Balanced Commercial Property Trust Regulatory News (BCPT)

To: RNS Date: 28 August 2014 From: F&C Commercial Property Trust Limited Half Yearly Financial Report for the Period ended 30 June 2014 Highlights * Net asset value total return of 12.2 per cent * Share price total return of 1.9 per cent * Dividend yield of 5.0 per cent at the period end * Top decile performance of portfolio over 3 and 5 years within the IPD benchmark and top quartile over 1 year * Completion of new property acquisitions totalling £124 million * Portfolio weighted average unexpired lease term increased from 6.9 years to 7.9 years Chairman's Statement The Company's net asset value (`NAV') total return for the six month period was12.2 per cent. This compares favourably with a total return of 8.6 per centfrom the benchmark Investment Property Databank (`IPD') Quarterly Universe. Theungeared total return from the property portfolio was 10.8 per cent. Theportfolio continues to perform strongly, recording top decile performance overthree and five years within the IPD benchmark universe and top quartileperformance over one year. The share price total return for the period was 1.9 per cent, and the premiumof the share price to the NAV per share at the end of the period was 4.1 percent. There continued to be a strong level of demand for the Company's sharesduring the period but rising portfolio values have reduced the premium of theshare price to NAV. The UK commercial property market delivered a strong performance during theperiod. The economic outlook would appear brighter than a year ago, and thereare some signs of improvement in the occupational market and the yield gapagainst the risk free rate remains attractive. That said, in many instances thehigh degree of competition for assets, and the resulting pricing levels, mayreflect an investment market that in some areas has moved ahead of underlyingeconomic and occupier fundamentals. As previously reported, during the period the Company completed the purchase offour office blocks in Prime Four Business Park, Kingswells, Aberdeen for acombined purchase cost of £95.4 million, funded by existing cash resources anda £30 million committed bank facility. As we have stated previously, this is asignificant transaction for the Company and provides it with exposure to one ofthe most buoyant office markets in the UK as well as increasing its level ofdividend cover. The properties are all income producing, generating rentalincome of £6.9 million per annum, equivalent to a net initial yield of 6.8 percent. The properties were all revalued at the end of the period, recordingsignificant gains compared with their purchase cost. During the period the Company also purchased a brand new production anddistribution warehouse unit at The Hive, Liverpool International Business Park,Speke, Liverpool for £11.9 million, reflecting a net initial yield of 6.5 percent. The Company also made two small purchases on existing sites: two unitspurchased at Sears Retail Park, Solihull and a small property purchased withinSt. Christopher's Place Estate, London W1. Further information regarding the various property management activitiesundertaken during the period are contained within the Managers' Review. The following table provides an analysis of the movement in the NAV per sharefor the period: Pence NAV per share as at 31 December 2013 105.3 Unrealised increase in valuation of direct 10.8property portfolio Movement in interest rate swaps 0.1 Net revenue 1.9 Dividends paid (3.0) --------- NAV per share as at 30 June 2014 115.1 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. Based on this annuallevel of dividend, the dividend yield at the end of the period was 5.0 per centbased on the closing share price of 119.8p per share. Barring unforeseencircumstances, it is the Board's intention that the dividend will continue tobe paid monthly at the same rate. Borrowings At the end of the period the Company's borrowings were represented by its £230million secured bonds which mature in June 2015 and £80 million of secured bankloans, £50 million of which is repayable in 2017 and £30 million of which isrepayable in June 2015. Gearing, net of cash, at the end of the period was 22.3per cent. Maturity of Secured Bonds and Bank Loan In light of the forthcoming maturity of both the Company's £230 million bondsand £30 million bank loan in June 2015, the Board has been considering variousoptions for refinancing this debt, either on or before its maturity. The Boardhas received terms from a number of potential lenders. It is the Board'scurrent expectation that the Company will be able to refinance successfully andit continues to believe that the current low interest rate environment andquality of the Company's portfolio mean that it will be well placed torefinance these borrowings on attractive terms. Continuation Vote The Company is required by its Articles of Incorporation to propose an ordinaryresolution for the continuation of the Company at its Annual General Meeting in2015. The timing of the continuation vote was set at launch in 2005 so as tocoincide with