Last checked at 31 Mar 2009 13:44
F&C COMMERCIAL PROPERTY TRUST LIMITED
31 March 2009
RECOMMENDED PROPOSALS TO APPROVE THE CONTINUATION OF THE COMPANY
Introduction and background
F&C Commercial Property Trust Limited (the "Company") is an authorised closed-ended investment scheme domiciled in Guernsey which is listed on the Official List of the UK Listing Authority. It was launched on 18 March 2005.
The Company's investment objective is to provide Shareholders with an attractive level of income together with the potential for capital and income growth from investing in a diversified UK commercial property portfolio.
At the continuation EGM held in September 2007, an ordinary resolution was passed approving the continuation of the Company. The circular issued by the Directors in relation to that Continuation EGM stated that if the ordinary resolution was passed approving the continuation of the Company the Directors would not convene another extraordinary general meeting to consider the continuation of the Company unless the market price of a Share was more than five per cent. below the published NAV of a Share for a continuous period of 90 dealing days or more following the first anniversary of the Continuation EGM. On 5 February 2009 the Directors announced that the Shares had traded at more than a five per cent. discount to their NAV for 90 dealing days following the first anniversary of the Continuation EGM and accordingly that the Directors would convene an extraordinary general meeting to consider a further continuation resolution.
The Company has today published a circular (the "Circular") convening an Extraordinary General Meeting to be held at 12.45 pm on 1 May 2009 at Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL to consider an ordinary resolution to approve the continuation of the Company. The Circular and this announcement also explain why the Directors believe that the continuation of the Company is in the best interests of Shareholders as a whole and recommend that Shareholders vote in favour of Resolution 1 at the EGM.
In the event that Resolution 1 is passed the Directors intend to bring forward proposals (the "Proposals") for the introduction of a new holding company to provide additional flexibility to the Enlarged Group, including a wider investment policy. Accordingly the Circular and this announcement also sets out the details of these Proposals.
The Directors also believe it is in the best interests of Shareholders that, if Resolution 1 is passed, the Company should not be required to hold another continuation vote unless the market price of a Share is more than five per cent. below the published NAV of a Share for a continuous period of 90 dealing days or more following the second anniversary (rather than the first anniversary) of the passing of Resolution 1. Therefore Resolution 2 is being proposed to ask Shareholders to approve the extension of the period between continuation votes. Details of why the Directors recommend that Shareholders vote in favour of Resolution 2 are also set out in the Circular and this announcement.
Performance of the Company
Over the period from the launch of the Company to 31 December 2008 (being the most recent quarter end) the NAV total return per Share (with dividends re-invested) was 5.0 per cent. compared with the total return on the FTSE All-Share Index over this period of 1.4 per cent.
For this same period the Property Portfolio generated a total return of 5.6 per cent. (source:IPD) compared with a total return from the IPD UK Quarterly Index of 2.0 per cent.
The Share price total return (with dividends re-invested) over the period from launch to 27 March 2009 was -24.1 per cent. compared with a total return of -8.4 per cent. on the FTSE All-Share Index. The weighted average share price total return (with dividends re-invested) for the Sector over this period was -28.3 per cent.
For the period from launch to 27 March 2009 the Shares have traded at an average discount of 8.7 per cent. to their NAV (adjusted for any dividends for which the share price has gone ex-dividend over this period). At the close of business on 27 March 2009 the Shares were trading at a discount of 27.8 per cent. compared with the Sector average of 48.4 per cent.
As at 31 December 2008 the Company had total assets (less current liabilities) of £813.9 million.
Investment outlook and recent asset management activity
Full details of the investment outlook for the Company and asset management activity over the past financial year are set out in the Chairman's statement and Manager's Review in the Annual Report and Accounts for the year ended 31 December 2008 to be published shortly.
Gearing
The Company's borrowings solely comprise the Bonds which have been assigned an 'Aaa' rating by Moody's Investors Service. The Bonds carry interest at a fixed rate of 5.23 per cent. per annum.
