BREI.L Regulatory News (BREI)

To: RNSDate: 24 February 2015From: F&C UK Real Estate Investments Limited Interim results in respect of the period ended 31 December 2014 - Share price total return of 15.0 per cent for the 6 months - Portfolio ungeared total return of 8.9 per cent for the 6 months - Net asset value per share total return of 11.9 per cent for the 6 months - Net asset value per share total return since launch of 98.4 percent - Dividend of 2.5 pence per share for the period - Dividend yield of 5.3 per cent as at 31 December 2014 The Chairman, Quentin Spicer, stated: The Group has experienced another robust six months with sentimenttowards UK commercial property remaining positive. The net asset value (`NAV')total return per share for the period was 11.9 per cent with this return beingpositively impacted by the effects of gearing and the reduction in the swapliability. The NAV per share at the period end was 90.8 pence. The share price performance was also strong with a total return of15.0 per cent over the period and the shares were trading at a premium to theNAV of 3.5 per cent at the period end, compared to a premium of 0.7 per centas at 30 June 2014. The shareholders authorised the Company to issue up to 23 millionOrdinary Shares without pre-emption rights at the recent Annual GeneralMeeting. Following this authority and with the Company's share priceconsistently trading at a premium to the NAV, 3 million Ordinary Shares havebeen issued at a 4 per cent premium to the prevailing NAV since the periodend. This has helped to satisfy the continuing demand for the Company'sshares. It is expected that a prospectus will be published in the near future,providing the Company with the flexibility to raise additional share capitalthrough a Placing Programme of up to 100 million shares. Once the AnnualGeneral Meeting authority has been exhausted, the Company will convene furthergeneral meetings to seek shareholder approval for the additionaldisapplication of pre-emption rights in relation to the issue of New Sharesunder the Placing Programme. Property Market The UK commercial property market continued to deliver a strongperformance in the six months to 31 December 2014. Total returns at the allproperty level for standing investments were 8.6 per cent, according to theInvestment Property Databank Quarterly Index (`IPD'). The income return duringthe period was 2.6 per cent with performance being driven by a 5.9 per centrise in capital values. Rental growth improved to 1.7 per cent over theperiod. Although performance has been supported by a growing economy andsome improvement in the occupational market, total returns have been boostedby strong inflows of investment into the asset class. This contributed to aperiod of further yield compression in most parts of the market. London hascontinued to out-perform but the recovery is broadening and industrialproperty and South East offices have also recorded above average performance.The period has also seen greater interest in more secondary stock and theyield gap between prime and secondary has narrowed. All the IPD standardsegments recorded positive total returns and higher capital values during thesix month period. Property Portfolio The six month period to 31 December 2014 recorded further capitalgrowth in the Company's portfolio, with overall values increasing by 6.0 percent over the period. Industrial properties witnessed the highest capitalreturns at 8.7 per cent, followed by Offices which increased in value by 6.9per cent. Retail performance was rather more lack lustre with RetailWarehouses increasing in value by 5.9 per cent and standard High Street retailby 1.8 per cent. With the benefit of an income return of 2.8 per cent over theperiod, the portfolio produced an ungeared total return of 8.9 per cent forthe six months ended 31 December 2014. At the property level, 1-2 Lochside Way, Edinburgh produced thelargest capital uplift of £1.7 million, or 23.5 per cent, to £9.0 million onthe back of an improving market and the lease renewal with the tenant HSBCplc. The property, located in Edinburgh Park, Scotland's premier out of townoffice location, comprises two linked buildings totalling 42,400 square feetconstructed in 1998. The existing lease expired in August 2014 and termsagreed for a renewal for a period of 10 years, with a break at the fifth year,at a rent that equated to £16.50 per square foot, subject to a rent freeperiod of 12 months but a penalty if the tenant exercises the break. 