Balanced Commercial Property Trust Regulatory News (BCPT)

F&C COMMERCIAL PROPERTY TRUST LIMITED - Half-yearly Financial Report

PR Newswire

London, August 26

Half Yearly Financial Report for the Period ended 30 June 2015

Highlights

Chairman’s Statement

It is pleasing to report a continuing strong performance of your Company for the six month period ended 30 June 2015. The net asset value (‘NAV’) total return for the period was 8.2 per cent and the ungeared total return from the property portfolio was 7.4 per cent. This compares favourably with a total return of 6.5 per cent from the benchmark Investment Property Databank (‘IPD’) Quarterly Universe. The portfolio continues to perform strongly over the longer term, recording top quartile performance over three years within the IPD universe and top decile performance over five and ten years.

The share price total return for the period was 5.7 per cent. There continued to be a high level of demand for the Company’s shares, as evidenced by the premium of the share price to the NAV per share which was 9.5 per cent at the end of the period.

The UK commercial property market has continued to deliver strong positive returns, led by the investment market but also benefiting from a growing economy and an improving occupational market, as the recovery spreads beyond London and into the regions. Rental growth is now being recorded in most parts of the market, with London leading the way. The office and industrial sectors have generally out-performed the retail sector outside London. The investment market has been highly competitive and pricing has responded to the strength of demand from a wide range of investors. With interest rates remaining low, property is still attractively priced against the risk-free rate and investment volumes are high by historic standards.

On 30 June 2015 the Company completed the sale of 124-125 Princes Street, Edinburgh for £18.1 million (before costs). The sale price compared with the valuation as at 31 December 2014 of £15.1 million. This disposal realised substantial capital growth following the completion of a programme of asset management activities.

The Company did not purchase any properties during the period but, since the end of the period, has announced the acquisition of The Leonardo Building, which is a Grade A Headquarters Office Building occupying a prime location within the Crawley Business Quarter, Manor Royal, Crawley. The building is currently under construction with completion expected on 31 March 2016. It is pre-let to Virgin Attlantic Ltd and the total consideration will be £45.3 million. This is a significant transaction for the Company and provides it with exposure to an attractive area of the office market in the South East of England which has very limited new supply, providing strong rental growth potential.

Further information regarding these transactions and the various property management activities undertaken during the period are contained within the Managers’ Review.

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

Dividends

Six monthly dividends, each of 0.5p per share, were paid during the period, maintaining the annual dividend rate of 6.0p per share. With this annual level of dividend, the dividend yield at the end of the period was 4.2 per cent based on the closing share price of 141.2p per share. Barring unforeseen circumstances, it is the Board’s intention that the dividend will continue to be paid monthly at the same rate. Dividend cover for the period (excluding capital gains on properties) was 78 per cent.

Borrowings

The Company entered into a £260 million ten year loan agreement with Legal & General Pensions Limited (‘L&G’) on 31 December 2014, refinancing its previous £230 million bonds and £30 million bank loan. The L&G loan carries a fixed interest rate of 3.32 per cent per annum. The Company also has a £50 million bank loan with a term to 28 June 2017 on which the interest rate is fixed, through an interest rate swap of the same notional value and duration, at 4.88 per cent per annum. The Group’s total borrowings amount in aggregate to £310 million with a weighted average interest rate of 3.57 per cent per annum. Gearing, net of cash, at the end of the period was 16.9 per cent.

Board Composition

As reported in detail in the 2014 Annual Report, there were some changes to the composition of the Board during the first six months of the year. Two new independent non-executive Directors, Peter Cornell and David Preston, were appointed on 1 May. Nick Tostevin, who had been a Director since the Company’s launch in 2005 and Chairman of the Audit Committee, retired from the Board following the Annual General Meeting on 28 May. At the same time, Trudi Clark was appointed as the new Audit Committee Chairman and Martin Moore was appointed as Senior Independent Director.

