Balanced Commercial Property Trust Regulatory News (BCPT)

To: RNS From: F&C Commercial Property Trust Limited Date: 16 October 2014 PROPOSED REFINANCING, AMENDMENT TO THE ARTICLES AND PUBLICATION OF A CIRCULAR Introduction and background F&C Commercial Property Trust Limited (the "Company") is a closed-endedGuernsey registered property investment company which is listed on the OfficialList of the UK Listing Authority. The Company's investment objective is toprovide Shareholders with an attractive level of income together with thepotential for capital and income growth from investing in a diversified UKcommercial property portfolio. At the time of the launch of the Group in March 2005 the Group issued, throughan associated company,£230 million of secured bonds (the "Bonds"). The Bonds aredue for repayment on 30 June 2015. As recently noted in the interim report forthe period ended 30 June 2014, the Board has been considering a refinancing ofthe Bonds. The Group has also drawn down £30 million under the Barclays PrimeFour Facility which is due for repayment on 30 June 2015. The Board is pleasedto announce that the Group has agreed terms to refinance the Bonds and theBarclays Prime Four Facility through a new ten year term loan facility with L&G.As noted below, this proposed long term loan is on attractive terms and isexpected to enhance the returns to Shareholders over the longer term. The Articles require the Board to put to Shareholders an ordinary resolution atthe annual general meeting of the Company to be held in 2015 approving thecontinuation of the Company. In the light of the proposed Refinancing, theBoard is proposing a resolution to remove the obligation in the Articles tohold the continuation vote in 2015 andfive yearly thereafter and to replace itwith an obligation to hold a continuation vote in 2024 (i.e. prior to therepayment date of the L&G Facility). As noted below, the Board is also proposing to amend the Company's discountcontrol policies to betterreflect market conditions. The Board believes thatholding the next continuation vote in 2024 and the revised discountcontrolarrangements are more appropriate for a listed property investment company suchas theCompany and are in line with in the wider listed REIT and propertycompany sector. The Company has today sent a circular to its Shareholders (the "Circular") inconnection with the Refinancingconvening an extraordinary general meeting toconsider a special resolution toamend the Articles. The Circular also explainswhy the Directors believe that these Proposals are in the best interests oftheCompany and Shareholders as a whole and recommends that Shareholders vote infavour of theResolution. The proposed Refinancing F&C Commercial Property Finance Limited, an associated company of the Group,has issued £230 million of secured bonds which have been assigned an "Aaa"rating by Moody's. The Bond Issuer is a special purpose vehicle which is not amember of the Group. The proceeds of the issue of the Bonds were used tofinance, pursuant to the terms of the Bond Facility Agreement, the purchase ofproperties for the Group's property portfolio on its launch. The Bonds arelisted on the Official List of the UK Listing Authority and are admitted totrading on the London Stock Exchange's main market for listed securities. TheBonds carry interest at a fixed rate of 5.23 per cent. per annum. The Group has also drawn down £30 million under the Barclays Prime FourFacility to fund part of the acquisition cost of properties in Aberdeen. TheBarclays Prime Four Facility is due for repayment on 30 June 2015. The Group expects to enter into a facility agreement with L&G substantiallyreflecting the heads of terms agreed with L&G. Under the facility agreement theGroup will be entitled to draw down up to £260 million to finance the repaymentof the Bonds and the Barclays Prime Four Facility. The L&G Facility will beconditional on certain matters including valid security being granted over theassets of the FCPH Borrower Group. The L&G Facility will not be secured overthe remaining assets of the Group. Interest is expected to be payable on the L&G Facility at the rate of 1.1 percent. per annum over therelevant ten year UK Gilt. Based on UK Gilt rates as atthe date of this announcement, it is estimated thatthe total interest ratepayableunder the L&G Facility would be approximately 3.1per cent. per annumwhichis significantly lower than the current interest rate on the Bonds. It isestimated that the total costs forputting in place the L&G Facility andrepaying the Bonds and the Barclays Prime Four Facility (includingthe L&Garrangement fee but excluding the early repayment penalty on the Bonds) willamount toapproximately £2.7 million. Based on the agreed heads of terms, the L&G Facility is expected to containcovenants, warranties andundertakings which are customary for a term loanfacility of this nature. However, the Board is of theview that the terms of theL&G Facility will be more flexible than the current terms of the Bonds. The Board intends to give notice to the Bond Issuer for repayment of the Bondson 31December 2014.It is expected that the Group will fix the interest ratepayable, and draw down the full amount available, under the L&G Facility priorto that date. It is expected that the Barclays Prime Four Facility will berepaid at or around the same time. Under theterms of the Bonds the Group willbe required to pay an early repayment penalty on the Bonds basedon UK Giltyields on the date of repayment, which is estimated (based on UK Gilt yields atthe date of this document) at approximately £5.5 million(equating to 0.7pperShare). The Board believes that it is in the interests of the Group to repaythe Bonds early to ensurethat the Group has certainty of available funds inadvance of the fixed repayment date of 30 June 2015and so that the Group cantake advantage of the current availability of long term borrowings from L&Gatattractive rates of interest. There is no early repayment penalty in respect ofthe Barclays Prime FourFacility but the Group will be liable for the cost ofbreaking the relevant interest rate swap (such cost at 30 September 2014isreflected in the current NAV per Share). The Group will meet the repaymentpenalty and the interestrate swap breakage cost from its existing cashresources. In accordance with the Company's investment policy gearing, represented byborrowings as apercentage of total assets, may not exceed 50 per cent. However,the Board's present intention is thatthe borrowings