Under the terms of the Bonds the Company would be required to pay an amount in excess of their principal amount of £230 million on their early repayment based on a "Spens"' formula. It is estimated that, as at 27 March 2009, the current cost for full prepayment of the Bonds on this basis would amount to £260 million (i.e. an excess of £30 million).
As at 31 December 2008 the principal amount of the Bonds represented 28.2 per cent. of the Group's total assets (less current liabilities). Net of the Group's cash reserves of £162.3 million this equated to net gearing of 10.3 per cent. The Group has no borrowings other than the Bonds.
The Directors intend to keep the level of the Company's borrowings under review. The Directors are currently of the view that retaining the current borrowings of the Company will enhance the returns for Shareholders over the long term.
Discount and share buy backs
For the period from launch to 27 March 2009, the Shares have traded at an average discount of 8.7 per cent. to their NAV (adjusted for any dividends for which the share price has gone ex-dividend over this period). As a reflection of the recent challenging environment for property as an asset class and, in common with the Sector and the wider quoted property sector over recent months, the Company's shares have traded at a significant discount to NAV. At close of business on 27 March 2009, the discount was 27.8 per cent.
Since the renewal of the authority for the Company to buy back its Shares at the annual general meeting in May 2008, the Company has bought back 31.9 million Shares for an aggregate cash consideration of £20.9 million, equivalent to 4.5 per cent. of the issued share capital prior to the share buy backs. The Shares were bought back at an average discount of 36.3 per cent. to the published NAV (adjusted for any dividends which had gone ex-dividend) and provided an enhancement of 1.8p per Share to the NAV at the time of purchase. In addition, these buy backs have resulted in a reduction to the dividends payable by the Company of approximately £1.9 million per annum at the current dividend level compared with the interest that would be generated on such cash amounts of approximately £100,000 at an interest rate of 0.5 per cent. per annum.
In carrying out these share buy backs the Board gave careful consideration to the Company's future cashflows and the ongoing Bond covenant constraints in respect of the Current Group as well as amounts that the Board resolves to commit to future investment opportunities.
It is the Board's intention that it will continue to consider share buy backs while the discount is in excess of five per cent. In addition to taking into account the income and cash flow requirements of the Company, the Directors will seek to ensure that any share buy backs are undertaken at prices which are in the best interests of all Shareholders.
The Company holds just below its prescribed limit of 10 per cent. of its current issued share capital in treasury to enable subsequent re-issue at a premium to NAV.
Proposals
In the event that Resolution 1 is passed, the Directors intend to bring forward Proposals as follows.
New holding company
The Board proposes to introduce a new listed holding company above the Company. This company will be a mirror image of the existing Company, save as described under "Investment policy" below. Shareholders will receive exactly the same number of shares in the new company which will also be incorporated in Guernsey and listed on the UK Listing Authority's Official List and traded on the London Stock Exchange.
The introduction of a new holding company will have a number of benefits.
The new holding company and its subsidiaries, other than the Current Group, will not form part of the security structure for the Bonds and will therefore not be subject to the same restrictions. Initially all of the Enlarged Group's assets will remain part of the secured structure.
In the event that the new holding company raises any new equity, it will have considerable flexibility over whether that cash is used within or outside the current secured structure.
The new holding company will have more flexibility to incur borrowings in a manner which may be more cost effective than through the Bond structure when the market for securitised bonds remains very weak. However, it should be noted that the Board does not have any intention at the current time to increase the Group's borrowings.
The new holding company will have the ability in the future to acquire or merge with other companies or funds which may themselves have existing debt. This would be restricted under the current secured structure.
The new holding company will not be subject to the same restrictions as are imposed on the Company on the use of its surplus cash to pay dividends, buy back shares or otherwise return capital to Shareholders.
The Board anticipates that the new holding company could be in place by the end of July 2009. The Board estimates that the costs of introducing the new holding company will be approximately £800,000, being less than 0.14 per cent. of the net assets of the Group as at 31 December 2008.
