Balanced Commercial Property Trust Regulatory News (BCPT)

Date:  14 September 2023

From:  Balanced Commercial Property Trust Limited

LEI:  213800A2B1H4ULF3K397

Headlines

* See Alternative Performance Measures

Chairman’s Statement

Following a particularly turbulent 2022, the first half of 2023 represented a more stable environment for real estate capital values.

While consensus has begun to move away from the UK economy falling into recession, the macroeconomic environment is not overly favourable, with high inflation and high debt costs impacting economic growth. This rise in interest rates has led to less investment activity, and this lack of liquidity within the property capital markets continues to bear on investor sentiment.

Whilst most real estate sectors have remained relatively stable throughout 2023 to date, a significant portion of the office sector remains under pressure, experiencing the greatest decline of all sectors in capital values over the six months. On a brighter note, occupational markets across the other sectors have continued to show resilience and sustained activity despite the wider economic pressures.

Company Performance

Against this economic and property market backdrop, the Company has delivered a positive net asset value (‘NAV’) total return of 0.8 per cent for the six months. The NAV per share as at 30 June 2023 was 117.1 pence, down 1.2 per cent from 118.5 pence per share as at 31 December 2022.

The share price discount to NAV stood at 43.5 per cent at the end of the period and the negative sentiment towards the real estate sector continues to affect the rating of the shares. The Board believes that the action that has been taken in the refinancing of its debt reduces near term uncertainty and provides flexibility to reduce gearing in the Company and support the dividend increase.

The following table provides an analysis of the movement in the NAV per share during the period.

Portfolio Performance

The Company’s portfolio delivered a total return of 1.5 per cent over the first six months of the year, outperforming the MSCI UK Quarterly Property Index to June 2023 (‘MSCI’) return of 0.3 per cent. Relative outperformance was driven by a capital return of -1.1 per cent against the Index return of -2.0 per cent and an income return of 2.6 per cent against the Index at 2.3 per cent.

In a low-growth environment such as this, income becomes the primary driver of total return. It is therefore pleasing to report that 40 leasing initiatives and lease events have been concluded over the six-month period, accounting for a contracted income stream of £4.1 million per annum, with a further 19 lease initiatives completing post-period and representing an income stream of £3.8 million per annum. The Manager highlights in the Managers’ Review the potential for further income reversion in the portfolio.

The main drag on performance has been the portfolio’s exposure to the office sector, particularly select regional office markets and those buildings on shorter leases. Although the Company decided to reduce its office exposure through the sale of Cassini House in 2021, and while our office assets have generally been backed by positive tenant demand, overall sentiment to this sector of the market cannot be ignored. The Manager is therefore reviewing the portfolio weighting and is actively looking to further reduce the Company’s office exposure.

Borrowings

The Board has been reviewing financing options available to the Company on its debt, as its £260 million term loan with L&G is due to mature in December 2024. The Company also has a £50 million term loan with Barclays which is fully drawn down, along with an additional undrawn £50 million revolving credit facility (“RCF”) which expires on 31 July 2024 (the term loan and the RCF together being the “Barclays Debt Facility”).

The Board engaged EY Capital & Debt Advisory to act as Independent Financial Advisor in assessing the financing options available.

Following the conclusion of this exercise, we are pleased to announce the signing of a new, initially two-year debt facility provided by incumbent lender, Barclays, and a new lender, HSBC. The new debt facility has been structured with two tranches, being (a) a £60 million RCF and (b) a committed £260 million Term Loan, which can only be drawn to refinance the existing £260 million L&G Loan. Each tranche of the new facility can be repaid at any time. The current Barclays Debt Facility will be repaid, in full, and cancelled on 14 September 2023, with £30 million of the RCF tranche of the new debt facility being drawn down on the same date.

