To:
RNS
Date:
17 April 2018
From:
F&C Commercial Property Trust Limited (the “Company”)
L.E.I.
213800A2B1H4ULF3K397
Results in Respect of the Year Ended
31 December 2017 (audited)
Highlights
- Share price total return of 3.9 per cent*
- Portfolio total return of 8.7 per cent*
- Dividend cover decreased to 83.1 per cent from 87.0 per
cent*
- Yield on year-end share price of 4.4 per cent*. Maintained
dividend at 6.0 pence per share for
the 12th successive year
*see Alternative Performance Measures
Chairman’s Statement
Introduction
UK commercial property experienced positive demand during 2017
as investors, particularly from overseas but also UK institutions,
continued to look to invest in core assets with a secure income
stream. Investment activity in 2017 moved up sharply from the
previous year’s levels as sentiment adjusted to the changed
circumstances following the referendum result and the economy
continued to advance more strongly than initially feared. Against
this backdrop, progress on the Brexit negotiations was slow and
uneven and many uncertainties remain, politically, economically,
domestically and internationally. The market has seen polarization,
with industrials and distribution out-performing strongly, while
regional town centre retail has remained under pressure.
Performance for the Year
The net asset value (‘NAV’) total return for the year was 8.8*
per cent and the share price total return was 3.9* per cent. The
total return from the portfolio was 8.7* per cent, lagging the
total return of 10.3 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
upper quartile over three and five years and top quartile over ten
years.
The share price at the year-end was 135.9p, representing a
discount of 3.8* per cent to the NAV per share of 141.2p.
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
2016 |
135.5 |
Unrealised increase in valuation of
direct property portfolio |
6.6 |
Increase in valuation of interest
rate swap |
0.1 |
Other net revenue |
5.0 |
Dividends paid |
(6.0) |
NAV per share as at 31 December
2017 |
141.2 |
During 2017 the Company experienced capital growth of 4.2* per
cent, compared to the MSCI IPD index which recorded a capital
return of 5.4 per cent. As with 2015 and 2016, the strongest
returns were experienced in the logistics and industrial
sector.
The underperformance against the index can primarily be
attributed to the Company’s underweight position in Industrials in
the South East, which accounted for 0.9 per cent of the relative
underperformance. The Company’s holdings in the office sector
lagged the index because of increased voids and shortening
unexpired lease terms. The Company has no exposure to shopping
centres which was the poorest performing segment.
In absolute terms, the most significant positive contributors to
returns were:
- London, St Christopher’s Place
Estate – reflecting the completion of the Wigmore Street
development, new lettings and strong rental growth.
- London, Cassini House –
successfully agreed new letting to the anchor tenant for 15 years,
incorporating the full refurbishment of the building.
- Daventry, Site E4, DIRFT –
following the completion of a rent renewal on a ten-year lease and
the continued demand for prime logistics.
- Chorley, Units 6 & 8 Revolution Park- significant yield
compression due to the continued demand for logistics.
Negative contributions came from:
- Uxbridge, Stockley Park –
reflecting the fact that the building has a shortening lease
expiry.
- Reading, Thames Valley One, Thames Valley Park – reflecting
void space following the exit of the tenant.
The Company purchased 1 Cathedral Square, Bristol in December
2017 for £33.5 million. Bristol as a location had been targeted given
its positive balance of supply and demand and outlook for rental
growth. The purchase is also in accordance with the Company
strategy to invest in prime office assets, on attractive yields, in
town centres which score highly for connectivity and quality of
life and thereby provide sustainable occupational demand and a
skilled and young working population.
Borrowings
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, available until June 2021. The Group’s net gearing, was 19.6 per
cent at the end of the year. The weighted average interest rate on
the Group’s total current borrowings is 3.3 per cent.
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 since 2006 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 2018 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) was 83.1* per cent. This was lower
than the 87.0* per cent cover achieved last year due to:
- a reduced level of rental income following the sale of the
office building in Great Pulteney Street in December 2016, on a very low yield, reducing
exposure to the West End of London
office market. A significant portion of the proceeds of this sale
has now been reinvested at a higher yield in the property in
Bristol. The level of cover was
also impacted by the voids at Thames Valley One, Reading and
Nevis/Ness House, Edinburgh.
- The cover was further reduced by an increase in the base
management fee negotiated at the start of the year, following the
removal of the performance fee. The base fee rate is higher than
the effective rate of the total fees earned in 2016, when the
Manager did not maximise the performance fee, but lower than the
effective rate of fees earned in the previous years.
- The level of tax payable in the current year increased as
taxable losses were fully utilised in two subsidiaries of the
Group.