the maturity of the £230 million bonds. In the event of the bondsand bank loan being refinanced in advance of their maturity date, the Boardintends to bring the continuation vote forward. The Board does not currentlyhave any reason to believe that a continuation vote would not be passed. Real Estate Investment Trusts (`REIT') Regime As reported in the last Annual Report, the Board has been reviewing the recentchanges to the REIT regime and how these might impact the Company. In carryingout its review the Board has considered the impact on the Company's taxableposition, particularly in light of the forthcoming debt refinancing, and theimpact for shareholders based on converting to a REIT or maintaining thecurrent Group structure. It is the Board's view that there would be no material benefit to shareholdersas a whole by converting to a REIT at the current time. The Board will,however, continue to keep this matter under review. Alternative Investment Fund Managers' Directive (`AIFMD') As announced on 25 July 2014, the Board has approved the appointment of F&CInvestment Business Limited (`FCIB'), as the Company's alternative investmentfund manager (the `AIFM') on the terms of and subject to the conditions of anew investment management agreement between the Company and the AIFM. The Company's existing management agreement with FCIB has been replaced withthe new agreement. The management fee, performance fee and notice periodprovisions remain unchanged. F&C REIT Property Asset Management plc (`F&C REIT') will continue to act as theCompany's property manager under the terms of a delegation agreement betweenthe Company, FCIB and F&C REIT. The Board has appointed J.P. Morgan Europe Limited (the `Depositary') to act asthe Company's depositary (as required by the AIFMD) on the terms of and subjectto the conditions of a depositary agreement between the Company, the AIFM andthe Depositary. Outlook UK commercial property is expected to remain in favour with a wide range ofinvestors. The further globalisation of property is likely to continue toattract overseas buyers to the UK while funds seeking long term security ofincome via long leases are also expected to remain active in the market. With ashortage of stock and low yields in London and for prime property, moreinvestors may look to the outer areas of London and the regions. The Managers believe that interest rate rises will be relatively modest andtake place within the context of a growing economy where capacity constraintswill act to support the occupational market and property performance. Thisbodes well for future performance of the sector. With this backdrop, the Board believes that the Company's portfolio is wellpositioned to make further good progress in the months ahead. The Managerscontinue to seek attractive investment opportunities and to add value throughpro-actively managing the existing portfolio where there are many opportunitiesto enhance revenue and capital returns for shareholders. Chris RussellChairman Managers' Review Property Market Review The market total return for the six months to 30 June 2014 as measured by theInvestment Property Databank (`IPD') Quarterly Universe (the benchmark) was 8.6per cent. Momentum built as the period progressed, with the final three monthsshowing a 4.8 per cent total return for the market as a whole. The UK has continued to deliver broadly-based economic growth by sector, andreal GDP moved ahead of its pre-recession peak by the end of the reportingperiod. Inflation has remained subdued; the Bank of England has kept interestrates unchanged and ten year gilt yields have edged lower. The timing of theend of quantitative easing and the current regime of exceptionally low interestrates in the UK was a major pre-occupation for investors. The period sawopinions shift, with sentiment moving towards the view that official rates maystart to increase earlier than previously thought. The marked turnaround in investment performance from the same period in 2013would appear to be due primarily to the weight of money entering the market.More than £20 billion was invested in commercial real estate during the periodaccording to Property Data, with overseas investors accounting for more than £7billion. Retail investors also actively invested in property funds over theperiod and the market also benefited from an increased appetite of lenders tothe sector. Although offices, especially those in Central London, remained in favour withinvestors it was industrial property and the "other" segment, an area thatfavours emerging property types, which saw the sharpest growth in investmentactivity from a year earlier. Investors have continued to look more closely atthe regions and to less prime stock and forward financing in an effort tosecure higher yields. This strength of investor demand and shortage of stock contributed to yieldcompression and rising capital values. Benchmark capital values rose by 5.8 percent during the period while the benchmark initial yield moved in by 40 basispoints. Whilst all the IPD standard segments saw initial yields compress, themovement