Direct property acquisitions
The Board has already instructed the Managers to explore opportunities to utilise the Group's considerable cash resources in making acquisitions of direct property. The Board expects there to be a number of potential direct acquisitions in the near future of well-let prime properties of a similar quality to the Group's existing properties at attractive yields. Any such acquisitions should significantly enhance the income returns on the Group's portfolio, compared with the returns currently generated on cash investments.
Investment policy
The Board is not proposing any change to the investment policy of the Current Group. However, the Board would propose that the investment policy of the new holding company and its subsidiaries, other than the Current Group, be extended to allow up to 15 per cent., at the time of acquisition, of the new holding company's gross assets to be invested in listed companies which invest principally in UK property, as well as in indirect property funds. The investment policy of the Current Group currently excludes listed investment companies.
The Board believes that the principal investment objective of the Group should be to invest substantially all of its assets in direct UK commercial property. However, the Board also believes that the ability to invest tactically up to 15 per cent. of its gross assets in indirect investments gives the Group the opportunity to acquire investment exposure quickly and cost effectively in a wider range of sectors of the property market. The Board believes that there will continue to be a number of opportunities to invest in such vehicles on very attractive terms.
The Board also believes that listed companies which invest principally in UK property should be included in the Group's investment universe as they can offer a more liquid form of investment than the unlisted property funds currently owned by the Group. In addition, the Company's cash reserves are earning very low returns at current interest rates. Listed property companies can provide opportunities to invest in relatively liquid investments that offer an attractive dividend yield from UK commercial property, until such time as direct property acquisitions are made.
It is currently expected that the Managers would be appointed to manage any investments in listed property companies.
Dividends
The Group's net rental income remained healthy during the year ended 31 December 2008. However, Shareholders will appreciate that the current economic position, and the Group's significant cash reserves which are earning very little income, are highly likely to impact adversely the Group's income position for the current financial year.
The rebasing of the investment management fee in 2008 combined with the asset management initiatives taken since the Group's launch in 2005 have strengthened the Group's income position. The reduction in the base management fee equates to an annualised saving of approximately £1.2 million based on the total assets of the Company as at 31 December 2008. The payment of any future performance fee would reduce the Company's net income. The quality of the Group's tenants remains high with over 70 per cent. of the Group's rental income being paid by tenants rated low or negligible risk by IPD.
The Board is very conscious of the importance Shareholders place on a sustainable and transparent dividend and that the monthly dividend paid on the Shares is a valuable income stream for Shareholders. The Directors intend to keep under review what level of dividend is transparent and sustainable, in particular in the light of ongoing economic conditions, the level of rental income received by the Group and progress in investing the Group's cash reserves.
Amendment of the Company's policy on continuation votes
If the continuation of the Company is approved at the Extraordinary General Meeting then, in accordance with the Company's original prospectus, the Directors would next be required to convene an extraordinary general meeting to consider the continuation of the Company if the market price of a Share was more than five per cent. below the published NAV of a Share for a continuous period of 90 dealing days or more following the first anniversary of the Extraordinary General Meeting.
The Directors believe that it would be more appropriate for the 90 dealing days to run from the second anniversary of the Extraordinary General Meeting rather than the first anniversary. Resolution 2 to be proposed at the EGM approves this extension of this period to the next potential continuation vote.
The Directors believe that this extension would permit the Managers to manage the Company's assets for the medium term rather than managing the assets with the prospect of having to realise the portfolio on a shorter timescale. It should be noted that the passing of Resolution 2 would not prevent the Directors from putting a continuation vote to Shareholders earlier in the event that they believed it to be in Shareholders' best interests.
Amendment to management agreement
The Board has recently agreed an amendment to the management agreement with the Managers so that each party shall be entitled to terminate the agreement on not less than six months' notice. Previously 12 months' notice had been required.
