Balanced Commercial Property Trust Regulatory News (BCPT)

20 Mar 2008 16:19

F&C Commercial Property Trust Ltd20 March 2008 To: RNSDate: 20 March 2008From: F&C Commercial Property Trust Limited Results in respect of the Year Ended 31 December 2007 (unaudited) • Net asset value total return of -4.7 per cent* • Unchanged dividend of 6.0p per share in respect of the year The Chairman, Peter Niven, stated: "In my interim statement I highlighted that returns from UK commercial propertywere starting to slow. The weight of money that had come into the propertysector in previous years had driven yields to unsustainably low levels and, inan environment of higher interest rates, it was inevitable that a correctionwould be required. In the latter part of the year, the market was also affectedby the credit crisis which, as well as affecting economic growth prospects, hashad a direct impact on the commercial property market as many property investorsrely on borrowings to fund investments. It is likely that the credit crisis willcontinue to cause uncertainty in financial markets until its implications, inparticular for the banking sector, become clearer. And so, following three years of strong returns, 2007 proved to be a much harderyear for the UK commercial property market. The modest gains recorded in thefirst half of the year were more than offset by quite severe losses in the lasttwo quarters. The total market return for the year of -5.5 per cent, as measuredby the Investment Property Databank ('IPD') UK Monthly Index, was the worst onrecord since 1991. Against this backdrop, I can report that your Company's net asset value ('NAV')total return for the year was -4.7 per cent. Although it is disappointing toreport a negative return, it is reassuring that the direct property portfolio,as explained in more detail below, performed well relative to the market. The Board, in its announcement in January 2008 of the Company's NAV per share asat 31 December 2007 (the 'Published NAV per share'), signalled a departurefrom calculating the NAV in accordance with International Financial ReportingStandards ('IFRS'), when it did not use the externally provided net asset valuesof its unitised investments in two indirectly held property funds (the 'IndirectHoldings') in arriving at the Published NAV per share. The stated reason wasthat the Board did not consider this to be an appropriate method of valuation inmarket conditions at that time. Accordingly, the Board discounted the NAVs ofthe Indirect Holdings by 10 per cent to reflect its view of their likelyrealisable value should the Company wish to dispose of them in an orderlyfashion over time. The effect of applying the discount was to reduce thePublished NAV per share by 1.6p, or £11,865,000. However, solely to meet the technical requirements of IFRS and followingextensive consultation with the Company's auditors, the Balance Sheet includesthe value of the Indirect Holdings at their full, externally provided NAVs. Thispresentation results in a higher NAV per share (the 'IFRS NAV per share')compared to the Published NAV per share. Notwithstanding such full, albeittechnical, compliance with IFRS, the Directors' opinion continues to be that theappropriate value of the Indirect Holdings is as incorporated within thePublished NAV per share, which they believe fairly represents your Company's NAVper share as at 31 December 2007. Further information regarding the IndirectHoldings is provided below under the heading 'Property Portfolio - IndirectHoldings'. Accordingly, the Published NAV per share at the end of the year (adjusted forany quarterly dividends for which the share price had gone ex-dividend) was127.7p and the share price was 90.5p, representing a discount of 29.1 per cent.The emergence of a discount, not only for your Company, but for the peer groupand wider quoted property sector, was a key feature of the year as theenvironment for property became more challenging. The deteriorating outlook forcommercial property led to a shift in investor sentiment and, in the case ofopen-ended funds, an increase in redemptions, resulting in forced selling insome cases and changes to pricing and lengthening of redemption periods. Thishad a direct impact on the rating of the whole of the quoted sector. The following table provides an analysis of the movement in the NAV per sharefor the year (including the effect of gearing): Pence Per Share IFRS NAV per share as at 31 December 2006 141.5 Unrealised decrease in valuation of direct property portfolio (9.9) Unrealised decrease in valuation of Indirect Holdings (prior toapplication of discount) (2.0) Realised gain on sale of Indirect Holdings 0.2 Share buy backs 1.5 Movement in