BREI.L Regulatory News (BREI)

17 Sep 2007 16:32

ISIS Property Trust 2 Limited17 September 2007 To: RNSDate: 17 September 2007From: ISIS Property Trust 2 Limited Results in respect of the Year Ended 30 June 2007 Financial Highlights • Net asset value total return since launch of 92.5 per cent • Net asset value per share increased by 12.2 per cent to 159.6 pence • Dividend yield of 5.6 per cent based on year end share price • Dividend of 7.0 pence per share for the year, an increase of 3.7 per cent Chairman's Statement The Chairman, Quentin Spicer, stated: The Company had another excellent year, recording a net asset value total returnof 17.4 per cent. The Company's property portfolio produced an un-geared totalreturn of 13.2 per cent, which compared favourably against a total return of12.4 per cent for the Investment Property Databank UK Monthly Index (the 'IPD'Monthly Index) over the same period. The additional returns on net asset valuecan be attributed to the positive effects of gearing and an increase in the swapvaluation. Net asset value total return since launch is 92.5 per cent, significantly aheadof forecasts at that time. However, in a tougher environment for property as an asset class, the Company'sshare price fell 11.9 per cent over the year from 142.50 pence per share at 30June 2006 to 125.50 pence at 30 June 2007. This fall resulted in the sharesshowing a discount of 21.4 per cent, against a premium of 0.2 per cent a yearearlier, a trend that has been seen across the peer group and the wider quotedproperty sector. Interest rates in the UK have increased five times during thelast twelve months, by 1.25 per cent in total and the all-property initial yieldis now lagging that of risk-free gilts. This has been a key factor behind thewidening of discounts. Property Market and Portfolio The UK property market experienced a change in sentiment during the year, ashigher interest rates started to slow capital growth. Secondary property inparticular is becoming vulnerable to a correction in market values, with towncentre retail being the most susceptible. Offices, especially in Central London,are the leading sector and are expected to continue to outperform. Having experienced three years of exceptional capital returns, the possibilityof further yield compression to support this seems limited. Despite this change,there has still been considerable activity in direct property, with sizeablesums invested in the first half of 2007, particularly by overseas investors.This interest is mainly in prime property with secondary properties experiencinga weakening demand. The Managers continued with their strategy of repositioning the portfolio awayfrom standard retail units and concentrating further investment in additionalhigh quality properties, with the emphasis on out of town retail and regionaloffices. Three properties were sold during the year for an aggregate of £26.6million. These sales were all in excess of their market valuations and realisedgains of £8.8 million against their original purchase price. Although there were no purchases during the year, the Company completed thepurchase of an office building, post year end, at a cost of £14.4 million. Thisbuilding is in Edinburgh and offers good prospects of rental growth and somedefinite opportunities for asset management. The void rate within the Company's property portfolio fell from 3.2 per cent at30 June 2006 to a very low level of 0.3 per cent at the year end, the Managershaving successfully let all but the smallest of vacant space, an indication ofthe high quality of the portfolio. This level of void sits substantially belowthe IPD average of 7.0 per cent and is extremely encouraging. The amount of rental income from negligible and low risk tenants was 66.4 percent as at 30 June 2007, which compares with the industry average of 68.5 percent, although the recent purchase in Edinburgh will improve the risk profile ofthe portfolio. The average lease length of the portfolio fell during the year to9.1 years, assuming all breaks implemented, compared with 10.1 years at 30 June2006. A number of rent negotiations are ongoing which should increase thisfigure in the longer term. Dividends Three interim dividends of 1.73 pence per share have been paid during the year.After taking account of rental growth achieved since launch, combined with theinterest rate savings achieved from the loan refinancing in January 2007, theBoard has taken the decision to increase the fourth interim dividend by 4.6 percent to 1.81 pence per share, giving a total dividend for the year ended 30 June2007 of 7.0 pence per share. As previously announced, this dividend will be paidon 28 September 2007 to shareholders on the register on 7 September 2007. In the absence of a material change in circumstances, it is the intention of theBoard to maintain the quarterly dividend at 1.80 pence per share, giving a totaldividend for the year ending 30 June 2008 of 7.2 pence per share. Borrowings The use of borrowings continued