was most marked for South East offices, Rest of UK offices andIndustrials. The benchmark income return slipped slightly during the period, registering 2.7per cent, in part reflecting the growth in capital values. IPD market data forstanding investments showed only 0.7 per cent growth in net income over theperiod at the `all-property' level, underlining the challenges that remain onthe occupational side. There are signs that tenant interest is increasing,although rental growth still remains largely focused on London and the SouthEast and the prime end of the market. There is increased interest indevelopment in areas of tight supply and a lack of Grade A stock is becomingapparent in some locations. London shops and offices and the South East office market generallyout-performed over the period. The retail sector outside London has continuedto under-perform the market. There are hot and cold spots in the UK withregional cities such as Aberdeen and Cambridge doing well. Stock selectionremains critical in driving performance. While the period witnessed strong performance, there are indications that theinvestment market may have run ahead of the economic and occupier fundamentals. Property Portfolio The property portfolio was externally valued at £1.14 billion as at 30 June2014. The ungeared total return from the portfolio over the period was 10.8 per cent(16th percentile) outperforming the 8.6 per cent return recorded by thebenchmark. The portfolio continues to deliver strong performance over thelonger term producing a history of top quartile performance over one year andtop decile over three and five years. Retail The total return from the Company's retail properties during the period was 8.4per cent compared with a benchmark return of 7.3 per cent. The Company's best performing retail segment was retail warehouses, whichrecorded a total return of 9.2 per cent compared with a benchmark return of 6.9per cent. Prime retail warehouses experienced a significant improvement ininvestor sentiment during the second quarter and a re-rating of yields, whichbenefitted the external valuation of the Company's properties. At Sears RetailPark, Solihull, the former Comet unit, which extends to 30,000 sq. ft., hasbeen redeveloped and was recently handed over to Next Home and Garden for astore opening later this year. Next Home and Garden has taken a 15 year leaseat a commencing rent of £800,000 per annum. The 10,000 sq. ft. former JJBSports unit remains vacant but it is hoped it will go under offer shortly to anational multiple retailer. St. Christopher's Place Estate, London W1, which is a mixed use property ofretail, office and residential space, continues to perform strongly, driven byboth a hardening in capitalisation rates and increases in its rental values asevidenced by a recent letting of the second floor of 6-8 James Street at a rentreflecting £70 per sq. ft. compared with the previous passing rent of £37.50per sq. ft. There are currently no vacant shops or office suites on the Estate. Offices The Company's office properties produced a total return of 14.4 per centcompared with a benchmark return of 10.4 per cent. The total return from this part of the portfolio was driven by the recentpurchases at Prime Four Business Park, Aberdeen where all properties benefittedfrom a significant revaluation in excess of their purchase price. The largestweighted contribution to performance came from Cassini House, St. James'sStreet, London, SW1, which saw both yield compression against a background ofan extremely strong Central London investment market and improving estimatedrental values. The passing rents in Cassini House equate to £57 per sq. ft. andare subject to rent reviews this year and it is expected that notable upliftswill be achieved on review. There was success in the regions as well. At 82 King Street, Manchester, therefurbishment of all the vacant floors was completed and the thirteenth floorlet to Zeus Capital at a commencing rent of £120,000 per annum. It is hopedthis letting will give an impetus to the marketing of the remaining vacantfloors. The first floor at Alhambra House, Glasgow was also refurbished and letto JP Morgan at a commencing rent of £302,000 per annum and the vacant groundfloor office has just been refurbished and is now under offer. At 124/125Princes Street, Edinburgh, a letting of the third floor to the RoyalInstitution of Chartered Surveyors has been achieved at £105,000 per annum. Industrial The Company's industrial and logistics properties delivered a total return of10.8 per cent compared with a benchmark return of 10.2 per cent. As previously reported, the Company has had success in regearing two of itslogistics properties. The Other Sector The student accommodation block let to the University of Winchester is theCompany's only exposure to this sector. This property produced a total returnof 4.3 per cent compared with a benchmark return of 6.2 per cent. The University achieved a 100 per cent occupancy of the blocks of accommodationduring the last academic year. Purchases and Disposals During the period, the Company