F&C COMMERCIAL PROPERTY TRUST LTD Released : 03/04/2017 13:50
To: RNS
Date: 3 April 2017
From: F&C Commercial Property Trust Limited
L.E.I. 213800A2B1H4ULF3K397
Results in Respect of the Year Ended 31 December 2016 (audited)
Highlights
· Net asset value total return of 4.8 per cent
· Share price total return of 6.4 per cent
· Portfolio total return of 5.3 per cent, compared with a total return of
3.6 per cent from the MSCI IPD quarterly benchmark index
· Maintained dividend of 6.0p per Ordinary Share, providing a yield of 4.4
per cent based on the year-end share price
· Dividend cover increased to 87.0 per cent from 80.6 per cent, with net
income increasing by £3.1 million in the year
Chairman's Statement
Introduction
The Company's portfolio and UK Commercial Property performed well during 2016,
notwithstanding the unstable conditions and uncertainties arising following the
result of the EU Referendum vote. The Company's closed-ended structure was of
benefit during the period after the vote. Despite an immediate fall in the
share price, the Company was not forced to react when some open-ended funds
became forced sellers with many having to suspend redemptions as investors
tried to sell down their property positions.
Performance for the Year
The net asset value ('NAV') total return for the year was 4.8 per cent and the
share price total return was 6.4 per cent. The total return from the portfolio
was 5.3 per cent, which compares favourably with a total return of 3.6 per cent
from the MSCI Investment Property Databank ('IPD') Quarterly Benchmark Index.
The longer term performance of the portfolio remains strong with IPD rating it
second quartile over three years and top quartile over five and ten years.
The share price at the year-end was 136.4p, representing a premium of 0.7 per
cent to the NAV per share of 135.5p, recovering significantly from a 24 per
cent discount experienced in the immediate aftermath of the Brexit vote.
The following table provides an analysis of the movement in the NAV per share
for the year:
Pence
NAV per share as at 31 December
2015 135.2
Unrealised increase in valuation of direct property portfolio
1.2
Decrease in valuation of interest rate
swap (0.1)
Other net revenue
5.2
Dividends paid
(6.0)
---------
NAV per share as at 31 December
2016 135.5
---------
The Company experienced modest capital growth in the portfolio of 0.8 per cent,
ahead of the MSCI IPD index which recorded a negative capital return of 1.1 per
cent. As with 2015, the strongest returns were experienced in the logistics and
industrial sector.
In absolute terms, the most significant contributors to returns were:
• London, St Christopher's Place Estate - reflecting yield compression and
rental growth on all elements of the Estate.
• Birmingham, Unit10a Hams Hall Distribution Park - reflecting the renewal
and extension of lease agreements with the tenants.
• Colchester, Ozalid Works, Cowdray Avenue - The grant of outline planning
for a residential development accompanied by a completed s106 agreement with
the Local Authority more than doubled the value of the property.
Negative contributions came from:
• The changes to Stamp Duty announced in March 2016 which reduced the value
of the portfolio by 0.8 per cent as the rate increase was factored in to
property valuations.
• Reading, Thames Valley One, Thames Valley Park - reflecting new void space
following the exit of the tenant.
There was one sale during the year of the Company's Freehold interest in 25
Great Pulteney Street, London W1 in December 2016 for £54.3 million. This
reflected a net initial yield of 3.95 per cent and crystallised substantial
value for the Company, reducing its exposure to Central London.
Borrowings and Loan Refinancing
The Group amended its financing arrangements with Barclays Bank PLC in respect
of the existing £50 million term loan facility repayable in June 2017. This
included extending the repayment date to June 2021. The Board also agreed an
additional revolving credit facility of £50 million over the same period for
ongoing working capital purposes and to provide the Group with the flexibility
to acquire further property when the opportunity arises.
Following this refinancing, the Group's available borrowings comprise a £260
million term loan with Legal & General Pensions Limited, maturing on 31
December 2024, and both a £50 million term loan facility and an undrawn £50
million revolving credit facility with Barclays. The Group's net gearing was
17.2 per cent at the end of the year.
The Group terminated, at a cost of £1.3 million, the interest rate hedging
arrangements linked to the previous Barclays facility. This had been accounted
for as a liability, net of accrued interest, of £1.5 million as at 31 December
2015. The Group has entered into a new
£50 million interest rate swap to cover the extended Barclays term facility.
This has fixed interest payable at 2.5 per cent per annum, a substantial
reduction on the previous 4.9 per cent per annum. The weighted average interest
rate in the Group's total current borrowings is 3.3 per cent, which is 0.3 per
cent lower than before the refinancing.
Dividends and Dividend Cover
Twelve monthly interim dividends, each of 0.5p per share, were paid during the
year, maintaining the annual dividend of 6.0p per share and providing a
dividend yield of 4.4 per cent based on the year-end share price. Barring
unforeseen circumstances, the Board intends that dividends in 2017 will
continue to be paid monthly at the same rate.
The Company's level of dividend cover for the year (excluding capital gains on
properties and loss on redemption of the interest rate swap) was 87.0 per cent,
ahead of the 80.6 per cent cover achieved last year. The improved cover is
primarily attributable to an enhanced level of rental income which increased by
£2.0 million in the current year and a reduced performance fee of £1.9 million.
Management Fees
We have had discussions with the Investment Manager over the management fee and
agreed a revised arrangement with effect from 1 January 2017. The performance
fee has been removed and in the future, the Investment Manager will be entitled
to a base management fee of 0.55 per cent per annum of the Group's gross assets
(reduced to 0.525 per cent on assets between £1.5 billion and £2 billion and
0.5 per cent on assets in excess of £2 billion).
