Subsequent lettings resulted in a rental increase of £290,000 per annum. The property's only vacant floor is also now under offer pending completion. At Alhambra House, Glasgow the lettings of the remaining vacant floors have also completed and the existing leases have been successfully re-geared and it is now fully let to JP Morgan until August 2022.

At 82 King Street, Manchester the Company comprehensively refurbished the vacant floors and actively promoted the leasing of the property. This led to lettings on the 5th and 13th floors, with the 12th floor under offer as well, justifying the decision to refurbish these floors. We are pleased to see this successful activity at Manchester as this has been a long standing void. The completion of a lease renewal to Credit Suisse at £31 per square foot evidences the rental growth in Grade A buildings in strong regional cities.

At Thames Valley Park One, Reading the Company has agreed a short term lease extension to Fujitsu until September 2016 mitigating the 2015 lease expiry, the Company's largest lease event during 2015. It is hoped further asset management initiatives in the future will de-risk this investment.

The Company's West End assets sustained their positive performance. Cassini House, the Company's third largest asset, delivered a total return of 30.8 per cent, largely attributable to capital growth of 25.3 per cent, the highest individual asset contribution from the office portfolio. All floors within the property are subject to rent reviews and the latest settlements have been agreed at £89 per square foot, a significant increase from previous rents of £59 per square foot.

The year also saw refurbishment at 17a Curzon Street resulting in a new 10 year lease being secured at £95 per square foot. A re-gearing of the lease on the 5th floor at £80 per square foot on a coterminous term also completed.

Industrial & Logistics

The South East continued to out-perform the Rest of the UK at 23.6 per cent and 21.5 per cent respectively. The occupational market saw improved take-up with supply shortages emerging in some areas but sheer weight of money looking to invest in the sector has driven the returns back to match all-time highs.

The sector benefitted from a relatively high benchmark income return of 6.0 per cent in 2014. In core and good secondary locations the supply squeeze has considerably reduced tenant incentives and market. The year saw a return of some speculative development in core locations, with actual development starts increasing by some 35 per cent, but this does include the pre-let developments.

The Company's industrial and logistics portfolio returned 22.3 per cent in the year.

The continuing void at Hedge End, Southampton, negatively impacted returns to the South East Industrial sector, however, the recently completed refurbishment is now under offer to a tenant on a five year lease above the current ERV and is expected to conclude shortly.

In Colchester, the Company secured the letting of Units 7 and 8 Cowdray Avenue but we anticipate a void for Unit 22 in 2015 and are taking proactive steps to manage this position.

The site on Cowdray Avenue comprises development land of 4.9 hectares/12 acres cleared of buildings to slab level. Given the lack of any sizeable interest from commercial users in this site, we are focussing efforts on securing consent for an alternative use. While there are various constraints such as ecology and loss of employment issues a robust case can be presented for the site as a brownfield, sustainable location. The strategy is to submit an outline planning application for approximately 165 residential units within the next two months to secure an increase of existing land values.

The distribution unit in Liverpool let to DHL Supply Chain became income producing in Q2 2014 and during the year we invested further in the region with the purchase of Johnsons Controls' new 150,000 square feetproduction facility servicing Jaguar Land Rover from Estuary Business Park. This property was purchased for £11.9 million, reflecting a net initial yield of 6.45 per cent.

The 'Other' Sector

This sector comprises property assets such as healthcare, student accommodation, hotels, data centres and automotive uses. The sector offers an opportunity to acquire properties secured on long leases, usually at least 15 years, with fixed uplifts or RPI linkage. These can be attractive in times of low gilt yields and when there is a limited amount of stock offering long leases in the traditional three sectors. However, there is strong competition for such assets and the income return can be relatively low. As a result, while the Company has considered various opportunities, it has a limited exposure to this sector comprising the student accommodation let to the University of Winchester. This property produced a total return of 11.8 per cent. The lease is subject to annual RPI increases and the rent increased by £41,423 to £1.708 million per annum over the period.

Purchases and Disposals

The Company completed the acquisition of seven properties over the period for a total purchase price of £118.1 million and a contracted annual rental income of £8.04 million. The most significant acquisition was of four office buildings at Prime Four Business Park, Aberdeen at an aggregate price of £95.4 million producing a rent of £6.9 million per annum. Other purchases included The Hive, Liverpool; two units adjoining the existing Sears Retail Park and 1 Barrett Street, London a property on St Christopher's Place.

As expected, upon acquisition and first external valuation at Prime Four, Aberdeen, the properties were revalued at an aggregate amount in excess of £100 million. After the Company contracted to purchase these properties, further development has taken place on the business park and the rent on the Company's properties of approximately £23.00 per square foot is now reversionary, as the most recent lettings have achieved £27.75 per square foot and the development has now gained critical mass.