The Board now comprises seven Directors, which is intended to be 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.

Management

The Company continues to be managed by F&C Investment Business Limited (‘FCIB’), with the property management activities delegated to F&C REIT Property Asset Management plc (‘F&C REIT’). Following the acquisition of the F&C Group by BMO Global Asset Management in 2014, F&C’s property management activities now operate under the BMO Real Estate Partners brand.

Outlook

The outcome of the General Election in May removed a major area of uncertainty and although the EU referendum, Eurozone debt issues, volatility in global markets and the timing of changes to UK monetary policy remain of concern, investor sentiment is generally positive. The UK appeals to a wide range of investors and UK property is attractively priced against other assets.

Investment performance is likely to moderate as interest rates begin to rise but the Managers believe that increases will be gradual and moderate. With the economy predicted to see further growth, out-performing many of its European neighbours, rental growth is expected to be the principal driver of positive market performance.There are continuing concerns, however, that pricing in some parts of the investment market may be running ahead of the economic and property market fundamentals.

The acquisition of The Leonardo Building in Crawley since the end of the period demonstrates the ability of the Managers to generate investment opportunities for the Company, but the principal focus remains on continuing to add value through the pro-active management of the existing portfolio where there are many opportunities to enhance revenue and capital returns for shareholders. The Board believes that the Company’s portfolio is well positioned to make further good progress in the months ahead.

Chris RussellChairman

Managers’ Review

Highlights

Headline Returns by Sector(Six months to 30 June 2015)

Headline Returns by Segment(Six months to 30 June 2015)

Property Market Review

The market total return for the six months to 30 June 2015, as measured by the Investment Property Databank (‘IPD’) All Quarterly and Monthly Valued Funds (‘the benchmark’), was 6.5 per cent.

The UK economy has continued to record positive growth and the employment rate touched a new high during the period. With inflation remaining close to zero, the Bank of England kept interest rates and monetary policy unchanged. Gilt yields moved higher in the latter part of the period but the rate at the end of June of 2.1 per cent remained low relative to historic levels. Investor sentiment remained positive. The uncertainty regarding the outcome of the UK general election in May and subsequent likelihood of a referendum on UK membership of the EU by the end of 2017 were noted by investors but did not appear to have influenced their activity.

The weight of money attracted into property remained substantial, with transaction levels well in excess of the equivalent period in 2014. Overseas investors remained the most active buyers, particularly in Central London, but UK institutions were net investors and there was significant demand from retail investors. The banks continue to work through their problem loans at a brisk pace but appear more willing to consider new lending on well-secured property, alongside newer entrants both from the UK and overseas. The period was notable for a broadening of investor interest to the regions and to a wider range of property assets. The value of purchases of non-traditional property assets was close to a third of all acquisitions over the period and there were signs that investors were moving up the risk curve to favour assets with shorter income streams but with potential for growth.

Property remained attractively priced against the risk-free rate and the strength in the investment market, plus the competition for stock, caused initial yields to narrow still further to 5.0 per cent at the all-property level. Benchmark yields for City and West End offices are exceptionally low at 3.8 per cent and 3.3 per cent respectively. Although most parts of the market saw inward yield movement, it was most marked for Rest of UK offices with yields moving in by 60 basis points. Yield shift contributed to a 4.0 per cent rise in benchmark capital values over the period.

The benchmark income return dipped to 2.4 per cent during the six months to June 2015, in part reflecting the rise in capital values. The occupational market is improving with supply shortages appearing in some locations and development activity increasing, including some speculative starts. Rental growth has now returned to most parts of the market, with standard retail outside the South East being the main exception. However, the picture is polarised, with Central London offices recording more than 5 per cent rental growth over six months compared with 1.9 per cent at the all-property level. IPD market data shows net income growth responding to an improving economy, but at 0.7 per cent during the period this remains modest. There are still sub-sectors of the market such as provincial retail, office parks, and secondary assets, especially offices, industrials and shopping centres, which are struggling to deliver positive income growth.