The arrangement will be reviewed again formally in three years' time. All other
terms and conditions will remain the same including the administration fee and
termination notice period of six months. We believe this to be a competitive
fee arrangement, being the lowest ad valorem fee rate of the Company's peer
group.
Board Composition
The Company employed the services of an independent external search consultant
to assist with the recruitment of new Board Member, Paul Marcuse, who was
appointed on the 12 January 2017. Paul has approximately 35 years' experience
in the real estate and finance sectors. He was Head of Global Real Estate at
UBS Global Asset Management between 2007 and 2012. Prior to this, he was Chief
Executive of AXA Real Estate Investment Managers.
Peter Niven, who has served the Company since inception as a Non- Executive
Director and was the Company's first Chairman from 2005 to 2009 will retire at
the 2017 AGM. On behalf of the Board, I would like to thank Peter for all the
time and effort he has put in over the years. Peter has made a valuable
contribution towards the success of the Company and is the last of the first
appointed Directors to retire from the Board.
Following the 2017 AGM, and subject to Shareholders' approval, the Board will
consist of six non-executive directors with an average appointment of 4 years'
service. No further changes to the Board are anticipated in the near term.
Annual General Meeting
The Annual General Meeting will be held at 12.30pm on Wednesday 31 May 2017 at
Trafalgar Court, Les Banques, St. Peter Port, Guernsey.
Outlook
Following a turbulent year for the UK, there is greater clarity emerging from
Brexit but considerable areas of uncertainty remain and it is probable that
this will influence investor sentiment. Investors are expected to de-risk their
property holdings and favour prime, well-let assets. Property is still
attractively priced against the risk free rate of interest and the search for
yield should support the property investment market, with the industrial sector
a major beneficiary.
The occupational market may face headwinds from business rates, the imposition
of a National Living Wage and higher import costs in the coming year. However,
the Company is looking for opportunity in longer-term structural changes such
as digitisation, urbanisation, infrastructure and communications to grow
capital value and dividend cover in a portfolio of prime assets.
The Company's portfolio is well diversified, consists of high quality assets
and is well positioned to continue to deliver attractive income, combined with
capital appreciation in line with the investment objective. The Investment
Manager will continue to look to invest in interesting and accretive assets, as
well as realising the value add potential of the portfolio.
Chris Russell
Chairman
Managers' Review
Highlights over the Year
· Strong total return from property portfolio of 5.3 per cent compared with
3.6 per cent from the MSCI IPD benchmark.
· Portfolio capital growth of 0.8 per cent compared with capital falls of
1.1 per cent from the MSCI IPD benchmark.
· Gross rental income increased by £2.0 million per annum.
Property Market Review for 2016
The benchmark total return for the year, as measured by the MSCI Investment
Property Databank ('IPD') Quarterly Universe was 3.6 per cent. Performance was
adversely affected by a change in stamp duty early in the year and by a marked
weakening in investor sentiment reflecting, in large part, the perceived impact
of Brexit on the UK economy and property market. The final quarter witnessed
some rebalancing with a benchmark total return of 2.2 per cent.
The period following the EU referendum result saw a change in the UK's
political leadership, a reduction in official interest rates and an expanded
quantitative easing programme. Despite initial survey evidence from the
Purchasing Managers Index to the contrary, the GDP growth rate remained
positive throughout the year. However, sterling fell sharply in the wake of the
vote and inflation expectations have risen. Attention has been focused on the
exit terms and timing of the withdrawal from the EU, with Article 50 having
been triggered on 29 March 2017.
Investment activity in 2016 fell back to its lowest level since 2012. Investors
were becoming concerned about pricing ahead of the referendum vote and holding
back until the outcome of the result. Once this was known, investment activity
fell further. Some deals proceeded, some were aborted and others renegotiated.
The fall in sterling may have mitigated the impact on transaction levels to a
degree and the fourth quarter saw investment activity revive, boosted by strong
net investment from overseas buyers. UK institutions were net sellers of
property for most of the year. Reaction to the referendum result also saw
open-ended property funds struggle with redemptions. This necessitated moves in
pricing, fair value adjustments, suspension of redemptions and some forced
sales. However, this period was relatively short lived and all funds had
reopened by year-end.
The income return was largely unaffected by the volatility elsewhere in the
market and was 4.7 per cent in the year to December. Capital growth resumed in
the fourth quarter at 1.0 per cent, but with capital values down by 1.1 per
cent for the year, attention has switched more towards income to deliver
performance. The year witnessed a marked shift, with investors focusing on long
leases and secure income streams, with the focus moving from enhancing to
defending and protecting the income stream.
The industrial/distribution sector and the 'other' sector, comprising
non-traditional property assets such as student accommodation, drew ahead of
the field with both delivering an annual total return of 7.4 per cent. This
compares with 2.7 per cent for offices and 1.6 per cent for retail. Within
retail, Central London continued to deliver a strong performance but retail
warehousing and regional retail under- performed, while shopping centres
delivered a negative total return. In 2015, the office market was the strongest
performing sector but in 2016 all the main components under-performed the
all-property average, with City offices particularly badly affected.
The yield compression that has driven performance in recent years, drew to a
close in 2016. The initial yield edged out to 4.9 per cent from 4.8 per cent at
the all-property level. Outward yield movement was most pronounced in retail
warehousing, shopping centres and South East offices sectors. The alternative
property sector recorded an inward yield shift.
Rental growth for standing investments at the all-property level slipped to 2.1
per cent in 2016. The deceleration was widespread but Central London offices
were particularly affected. Regional retail assets and supermarkets continued
to record rental decline. Gross rent passing rose by only 0.8 per cent in the
year, underscoring the difficulty of capturing rental growth. The occupational
market has been affected by the Brexit vote, incentives have increased and
development activity re-appraised.