The sharp fall in the price of oil is likely to affect corporate occupiers' real estate strategies in the Aberdeen area but the full impact is unknown at this stage. Against such a background, it is an opportune time to reinforce the investment case for these properties, in that they are newly built, let to strong covenants on unbreakable lease terms of 15 and 20 years incorporating 3 per cent annual compound uplifts off a reversionary rental level. As such, these properties are well-secured with attractive rental cashflows that underpin value.

Property Management

Management of income remains a key activity. We have always aimed to sustain and protect existing income streams. However given the generally improving economic backdrop, we also anticipate a move towards capturing rental growth.

Over the year we drove void levels down to 4.5 per cent from 6.0 per cent of estimated rental value (excluding properties held for development), compared with the benchmark rate of 6.8 per cent. This translates to a 2.7 per cent growth in rent passing versus only 0.3 per cent for the benchmark. A number of other units are currently under offer for rent.

The provision for overdue debt (90 days) at the year-end was 0.3 per cent of gross annualised rents, a decrease from 1.2 per cent reported last year.

The Company has made significant progress in improving the lease expiry profile particularly with reference to the 2015 lease "exposure".

Outlook

The property market is delivering a strong performance, driven by strong investor demand and intense competition for stock which is bidding up prices, particularly but not exclusively in London.  Although there are macro-level uncertainties that could affect property market performance, including the UK general election, a possible EU referendum and global political, economic and financial developments, the short-term outlook appears positive. The asset class remains in favour with a wide range of investors and market sentiment has shifted in favour of interest rates staying lower for longer, potentially allowing property yields to compress further. At some point interest rates will start to normalise and, while this could affect investment performance through yield adjustment in later years, a growing economy, capacity constraints and improved rental growth may help to mitigate the impact. We forecast that total returns will remain positive both in real and nominal terms over the medium-term to 2019. We continue to expect London and the South East to out-perform and for good quality offices and industrials to out-perform retail property outside London. There is likely to be a disparity in performance at the asset level and we continue to stress the importance of focusing on local market conditions, the qualities of the asset and the potential to protect and enhance the income stream over time.

The asset management strategies employed over the course of the year have succeeded in delivering a further year of out-performance, and given the calibre of the properties within the portfolio, the interest in void space and the short lease residues on key assets, we believe the portfolio is well positioned to continue to make good progress in the year ahead. We will continue to focus on value protection of the existing portfolio and to capitalise on growth opportunities afforded by a generally favourable economic backdrop. We will seek to purchase properties selectively while maintaining a firm discipline to ensure there is no dilution of performance from new acquisitions.

Richard Kirby

Investment Manager

F&C REIT Property Asset Management plc

F&C Commercial Property Trust Limited

Consolidated Statement of Comprehensive Income (audited)

All of the profit and total comprehensive income for the year is attributable to the owners of the Company.

All of the items in the above statement derive from continuing obligations.F&C Commercial Property Trust Limited

Consolidated Balance Sheet (audited)

F&C Commercial Property Trust Limited

Consolidated Statement of Changes in Equity

for the year ended 31 December 2014 (audited)

Consolidated Statement of Changes in Equity

for the year ended 31 December 2013 (audited)

F&C Commercial Property Trust Limited

Consolidated Statement of Cash Flows (audited)

F&C Commercial Property Trust Limited

Principal Risks and Risk Management

The Board applies the principles detailed in the internal control guidance issued by the Financial Reporting Council, and has established an ongoing process designed to meet the particular needs of the Company in managing the risks and uncertainties to which it is exposed. The principal risks and uncertainties faced by the Company are described below and in note 2 which provides detailed explanations of the risks associated with the Company's financial instruments.

· Market - the Company's assets comprise principally direct investments in UK commercial property and it is therefore exposed to movements and changes in that market.

· Investment and strategic - poor investment processes and incorrect strategy, including sector and geographic allocations, use of gearing, inadequate asset management activity and tenant defaults 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 its business, or that of other 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 other 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 Guernsey solvency test requirements or loan covenants could lead to 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. The Managers 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.

F&C Commercial Property Trust Limited

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 2014, 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

Chris Russell

Director

F&C Commercial Property Trust Limited

Notes to the audited Consolidated Financial Statements

for the year ended 31 December 2014

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 2015 to shareholders on the register on 10 April 2015.

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

2. 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 during the year comprised interest-bearing bonds, interest-bearing bank loans, cash and receivables and payables that arise directly from its operations. The Group does not have exposure to any derivative instruments other than the interest rate swaps entered into to hedge the interest paid on the Barclays interest-bearing bank loans.