Relative performance by sub-market was broadly similar to the equivalent period of 2014. Central London shops and offices together with the South East office market and the industrial and logistics sector generally out-performed over the period. The retail sector outside London continued to under-perform the market. There are hot and cold spots in the UK regions and stock selection remains critical in driving performance.

In this strongly performing market pricing can be keen and in some instances is at 2007 peak levels. Finding value and delivering a sustainable performance from acquisitions in such a competitive market can be challenging. We continue to be concerned that, in some parts of the market, pricing may not be fully justified by the underlying fundamentals.

Property Portfolio

The property portfolio was externally valued at £1,257.5 million as at 30 June 2015.

The total return from the portfolio over the period was 7.4 per cent (27th percentile) outperforming the 6.5 per cent return recorded by the benchmark. The portfolio continues to deliver strong performance over the longer term with top quartile performance over three years and top decile performance over five and ten years.

Retail

The overall total return from the Company’s retail properties during the period was 7.1 per cent compared with the benchmark return of 4.2 per cent.

The Company’s best performing retail segment was high street retail - Rest of UK recording a total return of 18.7 per cent. The main reason for this significant relative outperformance is the realisation of value from the sale of 124/125 Princes Street, Edinburgh, which is explained in more detail below.

St. Christopher’s Place Estate, London W1 continues to perform strongly, with a 7.2 per cent increase in its capital value over the period. This was driven by a hardening in capitalisation rates as a consequence of the demand for central London retail properties. Significant improvements in rental values have also been demonstrated by retail lettings in James Street, increasing rents by 16.7 per cent to £175 Zone A, and lettings in St. Christopher’s Place increasing the rental tone by 40 per cent to £210 Zone A. There are currently no commercial vacant units on the Estate.

The redevelopment of 71-77 Wigmore Street commenced in January 2015 and construction works are progressing. The formal marketing of the retail and restaurant units has not yet commenced but they have already generated a good level of interest. 

The relative underperformance of the Company’s retail warehouse assets was largely attributable to the 8.4 per cent decrease in the capital value of Dane Street, Rochdale where in excess of 90 per cent of the income is derived from an Asda superstore. The reducing unexpired lease term and a declining investor sentiment for supermarket covenants have led to the downward valuation. At Sears Retail Park, Solihull the enabling works for TK Maxx have completed and this unit has now been handed over to the tenant to complete their own fit-out works.

Offices

The Company’s office portfolio produced a total return of 5.4 per cent compared with the benchmark return of 9.1 per cent.

The Company’s office properties located in the West End and South East underperformed the benchmark, the performance of the latter being held back by voids at Thames Valley Park One, Reading and Watchmoor Park, Camberley. With regard to the West End offices, the valuation of the properties was largely static over the period, however, these properties have previously enjoyed a long period of sustained outperformance.

The Company’s only City asset, 7 Birchin Lane, London EC2 produced a total return of 12.0 per cent. The property is currently subject to refurbishment works that should significantly increase the rental value.

The largest weighted contribution to performance came from 82 King Street, Manchester. The refurbishment of all vacant floors has completed and the recent lettings to Zeus Capital, Axa, Channel 4 and Credit Suisse (renewal) have seen rents grow to £31 per sq ft. In addition to the occupational demand, yields have sharpened and the capital value of the property increased 21.2 per cent over the period.

Industrial and Logistics

The Company’s industrial and logistics portfolio delivered a total return of 12.7 per cent compared with a benchmark return of 8.0 per cent.

The Company’s South East properties performed strongly over the period with a notable performance from Hedge End, Southampton where a previously vacant unit of 67,500 sq ft was let to Amazon on a new 10 year lease, a break at year five, at a rent of £7.50 per sq ft.

The Rest of the UK assets also produced a strong return reflecting improving tenant take-up in the core locations of the logistics market, the expectation of rental growth and further yield compression. 