completed the purchase of four office buildingsat Prime Four Business Park, Kingswells, Aberdeen for an aggregate purchaseprice of £95.4 million. The properties are all income producing generating atotal rent of £6.9 million per annum, reflecting a net initial yield of 6.8 percent. The value of these properties is now fully reflected in the Company's netasset value and they have produced significant uplifts in capital values uponexternal valuation. These properties are all well let with fixed compoundgrowth at future rent reviews and will provide an attractive income stream forthe Company. During the period, the Company also completed two small purchaseson or adjoining to existing holdings: two retail warehouse units at SearsRetail Park, Solihull at a price of £4.5 million and a small vacant property onSt. Christopher's Place Estate for £6.3 million. The Company also acquired a long leasehold interest in a brand new distributionand production facility at The Hive, Liverpool International Business Park,Speke, Liverpool for a price of £11.9 million, reflecting an initial yield of6.5 per cent. The property comprises 151,500 sq. ft. and is let in its entiretyfor a term of 15 years to Johnson Controls Automotive (UK) Limited at rent of £812,050 per annum. The lease is subject to a tenant's break at year 10 and arent free period expiring on 6 October 2014. Johnston Controls manufactures thecar seats for the Jaguar Land Rover (`JLR') Evoque which is manufactured atJLR' s nearby Halewood plant. The acquisition provides a brand new purposebuilt warehouse, let to a strong covenant in an established location that isbenefitting from the growth and success of the JLR Halewood plant. There were no disposals during the period. Property Management The management of income remains a key activity. Void levels over the periodreduced marginally from 6.0 per cent to 5.6 per cent of estimated rental value(excluding properties held for development). This compares with the benchmarkrate of 7.5 per cent. The provision of overdue debt (90 days) is 1.0 per cent of gross annualisedrents, which is a decrease over the period. The main provision for bad debtsrelates, as previously reported, to the defaults of JJB Sports and Comet Groupat Solihull. Outlook Investor sentiment has improved but downside risks and uncertainties remain.The potential path of UK interest rates and their effect on the economy andproperty yields is a major area of debate. The outcome of the referendum onScottish independence in September, the UK general election in 2015, and apossible EU referendum are other areas of uncertainty. In the internationalsphere, the debt crisis and stresses in the banking sector are still unwinding,while economic weakness in the Eurozone and some emerging markets, pluspolitical unrest in the Middle East and Ukraine, underline the fragile natureof the upturn. In the absence of external shocks and if the UK economy performsin line with expectations, the prospects for property performance would appearsound. While the total return of the past six months is unlikely to besustained for the remainder of the year, the gradual elimination of excesscapacity in the UK, a broadening of rental growth and continued strength ininvestor demand are predicted to lead to a period of positive total returns inthe high single digits. We expect London and the South East to continue toout-perform and for the income return to become an increasingly importantdriver of performance. Richard KirbyInvestment ManagerF&C REIT Property Asset Management plc F&C Commercial Property Trust Limited Condensed Consolidated Statement of Comprehensive Income (unaudited) for the six months to 30 June 2014 Six months Six months Year to to 30 June to 30 June 31 December 2014 2013 2013* £`000 £`000 £`000 Revenue Rental income 27,777 25,426 52,558 Gains/(losses) on investments Unrealised gains on revaluation of 82,281 15,107 66,765investment properties Losses on sale of investment properties - (198) (198)realised Total income 110,058 40,335 119,125 Expenditure Investment management fee (2,004) (1,776) (3,731) Investment performance fee (1,484) (1,334) (2,571) Direct operating expenses of let rental (1,834) (2,818) (5,209)property Valuation and other professional fees (324) (225) (528) Directors' fees (124) (113) (240) Administration fee (70) (70) (140) Other expenses (225) (344) (685) Total expenditure (6,065) (6,680) (13,104) Operating profit before finance costs and 103,993 33,655 106,021taxation Net finance costs Interest receivable 227 500 958 Finance costs (7,780) (7,348) (14,716) (7,553) (6,848) (13,758) Profit before taxation 94,440 26,807 92,263 Taxation (15) (123) (278) Profit for the period 96,425 26,684 91,985 Other comprehensive income Items that are or may be reclassifiedsubsequently to profit or loss Movement in fair value of interest rate 418 1,265 2,317swaps Total comprehensive income for the period 96,843 27,949 94,302 Basic and diluted earnings per share 12.7p 3.5p 12.2p All of the total comprehensive income for the period is attributable to theowners 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 