Board Composition
As recorded in last year’s Annual Report, Paul Marcuse, formerly
Head of Global Real Estate for UBS Global Asset Management, was
appointed to the Board as a Non-Executive Director on 12 January 2017. Peter
Niven, who had been a Non-Executive Director of the Company
since its launch in 2005, retired from the Board at the Annual
General Meeting on 31 May 2017 and
was the last of the Company’s founding directors to retire in
favour of fresh appointments.
At the end of October 2018, I will
have served on the Board for nine years. In accordance with good
corporate governance I plan to retire at the Annual General Meeting
in 2019, once my successor as chairman has been chosen. The Board
is mindful of the recommendations of the Hampton-Alexander Review
“Improving gender balance in FTSE Leadership”. In particular the
review recommends that a Board should have at least 33 per cent
female representation by 2020 and the Board will consider this
during the recruitment process for the next Non-Executive
Director.
Responsible Property Investment
The Board has taken further steps this year to develop our
Responsible Property Investment (‘RPI’) approach. Building upon the
principles and procedures established by our Property Manager’s
comprehensive RPI Strategy+, we have developed a framework of
specific targets and objectives for the Group. These reflect the
importance of a range of environmental, social and governance
(‘ESG’) factors to the UK property market generally, and to the
Group’s portfolio and investment strategy specifically.
Engaging with our shareholders was a crucial part of this
process and we are very grateful to those who took the time to meet
with our advisor to discuss their expectations, as well as those
that responded to our survey on ESG priorities. In total,
shareholders representing over 50 per cent of the equity in the
Company provided valuable input to this process and I am confident
that they will see that we have responded positively and robustly
to their expectations and will continue to do so.
+ see bmorep.com/our-capabilities
Taxation
The UK government has announced that non-resident landlords will
be taxable under the UK corporation tax regime, rather than the UK
income tax regime from April 2020.
This change could have a material impact on the Company’s tax
affairs and we are in consultation with our tax advisors on this,
in particular, on whether the Company should apply for UK Real
Estate Investment Trust (‘REIT’) status.
Annual General Meeting
The Annual General Meeting will be held at 12.30pm on Wednesday 6
June 2018 at The Fermain Valley Hotel, Fermain Lane, St.
Peter Port, Guernsey.
Outlook
The property market out-performed initial expectations for 2017
but an environment of higher interest rates and inflation, subdued
economic growth, political uncertainty and some keen pricing may
begin to weigh more heavily on investor sentiment this year.
Performance is expected to be driven by income return in the next
few years and property as an asset class to remain attractive to
those seeking a secure income return and access to a large, mature
and relatively liquid property investment market. Investment
opportunity is likely to be seen as a result of the impact of
technology, infrastructure and demographic change on commercial
property.
The Company has a well-positioned and resilient portfolio where
the priority continues to be to invest in and complete asset
management initiatives within the portfolio and to exploit any
external opportunity to provide a dependable and long-term rental
income.
Chris
Russell
Chairman
*see Alternative Performance Measures
Managers’ Review
Property highlights over the Year
- 12 month total return of 8.7* per cent. The Company maintains
outperformance against the IPD Benchmark over a three, five and ten
year time horizon.
- The retail portfolio outperformed over the year driven by
strong performance for St Christopher’s Place which delivered a
10.3* per cent total return.
- Acquired One Cathedral Square, Bristol for £33.5 million.
Property Market Review for 2017
The market total return for the year, as measured by the MSCI
Investment Property Databank ('IPD') Quarterly Universe (the
Benchmark) was 10.3 per cent, which is a much stronger return than
anticipated at the start of the year. Total returns have been on an
improving trend over the course of the year. Investment activity
has rebounded, driven largely by investment from overseas, and the
final quarter saw a return to net investment by UK institutional
investors. Although considerable uncertainty remains, sentiment
appears to have stabilised after the initial shock of the
referendum vote in June 2016. Capital
growth resumed, rental growth held steady and yields compressed at
the all-property level.
Key Benchmark Metrics –
All Property |
|
2017
% |
2016
% |
Total Returns |
10.3 |
3.6 |
Income Return |
4.6 |
4.7 |
Capital Return |
5.4 |
(1.1) |
Open Market Rental Value Growth |
2.2 |
2.2 |
Initial Yield |
4.7 |
4.9 |
Equivalent Yield |
5.6 |
5.9 |
Source: MSCI Inc
The year saw an indecisive general election, political disunity,
rising inflation, Brexit uncertainty and the first rise in official
interest rates in a decade. Despite this, there appears to be ample
equity, especially from overseas, and fears of a Brexit related
sell-off have not been realised. There have been concerns about
pricing levels in some parts of the market and a search for yield
from some buyers. In this environment, investors have generally
been cautious, selective and are favouring core assets and secure
income streams.