The Alternative Property Sector

The student accommodation block let to the University of Winchester is the Company’s only exposure to this sector. This property produced a total return of 13.8 per cent compared with the benchmark of 6.3 per cent. The performance demonstrates the strength of demand for prime properties let on long unexpired leases with annual RPI uplifts.

Purchases and Disposals

During the period the Company completed the disposal of 124/125 Princes Street, Edinburgh for a price of £18.1 million (before costs) reflecting a net initial yield of 5.3 per cent. The sale price compares with the valuation as at 31 December 2014 of £15.1 million.

The disposal realised substantial capital growth following the completion of a programme of asset management activities which included the refurbishment of the office floors and the successful leasing of those floors. The property was fully let at the time of the sale, providing a good opportunity to redeploy the capital into new asset management opportunities within the portfolio.

Since the end of the period the Company has completed the purchase of The Leonardo Building located at Manor Royal, Crawley. The property is currently under construction and will comprise 110,545 sq. ft. of Grade A offices, with completion expected 31 December 2015. The building has been pre-let to Virgin Atlantic Ltd on a lease of 16.5 years (18 months’ rent free) at an initial rent of £23 per sq ft. The tenants’ fit-out works are expected to complete in April 2016.

The total consideration will be £45.3 million and the property will provide a rental income of approximately £2.5 million per annum, equivalent to a net initial yield of 5.3 per cent. This acquisition provides the Company with an exposure to a new building, located in an area of the South East experiencing strong demand with limited new supply and to a property let at a relatively low rent which should provide strong future rental growth.

Property Management

The management of income remains a key activity. Due to successful asset management activities, void levels over the period continued to decline, falling from 4.5 per cent to 3.8 per cent of estimated rental value (excluding properties held for development). This compares with the benchmark rate of 6.9 per cent.

The provision for overdue debt (90 days) is 0.6 per cent of gross annualised rents, the majority of which is represented by service charges queried by tenants. 

Outlook

The economic outlook is for steady growth and modest inflation, providing a favourable backdrop for sustained positive property performance. We do not expect the current momentum to be wholly maintained but, in the absence of major shocks, we believe that the next five years will see a period of positive total returns supported by rental and capital growth, especially in the first part of the period.

There are uncertainties surrounding the forthcoming EU referendum, the intensification of debt problems in Greece and the timing and extent of UK official interest rate rises that could affect investor perceptions of UK commercial property investment. However, we believe that the UK property market will remain an attractive destination for overseas buyers due to its size, liquidity and transparency and that interest rate rises will be gradual and modest thereby maintaining property’s attractiveness to investors looking for a higher income alternative to gilts and cash.

Within the property sector, we believe that London and the South East will continue to out-perform, aided by stronger relative economic growth, providing opportunities in both established and emerging sub-markets. The broadening of recovery to the regions, possibly aided by government policy initiatives and infrastructure improvements, could also produce new growth hubs in the future. We see yield compression becoming less of a factor in driving performance over the medium-term and the income return becoming the dominant element supporting total returns.

Richard KirbyInvestment ManagerBMO Real Estate Partners

F&C Commercial Property Trust Limited

Condensed Consolidated Statement of Comprehensive Income (unaudited)for the six months to 30 June 2015

All of the total comprehensive income for the period is attributable to the owners of the Company.

All items in the above statement derive from continuing operations.

* These figures are audited.

F&C Commercial Property Trust Limited

Condensed Consolidated Balance Sheet (unaudited)as at 30 June 2015

* These figures are audited.

F&C Commercial Property Trust Limited

Condensed Consolidated Statement of Changes in Equity (unaudited)for the six months to 30 June 2015

F&C Commercial Property Trust Limited

Condensed Consolidated Statement of Changes in Equity (unaudited)for the six months to 30 June 2014

F&C Commercial Property Trust Limited

Condensed Consolidated Statement of Changes in Equityfor the year to 31 December 2014*

* These figures are audited.