The new debt facility enables the Company to retain the competitively priced L&G Loan which is fixed at 3.32 per cent up to its existing 31 December 2024 maturity, whilst also ensuring the future liquidity needs of the Company are fully funded at an acceptable commitment fee, removing near term refinancing risk. The new debt facility includes two one-year extension options that allow the Company the flexibility to extend it with the agreement of Barclays and HSBC, with the first option available to be requested from 1 February 2024.

The Board believes that the new debt facility represents a successful outcome for the Company as it provides certainty of financing beyond the 2024 continuation vote while retaining the lower-cost fixed rate L&G Loan up to its final maturity date. It avoids having to fix longer-term debt at current rates whilst not precluding any future financing options and/or gearing targets in the light of any future disposals. This new facility therefore provides the Company with greater flexibility and optionality.

As at 30 June 2023, the Company’s loan to value, net of cash (‘LTV’) was 23.7 per cent and the weighted average interest rate on the Group’s total current borrowings was 3.6 per cent.

Dividends and Dividend Increase

The Company paid six interim dividends totalling 2.4 pence per share during the period, being six monthly dividends of 0.4 pence per share. The level of dividend cover for the period was 117.6 per cent on a cash basis. In line with its commitment to keep the level of dividend under review, the Board is pleased to report its intention to increase the level of the monthly dividend by 10.0 per cent to 0.44 pence per share with effect from the October 2023 distribution.

Environmental, Social and Governance (‘ESG’)

The Board remains committed to achieving Net Zero Carbon by 2040 or sooner. Detailed analysis and modelling of emissions reduction trajectories, which has been delivered through planned asset level interventions, has been a core feature of ESG activities in this period. The Board and Managers believe that the portfolio is well placed to deliver on its net zero carbon ambition within a business-as-usual context. The Managers and Board continue to pay attention to all material ESG matters.

Outlook

Whilst inflationary pressures in the wider economy have begun to ease, the headline rate of inflation remains elevated, and core inflation remains above the consensus forecast. At this point, it is unclear if we will see further increases to the base rate of interest in the short term in what remains an uncertain economic environment for business and consumer confidence.

Long-term interest rates are expected to settle at a higher level than those seen over recent years. This may constrain any prospective recovery in real estate capital values in the near term. It is possible that investment activity will remain subdued as buyers become increasingly selective in the search for attractive long-term returns in a low-growth, high inflation environment. We are also likely to see a greater divergence in sector allocation within real estate and a definitive preference for higher quality assets, or those that can be repositioned to provide increasingly demanded ESG credentials.

Preservation and creation of income continues to be key to performance. The portfolio continues to offer reversionary potential and significant opportunities for proactive management to drive income and related capital growth which will be critical in underpinning performance for the remainder of the year and into 2024, when we hope to see a recovery in the wider property market if the economic environment improves.

Paul Marcuse

Chairman

13 September 2023

Performance Summary

Managers’ Review

Property Market Review

The first half of 2023 has seen a return of relative stability, with the all-property equivalent yield moving out by just 18 basis points over the period.

Interest rates and the high cost of debt have remained at the forefront of investment considerations as the rate of inflation peaked over the period at 10.4 per cent in February 2023. While the rate of inflation has moderated since, the headline level remains high, and the Bank of England’s monetary response has proven slow to cool pricing pressures. Consequent increases in the cost of debt have added a further layer of caution to investment underwriting given uncertainty around interest rates. This economic environment has resulted in muted activity in the real estate investment markets. Whilst there is no shortage of capital available for deployment into key sectors such as industrial, retail warehousing and alternatives, investment markets have been impacted by a lack of available stock, with investment volumes in H1 2023 down 53 per cent year on year, and down 27 per cent on H2 2022.

Against this backdrop, the MSCI UK Quarterly Property Index generated a subdued total return of 0.3 per cent over the 6 months, constrained by a capital return of -2.0 per cent. However, the headline position belies a significant divergence at the sector and sub-sector level.