14 Berkeley Street, London W1, remains the Company's largest assetand is strategically situated in a prime Mayfair location between BerkeleySquare and Piccadilly. The property comprises 6 floors of offices, and a LandRover showroom on the ground and basement floors let to Pendragon. Over thelast few years, the property has produced strong rental and capital growth,not only due to its prime West End location, but also due to a program ofupgrading and refurbishment which has been carried out to the property. Overthe six months to 31 December 2014 further inward yield movement as well asrental growth, pushing rental values to £95 per square foot, has led to thevalue increasing by a further £1.6 million over the period to £23.7 million,an increase of 7.6 per cent. With industrial properties producing the highest sector returns,Echo Park, Banbury, a regional distribution of 195,000 square feet is theCompany's second largest asset. Let to the parent company of `3663' andBidvest for a further 11 years, it increased in value by 8.4 per cent to £20.8million, an initial yield of 5.6 per cent. At Eastleigh, the value of twoprime industrial units totalling 111,000 square feet at SouthamptonInternational Park, increased by £1.3 million, or 11.1 per cent, to £13.5million. High Street retail remains a mixed picture with a number of theCompany's properties located in strong locations producing above averagereturns. On the flip side, we witnessed further falls in value on some of theshops in poorer locations, where the occupational market is challenging.However, we do see an improving picture which should lead to lettings and theeventual sale of some of these assets. Following the capital raising, and the acquisition of Rotherham andBromsgrove earlier in the year, the Company completed the acquisition of UnitA3, Glory Park, Wooburn Green, High Wycombe in July 2014 for £6.97 million,reflecting a yield of 7.0 per cent. The property comprises a Grade Aspecification, modern business park office building, close to the M40motorway. Totalling 19,572 square feet on three floors, the building is let totwo tenants in the pharmaceutical sector with the majority of the incomesecured for 10 years. The portfolio continues to be well and securely let with all of theten largest tenants by rent paid, either classified as Negligible or Low risk,according to IPD. The vacancy rate stood at 5.0 per cent by estimated rentalvalue as at 31 December 2014, and good progress is being made to let vacantunits. The average unexpired weighted lease term stands at 8.1 years, comparedto 7.8 years at 30 June 2014. The Company has continued to sell some of the smaller and poorlyperforming assets and disposed of three properties with a total value of £5.3million, during the first half. This brings the number of sales since themerger to 10 properties with total receipts of £22.8 million. UK REIT Regime An extraordinary general meeting was held in December 2014, primarily to makethe necessary amendments to the Company's articles of incorporation in connectionwith the proposals for the Company to become tax resident in the UK for thepurposes of entering into the UK REIT regime. As previously announced, allresolutions proposed at the general meeting were duly approved by shareholdersand the Company entered the UK REIT regime with effect from 1 January 2015. As explained in a recent Circular to shareholders, by obtaining UK-REIT status,the Group is no longer subject to UK income tax on the profits and gains fromtheir qualifying property rental business provided that it meets certain conditions.This will effectively reduce the burden of taxation for most shareholders as thepayment of UK income tax on the Group's property rental income was likely toincrease significantly moving forward, if UK REIT status had not been obtained. Board Composition Following the Company's entry into the UK REIT regime MrChristopher Sherwell and Mr Graham Harrison have retired from the Board witheffect from 31 December 2014. Christopher has been on the Board since the launch of the Companyin 2004, and Graham was an original member of the ISIS Property Trust Board,joining the Board as part of the merger in 2013. We wish them both everysuccess in the future and I would like to record formally our gratitude tothem for their significant contribution over the years. We are currently in the process of recruiting suitable replacementsand expect to be in a position to make a formal announcement on Boardrefreshment in the very near future. Dividends The first interim dividend for the year ending 30 June 2015 of 1.25pence per share was paid in December 2014, with a second interim dividend of1.25 pence per share to be paid on 31 March 2015 to shareholders on theregister on 13 March 2015. The dividend is currently at a sustainable level and in the absenceof unforeseen circumstances, it is expected that the Company will continue topay quarterly dividends at this rate, the equivalent of 5 pence per share perannum. Borrowings The net gearing level as at 31 December 2014 was 30.7 per cent,which compares with 31.7 per cent as at 30 June 2014 and 40.0 per cent atlaunch on 1 June 2004. The fall in the gearing percentage was a combination ofthe loan drawn down being reduced to £102.0 million from £109.0 million andthe increase in the overall market value