The year was characterised by high levels of uncertainty and a move towards a
more defensive strategy by investors, although the final quarter of the year
showed some steadying in sentiment. There is significant equity in the market
but property owners are holding on to their best assets. This has been a
watershed year, where the yield compression and capital growth of earlier years
has been replaced by a return to income as the driver of performance and a
focus on income security and protection.
Valuation and Portfolio Growth
The Company continues to invest in a diversified UK commercial real estate
portfolio of 36 properties. CBRE are external valuers to the Company and they
independently valued the portfolio at £1,322,455 million as at 31 December
2016.
The total return from the portfolio over the year was 5.3 per cent (30th
percentile) compared with the benchmark return of 3.6 per cent. The portfolio
has delivered a strong track record of longer term performance: Second quartile
over three years and top quartile over five and ten years.
Total Return Analysis
Market Segment - Direct Portfolio Total Benchmark Total
Property Return (%) Return (%)
St Retails - South East* 9.0 5.8
St Retails - Rest of UK (5.6) 1.5
Shopping Centres - (0.2)
Retail Warehouses 0.2 0.2
Offices - City 1.7 1.7
Offices - West End (0.2) 3.5
Offices - South East (1.9) 2.8
Offices - Rest of UK 2.9 1.8
Industrials - South East 24.6 8.3
Industrials - Rest of UK 15.5 5.8
Other Commercial 14.8 7.4
All Segments 5.3 3.6
* Includes West End Retail
Source: MSCI IPD
Retail Market
The Company's exposure to the 'in town' retail sector consists of St
Christopher's Place Estate, London W1, The Broadway, Wimbledon and a shop in
Conduit Street, London W1. The value of these holdings is £383 million. The
total return on the retail portfolio was 5.2 per cent compared with the MSCI
IPD benchmark total return of 1.6 per cent.
St Christopher's Place
St Christopher's Place Estate remains a core holding for the Company and the
largest asset with a value approaching £300 million. The holding comprises 44
individual properties across a range of uses including traditional retail,
restaurants, offices and a growing number of residential units. The Estate
performed strongly over the period with an 8.5 per cent increase in its capital
value. The rise in capital value was driven by rental growth across the retail,
restaurant and office sectors.
The redevelopment of 71-77 Wigmore Street is almost complete. The restaurant is
under offer on a new lease to a renowned London restaurant group and although
the shop unit, on the corner of St Christopher's Place, has received a number
of offers we will be formally marketing the opportunity on completion of the
development to ensure optimal market exposure. Elsewhere planning consent has
been approved for the redevelopment of
1-2 Barrett Street and several other development opportunities of varying scale
have been identified and will be the subject of planning applications for
redevelopment or reconfiguration over the next 12 months.
There has been very strong occupier interest in the Estate over the last 12
months, particularly in the food and beverage sector and this is producing
interesting opportunities to refresh the occupier line up. As an example, on
James Street, Café Rouge surrendered their lease for a premium of £650,000 and
the unit has been re-let to Bone Daddies, a Japanese Ramen operator who paid an
ingoing premium of £400,000 and the rent reflected an uplift of
£80,900 per annum (77 per cent over the previous rent passing). We foresee
similar opportunities arising to bring in new operators over the short and
medium term.
The opening of the Elizabeth Line (Crossrail 1) in 2018 and the predicted
increase of pedestrian traffic to the Oxford Street area, has acted as a
catalyst for discussion with other key West End stakeholders to secure further
improvements to the public realm and the general visitor experience. In
particular we are promoting the opportunities for reduced through traffic on
James Street and we intend that this will form part of the overall strategy for
environmental improvements in this part of the West End in the future.
Other Retail
At 16 Conduit Street, Christian Dior surrendered their lease in July 2016 and a
new 15-year lease was simultaneously granted to luxury retailer MCM, at a
record rental level for their London flagship store. Meanwhile at the Company's
retail and leisure holding in Wimbledon, Uniqlo renewed their lease for a term
of 10 years at a higher rent, supporting a round of rent reviews and lease
renewals that will become due over the next 12 months. A number of
announcements have been made concerning Crossrail 2, which it is proposed will
run through Wimbledon and active consultation is being undertaken. The longer
term impact is likely to be very positive for the Company's ownership.
Key asset management activities in the out of town retail sector included the
completion of the letting to Boots the Chemist at Newbury Retail Park,
following their agreement to surrender the lease of unit 10. Boots took a new
10-year lease from July 2016 at a rent of £325,000 per annum (£32.50 psf). The
valuers pro-forma estimated rental value for this unit was £281,000 per annum
(£28.10 psf). Linked to this transaction, the agreement for a lease with T K
Maxx for unit 10 became unconditional when both planning consent and vacant
possession were achieved. Works started on site in September 2016 to extend
the floor area and to modernise the shop front of the unit. The premises were
handed over to T K Maxx to fit out in February 2017. This is a new 15 year
lease with a tenants break option in the tenth year, at £351,000 per annum (£
29.25 psf) in excess of the pro-forma estimated rental value of £27.50 psf.
Terms have also been agreed with Homesense to take a new lease of unit 7,
currently occupied by Poundstretcher who will surrender the remaining 5 years
of the existing lease. Work will be undertaken to extend the current unit by
2,000 sq ft. Upon completion of these works Homesense will take a new lease of
15 years (tenant break option in year 10) at a commencing rent of £310,000 per
annum (£31.00 psf). The existing rent is £212,477 per annum (£26.50 psf).