2014 30 June 30 June 31 Dec 2014 2013 2013* £'000 £'000 £'000 Non-current assets Investment properties 1,125,008 855,020 914,183 1,125,008 855,020 914,183 Current assets Trade and other receivables 19,418 15,458 22,845 Cash and cash equivalents 60,319 182,908 160,937 79,737 198,366 183,782 Total assets 1,204,745 1,053,386 1,097,965 Current liabilities Interest-bearing bonds (229,882) - - Interest-bearing bank loan (29,453) - - Interest rate swap (46) - - Trade and other payables (20,596) (15,614) (17,530) (279,977) (15,614) (17,530) Non-current liabilities Interest-bearing bonds - (229,743) (229,811) Interest-bearing bank loan (49,733) (49,151) (49,207) Interest rate swaps (1,939) (3,455) (2,403) (51,672) (282,349) (281,421) Total liabilities (331,649) (297,963) (298,951) Net assets 873,096 755,423 799,014 Represented by: Share capital 7,587 7,587 7,587 Share premium 78,566 78,566 78,566 Reverse acquisition reserve 831 831 831 Special reserve 546,695 562,366 556,082 Capital reserves 171,848 37,909 89,567 Hedging reserve (1,985) (3,455) (2,403) Revenue reserve 69,554 71,619 68,784 Equity shareholders' funds 873,096 755,423 799,014 Net asset value per share 115.1p 99.6p 105.3p * 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 2014 Reverse Share Share Acquisition Special Capital Hedging Revenue Capital Premium Reserve Reserve Reserves Reserve Reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 7,587 78,566 831 556,082 89,567 (2,403) 68,784 799,0142014 Totalcomprehensiveincome forthe period Profit for - - - - - - 96,425 96,425the period Movement in - - - - - 418 - 418fair value ofinterest rateswaps Transfer in - - - - 82,281 - (82,281) -respect ofunrealisedgains oninvestmentproperties Transfer from - - - (9,387) - - 9,387specialreserve Total - - - (9,387) 82,281 418 23,531 96,843comprehensiveincome forthe period Transactionswith ownersof theCompanyrecogniseddirectly inequity Dividends - - - - - - (22,761) (22,761)paid At 30 June 7,587 78,566 831 546,695 171,848 (1,985) 69,554 873,0962014 F&C Commercial Property Trust Limited Condensed Consolidated Statement of Changes in Equity (unaudited) for the six months to 30 June 2013 Reverse Share Share Acquisition Special Capital Hedging Revenue Capital Premium Reserve Reserve Reserves Reserve Reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 7,447 64,612 831 562,366 23,000 (4,720) 82,495 736,0312013 Totalcomprehensiveincome forthe period Profit for - - - - - - 26,684 26,684the period Movement in - - - - - 1,265 - 1,265fair value ofinterest rateswaps Transfer in - - - - 15,107 - (15,107) -respect ofunrealisedgains oninvestmentproperties Losses on - - - - (198) - 198 -sale ofinvestmentpropertiesrealised Total - - - - 14,909 1,265 11,775 27,949comprehensiveincome forthe period Transactionswith ownersof theCompanyrecogniseddirectly inequity Issue of 140 13,954 - - - - - 14,094ordinaryshare capital Dividends - - - - - - (22,651) (22,651)paid At 30 June 7,587 78,566 831 562,366 37,909 (3,455) 71,619 755,4232013 F&C Commercial Property Trust Limited Condensed Consolidated Statement of Changes in Equity (unaudited) for the year to 31 December 2013* Reverse Share Share Acquisition Special Capital Hedging Revenue Capital Premium Reserve Reserve Reserves Reserve Reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 7,447 64,612 831 562,366 23,000 (4,720) 82,495 736,0312013 Totalcomprehensiveincome for theyear Profit for the - - - - - - 91,985 91,985year Movement in - - - - - 2,317 - 2,317fair value ofinterest rateswap Transfer in - - - - 66,765 - (66,765) -respect ofunrealisedgains oninvestmentproperties Losses on sale - - - - (198) - 198 -of investmentproperties -realised Transfer from - - - (6,284) - - 6,284 -specialreserve Total comprehe - - - (6,284) 66,567 2,317 31,702 94,302nsive incomefor the year Transactionswith owners ofthe Companyrecogniseddirectly inequity Issue of 140 13,954 - - - - - 14,094ordinary sharecapital Dividends paid - - - - - - (45,413) (45,413) At 31 December 7,587 78,566 831 556,082 89,567 (2,403) 66,784 799,0142013 * These figures are audited. F&C Commercial Property Trust Limited Condensed Consolidated Statement of Cash Flows (unaudited) for the six months to 30 June 2014 Six months Six months Year to to 30 June to 30 June 31 December 2014 2013 2013* £'000 £'000 £'000 Cash flows from operating activities Profit for the period before taxation 96,440 26,807 92,263 Adjustments for: Finance costs 7,780 7,348 14,716 Interest receivable (227) (500) (958) Unrealised gains on revaluation of (82,281) (15,107) (66,765)investment properties Losses on sale of investment properties - 198 198realised Decrease/(increase) in operating trade and 3,427 117 (7,270)other receivables Increase/(decrease) in operating trade and 3,354 (2,759) (908)other payables 28,493 16,104 31,276 Interest received 227 500 958 Interest paid (7,496) (7,215) (14,472) Taxation paid (305) (103) (180) (7,574) (6,818) (13,694) Net cash inflow from operating activities 20,919 9,286 17,582 Cash flows from investing activities Purchase/development of investment (123,732) (3,929) (8,523)properties