revenue reserve (0.5) -------- IFRS NAV per share as at 31 December 2007 130.8 Application of discount to NAV of Indirect Holdings (1.6)Adjustment for dividends for which the share price had gone ex-dividend* (1.5) -------- Published NAV per share as at 31 December 2007 127.7 -------- * third interim dividend of 1.5p per share, paid on 25 January 2008 with an ex-dividend date of 10 October 2007. While, overall, 2007 was a disappointing year for the market, it is important torecognise the progress your Company has made since its launch in March 2005,with a NAV total return of 47.5 per cent for the period from launch to 31December 2007. In these difficult times, the Board has been pro-actively pursuing a range ofstrategies summarised in the paragraphs below, to seek to enhance shareholdervalue. Property Portfolio - Direct Properties The valuation of the direct property portfolio fell from £1,047 million to £978million during the year, representing an ungeared capital decrease of 6.8 percent and a total return of -2.4 per cent. This compares favourably, however,with the respective equivalent returns from the IPD UK Monthly Index of -10.0per cent and -5.5 per cent. The best performing property in the portfolio was the largest holding, StChristopher's Place Estate, London W1, which recorded a net capital increase of1.5 per cent. This Central London property has a diversified rental profile andboth the retail and office elements have continued to let successfully. It alsobenefited from a number of rent renewals which took place during the year. The portfolio also benefited from good rent reviews and lettings at Dane Street,Rochdale, Wimbledon Broadway, London SW19, and Cassini House, St James's Street,London SW1. At the same time, your Company has made progress with the detaileddesign of the proposed redevelopment of 24/27 Great Pulteney Street, London W1and will take advantage of this significant opportunity directly to deliverapproximately 34,000 square feet of modern West End offices. The portfolio continues to benefit from the quality of tenants and long leaselengths. Throughout the year there were no significant tenant defaults and thelevel of voids remained very low. Net rental income has increased by 5.0 percent per annum since launch whilst the estimated rental value has increased by6.7 per cent per annum over the same period. This has significantly improveddividend cover. The Board believes your Company is well placed against thefinancial assumptions set out in the Prospectus and that to be able todemonstrate a track record is important when entering a period when totalreturns are likely to be dominated by income. There were no purchases or sales of properties during the year. Property Portfolio - Indirect Holdings The Indirect Holdings (in the Industrial Property Investment Fund and The MallLP) represented 9.8 per cent of the property portfolio as at 31 December 2007.The Industrial Property Investment Fund invests in over 100 industrialproperties and The Mall LP invests in 24 shopping centres. During the first halfof the year the exposure to the Indirect Holdings was reduced realising, inaggregate, £50.2 million through four separate transactions which all took placeat premiums to the underlying NAVs of the holdings at the time of thetransactions. The Board has subsequently given approval for the Managers to makefurther disposals of the Indirect Holdings at a small discount to theirunderlying NAVs. However, as of the date of this statement it has not beenpossible to do so at these levels. Since the end of the year, and as explained in detail at the beginning of mystatement, the Board has therefore considered carefully the values attributed tothe Indirect Holdings, with the result that a discount of 10 per cent has, forthe first time, been applied to the underlying NAVs of the Indirect Holdings asat 31 December 2007. The quantum of future discounts, if any, will be reviewedregularly by the Board with independent advice as appropriate, and amended, asrequired, to reflect changes in market conditions and practice. Dividends Three interim dividends, each of 1.5p per share, were paid on 27 July and 26October 2007 and 25 January 2008. The Board has declared a fourth interimdividend of 1.5p per share which will be paid on 25 April 2008 to shareholderson the register on 28 March 2008. This will bring the total dividend for the year to 6.0p per share, representinga yield of 6.6 per cent on the share price at the end of the year. Issue of Shares In my interim statement, I explained that the Board was proposing to issueshares in connection with the proposed liquidation and reconstruction (the'Scheme') of The UK Balanced Property Trust Limited ('UKBPT'). Under the Scheme,shareholders in UKBPT had the opportunity to roll-over their investment intoyour Company. On 18 October 2007, 28.6 million new shares were issued pursuant to the Scheme,raising £40.1 million. The issue price of 140.33p per share was equal to the NAVper share as at 30 September 2007, adjusted by deducting the two quarterlydividends which had already been declared (and subsequently paid on 26 October2007 and 25 January 2008) in which the new shares issued pursuant to the Schemewere not entitled to participate. The Managers agreed to make a contribution to the costs of your Company'sparticipation in the Scheme, thus ensuring that it was not dilutive to the NAVper share. Discount and Share Buy Backs Shareholders will be aware of the statement in the Prospectus that the Directorsintend to use the share buy back authority to purchase shares (subject to incomeand cash flow requirements) if the share price is more than five per cent belowthe published NAV per share for a continuous period of 20 dealing days or more. In line with this statement, your Company bought back 31.0 million shares duringthe year, equivalent to 4.2 per cent of the issued share capital as at 31December 2006. The shares were bought back at an average discount of 23.5 percent to the published NAV per share (adjusted for any quarterly dividends forwhich the share price had gone ex-dividend) and provided a cumulativeenhancement of 1.5p per share to the NAV per share. The shares were bought backto be held in treasury, for subsequent re-issue at a premium to the publishedNAV per share. In carrying out these share buy backs the Board gave carefulconsideration to income and cashflow requirements and bond covenant constraints,as well as amounts committed to future development opportunities. Since the end of the year, your Company has bought back a further 20.1 millionshares to be held in treasury, at an average discount of 26.1 per cent to thepublished NAV per share (adjusted for any quarterly dividends for which theshare price has gone ex-dividend), providing an enhancement of 1.0p per share tothe NAV per share. 10.0 million of these shares were acquired in an on-markettransaction from the Company's majority shareholder, Friends Provident Group, ata price of 95.0p per share, representing a discount of 4.9 per cent to the bidprice at the time of the transaction. Following the recent renewal of the Company's buy back authority at the SecondEGM (referred to below), the Board will seek to renew the share buy backauthority at the forthcoming Annual General Meeting. It is the Board's intentionthat it will continue to consider share buy backs while the discount to thepublished NAV per share is in excess of five per cent (adjusted for anyquarterly dividends for which the share price has gone ex-dividend). In additionto taking into account income and cash flow requirements, the Directors willseek to ensure that any share buy backs are undertaken at prices which are inthe best interests of all Shareholders. Continuation Vote It was also stated in the Prospectus that, in the event of the discount to thepublished NAV per share being more than five per cent for 90 dealing days ormore, the Directors would convene an Extraordinary General Meeting to consideran ordinary resolution for the continuation of your Company. The first suchExtraordinary General Meeting ('First EGM') was held on 28 September 2007. The Directors were pleased with the strong support given by shareholders at theFirst EGM, where 95.0% of votes cast were in favour of your Company'scontinuation. As stated in the First EGM's circular, the Directors do not intendto convene another Extraordinary General Meeting to consider your Company'scontinuation unless the shares trade at a discount of over five per cent to thepublished NAV for 90 dealing days or more following the first anniversary of theFirst EGM. Borrowings The level of gearing, net of cash, as at 31 December 2007 was 11.7 per cent,which the Board considers to be prudent in current market conditions. Thiscompares to 14.5 per cent as at 31 December 2006. Borrowings are represented by £230 million Secured Bonds due 2017 which havebeen assigned an 'Aaa' rating by Moody's Investors Services. The bonds carryinterest at a fixed rate of 5.23 per cent per annum. Recent Changes to the Articles of Association and Share Capital As a listed company, your Company is subject to the Listing Rules of the UKListing Authority. In September 2007, those Listing Rules were amended toprovide more flexibility to listed investment companies, including in relationto making distributions. Your Company's Articles of Association containedprovisions on distributions in accordance with