This new leasing and rent review evidence resulted in the holdings estimated
rental value increasing by 4.8 per cent.
Sears Retail Park, Solihull is fully income producing following the expiry of
the rent-free period granted to T K Maxx on Unit 5. New totem directory signage
for the retail park was erected as part of the ongoing three-year park
refurbishment and business plan. The next phase of these works will include the
modernisation of the shop fronts and signage zones for those units still to be
refurbished.
At Dane Street, Rochdale, Asda has presented to their board for approval for a
new reversionary lease. This will extend the existing 5 year term to 20 years,
in return for a rent free period.
Office Market
The Company's exposure to the office sector amounts in total to £469 million
(35.5 per cent of the portfolio) across 16 properties and provides
approximately 39 per cent of gross rental income.
The total return on the office portfolio was 0.5 per cent compared with the
MSCI IPD benchmark total return of 2.7 per cent. This relative underperformance
can be attributed to the short term income of our West End holdings and void
space on our South East out of town properties, particularly TVP One at Thames
Valley Park, Reading and Building B at Watchmoor Park, Camberley. Significant
transactions are being negotiated at Cassini House, 2-4 King Street, London SW1
and recently completed refurbishment at 7 Birchin Lane, London EC3. We also
sold 25 Great Pulteney Street at £54.3 million reflecting a net initial yield
of 3.95 per cent.
Elsewhere in the regions 82 King Street, Manchester has continued its letting
success post refurbishment works with leases completed to Lloyds Bank Plc,
Arbuthnot Latham and Inflexion Private Equity at £32.50 psf, which is a record
for this building. Total rent from new lettings is £319,000. The vacant area in
the building has now reduced to 7,381 sq. ft. (9 per cent) compared to 24,352
sq ft (29 per cent) of the building in 2014.
HSBC have now confirmed that they will be vacating Nevis and Ness Houses at
Edinburgh Park but, subject to refurbishment, we are in discussion with two
other potential occupiers.
Aberdeen remains the Company's largest exposure to Rest of UK Offices. This
market remains quiet, which is a general reflection of the sub regional macro
economy, but the buildings are high quality and located on Aberdeen's prime
office park with strong landlord friendly leases to undoubted covenants.
Industrial & Logistics
2016 saw the 'Big Box' logistics sector, where the majority of the eleven
properties in this sector are held, deliver another year of strong performance.
The total return on the industrial and logistics portfolio was 17.5 per cent
compared with the MSCI IPD benchmark total return of 7.4 per cent. The combined
value rose from £193 million to £214.5 million, an 11 per cent increase. This
was due to further yield compression, owing to the continued demand for core
logistics from a wider variety of investors, coupled with the successful
conclusion of a number of key asset management initiatives.
At Hams Hall in Birmingham, we both renewed and extended lease agreements with
our tenants Arvato and Nestle. These two transactions in isolation provided an
increase in value over the period in excess of £8.2 million.
Agreement was also reached to capitalise on the sectors current high level of
rental growth with a rent review on the DHL occupied logistics facility in
Liverpool. This will be documented at an increase of £275,000 per annum, an
uplift of circa 20 per cent over the previous rent. This rewards our historic
belief in the potential of the North West as a region.
Post year end the lease renewal with Mothercare at Plot E4 DIRFT Daventry
concluded.
Significant progress has been made in exiting the former Ozalid Works in
Colchester. The grant of outline planning for a residential development
accompanied by a completed s106 agreement with the Local Authority more than
doubled the value of the property. Following the appointed agents marketing
campaign we are in advanced contract negotiations with one of the UKs major
house builders for the sale of this holding.
Opportunities to invest in prime assets in both the logistics and industrial
market remain limited and expensive, but we continue to scour the market for
value and genuine reversion.
The Alternative Property Sector
The student accommodation block, let in its entirety to the University of
Winchester on a long lease, remains the Company's only exposure to this sector.
The property produced a total return of 1.1 per cent last year. This lease is
subject to annual RPI increases and the annual rent is now £1.748 million per
annum.
Acquisitions & Sales
As previously announced the Company completed the sale of its freehold interest
in 25 Great Pulteney Street, London W1 for £54.3m, reflecting a net initial
yield of 3.95 per cent. The property comprised a seven-storey building
providing high quality, contemporary, Grade A office accommodation and was
fully let to four tenants. The sale price exceeded the last external valuation
of £51.2 million.
25 Great Pulteney Street was a property that the Company fully redeveloped,
completing 2011. It was subsequently leased at high rents reflecting the
quality of the building. The most recent re-letting achieved a rent of £96.50
psf. The property produced an annualised total return of 16.5 per cent since
completion of the works. The disposal crystallised substantial value for the
Company, reduced its exposure to Central London and allows capital to be
employed into other opportunities.
Responsible Property Investment
The principles of Responsible Property Investment (RPI), through which
environmental, social and governance (ESG) factors are integrated into
investment processes and asset ownership activities, have continued to gain
significant traction and momentum in the UK property market. In particular, the
emergence of new regulations which target the energy performance of existing
buildings, together with the ratification and coming into force of the Paris
Agreement on Climate Change during 2016, have been key stimulants of investor
engagement on the topic. Increasingly, investment decision-making is influenced
by these factors, in terms of capital allocation strategies and commercial
property transactions.
The Company, through the policies and procedures of its Property Manager has
taken strides to strengthen its approach to RPI during 2016 including:
• Formalising an ESG Committee with representation from across its
investment management teams, with the purpose of leading on, monitoring and
overseeing the Property Managers' approach to RPI.