to be an effective strategy during the year in amarket of increasing property values, providing enhanced returns toshareholders. The gearing level as at 30 June 2007 was 25.5 per cent, whichcompares with 30.9 per cent as at 30 June 2006 and 40.0 per cent at launch on 1June 2004. As described in my interim Chairman's Statement, on 10 January 2007 the Companyrepaid in full its existing debt facility of £70.7 million with The Royal Bankof Scotland plc ('RBS') and entered into a new £75 million facility with LloydsTSB Scotland plc ('LTSB'). The term of this facility is until January 2017. Themargin under the new debt facility is 50 basis points over LIBOR for the firstthree years and 45 basis points over LIBOR for the remaining period. The otherterms of the facility are substantially identical to the terms of the previous facility with RBS. The Company has initially drawn down £60 million under the newfacility. At the same time, the Company terminated the interest rate swap with RBS andentered into a new interest rate swap transaction with LTSB. Under thisagreement, the interest on the amount initially drawn down under the newfacility has been fixed at an aggregate interest rate (including margin) of5.655 per cent per annum for the first three years and 5.605 per cent per annum thereafter. This compares to a fixed rate of interest of 6.265 per cent underthe previous facility. The Board is pleased with the fixed rate of interest achieved, which iscurrently below The Bank of England base rate and the interest rate swap istherefore shown as an asset in the Balance Sheet. The Board is comfortable withthe current level of gearing, particularly as the borrowings are on a revolvingcredit facility, giving the Company additional flexibility to manage theongoing level of debt in an efficient manner. Outlook The UK commercial property market has already started to show signs of aslowdown so far in 2007 and the Managers forecast is for single digit totalreturns in the next couple of years. Good property selection, active assetmanagement and strength of tenant covenant will be crucial in drivingperformance. The Managers are considering various asset enhancing initiatives as they look torefresh the portfolio in the coming months. They will look to sell some targetedproperties and repurchase high quality stock over the longer term. They willremain focussed on keeping voids at their current low rate and limiting risk byimproving the covenant strength where opportunities arise. The Company is well placed to perform, with flexible borrowings at a low fixedrate of interest in the current market. This takes the pressure off having toreinvest any sales proceeds immediately and the Managers can thereforeconcentrate on identifying the right type of property, with clear growthprospects and good letting potential. All enquiries to: Ian McBrydeF&C Asset Management plcTel: 0131 465 1000 The Company SecretaryNorthern Trust International Fund Administration Services (Guernsey) LimitedTrafalgar CourtLes BanquesSt Peter PortGuernsey GY1 3QLTel: 01481 745001 ISIS Property Trust 2 Limited Consolidated Income Statement for the year ended 30 June 2007 Year ended 30 June 2007 Year ended 30 June 2006 (unaudited) (audited) £'000 £'000 RevenueRental income 11,809 12,547 Gains oninvestmentproperties 16,832 31,158 --------- ---------Total income 28,641 43,705 --------- --------- ExpenditureInvestmentmanagement fee (2,006) (1,883)Other expenses (956) (913) --------- ---------Totalexpenditure (2,962) (2,796) --------- ---------Net operatingprofit beforefinance costs 25,679 40,909 --------- --------- Net finance costsInterestrevenuereceivable 747 201Finance costs (4,024) (4,508)Loss ontermination ofinterest rateswap (1,610) - --------- --------- (4,887) (4,307) --------- ---------Net profitfrom ordinaryactivitiesbeforetaxation 20,792 36,602 Taxation on profit on - -ordinary activities --------- ---------Net profit forthe year 20,792 36,602 ========= ========= Earnings pershare 18.8p 33.1p ISIS Property Trust 2 Limited Consolidated Balance Sheet as at 30 June 2007 30 June 2007 30 June 2006 (audited) (unaudited) £'000 £'000Non-current assetsInvestment properties 218,025 227,293Interest rate swap 3,397 - --------- --------- 221,422 227,293 Current assetsTrade and other receivables 2,870 2,939Cash and cash equivalents 16,945 5,051 --------- --------- 19,815 7,990 --------- ---------Total assets 241,237 235,283 ----------- ----------- Non-current liabilitiesInterest-bearing bank loan (60,326) (71,330)Interest rate swap - (2,652) --------- --------- (60,326) (73,982) Current liabilitiesTrade and other payables (4,534) (4,165) --------- ---------Total liabilities (64,860) (78,147) --------- --------- --------- ---------Net assets 176,377 157,136 ========= ========= Represented by:Share capital 1,105 1,105Special distributable reserve 99,648 103,288Capital reserve 72,227 55,395Other reserve 3,397 (2,652) --------- ---------Equity shareholders' funds 176,377 157,136 ========= ========= Net