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. These disclosures include, where appropriate, consideration of the Group's investment properties which, whilst not constituting financial instruments as defined by IFRS, are considered by the Board to be integral to the Group's overall risk exposure.

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 A 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 and the prior 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.

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 its long-term debt obligations. Interest rate risk on long-term debt obligations is managed by fixing the interest rate on such borrowings, either directly or through interest rate swaps for the same notional value and duration. 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 a £260 million L&G loan on which the rate has been fixed at 3.32 per cent until the maturity date of 31 December 2024. The Group also has a £50 million interest-bearing bank loan on which the rate has been fixed through an interest rate swap at 4.88 per cent per annum until the maturity date of 28 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 2014 (2013: 0.5 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.

3. The Group, through F&C Commercial Property Finance Limited, had issued £230,000,000 of Secured Bonds due 2017. On 10 November 2014, the Group gave an irrevocable commitment that it would redeem the Secured Bonds in full on 2 January 2015. On 31 December 2014, monies equal to the total redemption value of the bonds were paid into a secured bank account under control of the Bond Trustee and the security over the assets of FCPT Holdings Limited and F&C Commercial Property Holdings Limited was released. The monies held in this secured bank account could not be used for any purpose other than the redemption of the Secured Bonds. The Secured Bonds were redeemed in full, at a capital value of £235,601,000, on 2 January 2015.

As the cash held for the repayment of the Secured Bonds, including the early repayment premium, was held in a secured account as at 31 December 2014 under the control of the Bond Trustee and could not be used for any purpose other than fulfilling the irrevocable commitment given by the Group to repay the Secured Bonds on 2 January 2015, the Group has offset the cash balance against the bond liability at 31 December 2014. The Group has not offset any other financial assets and financial liabilities in the Consolidated Balance Sheet.

4. There were 799,366,108 Ordinary Shares in issue at 31 December 2014 (2013: 758,715,702).

The Company issued 40,650,406 Ordinary Shares during the year (2013: 14,000,000) raising net proceeds of £49,453,000 (2013: £14,094,000). The Company did not repurchase any Ordinary Shares during the year.

At 31 December 2014, the Company did not hold any Ordinary Shares in treasury (2013: nil).

5. The basic and diluted earnings per Ordinary Share are based on the profit for the year of £173,901,000 (2013: £91,985,000) and on 771,857,477 (2013: 756,792,414) Ordinary Shares, being the weighted average number of shares in issue during the year.

6. The Company owns 100 per cent of the issued ordinary share capital of FCPT Holdings Limited, a company registered in Guernsey which was, until the group reconstruction in 2009, the top company in the group structure. The principal activity of FCPT Holdings Limited is now to act as a holding company and it owns 100 per cent of the ordinary share capital of F&C Commercial Property Holdings Limited, a company registered in Guernsey whose principal business is that of an investment and property company.

The Company owns 100 per cent of the issued ordinary share capital of SCP Estate Holdings Limited, a company registered in Guernsey. The principal activity of SCP Estate Holdings Limited is to act as a holding company and it owns 100 per cent of the ordinary share capital of SCP Estate Limited, a company registered in Guernsey whose principal business is that of an investment and property company, and 100 per cent of the ordinary share capital of Prime Four Limited, a company registered in Guernsey whose principal business is that of an investment and property company.

For the year ended 31 December 2014 the Company owned 100 per cent of the issued ordinary share capital of Winchester Burma Limited, a company registered in Guernsey whose principal business is that of an investment and property company. On 31 December 2014, the Company transferred, at fair value, ownership of 100 per cent of the issued ordinary share capital of Winchester Burma Limited to FCPT Holdings Limited.

The Company owns 100 per cent of the issued ordinary share capital of Accede Limited, a company incorporated in England and Wales. At 31 December 2014 this Company was dormant, having previously acted as 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. F&C Commercial Property Finance Limited has the same board of directors as the Company and the Company has the majority of the risks and rewards associated with the vehicle. F&C Commercial Property Finance Limited is therefore consolidated as a subsidiary.

7. The Group had capital commitments totalling £1,719,000 as at 31 December 2014 (2013: £17,901,000). These commitments related mainly to contracted development works at the Group's properties at St. Christopher's Place Estate, London W1.

8. These are not full statutory accounts. The full audited accounts for the year to 31 December 2014 will be sent to shareholders and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL, 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: 01481 745436

Fax: 01481 745186

Richard Kirby

F&C REIT Property Asset Management plc

Tel: 0207 016 3577

Graeme Caton

Winterflood Securities Limited

Tel: 0203 100 0268