Capital expenditure (4,812) (3,035) (5,946) Sale of investment properties - 36,000 36,000 Net cash (outflow)/inflow from investing (128,544) 29,036 21,531activities Cash flows from financing activities Shares issued (net of costs) - 14,094 14,094 Dividends paid (22,761) (22,651) (45,413) Drawdown of bank facility (net of costs) 29,768 - - Net cash inflow/(outflow) from financing 7,007 (8,557) (31,319)activities Net (decrease)/increase in cash and cash (100,618) 29,765 7,794equivalents Opening cash and cash equivalents 160,937 153,143 153,143 Closing cash and cash equivalents 60,319 182,908 160,937 * These figures are audited F&C Commercial Property Trust Limited Notes to the Consolidated Financial Statements for the six months to 30 June 2014 1. The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standard (`IFRS') IAS 34 `Interim Financial Reporting' and, except as described below, the accounting policies set out in the statutory accounts of the Group for the year ended 31 December 2013. 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 2013, which were prepared under full IFRS requirements. The Group has adopted the following new standards and amendments to standards,including any consequential amendments to other standards, with a date ofinitial application of 1 January 2014. The following changes in accountingstandards are also expected to be reflected in the Group's consolidatedfinancial statements as at and for the year ending 31 December 2014. * In October 2012, the IASB issued amendments to IFRS 10 `Consolidated financial statements', IFRS 12 `Disclosure of interests in other entities' and IAS 27 `Separate financial statements' - Investment entities: The amendments define an investment entity and introduce an exception to consolidating particular subsidiaries for investment entities. These amendments require an investment entity to measure those subsidiaries at fair value through profit or loss in accordance with IFRS 9 `Financial Instruments' in its consolidated and separate financial statements. The amendments also introduce new disclosure requirements in the Annual Report for investment entities in IFRS 12 and IAS 27. The adoption of these amendments does not have any material impact on the consolidated financial statements as presented. * In May 2013, the IASB issued IFRIC Interpretation 21 `Levies', an Interpretation on the accounting for levies imposed by governments. The Interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The adoption of this Interpretation may result in changes in the accounting treatment of certain property taxes paid by the Group in future periods but does not have any material impact on the consolidated financial statements as presented for the current, or comparative, reporting periods. After making enquiries, and bearing in mind the nature of the Company'sbusiness and assets, the Directors consider that the Company has adequateresources to continue in operational existence for the foreseeable future. Inassessing the going concern basis of accounting the Directors have had regardto the guidance issued by the Financial Reporting Council. They have consideredthe current cash position of the Group, forecast rental income and otherforecast cash flows. The Group has agreements relating to its borrowingfacilities with which it has complied during the year. Although some of theseborrowing facilities fall repayable within twelve months of the date ofapproval of the interim accounts, the Board has received terms from a number ofpotential lenders enabling it to consider various options for refinancing thisdebt and it is the Board's current expectation that the Group will be able torefinance this debt successfully. As the Directors believe that the Group hasthe ability to meet its financial obligations as they fall due for a period ofat least twelve months from the date of approval of the accounts, they continueto adopt the going concern basis in preparing the accounts. 2. Earnings per Ordinary Share are based on 758,715,702 shares, being the weighted average number of shares in issue during the period (period to 30 June 2013 - 754,837,249; year to 31 December 2013 - 756,792,414). 3. Earnings for the six months to 30 June 2014 should not be taken as a guide to the results for the year to 31 December 2014. 4. Dividends Six months Six months Year to to 30 June to 30 June 31 December 2014 2013 2013* Total Total Total £'000 £'000 £'000 In respect of the previous period: Ninth interim (0.5p per 3,793 3,738 3,738 share) Tenth interim (0.5p per 3,793 3,753 3,753 share) Eleventh interim (0.5p per 3,793 3,778 3,778 share) Twelfth interim (0.5p per 3,794 3,794 3,794 share) In respect of the period under review: First interim (0.5p per 3,794 3,794 3,794 share) Second interim (0.5p per 3,794 3,794 3,794 share) Third interim (0.5p per - - 3,794 share) Fourth interim (0.5p per - - 3,794 share) Fifth interim (0.5p per - - 3,794 share) Sixth interim (0.5p per - - 3,794 share) Seventh interim (0.5p per - - 3,793 share) Eighth interim (0.5p per - - 3,793 share) 22,761 22,651 45,413 A third interim