This has been most notable in the office sector, where the popularity of hybrid working strategies has brought about a structural reduction in occupier demand. However, corporates are increasingly seeking to tempt employees back to the office and consequently occupier demand has been strongly focussed on high-quality accommodation in locations offering attractive amenity. This has served to reinforce the now-established bifurcation between prime and secondary accommodation. Retail warehousing remains the favoured sub-sector, delivering the highest total return over the six-month period. With large, flexible units, the sector forms a key part of an omni-channel retailing platform and we have consequently seen demand from an increasingly wide variety of well-capitalised retailers. Offering a yield advantage over other sectors, investor appetite for retail warehousing has remained robust but constrained by a lack of available supply.

The wider retail sector has seen a more benign period with both rents and yields having been substantially rebased across the sector in prior years. Central London in particular has seen renewed levels of occupier demand as rents have been reset to more viable levels and accompanied by significant reductions in business rates, combining to materially decrease occupational costs and boost retailer profitability.

Whilst demand for logistics space has fallen from the highs seen during the pandemic, the sector’s fundamentals remain robust with demand stemming from a diverse range of occupiers within a well-balanced market. Supply has been constrained by a lack of speculative development due to tighter lending conditions and inflated construction costs. However, there is also evidence of occupiers trading down the quality spectrum in order to benefit from lesser rents and a slightly more muted rental growth outlook. We are yet to see a full recovery in pricing following outward prime yield movement of 150 basis point in H2 2022, with yields softening by 25 basis points over H1 2023, reflecting hesitancy within an uncertain economic environment.

Portfolio performance

The total return from the portfolio was 1.5 per cent over the six months, compared with the MSCI return of 0.3 per cent.

The portfolio outperformed MSCI on both capital and income returns over the period. Capital growth from the portfolio was -1.1 per cent compared with the MSCI return of -2.0 per cent, while the portfolio generated a 2.6 per cent income return against the Index at 2.3 per cent.

Capital Growth

Over the period, the equivalent yield on the portfolio softened from 5.9 per cent to 6.2 per cent.

Retail warehousing was the Company’s strongest performing sector, delivering capital growth of 7.1 per cent and a total return of 10.3 per cent. The Company’s assets represent prime holdings that have already transitioned to a robust tenant line-up. The appeal of these high-quality assets to the investment market has been supplemented by asset management to generate a 7.1 per cent uplift in passing rent over the period.

The Company’s industrial holdings delivered capital growth of 2.2 per cent over the period and a total return of 4.6 per cent. These assets offer attractive growth prospects with reversionary income potential. Strong levels of occupational activity are crystallising this growth into both income and capital performance with four leasing initiatives contracting over the six months, at an average 2.2 per cent premium to the estimated rental value (‘ERV’).

The mixed-use asset at St Christopher’s Place, London produced a total return of 0.1 per cent as it continues to recover post Covid. A marginally negative capital performance of -1.5 per cent was driven by the holding’s exposure to the office sector, which makes up circa 16 per cent of the asset’s capital value.

The performance of the Company’s office holdings was the main drag on performance, as the sector delivered negative capital growth of -7.5 per cent and a total return of -4.6 per cent. Over the period, investor sentiment towards this sector has deteriorated markedly.

Income Return

Over the six-month period, the passing rent across the portfolio grew by 4.1 per cent.

While the vacancy rate rose from 5.9 per cent by ERV to 7.2 per cent over the period, 2.0 per cent of this is contractually committed and completion of these leases will ultimately see the vacancy rate fall to 5.2 per cent. The portfolio’s key vacancy is an office at Stockley Park, Uxbridge, which accounts for 4.4 per cent of the void rate. We are currently working alongside a prospective occupier to deliver a value-accretive repositioning development, to convert the building to a medical use.

The weighted average unexpired lease term (WAULT) for the portfolio stands at 4.7 years assuming all break options are actioned. While income duration is preferred from a capital resilience perspective, this must be balanced against the opportunity to leverage lease events to crystallise rental growth into income performance, which is particularly critical in the prevailing market conditions. The portfolio offers an overall potential income reversion of circa 18 per cent and the WAULT offers the opportunity to release this latent value. This is particularly relevant within the industrial portfolio, where the income reversion is approximately 40 per cent and the WAULT 3.7 years.