of the portfolio. The Group had £6.1 million of cash available at 31 December 2014and an undrawn loan facility of £13.0 million. The Company continues tomaintain a prudent attitude to gearing. Outlook This reporting period has delivered exceptional performance whichis unlikely to be sustained, but with property yields remaining attractiveagainst the risk free rate and interest rates expected to stay low for sometime, the outlook for property remains favourable. The approaching UK electionand possible EU referendum together with global economic and politicaluncertainty may act to temper performance and at some point the scope forproperty yields to compress further will end and some outward adjustment ispossible. The Manager is predicting a gradual return to more sustainablelevels of performance over the coming five years with rental growth becoming amore important factor in performance, and for total returns to be increasinglydriven by income return. The portfolio remains robust with 58 per cent byvalue situated in London and the South East region, and with a varied andbalanced portfolio there are further opportunities to identify assetmanagement opportunities to add value. The Company has announced the detailsof a further placing of shares and the Manager is working to identify suitableproperties to purchase. Enquiries to: The Company SecretaryNorthern Trust International Fund Administration Services (Guernsey) LimitedTrafalgar CourtLes BanquesSt Peter PortGuernsey GY1 3QLTel: 01481 745001Fax: 01481 745051 I McBryde, S MacraeF&C Investment Business LimitedTel: 0207 628 8000Fax: 0131 225 2375 F&C UK Real Estate Investments Limited Consolidated Statement of Comprehensive Income Six months to Six months to Year to 31 December 31 December 30 June 2014 2013 2014 Notes (unaudited) (unaudited) (audited) £'000 £'000 £'000RevenueRental income 9,523 10,159 19,603 Gains on investment 2 17,851 8,569 21,253propertiesTotal income 27,374 18,728 40,856 ExpenditureInvestment management fee (1,007) (839) (1,707)Expenses of merger - (32) (32)Direct operating expenses of let (396) (385) (733)rental propertyDirect operating expenses of vacant (121) (137) (259)propertyProvision for bad debts (24) 3 (15)Administrative fee (51) (52) (102)Valuation and other professional (211) (82) (170)feesDirectors' fees (72) (66) (131)Other expenses (168) (142) (287)Total expenditure (2,050) (1,732) (3,436) Net operating profit before finance 25,324 16,996 37,420costs Net finance costsInterest receivable 9 26 49Finance costs (2,951) (3,102) (6,016) (2,942) (3,076) (5,967) Net profit from ordinary activitiesbefore taxation 22,382 13,920 31,453Taxation on profit on ordinary (136) (320) (540)activitiesNet profit for the period 22,246 13,600 30,913 Other comprehensive income to bereclassified to profit or loss insubsequent periods:Net gain on cash flow hedges, net of 524 3,090 5,198taxTotal comprehensive income for the 22,770 16,690 36,111period, net of tax Basic and diluted earnings per 3 9.6p 6.4p 14.4pshare F&C UK Real Estate Investments Limited Consolidated Balance Sheet 31 December 31 December 30 June 2014 2013 2014 (unaudited) (unaudited) (audited) Notes £'000 £'000 £'000Non-current assetsInvestment properties 2 314,923 278,195 295,387 Current assetsTrade and other receivables 6,435 6,389 6,061Cash and cash equivalents 6,093 8,471 16,773 12,528 14,860 22,834 Total assets 327,451 293,055 318,221 Non-current liabilitiesInterest-bearing bank loan (102,988) (109,940) (109,930)Interest rate swap (4,234) (6,784) (4,776) (107,222) (116,724) (114,706) Current liabilitiesTrade and other payables (5,992) (7,187) (6,110)Income tax payable (193) (467) (377)Interest rate swap (4,477) (4,560) (4,459) (10,662) (12,214) (10,946)Total liabilities (117,884) (128,938) (125,652) Net assets 209,567 164,117 192,569 Represented by:Share capital 2,309 2,131 2,309Special distributable reserve 169,327 157,222 170,704Capital reserve 39,864 9,329 22,013Other reserve (1,933) (4,565) (2,457) Equity shareholders' funds 209,567 164,117 192,569 Net asset value per share 4 90.8p 77.0p 83.4p F&C UK Real Estate Investments Limited Consolidated Statement of Changes in Equity Six months to Six months to Year to 31 December 2014 31 December 30 June (unaudited) 2013 2014 Notes £'000 (unaudited) (audited) £'000 £'000 Opening net assets 192,569 149,115 149,115Net profit for the period 22,246 13,600 30,913Dividends paid 5 (5,772) (5,326) (10,840)Movement in other reserve 524 3,090 5,198Issue of ordinary shares - 3,638 18,183 Closing net assets 209,567 164,117 192,569 F&C UK Real Estate Investments Limited Consolidated Cash Flow Statement Six months Six months Year to 31 to 31 to 30 December December June 2014 2013 2014 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Cash flows from operating activitiesNet profit for the period before taxation 22,382 13,920 31,453Adjustments for:Gains on investment properties (17,851) (8,569) (21,253)(Increase)/decrease in operating trade andother receivables (374) (20) 301(Decrease)/increase in operating trade andother payables (118) 1,006 (71)Interest received (9) (26) (49)Finance costs 2,951 3,102 6,016 6,981 9,413 16,397 Taxation paid (320) (325) (636)Net cash inflow from operating activities 6,661 9,088 15,761 Cash flows from investing activitiesPurchase of investment properties (6,935) - (18,812)Capital expenditure (22) (38) (48)Sale of investment properties 5,272 1,475 15,789Interest received 9 26 49 Net cash (outflow)/inflow from investing (1,676) 1,463 (3,022)activities Cash flows from financing activitiesShares issued (net of costs) - 3,638 18,183Dividends paid (5,772) (5,326) (10,840)Bank loan interest paid (479) (860) (1,467)Payments under interest rate swap arrangement (2,414) (2,307) (4,617)Bank loan repaid (7,000) (3,000) (3,000) Net cash outflow from financing activities (15,665) (7,855) (1,741) Net (decrease)/increase in cash and cash (10,680) 2,696 10,998equivalentsOpening cash and cash equivalents 16,773 5,775 5,775Closing cash and cash equivalents 6,093 8,471 16,773 F&C UK Real Estate Investments Limited Notes to the Consolidated Financial Statements for the six months to 31 December 2014 1) The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (`IFRS'), IAS 34 `Interim Financial Reporting' and the accounting policies set out in the statutory accounts of the Group for the year ended 30 June 2014. The condensed consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the Group for the year ended 30 June 2014 which were prepared under full IFRS requirements. The Group has adopted the following new amendments effective as of1 January 2014. The following changes are also expected to be reflected in theGroup's consolidated financial statements as at and for the year ending 30June 2015. - In October 2012, the IASB issued amendments to IFRS 10 `Consolidatedfinancial statements', IFRS 12 `Disclosure of interests in other entities' andIAS 27 `Separate financial statements' - Investment entities. The amendmentsdefine an investment entity and introduce an exception to consolidatingparticular subsidiaries for investment entities. These amendments require aninvestment entity to measure those subsidiaries at fair value through profitor loss in accordance with IFRS 9 `Financial Instruments' in its consolidatedand separate financial statements. The amendments also introduce newdisclosure requirements for investment entities in IFRS 12 and IAS 27. Theseamendments do not have any material impact on the consolidated financialstatements as presented. 2) Investment properties Six month period to 31 December 2014 £'000 Opening market value 300,590Capital expenditure and purchases 6,957Sales (5,272)Gains on investment properties 17,851Movement in lease incentive receivable 279 Closing market value 320,405Adjustment for lease incentives (5,482) Balance sheet carrying value 314,923 All the Group's investment properties were valued as at 31 December2014 by qualified professional valuers working in the company of DTZ DebenhamTie Leung Limited (`DTZ'), Chartered Surveyors. All such valuers are charteredsurveyors, being members of the Royal Institute of Chartered Surveyors(`RICS'). There were no significant changes to the valuation techniques usedduring the period and these valuation techniques are detailed in theconsolidated financial statements as at and for the year ended 30 June 2014.The market value of these investment properties amounted to £320,405,000 (31December 2013: £283,695,000; 30 June 2014: £300,590,000), however anadjustment has been made for lease incentives of £5,482,000 that are alreadyaccounted for as an asset. 3) Earnings per Ordinary Share are based on 230,855,539 Ordinary Shares, being the weighted average number of shares in issue during the period (31 December 2013: 212,603,916 and 30 June 2014: 214,347,657). Earnings for the six months to 31 December 2014 should not be taken as a guide to the results for the year to 30 June 2015. 4) The net asset value per Ordinary Share is based on net assets of £209,567,000 (31 December 2013: £164,117,000 and 30 June 2014: £192,569,000) and 230,855,539 Ordinary Shares (31 December 2013: 213,050,491 and 30 June 2014: 230,855,539) being the number of shares in issue at the period end. 5) Dividends paid Six months to Six months to Year ended 30 June 31 December 2014 31 December 2013 2014 Rate Rate Rate £'000 (pence) £'000 (pence) £'000 (pence) Fourth interim 2,886 1.25 2,663 1.25 2,663 1.25dividendFirst interim 2,886 1.25 2,663 1.25 2,663 1.25dividendSecond interim 2,663 1.25dividendThird interim 2,851 1.25dividend 5,772 2.50 5,326 2.50 10,840 5.0 A second interim dividend for the year to 30 June 2015, of 1.25pence per share, will be paid on 31 March 2015 to shareholders on the registerat close of business on 13 March 2015. 