F&C Commercial Property Trust Limited

Condensed Consolidated Statement of Cash Flows (unaudited)for the six months to 30 June 2015

* These figures are audited

F&C Commercial Property Trust Limited

Notes to the Consolidated Financial Statements

for the six months to 30 June 2015

1. The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standard (‘IFRS’) IAS 34 ‘Interim Financial Reporting’ and the accounting policies set out in the statutory accounts of the Group for the year ended 31 December 2014. The condensed consolidated financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2014, which were prepared under full IFRS requirements. 

After making enquiries, and bearing in mind the nature of the Company’s business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. They have considered the current cash position of the Group, forecast rental income and other forecast cash flows. The Group has agreements relating to its borrowing facilities with which it has complied during the period. As such the Directors believe that the Group has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of the accounts. For this reason they continue to adopt the going concern basis in preparing the accounts. 

2. Earnings per Ordinary Share are based on 799,366,108 shares, being the weighted average number of shares in issue during the period (period to 30 June 2014 – 758,715,702; year to 31 December 2014 – 771,857,477). 

3. Earnings for the six months to 30 June 2015 should not be taken as a guide to the results for the year to 31 December 2015. 

4. Dividends

A third interim dividend for the year to 31 December 2015, of 0.5 pence per share totalling £3,997,000 was paid on 31 July 2015. A fourth interim dividend of 0.5 pence per share will be paid on 28 August 2015 to shareholders on the register on 14 August 2015.

Although these payments relate to the period ended 30 June 2015, under IFRS they will be accounted for in the six months ending 31 December 2015, being the period during which they are paid. 

5. Investment properties

All the Group’s investment properties were valued as at 30 June 2015 by RICS Registered Valuers working for the company of CBRE Limited (‘CBRE’), commercial real estate advisors, acting in the capacity of external valuers using recognised valuation techniques. All such valuers are Chartered Surveyors, being members of the Royal Institute of Chartered Surveyors (‘RICS’). There were no significant changes to the valuation techniques used during the period, further details on which were included in the consolidated financial statements of the Group for the year ended 31 December 2014. The CBRE valuation report is dated 8 July 2015 (the “Valuation Report”).

The fair value of the Group’s investment properties per the Valuation Report amounted to £1,257,505,000 (30 June 2014 - £1,140,120,000; 31 December 2014 - £1,212,610,000). The difference between the fair value of the investment properties per the Valuation Report and the fair value per the balance sheet of £1,241,844,000 (30 June 2014 - £1,125,008,000; 31 December 2014 - £1,195,593,000) consists of capital incentives paid to tenants totally £4,318,000 and accrued income relating to pre-payment for rent-free periods recognised over the life of the lease totalling £11,343,000, both of which are separately recorded in the accounts within current assets.

There are fixed charges over all of the Group’s properties, including those purchased during the period, in relation to the Group’s borrowings. 

6. 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. The monies held in this secured bank account could not be used for any purpose other than the redemption of the Secured Bonds.

As the cash held for the repayment of the Secured Bonds, including the early repayment premium, was held in a secured account 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 offset the cash balance against the bond liability at 31 December 2014. The Secured Bonds were redeemed in full, at a capital value of £235,601,000, on 2 January 2015.

At 30 June 2015, the Group’s borrowings consisted of a £260 million loan with a term to 31 December 2024 and a fixed interest rate of 3.32 per cent per annum. The Group also has a £50 million bank loan with a term to 28 June 2017 on which the interest rate has been fixed, through an interest rate swap of the same notional value and duration, at 4.88 per cent per annum. 

7. There were 799,366,108 Ordinary Shares in issue at 30 June 2015 (30 June 2014 – 758,715,702; 31 December 2014 – 799,366,108).

During the six months to 30 June 2015 the Company did not issue any Ordinary Shares (period to 30 June 2014 – nil; year to 31 December 2014 – 40,650,000).