Approximately 30 per cent of the portfolio’s income profile is supported through the presence of fixed-uplifts and partial inflationary linked rent review mechanisms within occupational leases.

Source: Columbia Threadneedle REP AM plc

Source: Columbia Threadneedle REP AM plc

Income Analysis and Voids

Source: Columbia Threadneedle REP AM plc

Asset Management

Industrial and logistics

The industrial and logistics sector has remained a key driver of performance for the Company. While the occupational market has experienced a slight cooling, the Company’s assets have seen rental growth of 3.1 per cent over the period and a number of highly accretive asset management initiatives have been delivered, crystallising both income and capital performance.

Hurricane 52, Estuary Business Park, Liverpool

The speculative development of this highly specified 52,500 sq ft logistics unit reached practical completion in August 2022. Following a competitive best-bids process, the unit was let in July 2023 to clothing manufacturer Montirex on a 10-year lease (break at year 5) at a rent showing a 7.2 per cent premium to the ERV. As at 30 June, this property represented the portfolio’s second largest single void by ERV, making the letting an important initiative that resulted in it being the portfolio’s top performer, delivering a total return of 17.5 per cent over the six months.

The Cowdray Centre, Colchester

This multi-let estate continues to see buoyant levels of occupier activity, supported by a phased programme of refurbishment which is driving renewed occupier demand, rental growth and value appreciation. MKM Building Supplies have exchanged a 20-year Agreement for Lease (break year 15) on Unit 1 Mason Road, at a rent in line with ERV and showing a premium to the rent agreed on the adjacent unit in December 2022. Elsewhere on the estate, a lease renewal on 13 Mason Road (Jayar Components) and a rent review on 3 Mason Road (Rexel UK) were concluded at a combined premium of 46 per cent above the previous passing rent. This accretive asset management activity has underpinned a robust total return of 4.1 per cent from the asset over the six months.

8 Hams Hall Distribution Park, Birmingham

This bespoke facility of 264,000 sq ft is occupied by Nestle Purina until March 2025. In August, Nestle completed a 10 year (break year 5) reversionary lease from March 2025 in exchange for a 3.5 month rent free period. The rent review now due in 2025 is expected to yield a significant uplift in passing rent.

Units 1 & 2 Strategic Park, Southampton

This two-unit scheme is subject to a significant refurbishment to enhance the specification of the units and its ESG credentials. The works are due to complete in September 2023 and both units are subject to leasing offers.

Retail Warehousing

A highly successful leasing strategy was delivered at the Company’s retail warehousing assets in 2022, securing full occupation of both holdings and solidifying a robust grocery, discount and convenience-led tenant roster. This has positioned these holdings to be the primary drivers of portfolio outperformance moving into 2023 as new leases have completed, generating a 7.1 per cent increase in the rental income from the parks over the six-month period.

JD Sports, Cancer Research and Mountain Warehouse have all opened for trade in the first half of 2023, while Tim Horton will be opening in Newbury later in the year.

Offices

Despite a very challenging period for offices and amid a tenant flight to quality we concluded six leasing initiatives in the first half of the year representing a rent roll of £1.7m. This activity supported a 6.3 per cent uplift in passing rent from the office portfolio, in turn driving income outperformance from the assets.

7 Birchin Lane, London EC3

The portfolio’s sole City of London holding has been subject to a phased programme of refurbishment, delivering Category A ‘Plug & Play’ space along with upgraded ESG credentials including a B-rated EPC. This investment has proven highly successful as two of these refurbished suites have let over the period attracting premium rents.