Majority Shareholder voting intention
Friends Provident plc's life insurance subsidiaries are entitled to exercise the votes attached to 342,300,000 Shares (currently being 50.3 per cent. of the Company's issued share capital) and have indicated that they currently intend to vote in favour of the Resolutions.
These life insurance companies have also confirmed that it is their current intention to support the Proposals when they are published.
Friends Provident Life & Pensions Limited, directly and through certain of its subsidiaries, holds approximately 39.4 per cent. of the Company's issued share capital and has confirmed to the Board that its holding forms a core part of its commercial property exposure and that its current intention is to maintain that holding for the foreseeable future. Friends Provident Life Assurance Limited holds approximately 10.9 per cent. of the Company's issued share capital and has informed the Board that it intends to reduce its holding in the Company over the short term. The Board intends to work with Friends Provident Life Assurance Limited to ensure that such investment can be realised in an orderly and responsible manner.
Recommendation
The Board, which has been so advised by Dickson Minto W.S., considers that the continuation of the Company is in the best interests of the Shareholders as a whole. Accordingly, the Board unanimously recommends all Shareholders to vote in favour of Resolution 1 to be proposed at the Extraordinary General Meeting. The Board also believes that Resolution 2 is in the best interests of the Shareholders as a whole and recommends all Shareholders to vote in favour of Resolution 2.
The Board also believes that the Proposals are in the best interests of the Shareholders as a whole and recommends all Shareholders to support the detailed Proposals when they are published.
The Directors, who in aggregate have an interest in 250,039 Shares (being 0.04 per cent. of the issued share capital), intend to vote their entire beneficial holdings in favour of the Resolutions.
Enquiries
Douglas Armstrong, Dickson Minto W.S. 020 7628 4455
Nigel Russell/Graeme Caton/Graham Reaves, G&N Collective Funds Services Limited0131 226 4411
Richard Kirby, F&C REIT 020 7016 3577
Michael Woodward, F&C Investment Business Limited 0131 718 1097
The Company Secretary, Northern Trust International Fund Administration Services (Guernsey) Limited01481 745001
Definitions
"Board" or "Directors" the board of directors of the Company
"Bonds" the £230 million fixed rate secured bonds due 2017 issued by a special purpose vehicle, F&C Commercial Property Finance Limited, which was established to issue the interest bearing bonds
"Company" F&C Commercial Property Trust Limited
"Continuation EGM" the extraordinary general meeting of the Company held on 28 September 2007
"Current Group" or "Group" the Company and its subsidiaries as at 31 March 2009
"EGM" or "Extraordinary General Meeting" the extraordinary general meeting of the Company convened for 12.45 p.m. on 1 May 2009 (or any adjournment thereof) notice of which is set out in the Circular published by the Company on 31 March 2009
"Enlarged Group" the Company and its subsidiaries and the new holding company and any subsidiaries of the new holding company and/or the Company following implementation of the Proposals
"IFRS" International Financial Reporting Standards
"IPD" Investment Property Databank Limited
"Managers" F&C Investment Business Limited
"NAV" the net asset value of a Share calculated under IFRS
"Property Portfolio" the direct and indirect property assets of the Company
"Resolutions" or "Resolution 1" or "Resolution 2" the resolutions (or the first or second of those resolutions as appropriate) to approve the continuation of the Company and to amend the continuation vote policy set out in the notice of the EGM in the Circular published by the Company on 31 March 2009
"Sector" the sector comprising offshore incorporated, main market London listed property investment companies invested principally in mainstream UK commercial property, being the Company, ING UK Real Estate Income Trust Limited, Invista Foundation Property Trust Limited, IRP Property Investments Limited, ISIS Property Trust Limited, Standard Life Investments Property Income Trust Limited, The Advantage Property Income Trust Limited and UK Commercial Property Trust Limited
"Shareholders" the holders of Shares
"Shares" ordinary shares of 1p each in the capital of the Company
Where the context requires, references to 27 March 2009 should be treated as being references to the latest practicable date prior to the publication of the Circular and this announcement.