the previous Listing Rules and,as a consequence, were more restrictive than required by the provisions of theamended Listing Rules. To take advantage of this flexibility, an Extraordinary General Meeting ('SecondEGM'), convened by a circular posted to shareholders on 4 February 2008, washeld on 22 February 2008. At that meeting, 99.97 per cent of votes cast approveda proposal to amend the Articles of Association to allow more flexibility infunding the payment of dividends and share buy backs. Shareholders similarly approved proposals to reduce the nominal value of theOrdinary Shares from 90p to 1p, to cancel the share premium arising on therecent issue of shares to shareholders in UKBPT in order to create a specialreserve to be available for distributions, and to renew the existing share buyback authority. The overall effect of these changes is to give the Company moreflexibility for share buy backs and dividend payments. The changes have noeffect on the objective of your Company or the way it will be managed in thefuture. Shareholder Communication In addition to Annual and Interim Reports, your Company is now required toproduce two Interim Management Statements each year, which will be in respect ofthe quarters when accounts are not produced. The first such statement will beissued in April 2008 and, along with other up to date information about yourCompany, will be available at the website address www.fccpt.co.uk. Outlook The property market is continuing to see falling capital values and, althoughthere is some sign that the speed of decline may be moderating, sentimentremains cautious and there is still considerable uncertainty about the depth andduration of the downturn. The steep correction and re-pricing of property mayentice back buyers, especially if interest rates are reduced further later inthe year, but there are downside risks if the credit crisis is prolonged or ifoccupier markets deteriorate. The Managers expect property performance to be subdued this year with recoverysupported by income returns, to deliver total returns in the mid single digitsover the medium-term. To this end your Company is well placed given the qualityand diversity of its tenants, an average unexpired lease length of 8.8 years,and a low void rate. Given the indiscriminate mark-down in values across the sector, prime, well-letcyclically robust properties, to which the Company has a significant exposure,are expected to out-perform." * Calculated assuming dividends are re-invested and after discounting the NAVsof the Indirect Holdings by 10 per cent All enquiries to: The Company SecretaryNorthern Trust International Fund Administration (Guernsey) LimitedTrafalgar CourtLes BanquesSt Peter PortGuernsey GY1 3QL Tel: 01481 745001Fax: 01481 745051 F&C Commercial Property Trust Limited Consolidated Income Statement (unaudited) Year ended 31 Year ended 31 December 2006 December 2007 (audited) £'000 £'000 RevenueRental income 55,182 53,427Income from indirect property funds 6,917 7,747 ----------- -----------Total revenue 62,099 61,174 (Losses)/gains on investmentsUnrealised (losses)/gains on revaluation of (71,955) 152,099investment propertiesUnrealised (losses)/gains on revaluation of (14,626) 27,653indirect property fundsGains on sale of investment properties realised 31 3,412Gains on sale of indirect property funds 1,588 -realised ----------- -----------Total income (22,863) 244,338 ----------- -----------ExpenditureInvestment management fee (9,430) (9,050)Other expenses (3,600) (3,870) ----------- -----------Total expenditure (13,030) (12,920) ----------- -----------Operating (loss)/profit before finance costs (35,893) 231,418 ----------- -----------Net finance costsInterest receivable 4,376 1,573Finance costs (12,128) (12,123) ----------- ----------- (7,752) (10,550) ----------- ----------- (Loss)/profit before taxation (43,645) 220,868 Taxation on (loss)/profit (687) (457) ----------- ----------- (Loss)/profit for the year (44,332) 220,411 ----------- -----------Basic and diluted (loss)/earnings per share (6.0)p 30.0p F&C Commercial Property Trust Limited Consolidated Balance Sheet (unaudited) As at As at 31 December 31 December 2006 2007 (audited) £'000 £'000Non-current assetsInvestment properties 978,425 1,046,980Investments in indirect property funds held at 118,651 181,877fair value ----------- ----------- 1,097,076 1,228,857 ----------- -----------Current assets Trade and other receivables 5,676 6,217Cash and cash equivalents 103,891 53,291 ----------- ----------- 109,567 59,508 ----------- ----------- Total assets 1,206,643 1,288,365 ----------- ----------- Current liabilities Trade and other payables (18,956) (19,243) ----------- ----------- Non-current