King Street, Manchester

This core Manchester multi-let holding benefits from a prime location and the building continues to see robust levels of occupier activity, remaining fully occupied as existing occupiers commit to the building. Part of the eighth floor was surrendered and simultaneously relet to an existing occupier, Markel Insurance, maintaining occupancy and the income stream. In tandem, Markel Insurance agreed a rental uplift at their outstanding September 2021 rent review on their eleventh floor. Elsewhere in the building, Lloyds Bank and Foresight Group both committed to additional 5-year terms on their respective suites, supporting the continued appeal of this high-quality asset.

Retail

St Christopher’s Place (mixed-use F&B, retail, residential and offices)

The Company’s flagship asset is a unique property; a prime Central London estate comprising 172 lettable units and 40 buildings, diversified across the retail, leisure, residential and office sectors.

The property continues to recover, delivering a positive total return over the six months to June. The strategy for St Christophers is firmly focussed on growth with three key initiatives in place:

The conversion of traditional retail to F&B drives investment fundamentals through superior rents, longer leases and sharper capitalisation rates, while also enhancing the consumer experience and occupier dynamics of the estate. Since the start of the year, the F&B offering has overtaken retail as the primary use class at the estate with three new F&B leases completing, two more under offer and a conditional agreement exchanged with the vegan restaurant concept Mildreds for a new anchor unit at the estate. The exposure to the F&B sector has increased from 26.8 per cent to 32.4 per cent over the period. 

The reduction of business rates by an average of 40 per cent, the opening of Crossrail’s Elizabeth Line and the emergence of a rebased rental tone has boosted occupier demand for Oxford Street. Since the turn of the year, fifteen permanent leasing deals have completed, bringing a diversification of uses to the street, while the number of immediately available units on Oxford Street is now at half the level it was in the aftermath of the pandemic. Post period, we have completed a lease renewal with Aldo at 372 Oxford Street, agreeing a new 5-year lease on a stepped rent averaging more than double the current passing rent.

Occupier demand for smaller floorplates is predominantly centred on fully fitted ‘Plug & Play’ space. Fitted space increases the optionality for occupier demand and materially reduces void periods, rent free periods and achieves higher rents. Whilst promoting the estate as an office campus, we are proactively repositioning suites to meet this key source of demand, seeking to convert 25 per cent of the office exposure in the short term to benefit from these superior investment credentials. Since the turn of the year, four office leases have completed and there are a further three under offer.

Alternatives

The portfolio’s alternatives holdings include the purpose-built student accommodation in Winchester, residential properties at St Christopher’s Place and the leisure units at Wimbledon Broadway (a gym and cinema).

The residential element of St Christopher’s Place is substantial, accounting for 4.8 per cent of the value of the Company’s portfolio. The residential element of the asset continues to deliver excellent growth, with annual net income in the 12 months to June 2023 up 41 per cent year-on-year.

Strategic Portfolio Initiatives

The portfolio offers attractive reversionary potential alongside ample opportunity for the delivery of value-add initiatives. A key strategic focus is to maintain low vacancy, crystalise rental growth into income and boost capital growth through the delivery of priority development projects in Stockley Park, Uxbridge and Strategic Park in Southampton.

The recovery of the real estate markets will be driven by select growth sectors and we have established a capital reallocation strategy to reduce the portfolio’s exposure to the office sector. A number of assets have been targeted for disposal and we are proactively seeking to focus strategy on key growth sectors and assets as we align the portfolio to deliver long-term relative outperformance.

Outlook

The economic backdrop has improved over the period. Having peaked in October 2022, the inflation rate appears to have hit an inflexion point, registering a fall to 6.8 per cent in July 2023, the lowest level since March 2022. While the lagging effects of higher interest rates may yet hit consumer confidence, consumer spending has thus far supported two quarters of marginal growth in GDP. The economic consensus now expects the UK to avoid entering recession, which is lending support to corporate strategies and growth. Across the sectors, occupational markets have remained robust, with income proving the driver of positive total returns over the period.