• Establishing a new RPI Strategy for its corporate and investment
activities, which is reflective of strengthening market expectations with
respect to ESG factors, and which has the mutual goals of ensuring portfolio
resilience; driving environmental improvements; and engaging with our
stakeholders.
• Putting in place comprehensive RPI requirements for asset and property
managers to ensure continued attendance to ESG factors across the property
investment lifecycle.
• Introducing Responsible Property Management Guidelines to support property
managers in identifying and capturing opportunities for improving the ESG
performance and attributes of assets, covering factors such as energy
efficiency, water conservation, health and well-being, waste management and
procurement.
• Implementing a system for the classification of all assets under
management according to their energy performance risk and energy consumption
characteristics, which the Company is using as a basis for prioritising actions
and determining the frequency of its comprehensive ESG monitoring activities at
the property level.
• Installing a market-leading RPI Appraisal system, which is now applied to
all acquisitions made by the Company. We are also in the process of applying
the Appraisal system to all assets under management, a process which will be
completed by Q4 2017.
• Preparing Guidelines for Sustainable Development & Refurbishment, which is
to be applied to all significant capital projects undertaken on the portfolio.
• Delivering training to its fund, investment, asset and property management
teams to ensure that they are cognisant of the evolving RPI agenda, aware of
the expectations which the Company places upon them in relation to ESG factors,
and knowledgeable about what needs to be done to implement the new RPI
Strategy.
• In carrying out the above, the Property Managers appointed a specialist
RPI consulting and training firm, Hillbreak, which will continue to support and
advise by taking an independent role on the Property Managers' ESG Committee.
The Company and its Property Managers will remain vigilant of the evolving
nature of the RPI agenda and will continue to develop its approach to ESG
factors so that it remains on track to realising its RPI goals.
Outlook
Despite some recovery in property performance towards year-end and upward
revisions to GDP growth forecasts, market sentiment remains cautious. There is
a focus on political issues, with Brexit negotiations to the fore, but the
impact of the US election and developments in Europe are also potential areas
of concern. Within property, the introduction of new business rates will affect
tenants' occupational costs, while margins could be hit by higher prices for
imported goods. With interest rates expected to remain low by historic
standards and property benefiting from a relatively high and stable income
return, the asset class is likely to retain its appeal to income seeking
investors. We expect a period of positive single digit total return
performance, driven by income in an uncertain environment. We continue to
favour quality industrial and distribution, Central London retail and
alternative assets on a selective basis. The outlook for Central London offices
is still unclear. In the short and medium term, the path of Brexit negotiations
is expected to be a major determinant of performance but over the longer-term,
the impact of any move towards the normalisation of interest rates also needs
to be borne in mind.
Richard Kirby
Fund Manager
BMO REP Asset Management plc
F&C Commercial Property Trust Limited
Consolidated Statement of Comprehensive Income (audited)
Year ended Year ended
31 December 31 December
2016 2015
£'000 £'000
Revenue
Rental income 64,628 62,613
--------- ---------
Total revenue 64,628 62,613
Gains on investment properties
Unrealised gains on revaluation of investment 9,507 110,314
properties
Gains on sale of investment properties realised 215 2,530
---------- ----------
Total income 74,350 175,457
---------- ----------
Expenditure
Investment management fee (6,406) (8,100)
Other expenses (5,056) (4,204)
---------- ----------
Total expenditure (11,462) (12,304)
----------- -----------
Operating profit before finance costs and taxation 62,888 163,153
----------- -----------
Net finance costs
Interest receivable 69 194
Finance costs (11,269) (11,708)
Loss on redemption of interest rate swap (1,283) -
----------- -----------
(12,483) (11,514)
----------- -----------
Profit before taxation 50,405 151,639
Taxation (251) (142)
---------- ----------
Profit for the year 50,154 151,497
---------- ----------
Other comprehensive income
Items that are or may be reclassified subsequently
to profit or loss
Net change in fair value of swap reclassified to
profit and loss 1,546 -
Movement in fair value of effective interest rate (717) 909
swaps
---------- ----------
Total comprehensive income for the year, net of tax 50,983 152,406
---------- ----------
Basic and diluted earnings per share 6.3p 19.0p
All of the profit and total comprehensive income for the year is attributable
to the owners of the Group.
All items in the above statement derive from continuing obligations.