liabilities Interest-bearing bonds (229,093) (228,993)Deferred taxation (507) (360) ----------- ----------- (229,600) (229,353) ----------- -----------Total liabilities (248,556) (248,596) ----------- -----------NET ASSETS 958,087 1,039,769 ----------- ----------- Represented by: Share capital 687,224 661,500Share premium account 14,390 -Special reserve 34,043 58,434Capital reserve - realised 325 4,202Capital reserve - unrealised 213,448 312,412Revenue reserve 8,657 3,221 ----------- -----------Equity SHAREHOLDERS' FUNDS 958,087 1,039,769 ----------- ----------- Net asset value per share 130.8p 141.5p F&C Commercial Property Trust Limited Consolidated Statement of Changes in Equity (unaudited) for the year ended 31 December 2007 +---------------------+-------+-------+--------+--------+----------+--------+---------+| | | | | Capital| Capital| | || | | | | Reserve| Reserve| | || | Share| Share| Special|Realised|Unrealised| Revenue| || |Capital| | Reserve| | | | || | |Premium| | £'000| £'000| Reserve| Total|| | £'000| | £'000| | | | || | | £'000| | | | £'000| £'000|+---------------------+-------+-------+--------+--------+----------+--------+---------+| | | | | | | | |+---------------------+-------+-------+--------+--------+----------+--------+---------+|At 1 January 2007 |661,500| -| 58,434| 4,202| 312,412| 3,221|1,039,769|+---------------------+-------+-------+--------+--------+----------+--------+---------+|Issue of ordinary | 25,724| 14,390| -| -| -| -| 40,114||share capital | | | | | | | |+---------------------+-------+-------+--------+--------+----------+--------+---------+|Loss for the year | -| -| -| -| -|(44,332)| (44,332)|+---------------------+-------+-------+--------+--------+----------+--------+---------+|Dividends paid | -| -| -| -| -|(43,845)| (43,845)|+---------------------+-------+-------+--------+--------+----------+--------+---------+|Transfer from special| -| -| (8,651)| -| -| 8,651| -||reserve | | | | | | | |+---------------------+-------+-------+--------+--------+----------+--------+---------+|Transfer in respect | | | | | | | ||of unrealised losses | | | | | | | ||on investment | -| -| -| -| (71,955)| 71,955| -||properties | | | | | | | |+---------------------+-------+-------+--------+--------+----------+--------+---------+|Transfer in respect | | | | | | | ||of unrealised losses | | | | | | | ||on indirect property | -| -| -| -| (14,626)| 14,626| -||funds | | | | | | | |+---------------------+-------+-------+--------+--------+----------+--------+---------+|Gains on sale of | | | | | | | ||investment properties| | | | | | | ||realised | -| -| -| 31| -| (31)| -|+---------------------+-------+-------+--------+--------+----------+--------+---------+|Gains on sale on | | | | | | | ||indirect property | | | | | | | ||funds realised | -| -| -| 1,588| -| (1,588)| -|+---------------------+-------+-------+--------+--------+----------+--------+---------+|Transfer of prior | | | | | | | ||years' revaluation to| | | | | | | ||realised reserve | -| -| -| 12,383| (12,383)| -| -|+---------------------+-------+-------+--------+--------+----------+--------+---------+|Shares bought back | -| -|(15,740)|(17,879)| -| -| (33,619)|+---------------------+-------+-------+--------+--------+----------+--------+---------+| | | | | | | | || | | | | | | | ||At 31 December 2007 |687,224| 14,390| 34,043| 325| 213,448| 8,657| 958,087|+---------------------+-------+-------+--------+--------+----------+--------+---------+ Consolidated Statement of Changes in Equity (audited) for the year ended 31 December 2006 +---------------------+-------+-------+-------+--------+----------+---------+---------+| | | | | Capital| Capital| | || | | | | Reserve| Reserve| | || | Share| Share|Special|Realised|Unrealised| Revenue| || |Capital| |Reserve| | | | || | |Premium| | £'000| £'000| Reserve| Total|| | £'000| | £'000| | | | || | | £'000| | | | £'000| £'000|+---------------------+-------+-------+-------+--------+----------+---------+---------+| | | | | | | | |+---------------------+-------+-------+-------+--------+----------+---------+---------+|At 1 January 2006 |661,500| -| 62,337| -| 133,450| 6,171| 863,458|+---------------------+-------+-------+-------+--------+----------+---------+---------+|Profit for the year | -| -| -| -| -| 220,411| 220,411|+---------------------+-------+-------+-------+--------+----------+---------+---------+|Dividends paid | -| -| -| -| -| (44,100)| (44,100)|+---------------------+-------+-------+-------+--------+----------+---------+---------+|Transfer from special| -| -|(3,903)| -| -| 3,903| -||reserve | | | | | | | |+---------------------+-------+-------+-------+--------+----------+---------+---------+|Transfer in respect | | | | | | | ||of