Weak investor sentiment will prevail in this economic uncertainty, and, at the market level, it is likely that investment volumes will remain subdued by historical standards. Benign capital markets will put the emphasis on the importance of income as the primary driver of total returns. Across the sectors, the occupational markets have proven resilient. However, it is those sectors offering both stability of income and the potential to enhance income that will lead the real estate market to recovery.

 Richard Kirby and Dan WalsgroveColumbia Threadneedle REP AM plc

13 September 2023

Environmental, Social and Governance (ESG)

Environmental and Social Performance

^ Unaudited

Highlights for the six-month period to 30 June 2023

This half year has been no different to recent previous periods in terms of witnessing major catastrophic incidences associated with climate change across the globe. Whilst UK weather patterns in the past few months may have been tempered by the position of the jet stream, other territories in relatively close geographic proximity have not been so fortunate with overbearing heat stresses and devastating wildfires a feature of recent times. Such incidents serve to strengthen the Company's resolve and whilst its individual contribution to climate action in a global context may be small, its relevance to all our stakeholders remains firmly engrained in our mindset, evidenced by our continued attention and focus to understanding and acting upon the risks and opportunities associated with energy demand, clean energy supplies and carbon emissions.

The Board is pleased to have seen the programme of asset level net zero carbon assessments across the portfolio concluded at the turn of the year. The information established during this process has, together with the application of certain assumptions and proxy values, allowed for subsequent detailed modelling and sensitivity testing around the future emissions profile of the assets, based on planned and potential interventions. Together with a parallel exercise covering transition towards more energy efficient assets, the Company is well positioned to adhere to the commitments made in its carbon strategy and pathway.

In the meantime, we have continued to pursue our regular core activities:

Whilst some residual distortion to consumption patterns may still remain on account of occupational trends post-pandemic, the Company has nevertheless seen:

The reductions in absolute energy consumption are a reflection of blended performance across the portfolio, whilst reductions in carbon emissions can be partly attributed to ongoing decarbonisation of the electricity network as well as lower energy demands at asset level.

Statement of Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company relate to the following risk categories: investment performance; discount/premium; financial management and product strategy. A detailed explanation of the risks and uncertainties in each of these categories can be found under the heading ‘Principal Risks and Future Prospects’ within the Strategic Report in the Company’s Annual Report for the year ended 31 December 2022. The Company’s principal risks remain valid and are expected to be so for the remainder of the Company’s financial year.

Statement of Directors’ Responsibilities in Respect of the Interim Report

We confirm that to the best of our knowledge:

• the condensed set of unaudited consolidated financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the European Union;

• 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 unaudited 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 Board

Paul Marcuse

Director

13 September 2023

Balanced Commercial Property Trust Limited

Condensed Consolidated Statement of Comprehensive Income (unaudited)

for the six months to 30 June 2023

All of the profit and total comprehensive income for the period is attributable to the owners of the Group.

All items in the above statement derive from continuing operations.

* These figures are audited.

Balanced Commercial Property Trust LimitedCondensed Consolidated Balance Sheet (unaudited)as at 30 June 2023

* These figures are audited.

Balanced Commercial Property Trust LimitedCondensed Consolidated Statement of Changes in Equity (unaudited)for the six months to 30 June 2023

Balanced Commercial Property Trust LimitedCondensed Consolidated Statement of Changes in Equity (unaudited)for the six months to 30 June 2022

Balanced Commercial Property Trust LimitedCondensed Consolidated Statement of Changes in Equityfor the year to 31 December 2022*

* These figures are audited.

Balanced Commercial Property Trust LimitedCondensed Consolidated Statement of Cash Flows (unaudited)for the six months to 30 June 2023

* These figures are audited

Balanced Commercial Property Trust LimitedNotes to the Consolidated Accounts

for the six months to 30 June 2023

The condensed consolidated financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom Financial Conduct Authority and IAS 34 ‘Interim Financial Reporting’ as adopted by the EU. 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 2022, which were prepared under full IFRS as adopted by the European Union requirements and The Companies Law (Guernsey), 2008. The accounting policies used in the preparation of the condensed consolidated financial statements have not varied in any material way from those of the consolidated financial statements of the Group for the year ended 31 December 2022. These condensed interim accounts have not been audited. The Group’s entry to UK REIT Regime was effective from 3 June 2019. The Group’s rental profits arising from both income and capital gains are exempt from UK corporation tax from that date, subject to the Group’s continuing compliance with the UK REIT rules.