F&C Commercial Property Trust Limited
Consolidated Balance Sheet (audited)
As at As at
31 31 December
December 2016 2015
£'000 £'000
Non-current assets
Investment properties 1,306,002 1,340,061
Trade and other receivables 17,827 14,431
------------ ------------
1,323,829 1,354,492
------------ ------------
Current assets
Trade and other receivables 3,093 5,144
Cash and cash equivalents 85,021 55,755
------------ ------------
88,114 60,899
------------ ------------
Total assets 1,411,943 1,415,391
------------ ------------
Current liabilities
Trade and other payables (18,871) (24,844)
------------ ------------
Non-current liabilities
Trade and other payables (1,565) (1,158)
Interest-bearing loans (307,345) (307,419)
Interest rate swaps (717) (1,546)
------------ ------------
(309,627) (310,123)
------------ ------------
Total liabilities (328,498) (334,967)
------------ ------------
Net assets 1,083,445 1,080,424
------------ ------------
Represented by:
Share capital 7,994 7,994
Share premium 127,612 127,612
Reverse acquisition reserve 831 831
Special reserve 461,150 474,529
Capital reserve - investments sold 7,068 (21,408)
Capital reserve - investments held 355,586 374,340
Hedging reserve (717) (1,546)
Revenue reserve 123,921 118,072
------------ ------------
Equity shareholders' funds 1,083,445 1,080,424
------------ ------------
Net asset value per share 135.5p 135.2p
F&C Commercial Property Trust Limited
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016 (audited)
Capital Capital
Reverse Reserve - Reserve -
Share Share Acquisition Special Investments Investments Hedging Revenue
Capital Premium Reserve Reserve Sold Held Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2016 7,994 127,612 831 474,529 (21,408) 374,340 (1,546) 118,072 1,080,424
Total
comprehensive
income for the
year
Profit for the - - - - - - - 50,154 50,154
year
Movement in fair
value of interest - - - - - - 829 - 829
rate swaps
Transfer in
respect of
unrealised gains - - - - - 9,507 - (9,507) -
on investment
properties
Gains on sale of
investment - - - - 215 - - (215) -
properties
realised
Transfer of prior
years' revaluation
to realised - - - - 28,261 (28,261) - - -
reserve
Transfer from
special reserve - - - (13,379) - - - 13,379 -
Total
comprehensive - - - (13,379) 28,476 (18,754) 829 53,811 50,983
income for the
year
Transactions with
owners of the
Company recognised
directly in equity
Dividends paid - - - - - - - (47,962) (47,962)
At 31 December 7,994 127,612 831 461,150 7,068 355,586 (717) 123,921 1,083,445
2016
Consolidated Statement of Changes in Equity
for the year ended 31 December 2015 (audited)
Capital Capital
Reverse Reserve - Reserve -
Share Share Acquisition Special Investments Investments Hedging Revenue
Capital Premium Reserve Reserve Sold Held Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2015 7,994 127,612 831 511,933 (18,856) 258,944 (2,455) 89,977 975,980
Total comprehensive
income for the year
Profit for the year - - - - - - - 151,497 151,497
Movement in fair
value of interest - - - - - - 909 - 909
rate swaps
Transfer in respect
of unrealised gains
on investment - - - - - 110,314 - (110,314) -
properties
Gains on sale of
investment - - - - 2,530 - - (2,530) -
properties realised
Transfer of prior
years' revaluation
to realised reserve - - - - (5,082) 5,082 - - -
Transfer from
special reserve - - - (37,404) - - - 37,404 -
Total comprehensive
income for the year - - - (37,404) (2,552) 115,396 909 76,057 152,406
Transactions with
owners of the
Company recognised
directly in equity
Dividends paid - - - - - - - (47,962) (47,962)
At 31 December 2015 7,994 127,612 831 474,529 (21,408) 374,340 (1,546) 118,072 1,080,424
F&C Commercial Property Trust Limited
Consolidated Statement of Cash Flows (audited)
Year ended Year ended
31 December 31 December
2016 2015
£'000 £'000
Cash flows from operating activities
Profit for the year before taxation 50,405 151,639
Adjustments for:
Finance costs 11,269 11,708
Interest receivable (69) (194)
Unrealised gains on revaluation of investment (9,507) (110,314)
properties
Gains on sale of investment properties realised (215) (2,530)
Loss on redemption of interest rate swap 1,283 -
(Increase) / decrease in operating trade and other
receivables (888) 2,006
(Decrease)/increase in operating trade and other (5,566) 3,877
payables
----------- -----------
46,712 56,192
----------- -----------
Interest received 69 194
Interest and bank fees paid (10,778) (11,395)
Tax paid (251) (147)
----------- -----------
(10,960) (11,348)
----------- -----------
Net cash inflow from operating activities 35,752 44,844
----------- -----------
Cash flows from investing activities
Purchase/development of investment properties (4,099) (44,914)
Sale of investment properties 54,291 18,007
Capital expenditure (6,411) (4,717)
----------- -----------
Net cash inflow / (outflow) from investing activities 43,781 (31,624)
----------- -----------
Cash flows from financing activities
Dividends paid (47,962) (47,962)
Draw down of Bank Loan, net of costs 49,489 -
Repayment of Bank Loan (50,000) -
Revolving credit facility arrangement costs (511) -
Swap breakage costs (1,283) -
----------- -----------
Net cash outflow from financing activities (50,267) (47,962)
----------- -----------
Net increase / (decrease) in cash and cash equivalents 29,266 (34,742)
Opening cash and cash equivalents 55,755 90,497
----------- -----------
Closing cash and cash equivalents 85,021 55,755
----------- -----------
F&C Commercial Property Trust Limited
Principal Risks and Risk Management
The Board applies the principles detailed in the internal control guidance
issued by the Financial Reporting Council, and has established an ongoing
process designed to meet the particular needs of the Company in managing the
risks and uncertainties to which it is exposed. The principal risks and
uncertainties faced by the Company are described below and in note 2 which
provides detailed explanations of the risks associated with the Company's
financial instruments.
· Market - the Company's assets comprise direct investments in UK
commercial property and it is therefore exposed to movements and changes in
that market.
· Investment and strategic - poor investment decisions and incorrect
strategy, including sector and geographic allocations, use of gearing,
inadequate asset management activity and tenant defaults could lead to poor
returns for shareholders.
· Regulatory - breach of regulatory rules could lead to suspension of the
Company's London Stock Exchange listing, financial penalties or a qualified
audit report.
· Environmental - inadequate attendance to environmental factors by the
Managers, including those of a regulatory and market nature and particularly
those relating to energy performance, health and safety, flood risk and
environmental liabilities, leading to the reputational damage of the Company,
reduced liquidity in the portfolio, and/or negative asset value impacts.
· Management and control - changes that cause the management and control of
the Company to be exercised in the United Kingdom could lead to the Company
becoming liable to United Kingdom taxation on income and capital gains.