unrealised gains | | | | | | | ||on investment | -| -| -| -| 152,099|(152,099)| -||properties | | | | | | | |+---------------------+-------+-------+-------+--------+----------+---------+---------+|Transfer in respect | | | | | | | ||of unrealised gains | | | | | | | ||on indirect property | -| -| -| -| 27,653| (27,653)| -||funds | | | | | | | |+---------------------+-------+-------+-------+--------+----------+---------+---------+|Gains on sale of | | | | | | | ||investment properties| | | | | | | ||realised | -| -| -| 3,412| -| (3,412)| -|+---------------------+-------+-------+-------+--------+----------+---------+---------+|Transfer of prior | | | | | | | ||years' revaluation to| | | | | | | ||realised reserve | -| -| -| 790| (790)| -| -|+---------------------+-------+-------+-------+--------+----------+---------+---------+| | | | | | | | || | | | | | | | ||At 31 December 2006 |661,500| -| 58,434| 4,202| 312,412| 3,221|1,039,769|+---------------------+-------+-------+-------+--------+----------+---------+---------+ F&C Commercial Property Trust Limited Consolidated Cash Flow Statement (unaudited) Year ended 31 December Year ended 2006 31 December 2007 (audited) £'000 £'000 Cash flows from operating activities Operating (loss)/profit for the year before finance (35,893) 231,418costsAdjustments for:Unrealised losses/(gains) on revaluation of 71,955 (152,099)investment propertiesUnrealised losses/(gains) on revaluation of 14,626 (27,653)indirect property fundsGains on sale of investment properties realised (31) (3,412)Gains on sale of indirect property funds realised (1,588) -Decrease/(increase) in operating trade and otherreceivables 541 (1,654)(Decrease)/increase in operating trade and other (382) 2,452payables ----------- ----------- 49,228 49,052 ----------- -----------Interest received 4,376 1,573Interest paid (12,028) (12,029)Taxation paid (445) (311) ----------- ----------- (8,097) (10,767) ----------- -----------Net cash inflow from operating activities 41,131 38,285 ----------- -----------Cash flows from investing activities Purchase of investment properties - (975)Sale of indirect property funds 50,188 -Sale of investment properties 31 23,237Capital expenditure (3,400) (4,836) ----------- -----------Net cash inflow from investing activities 46,819 17,426 ----------- -----------Cash flows from financing activities Proceeds from issue of ordinary share capital 40,114 -Share buy backs (33,619) -Dividends paid (43,845) (44,100) ----------- -----------Net cash outflow from financing activities (37,350) (44,100) ----------- -----------Net increase in cash and cash equivalents 50,600 11,611Opening cash and cash equivalents 53,291 41,680 ----------- -----------Closing cash and cash equivalents 103,891 53,291 ----------- ----------- F&C Commercial Property Trust Limited Notes to the Consolidated Financial Statements for the year to 31 December 2007 1. The Board has declared a fourth interim dividend of 1.50pper share to be paid on 25 April 2008 to shareholders on the register on 28March 2008. The ex-dividend date will be 26 March 2008. 2. There were 732,534,003 Ordinary Shares in issue at 31December 2007, excluding shares held in Treasury (2006: 735,000,000). During the year the Company repurchased 31,048,013 Ordinary Shares to hold inTreasury (2006: nil). At 31 December 2007, the Company held a total of31,048,013 Ordinary Shares in Treasury (2006: nil). During the year the Company issued 28,582,016 new Ordinary Shares with anaggregate nominal value of £25.7 million for a total consideration of £40.1million. The shares were issued at net asset value to shareholders in The UKBalanced Property Trust Limited ('UKBPT') who elected to roll-over theirinvestment into the Company as part of the winding up and scheme ofreconstruction of UKBPT. 3. The basic and diluted (loss)/earnings per share are based onthe loss for the year of £44,332,000 (2006: profit of £220,411,000) and on732,816,052 Ordinary Shares (2006: 735,000,000), being the weighted averagenumber of shares in issue during the year. 4. The Group results consolidate those of F&C CommercialProperty Holdings Limited, a wholly owned subsidiary which invests inproperties. The Group results also consolidate the results of F&C Commercial PropertyFinance Limited, a special purpose vehicle incorporated to issue the interestbearing bonds. 5. These are not full statutory accounts. The full audited accounts for the yearto 31 December 2007 will be sent to shareholders in April 2008, and will beavailable for inspection at Trafalgar Court, Les Banques, St Peter Port,Guernsey, the registered office of the Company. This information is provided by RNS The company news service from the London Stock Exchange