2. Dividends and property income distributions (PID) gross of income tax

Property Income Distributions paid/announced subsequent to the period end were:

Although these payments relate to the period ended 30 June 2023, under IFRS they will be accounted for in the period during which they are declared.

3. Other expenses

The basis of payment for the Directors’ and administration fees are detailed within the consolidated financial statements of the Group for the year ended 31 December 2022.

4. Earnings per share

Earnings for the six months to 30 June 2023 should not be taken as guide to the results for the year to 31 December 2023.

5.  Investment properties

The fair value of investment properties reconciled to the appraised value as follows:

All the Group’s investment properties were valued as at 30 June 2023 by RICS Registered Valuers working for CBRE Limited (‘CBRE’), commercial real estate advisors, acting in the capacity of a valuation adviser to the AIFM. All such valuers are Chartered Surveyors, being members of the Royal Institution of Chartered Surveyors (‘RICS’).

CBRE completed the valuation of the Group’s investment properties at 30 June 2023 on a fair value basis and in accordance with The RICS Valuation – Global Standards (incorporating the International Valuation Standards) and UK national supplement (“the Red Book”).

There were no significant changes to the valuation process, assumptions and techniques used during the period, further details on which were included in note 9 of the consolidated financial statements of the Group for the year ended 31 December 2022.

6.  Fair value measurements

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:

All of the Group’s investments in direct property are included in Level 3 as it involves the use of significant inputs. There were no transfers between levels of the fair value hierarchy during the six-month period ended 30 June 2023.

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 fair value of the interest-bearing L&G Loan is based on the yield on the Treasury 2.75% 2024 which would be used as the basis for calculating the early repayment of such loan plus the appropriate margin.

The Group’s financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 December 2022.

7.  Interest-bearing loans and interest rate swap

 £260 million L&G loan

The Group entered into a £260 million ten-year term loan facility agreement with Legal & General Pensions Limited (“L&G”). The transaction was conducted by L&G’s lending arm, LGIM Commercial Lending Limited. The loan has a maturity date of 31 December 2024.

Interest is payable on this loan from the commitment date, quarterly in arrears, at a fixed rate of 3.32 per cent per annum for the duration of the loan. The loan is secured by means of a fixed and floating charge over the whole of the assets of the Secured Group (which at 30 June 2023, comprised FCPT Holdings Limited, F&C Commercial Property Holdings Limited and Winchester Burma Limited) (see note 13).  Post period-end, the Company signed up to a New Debt Facility and this is detailed in note 14.

 Barclays £50 million term loan and £50 million revolving credit facility

On 3 April 2023, the Group signed up to a one-year extension in respect of its £50 million term loan facility and £50 million revolving credit facility with Barclays Bank PLC (“Barclays”). Both facilities were extended to expire on 31 July 2024. Post period-end, the Company signed up to a new Debt Facility with both Barclays and a new lender, HSBC and this is detailed in note 14.

For the six months ended 30 June 2023, interest accrued on the bank loan at a variable rate, based on SONIA plus margin and was paid quarterly in arrears. The margin was 1.85 per cent per annum. The revolving credit facility which was undrawn at 30 June 2023 paid an undrawn commitment fee of 0.74 per cent per annum.

 Interest Rate Swap

The Group entered into a £50 million interest rate swap effective from September 2021 in connection with the Barclays term facility. The hedge was achieved by matching notional amount of the swap with the loan principal.

The interest rate swap expired on 31 July 2023. Interest on the swap was received at a variable rate calculated on the same SONIA basis as for the bank loan (as detailed above but excluding the margin) and was paid quarterly at a fixed rate of 0.517 per cent per annum. This fixed the interest rate for the £50 million term loan at 2.367 per cent.