· Operational - failure of the Managers' accounting systems or disruption
to its business, or that of other third party service providers, could lead to
an inability to provide accurate reporting and monitoring, leading to a loss of
shareholders' confidence.
· Financial - inadequate controls by the Managers or other third party
service providers could lead to misappropriation of assets. Inappropriate
accounting policies or failure to comply with accounting standards could lead
to a qualified audit report, misreporting or breaches of regulations. Breaching
Guernsey solvency test requirements or loan covenants could lead to a loss of
shareholders' confidence and financial loss for shareholders.
The Board seeks to mitigate and manage these risks through continual review,
policy-setting and enforcement of contractual obligations. It also regularly
monitors the investment environment and the management of the Company's
property portfolio. The Managers seek to mitigate these risks through active
asset management initiatives and carrying out due diligence work on potential
tenants before entering into any new lease agreements. All of the properties in
the portfolio are insured.
Principal risks encountered during the year
· Tax Structure and Compliance - A Key area of concern relates to the
recent change to UK corporation tax legislation regarding restrictions on
interest deductibility in tax computations. The UK government have issued a
consultation paper on whether non-resident companies should be brought into the
UK corporation tax scheme at a point in the future. If such a decision were to
be made, the interest rate deductibility rules would have a significant effect
on the level of taxation payable by the Company. The Company are in
consultation with their tax advisors on this and are monitoring the situation.
These changes may result in the Company converting to a UK Real Estate
Investment Trust at a future date.
· Valuation Accuracy - There was concern over the accuracy of property
valuations following the Brexit vote. A caveat on the accuracy of the
valuations was included in the June 2016 external valuation but has since been
removed, although uncertainty still exists.
· Discount/Premium to Net Asset Value - The share price went through a
period of instability and fell significantly to a discount of 24 per cent
following the Brexit vote. The share price recovered reasonably quickly and has
subsequently settled at a small premium.
F&C Commercial Property Trust Limited
Going Concern
In assessing the going concern basis of accounting the Directors have had
regard to the guidance issued by the Financial Reporting Council. They have
reviewed detailed cash flow, income and expense projections in order to assess
the Company's ability to pay its operational expenses, bank interest and
dividends. The Directors have examined significant areas of possible financial
risk including cash and cash requirements and the debt covenants, in particular
those relating to loan to value and interest cover. They have not identified
any material uncertainties which cast significant doubt on the ability to
continue as a going concern for a period of not less than 12 months from the
date of the approval of the financial statements. The Board believes it is
appropriate to adopt the going concern basis in preparing the financial
statements.
Statement of Directors' Responsibilities in Respect of the Annual Financial
Report
In accordance with Chapter 4 of the Disclosure and Transparency Rules, we
confirm that to the best of our knowledge:
· The consolidated financial statements contained within the Annual Report
for the year ended 31 December 2016, of which this statement of results is an
extract, have been prepared in accordance with applicable International
Financial Reporting Standards as adopted by the EU, on a going concern basis,
and give a true and fair view of the assets, liabilities, financial position
and profit or loss of the Group and the undertakings included in the
consolidation taken as a whole and comply with The Companies (Guernsey) Law,
2008 (as amended) ; and
· The Chairman's Statement and Managers' Review include a fair review of
the development and performance of the business and the position of the Group
and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face; and
· The Annual Report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Group's position and performance, business model and
strategy; and
· The Annual Report includes details of related party transactions that
have taken place during the financial year.
On behalf of the Board
Chris Russell
Director
F&C Commercial Property Trust Limited
Notes to the audited Consolidated Financial Statements
for the year ended 31 December 2016
1. The Board has declared a twelfth, and last, interim dividend for the
year of 0.50p per share to be paid on 28 April 2017 to shareholders on the
register on 7 April 2017.
It is the Directors' intention that the Company will continue to pay dividends
monthly.
2. Financial Instruments
The Company's investment objective is to provide ordinary 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.
Consistent with that objective, the Group holds UK commercial property
investments. In addition, the Group's financial instruments during the year
comprised interest-bearing bank loans, cash and receivables and payables that
arise directly from its operations. The Group does not have exposure to any
derivative instruments other than the interest rate swap entered into to hedge
the interest paid on the Barclays interest-bearing bank loan.
The Group is exposed to various types of risk that are associated with
financial instruments. The most important types are credit risk, liquidity
risk, interest rate risk and market price risk. There is no foreign currency
risk as all assets and liabilities of the Group are maintained in pounds
sterling.
The Board reviews and agrees policies for managing the Group's risk exposure.
These policies are summarised below and have remained unchanged for the year
under review. These disclosures include, where appropriate, consideration of
the Group's investment properties which, whilst not constituting financial
instruments as defined by IFRS, are considered by the Board to be integral to
the Group's overall risk exposure.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Group.
In the event of default by an occupational tenant, the Group will suffer a
rental shortfall and incur additional costs, including legal expenses, in
maintaining, insuring and re-letting the property. The Board receives regular
reports on concentrations of risk and any tenants in arrears. The Managers
monitor such reports in order to anticipate, and minimise the impact of,
defaults by occupational tenants.
All of the Group's cash is placed with financial institutions with a long term
credit rating of A or better. Bankruptcy or insolvency of such financial
institutions may cause the Group's ability to access cash placed on deposit to
be delayed or limited. Should the credit quality or the financial position of
the banks currently employed significantly deteriorate, cash holdings would be
moved to another bank.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets or
otherwise raising funds to meet financial commitments. The Group's investments
comprise UK commercial property. Property and property-related assets in which
the Group invests are not traded in an organised public market and may be
illiquid. As a result, the Group may not be able to liquidate quickly its
investments in these properties at an amount close to their fair value in order
to meet its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the Managers and
monitored on a quarterly basis by the Board. In order to mitigate liquidity
risk the Group aims to have sufficient cash balances (including the expected
proceeds of any property sales) to meet its obligations for a period of at
least twelve months.