dividend for the year to 31 December 2014, of 0.5 pence pershare totalling £3,794,000 was paid on 31 July 2014. A fourth interim dividendof 0.5 pence per share will be paid on 29 August 2014 to shareholders on theregister on 15 August 2014. Although these payments relate to the period ended 30 June 2014, under IFRSthey will be accounted for in the six months ending 31 December 2014, being theperiod during which they are paid. 5. Investment properties £'000 Opening book cost 805,760 Opening fair value adjustment 108,423 Opening fair value 914,183 Purchases 123,732 Capital expenditure 4,812 Movement in fair value 82,281 1,125,008 Closing book cost 934,304 Closing fair value adjustment 190,704 Closing fair value 1,125,008 All the Group's investment properties were valued as at 30 June 2014 by RICSRegistered Valuers working for the company of CBRE Limited (`CBRE'), commercialreal estate advisors, acting in the capacity of external valuers usingrecognised valuation techniques. All such valuers are Chartered Surveyors,being members of the Royal Institute of Chartered Surveyors (`RICS'). Therewere no significant changes to the valuation techniques used during the period,further details on which were included in the consolidated financial statementsof the Group for the year ended 31 December 2013. The CBRE valuation report isdated 11 July 2014 (the "Valuation Report"). The fair value of the Group's investment properties per the Valuation Reportamounted to £1,140,120,000 (30 June 2013 - £866,270,000; 31 December 2013 - £927,940,000). The difference between the fair value of the investmentproperties per the Valuation Report and the fair value per the balance sheet of£1,125,008,000 (30 June 2013 - £855,020,000; 31 December 2013 - £914,183,000)consists of capital incentives paid to tenants totally £4,365,000 and accruedincome relating to pre-payment for rent-free periods recognised over the lifeof the lease totalling £10,747,000, both of which are separately recorded inthe accounts within current assets. There are fixed charges over all of the Group's properties, including thosepurchased during the period, in relation to the Group's interest-bearing bondsand bank loans. 6. The Group's £30 million loan facility from Barclays Bank plc was drawn down on 20 March 2014 and used to partially finance the purchases of Blocks 1 and 2, Prime Four Business Park, Kingswells, Aberdeen. This loan is repayable on 30 June 2015. The Company's forward interest rate swap entered into to hedge the interest rate exposure on this loan commenced on 31 July 2014. 7. There were 758,715,702 Ordinary Shares in issue at 30 June 2014 (30 June 2013 - 758,715,702; 31 December 2013 - 758,715,702). During the six months to 30 June 2014 the Company did not issue any OrdinaryShares (period to 30 June 2013 - 14,000,000; year to 31 December 2013 -14,000,000). The Company has not issued any further Ordinary Shares since 30 June 2014. 8. At 30 June 2014 the Company had received notification under the Financial Conduct Authority's Disclosure and Transparency Rules that Friends Life Group Limited, through a number of subsidiaries, owned 24.96 per cent of the Company's ordinary share capital (31 December 2013: 26.8 per cent). The Directors consider Friends Life Group Limited to be a related party of the Company. 9. The Group results consolidate the results of the following companies: + FCPT Holdings Limited (the parent company of F&C Commercial Property Holdings Limited) + F&C Commercial Property Holdings Limited (a company which invests in properties) + SCP Estate Holdings Limited (the parent company of SCP Estate Limited and Prime Four Limited) + SCP Estate Limited (a company which invests in properties) + Prime Four Limited (a company which invests in properties) + F&C Commercial Property Finance Limited (a special purpose company which has issued the £230 million Secured Bonds) + Winchester Burma Limited (a company which invests in properties) + Accede Limited (a dormant company) All of the above named companies are registered in Guernsey except AccedeLimited which is registered in England and Wales. The Group's ultimate parent company is F&C Commercial Property Trust Limited. 10. 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: * Level 1 - Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities. Examples of such instruments would be investments listed or quoted on any recognised stock exchange. The fair value of the interest-bearing bonds issued by the Group, as disclosed below, is included in Level 1. * Level 2 - Quoted prices for similar assets or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment. Examples of such instruments would be those for which the quoted price has been suspended, forward interest rate swaps and certain other derivative instruments. The interest rate swap entered into in order to hedge the interest rate on the £50 million bank loan and the forward interest rate swap entered into in order to hedge the interest rate on the £30 million bank loan are included in Level 2. The combined fair value of these instruments at 30 June 2014 was £1,985,000 (30 June 2013: £ 3,455,000; 31 December 2013: £2,403,000). * Level 3 - External inputs are unobservable. Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instrument. All investments in direct property are included in Level 3. There were no transfers between levels of the fair value hierarchy during thesix months ended 30 June 2014. The fair value of the 5.23 per cent Secured Bonds, based on mid-market price,at 30 June 2014 was £238,425,000 (30 June 2013: £244,462,000, 31 December 2013:£241,247,000). The fair value of all other financial assets and liabilities isnot materially different from their carrying value in the financial statements. The Group's financial risk management objectives and policies are consistentwith those disclosed in the consolidated financial statements for the yearended 31 December 2013. 11. 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. 12. 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. F&C Commercial Property Trust Limited Statement of Principal Risks and Uncertainties The Company's assets comprise mainly direct investments in UK commercialproperty. Its principal risks are therefore related to the commercial propertymarket in general. Other risks faced by the Company include investment andstrategic, regulatory, management and control, operational, and financialrisks. The Company is also exposed to risks in relation to its financialinstruments. These risks, and the way in which they are managed, are describedin more detail under the heading `Principal Risks and Risk Management' withinthe Business Model and Strategy in the Company's Annual Report for the yearended 31 December 2013. The Company's principal risks and uncertainties havenot changed materially since the date of that report and are not expected tochange materially for the remainder of the Group's financial year. Statement of Directors' Responsibilities in Respect of the Half YearlyFinancial Report We confirm that to the best of our knowledge: * the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 `Interim Financial Reporting'; * the Chairman's Statement and Managers' Review (together constituting the Interim Management Report) together with the Statement of Principal Risks and Uncertainties above include a fair review of the information required by the Disclosure and Transparency Rules (`DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements; and * the Chairman's Statement together with the condensed set of consolidated financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so. 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 forthe six months ended 30 June 2014 which comprises the Unaudited CondensedConsolidated Statement of Comprehensive Income, the Unaudited CondensedConsolidated Balance Sheet, the Unaudited Condensed Consolidated Statement ofChanges in Equity, the Unaudited Condensed Consolidated Statement of Cash Flowsand the related notes. We have read the other information contained in theInterim Report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the information in the condensed set of financialstatements. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the Disclosureand 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 theCompany those matters we are required to state to it in this report and for noother purpose. To the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the Company for our review work, forthis report, or for the conclusions we have reached. Directors' Responsibilities The Interim Report is the responsibility of, and has been approved by, theDirectors. The Directors are responsible for preparing the Interim Report inaccordance with the DTR of the UK FCA. As disclosed in note 1, the annual financial statements of the Company areprepared in accordance with IFRS. The condensed set of financial statementsincluded 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 condensedset of financial statements in the Interim Report based on our review. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410 `Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the UK. A review of interim financial informationconsists of making enquiries, primarily of persons responsible for financialand accounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordancewith International Standards on Auditing (UK and Ireland) and consequently doesnot enable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express anaudit opinion. Conclusion Based on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the Interim Reportfor the six months ended 30 June 2014 is not prepared, in all materialrespects, in accordance with IAS 34 and the DTR of the UK FCA. Heather J MacCallumFor and on behalf ofKPMG Channel Islands LimitedChartered Accountants and Recognised AuditorsGuernsey All enquiries to: The Company SecretaryNorthern Trust International Fund Administration Services (Guernsey) LimitedTrafalgar CourtLes BanquesSt. Peter PortGuernsey GY1 3QLTel: 01481 745324Fax: 01481 745051 Richard KirbyF&C REIT Property Asset Management plcTel: 0207 499 2244 Graeme CatonWinterflood Securities LimitedTel: 0203 100 0268