The fair value of the asset in respect of the interest rate swap at 30 June 2023 was £187,000 (30 June 2022: £1,199,000; 31 December 2022: £1,030,000) which is based on the marked to market value.

8. Share capital

The Company did not purchase any Ordinary Shares during the period (30 June 2022: 33,219,905 at a cost of £37,729,000; 31 December 2022: 51,555,643 at a cost of £58,510,000).

9. Net asset value per share

10.  Going Concern

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 next twelve months.  As set out in the Articles of Incorporation the Directors shall put an ordinary resolution to shareholders on continuation of the Company at a general meeting which has to be held in 2024 and the Directors will advise on a date for the meeting in due course. 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. Post period-end, the Company has entered into a new debt facility as detailed in note 14. Based on the information the Directors believe that the Group has the ability to meet its financial obligations as they fall due for the foreseeable future, which is considered to be for a period of at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the accounts.

11. Related party transactions

The Directors of the Company, who are considered to be the Group’s key management personnel, received fees for their services and dividends from their shareholdings in the Company. No fees remained payable at the period end.

12.  Capital commitments

The Group had capital commitments totalling £5,777,000 as at 30 June 2023 (30 June 2022: £18,900,000; 31 December 2022: £4,000,000).

List of Subsidiaries 

 The Group results consolidate the results of the following companies:

- FCPT Holdings Limited (the parent company of F&C Commercial Property Holdings Limited and Winchester Burma 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)

- Winchester Burma Limited (a company which invests in properties)

- Leonardo Crawley Limited (a company which invests in properties)

All of the above-named companies are registered in Guernsey.

The Group’s ultimate parent company is Balanced Commercial Property Trust Limited.

 Subsequent events

On 13 September 2023, the Company signed up to a New Debt Facility provided by incumbent lender, Barclays Bank plc (“Barclays”), and a new lender, HSBC UK Bank plc (“HSBC”).

The New Debt Facility has been structured with two tranches, being (a) a £60 million Revolving Credit Facility (“RCF”) and (b) a £260 million Term Loan (the “Term Loan”), which can only be drawn to refinance the existing £260 million Term Loan facility (the “L&G Loan”) provided by LGIM Commercial Lending Limited (“L&G”). The current £100 million debt facility from Barclays (the “Barclays Loan”) will be repaid and cancelled on 14 September 2023, with £30 million of the RCF tranche being drawn down on the same day. The New Debt Facility is secured initially over the Barclays Loan security portfolio and upon drawing the Term Loan and subsequent repayment of the L&G Loan, the security portfolio provided to L&G will be secured to Barclays and HSBC. No additional security is to be provided beyond the current arrangements.

The New Debt Facility is a bespoke structure which permits the Company to retain the competitively priced L&G Loan up to it is existing 31 December 2024 maturity, whilst also ensuring the liquidity needs of the business are fully funded at an acceptable commitment cost whilst removing near term refinancing risk. The New Debt Facility has a headline interest margin of 180bps, lower than the Barclays Loan which was 185bps. It also includes two one-year extension options that allow the Company flexibility to extend the facility with the consent of its lenders, with the first option available to be requested from 1 February 2024.

Alternative Performance Measures

The Company uses the following Alternative Performance Measures (‘APMs’). APMs do not have a standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other entities.

Discount or Premium – the share price of an Investment Company is derived from buyers and sellers trading their shares on the stock market. This price is not identical to NAV. If the share price is lower than the NAV per share, the shares are trading at a discount. This could indicate that there are more sellers than buyers. Shares trading at a price above the NAV per share, are said to be at a premium.

Dividend Cover on a cash basis – The percentage by which Profits for the year (less gains/losses on investment properties) adjusted by capital and rental lease incentives amortisation and interest bearing loans amortisation of set-up costs cover the dividends paid.