of the Group will belimited to a maximum of 35 per cent. of total assets at the time ofborrowing.Following the Refinancing, the Group's borrowings will comprise the L&GFacility and theBarclays SCP Facility and it is estimated that the weightedaverage period to maturity on the Group'sdebt will be 8.8years with a weightedaverage interest rate of 3.4per cent. per annum. Based on thetotal assets ofthe Group as at 30 September2014, such borrowings would represent approximately25per cent. at the time ofborrowing. Continuation vote The Articles require the Board to put to Shareholders an ordinary resolution atthe annual generalmeeting of the Company to be held in 2015, and five yearlythereafter, approving the continuation of theCompany. In the light of theproposed Refinancing, the Board is proposing a special resolution toamend theArticles to remove the requirement to hold a continuation vote in 2015 and fiveyearly thereafter. It is also the Board's current policy, as stated in theCompany's annual reportand accounts, to convene a meeting to consider the continuation of theCompanyin the event that the Shares trade at a discount of more than 5 per cent. for90 consecutivedealing days or more. In the light of the refinancing of theGroup with a long-term ten-year debt facilitythe Board has undertaken a reviewof these policies and, in particular, has considered whether holdingperiodiccontinuation votes is appropriate for a Company with illiquid underlyingassets, long-termdebt and a long term investment strategy. The Board has alsotaken into account the significant costs that would be incurred by the Group inrepaying the L&G Facility early and on being forced to sell properties to fundsuch repayment,as a result of the continuation vote. Following this review the Board is proposing that, if the Resolution is passed,the Board will be required to propose an ordinary resolution to approve thecontinuation of the Company in 2024 (i.e. prior to the repayment date of the L&G Facility). If such resolution is not passed, the Board will be required toput forward proposals within 12 months for the winding up of the Company, or areconstruction providing Shareholders with the opportunity to exit theirinvestment in full. The Board has also carefully considered the appropriate way to protectShareholders in the event of asignificant and persistent discount to the NAVdeveloping. At the annual general meeting held in May2014 the Board wasauthorised to purchase up to 14.99 per cent. of the Shares then in issue. It istheBoard's current policy to use this power, subject to certain conditions, torepurchase Shares where theyhave traded at a discount of 5 per cent. or morefor a continuous period of 20 dealing days. However,the daily prices at whichthe Shares trade can be significantly affected by the expectation ofvaluationchanges between the quarterly valuations and by the expectation ofinterest rate changes. While the Board does not believe that this policy provides the appropriatelevel of flexibility to enable itto use the share buyback authority itrecognises that Shareholders may expect some degree ofprotection. With this inmind, if the Resolution is approved, it is the intention of the Board that,while thecurrent policy will no longer apply for the reasons noted above, theBoard will, nonetheless, continue its commitment to limit anydiscount to theNAV at which the Shares may trade through the application of share buybacks.Theremoval of the formulaic policy provides the Board with more flexibility onthe timing and levels of anyshare buybacks. However, although in the future theapplication of share buybacks will not be linked toany specific discounttarget, the Board is aware of its responsibilities to Shareholders and itshistoriccommitment to a 5 per cent. discount trigger. A discount of 5 per cent.or more will therefore remain alevel at which the Board will formally reviewits buyback implementation. The Board will maintain itspolicy of seeking tominimise any significant and persistent discount to the NAV and, indecidingwhether any buybackof Shares is in the best interests of Shareholders,the Board intends to take intoaccount the level of discount, the marketenvironment at the time, the Group's cash position and cashrequirements and theviews of Shareholders including whether a continuation vote should be held. Attractions of the Group and the Shares The Directors believe that is the Proposals are in the best interests ofShareholders for thefollowing reasons. * The Group has performed strongly since its launch in 2005. * The Property Portfolio is well positioned to continue to out-perform the wider UK commercial property market over the medium and longer term. * There are a number of asset management opportunities in the Property Portfolio that will assist in the performance of the Group over the forthcoming years. * The Company remains one of the most highly rated companies in its sector. * Following the Refinancing, the Group will have in place cost effective long term borrowings which are expected to enhance returns to Shareholders over the longer term. * Based on the current UK Gilt rates, the expected interest margin on the L&G Facility will significantly improve the dividend cover of the Shares. Amendments to the Articles If the Resolution is passed by Shareholders at the General Meeting, therequirement on the Directorsto hold a continuation vote at the annual generalmeeting in 2015 and every five years thereafter willbe removed from theArticles and replaced with a requirement to hold a continuation vote in 2024. General Meeting The General Meeting has been convened for 9.30 a.m. on 7November 2014, to beheld at TrafalgarCourt, Les Banques, St. Peter Port, Guernsey GY1 3QL. AllShareholders are entitled to attend andvote on the Resolution to be proposed atthe General Meeting. If the Resolution is not passed, the Directors will consult with Shareholdersas to whether theRefinancing should proceed and will put to Shareholders anordinary resolution for the continuation of the Company at the annual generalmeeting of the Company to be held in 2015. Circular A copy of the circular has been submitted to the National Storage Mechanism andwill shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM. Definitions Terms used and not defined in this announcement have the meanings given in theCircular. For further information please contact: Richard Kirby, F&C Investment Business LimitedTel: 020 7499 2244 Graeme Caton, Winterflood Securities LimitedTel: 020 3100 0268