The Company has not issued or bought back any Ordinary Shares since 30 June 2015. 

8. The Group results consolidate the results of the following companies:

All of the above named companies are registered in Guernsey except Accede Limited which is registered in England and Wales.

The Group’s ultimate parent company is F&C Commercial Property Trust Limited. 

9. The fair value measurements for financial assets and financial liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows:

There were no transfers between levels of the fair value hierarchy during the six months ended 30 June 2015.

Other than the fair values stated in the table below, the fair value of all other financial assets and liabilities is not materially different from their carrying value in the financial statements.

The Group’s financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 December 2014. 

10. Certain statements in this report are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Accordingly, undue reliance should not be placed on forward looking statements. 

11. The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Company has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Company. The key measure of performance used by the Board to assess the Company's performance is the total return on the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the condensed consolidated financial statements. 

12. On 31 July 2015, the Group announced that it had completed the acquisition of Abstract (Crawley) Limited, a UK company being the single ownership vehicle of The Leonardo Building. On 7 August 2015, the ownership of The Leonardo Building was transferred internally within the Group to Leonardo Crawley Limited, a newly registered Guernsey company which is a wholly owned subsidiary of F&C Commercial Property Trust Limited. The property comprises a Grade A Headquarters Office Building within the Crawley Business Quarter, Manor Royal, Crawley. The Leonardo Building is currently under construction with practical completion expected 31 December 2015 and completion of Category A specification scheduled for 31 March 2016.

The building provides 110,545 sq. ft. of accommodation and on completion will be let to Virgin Atlantic Limited with an overall weighted unexpired term in excess of 16.5 years, with an 18 month rent free period, at an initial rent of £23.00 per sq ft.

The total consideration will be £45.3 million. The property will generate rental income of approximately £2.5 million per annum, equivalent to a net initial yield of 5.3 per cent.

F&C Commercial Property Trust Limited

Statement of Principal Risks and Uncertainties

The Company’s assets comprise mainly direct investments in UK commercial property. Its principal risks are therefore related to the commercial property market in general. Other risks faced by the Company include investment and strategic, regulatory, management and control, operational, and financial risks. The Company is also exposed to risks in relation to its financial instruments. These risks, and the way in which they are managed, are described in more detail under the heading ‘Principal Risks and Risk Management’ within the Business Model and Strategy in the Company’s Annual Report for the year ended 31 December 2014. The Company’s principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remainder of the Group’s financial year.

Statement of Directors’ Responsibilities in Respect of the Half Yearly Financial Report

We confirm that to the best of our knowledge:

On behalf of the BoardChris RussellDirector

F&C Commercial Property Trust Limited

Independent Review Report to F&C Commercial Property Trust Limited

Introduction

We have been engaged by F&C Commercial Property Trust Limited (‘the Company’) to review the condensed set of financial statements in the Interim Report for the six months ended 30 June 2015 which comprises the Unaudited Condensed Consolidated Statement of Comprehensive Income, the Unaudited Condensed Consolidated Balance Sheet, the Unaudited Condensed Consolidated Statement of Changes in Equity, the Unaudited Condensed Consolidated Statement of Cash Flows and the related notes. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules (‘the DTR’) of the UK's Financial Conduct Authority (‘the UK FCA’). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors’ Responsibilities

The Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with IFRS. The condensed set of financial statements included in this Interim Report has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with IAS 34 and the DTR of the UK FCA.

Heather J MacCallumFor and on behalf ofKPMG Channel Islands LimitedChartered AccountantsGuernseyAll enquiries to:The Company SecretaryNorthern Trust International Fund Administration Services (Guernsey) LimitedTrafalgar CourtLes BanquesSt. Peter PortGuernsey GY1 3QLTel: 01481 745324Fax: 01481 745051Richard KirbyF&C REIT Property Asset Management plcTel: 0207 499 2244Graeme CatonWinterflood Securities LimitedTel: 0203 100 0268