Interest rate risk
Some of the Group's financial instruments are interest bearing. They are a mix
of both fixed and variable rate instruments with differing maturities. As a
consequence, the Group is exposed to interest rate risk due to fluctuations in
the prevailing market rate.
The Group's exposure to interest rate risk relates primarily to its long-term
debt obligations. Interest rate risk on long-term debt obligations is managed
by fixing the interest rate on such borrowings, either directly or through
interest rate swaps for the same notional value and duration. Long-term debt
obligations and the interest rate risk they confer to the Group is considered
by the Board on a quarterly basis. Long term debt obligations consist of a £260
million L&G loan on which the rate has been fixed at 3.32 per cent until the
maturity date of 31 December 2024. The Group also has a £50 million
interest-bearing bank loan with Barclays on which the rate has been fixed
through an interest rate swap at 2.522 per cent per annum until the maturity
date of 21 June 2021. The Group has agreed an additional revolving credit
facility of £50 million with Barclays over the same period, which has not been
drawn down as at 31 December 2016. The revolving credit facility pays an
undrawn commitment fee of 0.60 per cent per annum.
When the Group retains cash balances, they are ordinarily held on
interest-bearing deposit accounts. The benchmark which determines the interest
income received on interest bearing cash balances is the bank base rate of Bank
of England which was 0.25 per cent as at 31 December 2016 (2015: 0.5 per cent).
The Company's policy is to hold cash in variable rate or short-term fixed rate
bank accounts and not usually in fixed rate securities with a term greater than
three months.
Market price risk
The Group's strategy for the management of market price risk is driven by the
investment policy. The management of market price risk is part of the
investment management process and is typical of commercial property investment.
The portfolio is managed with an awareness of the effects of adverse valuation
movements through detailed and continuing analysis, with an objective of
maximising overall returns to shareholders. Investments in property and
property-related assets are inherently difficult to value due to the individual
nature of each property. As a result, valuations are subject to substantial
uncertainty. There is no assurance that the estimates resulting from the
valuation process will reflect the actual sales price even where such sales
occur shortly after the valuation date. Such risk is minimised through the
appointment of external property valuers.
3. There were 799,366,108 Ordinary Shares in issue at 31 December 2016
(2015: 799,366,108).
At 31 December 2016, the Company did not hold any Ordinary Shares in treasury
(2015: nil).
4. The basic and diluted earnings per Ordinary Share are based on the
profit for the year of £50,154,000 (2015: £151,497,000) and on 799,366,108
(2015: 799,366,108) Ordinary Shares, being the weighted average number of
shares in issue during the year.
5. The Company owns 100 per cent of the issued ordinary share capital
of FCPT Holdings Limited, a company registered in Guernsey. The principal
activity of FCPT Holdings Limited is to act as a holding company and it owns
100 per cent of the ordinary share capital of F&C Commercial Property Holdings
Limited, a company registered in Guernsey whose principal business is that of
an investment and property company, and 100 per cent of the ordinary share
capital of Winchester Burma Limited, a company registered in Guernsey whose
principal business is that of an investment and property company.
The Company owns 100 per cent of the issued ordinary share capital of SCP
Estate Holdings Limited, a company registered in Guernsey. The principal
activity of SCP Estate Holdings Limited is to act as a holding company and it
owns 100 per cent of the ordinary share capital of SCP Estate Limited, a
company registered in Guernsey whose principal business is that of an
investment and property company, and 100 per cent of the ordinary share capital
of Prime Four Limited, a company registered in Guernsey whose principal
business is that of an investment and property company.
The Company owns 100 per cent of the issued ordinary share capital of Leonardo
Crawley Limited, a company registered in Guernsey whose principal business is
that of an investment and property company.
On 11 October 2016, the Company placed Crawley Holdings Limited, a company
registered in England and Wales, into a members' voluntary wind up appointing
Derek Hyslop and Colin Dempster of Ernst & Young LLP as liquidators.
6. The Group had capital commitments totalling £4,271,000 as at 31
December 2016 (2015: £8,852,000). These commitments related mainly to
contracted development works at the Group's properties at St. Christopher's
Place Estate, London W1.
7. The Company and FCIB have entered into a revised investment
management agreement, to reflect amended fee arrangements, with an effective
date from 1 January 2017. FCIB will be entitled to a base management fee of
0.55 per cent per annum of the Group's gross assets (reduced to 0.525 per cent
per annum on assets between £1.5 billion and £2 billion and 0.5 per cent per
annum in excess of £2 billion) and reduced to 0.25 per cent per annum on cash
net of gearing in excess of 5 per cent of net assets, payable quarterly in
arrears. FCIB will not be entitled to a performance fee. All other terms and
conditions will remain the same including the administration fee and
termination notice.
8. These are not full statutory accounts. The full audited accounts for
the year to 31 December 2016 will be sent to shareholders and will be available
for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1
3QL, the registered office of the Company, and from the Company's website:
fccpt.co.uk
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration (Guernsey) Limited
Trafalgar Court
Les Banques
St. Peter Port
Guernsey GY1 3QL
Tel: 01481 745436
Fax: 01481 745186
Richard Kirby
BMO REP Asset Management plc
Tel: 0207 016 3577
Graeme Caton
Winterflood Securities Limited
Tel: 0203 100 0268
F&C Commercial Property Trust Ltd. published this content on 03 April 2017 and is solely responsible for the information contained herein.
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