asset value per share 159.6p 142.2p ISIS Property Trust 2 Limited Consolidated Statement of Changes in Equity For the year ended 30 June 2007 (unaudited) Special Share Distributable Capital Other Revenue Capital Reserve Reserve Reserve Reserve Total £'000 £'000 £'000 £'000 £'000 £'000 ----------------------------------------------------------------At 1 July 1,105 103,288 55,395 (2,652) - 157,1362006Net profitfor - - - - 20,792 20,792the yearDividends - - - - (7,600) (7,600)paidTransfer inrespect ofgains oninvestmentproperties - - 16,832 - (16,832) -Transfer fromspecialdistributablereserve - (3,640) - - 3,640 -Realised losson interestrate swap - - - 1,610 - 1,610Movement infair value ofinterest rateswaps - - - 4,439 - 4,439 ----------------------------------------------------------------At 30 June2007 1,105 99,648 77,227 3,397 - 176,377 ================================================================ For the year ended 30 June 2006 (audited) Special Share Distributable Capital Other Revenue Capital Reserve Reserve Reserve Reserve Total £'000 £'000 £'000 £'000 £'000 £'000 ----------------------------------------------------------------As at 1 July2005 1,105 105,303 24,237 (6,137) - 124,478Net profitfor - - - - 36,602 36,602the yearDividends - - - - (7,459) (7,459)paidTransfer inrespect ofinvestmentproperties - - 31,158 - (31,158) -Transfer fromspecialdistributablereserve - (2,015) - - 2,015 -Loss oninterest rateswap - - - 3,515 - 3,515 ----------------------------------------------------------------At 30 June2006 1,105 103,288 55,395 (2,652) - 157,136 ================================================================ ISIS Property Trust 2 Limited Consolidated Cash Flow Statement for the year ended 30 June 2007 Year ended Year ended 30 30 June 2007 June 2006 (unaudited) (audited) £'000 £'000 Cash flowsfrom operatingactivities 25,679 40,909Net operating profit for the yearbefore finance costsAdjustments for:Gains oninvestmentproperties (16,832) (31,158)Decrease/(increase) inoperatingtrade andotherreceivables 176 (1,635)Increase/(decrease) inoperatingtrade andother payables 207 (326) ------------------------------ 9,230 7,790 ------------------------------ Interestreceived 702 201Bank loaninterest paid (3,759) (3,927)Payments underinterest rateswap agreement (380) (569) ------------------------------ (3,437) (4,295) ------------------------------Net cashinflow fromoperatingactivities 5,793 3,495 ------------------------------ Cash flows from investingactivitiesCapitalexpenditure (510) (85)Sales ofinvestmentproperties 26,610 5,000 ------------------------------Net cashinflow frominvestingactivities 26,100 4,915 ------------------------------ Cash flows from financingactivitiesRepayment ofprevious bankloan (70,662) -Draw down ofnew bank loan 60,000 -New loanset-up costspaid (127) -Payment onredemption ofinterest rateswap (1,610) -Dividends paid (7,600) (7,459) ------------------------------Net cashoutflow fromfinancingactivities (19,999) (7,459) ------------------------------ Net increasein cash andcashequivalents 11,894 951Opening cashand cashequivalents 5,051 4,100 ------------------------------Closing cashand cashequivalents 16,945 5,051 ============================== ISIS Property Trust 2 Limited Notes to the Consolidated Financial Statements for the year ended 30 June 2007 1. The unaudited results of the Group which were approved by the Board on 17 September 2007 have been prepared on the basis of International Financial Reporting Standards and the accounting policies set out in the statutory accounts of the Group for the year ended 30 June 2007. 2. The fourth interim dividend of 1.81p was declared on 7 August 2007 and will be paid on 28 September 2007 to shareholders on the register on 7 September 2007. The ex-dividend date will be 5 September 2007. 3. There were 110,500,000 Ordinary Shares in issue at 30 June 2007. The earnings per Ordinary Share are based on the net profit for the year of £20,792,000 and on 110,500,000 Ordinary Shares, being the weighted average number of shares in issue during the year. 4. Three properties were sold during the year for an aggregate of £26.6 million. These sales were all in excess of their market valuations and realised gains of £8.8 million against their original purchase price. Although there were no purchases during the year, the Company completed thepurchase of an office building, post year end, at a cost of £14.4 million. Thisbuilding is in Edinburgh and offers good prospects of rental growth and somedefinite opportunities for asset management. 5. The Group results consolidate those of IPT2 Property Holdings Limited, a wholly owned subsidiary which invests in properties. 6. These are not full statutory accounts. The full audited accounts for the year ended 30 June 2007 will be sent to shareholders in September 2007, and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey, the registered office of the Company. This information is provided by RNS The company news service from the London Stock Exchange