6) 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 activemarkets for identical assets or liabilities. Examples of such instrumentswould be investments listed or quoted on any recognised stock exchange. - Level 2 - Quoted prices for similar assets or liabilities, or other directlyor indirectly observable inputs which exist for the duration of the period ofinvestment. Examples of such instruments would be those for which the quotedprice has been suspended, forward interest rate contracts and certain otherderivative instruments. The interest rate swap entered into in order to hedgethe interest rate on the £100 million bank loan is included in Level 2. Thefair value of the interest rate swap at 31 December 2014 was £8,711,000 (31December 2013: £11,344,000; 30 June 2014: £9,235,000). - Level 3 - External inputs are unobservable. Value is the Directors' bestestimate, based on advice from relevant knowledgeable experts, use ofrecognised valuation techniques and on assumptions as to what inputs othermarket participants would apply in pricing the same or similar instrument. Allinvestments in direct property are included in Level 3. There were no transfers between levels of the fair value hierarchyduring the six month period ended 31 December 2014. The Group's financial risk management objectives and policies areconsistent with those disclosed in the consolidated financial statements as atand for the year ended 30 June 2014. 7) 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 Group 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 Group. The key measure of performance used by the Board to assess the Group's performance is the total return on the Group'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. 8) No Director has an interest in any transactions which are or were unusual in their nature or significant to the Group. F&C Investment Business Limited received fees for its services as Investment Managers. The total charge to the Income Statement during the period was £1,007,000 of which £nil remained payable at the period end. The Directors of the Company received fees for their servicestotalling £72,000, of which £nil remained payable at the period end. 9) The accounts have not been audited nor reviewed under the requirements of ISRE 2410 `Review of interim financial information performed by the independent auditor of the Company'. 10) The Group results consolidate those of F&C UK Real Estate Finance Limited, which owns 100 per cent of the issued share capital of IRP Holdings Limited (`IRPH') and IPT Property Holdings Limited (`IPTH'). IRPH and IPTH are companies incorporated in Guernsey whose principal business is that of an investment and property company. 11. The report and accounts for the half-year ended 31 December2014 will be posted to shareholders and made available on the websiteswww.fcre.co.uk or www.fcre.gg shortly. Statement of Principal Risks and Uncertainties The Group's assets consist of direct investments in UK commercialproperty. Its principal risks are therefore related to the UK commercialproperty market in general but also the particular circumstances of theproperties in which it is invested and their tenants. Other risks faced by theGroup include market, investment and strategic, regulatory, tax efficiency,financial, reporting and operational risks. The Group is also exposed to risksin relation to its financial instruments. These risks, and the way in whichthey are mitigated and managed, are described in more detail under the heading`Principal Risks and Risk Management' within the Business Model and Strategyin the Group's Annual Report for the year ended 30 June 2014. The Group'sprincipal risks and uncertainties have not changed materially since the dateof that report and are not expected to change materially for the remaining sixmonths of the Group's financial year. Directors' Responsibility Statement in Respect of the Half-yearlyFinancial Report We confirm that to the best of our knowledge: - the condensed set of consolidated financial statements has beenprepared in accordance with IAS34 `Interim Financial Reporting'; - the Chairman's Statement constituting the Interim ManagementReport together with the Statement of Principal Risks and Uncertaintiesinclude a fair review of the information required by the Disclosure andTransparency Rules (`DTR') 4.2.7R, being an indication of important eventsthat have occurred during the first six months of the financial year and theirimpact on the condensed set of consolidated financial statements; and - the Chairman's Statement together with the consolidated financialstatements 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 monthsof the current financial year and that have materially affected the financialposition or performance of the Group during that period, and any changes inthe related party transactions described in the last Annual Report that coulddo so. On behalf of the BoardQuentin SpicerChairman

23 February 2015