There has been a polarization in performance by segment. The
year saw standard industrial and distribution warehousing drive
performance, and the composite industrial benchmark delivered a
19.4 per cent total return and South East Industrials 22.3 per
cent. In contrast, the composite benchmark returns from the retail
and office sectors both underperformed the all property total
return, which just emphasises the strength of the industrial and
logistics sector. The alternatives sector is becoming evermore
popular with investors, and this diverse group registered an 11.9
per cent total return. Offices delivered an 8.2 per cent total
return, with City offices, helped by overseas buying,
out-performing at 9.1 per cent and the West End lagging at 7.5 per
cent. Regional offices showed an upturn towards the end of the year
to deliver 9.0 per cent. The retail sector remained the weakest
sub-market with a 6.9 per cent total return. Shopping centres were
out of favour, with capital values falling and benchmark returns of
only 3.2 per cent. As in previous years, regional retail has
struggled but Central London has
out-performed and in 2017 delivered an 11.2 per cent benchmark
return.
Polarization was also apparent with regard to yields. CBRE data
showed stable yields across much of the market in 2017 including
high street shops, supermarkets, prime shopping centres, retail
warehouse parks, and some offices but it moved yields inwards for
City and regional offices and for prime distribution, and made a
major yield re-rating for standard industrial. In contrast, yields
for secondary shopping centres rose by 75 basis points. Rental
growth was very much focused on the industrials market and was
negative for regional retail.
2017 represented a year of recovery following the dislocation
caused by the Brexit vote. However, the performances at the
all-property level disguise wide differences by segment and
different drivers behind this variance. The perceived impact of
Brexit, technological change, structural change, the role of
overseas money and the search for yield and long leases are just
some of the factors that affected the market in 2017 and are likely
to persist into future years.
Valuation and Portfolio
Total Portfolio
Performance |
|
2017 |
2016 |
No of properties |
37 |
36 |
Valuation (£’000) |
1,418,612 |
1,322,455 |
Average Lot Size (£’m) |
38.3 |
36.7 |
|
Portfolio
(%) |
Benchmark
(%) |
Portfolio Capital Return* |
4.2 |
5.4 |
Portfolio Income Return* |
4.4 |
4.6 |
Portfolio Total Return* |
8.7 |
10.3 |
Source: BMO REP Asset Management plc, MSCI Inc
The total return from the portfolio
over the year was 8.7* per cent (75th percentile) compared with the
benchmark return of 10.3 per cent. The portfolio has delivered a
strong track record of outperformance over the longer term: upper
quartile over three and five years and top quartile over ten
years.
Geographical Analysis (% of total property portfolio) |
|
2017
(%) |
2016
(%) |
South East |
25.2 |
26.6 |
London – West End |
34.3 |
33.9 |
Eastern |
2.0 |
2.0 |
Midlands |
12.5 |
12.4 |
Scotland |
11.8 |
12.9 |
North West |
10.6 |
10.8 |
Rest of London |
1.4 |
1.4 |
South West |
2.2 |
nil |
Source: BMO REP Asset Management
plc
Sector
Analysis (% of total property portfolio) |
|
2017
(%) |
2016
(%) |
Offices |
36.2 |
35.5 |
Retail |
31.0 |
31.5 |
Retail Warehouses |
13.1 |
14.0 |
Industrial |
16.9 |
16.2 |
Other |
2.8 |
2.8 |
Source: BMO REP Asset Management
plc
Income analysis
The portfolio benefits from a highly secure income stream. The
current void rate excluding developments and refurbishments is 6.9
per cent which is in line with the benchmark. The portfolio is
graded by MSCI as upper quartile in terms of safety of income. The
vacancy presents an opportunity and progress is currently being
made in attracting new secure tenants to the portfolio.
Lease
Expiry Profile |
At 31
December 2017 the weighted average lease length for the portfolio,
assuming all break options are exercised, was 7.3 years (2016: 7.1
years) |
% of leases expiring
(weighted by rental value) |
2017
(%) |
2016
(%) |
0 – 5 years |
46.9 |
40.2 |
5 – 10 years |
27.3 |
31.7 |
10 – 15 years |
15.6 |
17.4 |
15 – 25 years |
10.2 |
10.7 |
Source: BMO REP Asset Management
plc
Covenant
Strength (% of income by risk bands) |
|
2017
(%) |
2016
(%) |
Unscored and
ineligible |
5.0 |
1.2 |
Maximum |
4.0 |
3.9 |
High |
1.8 |
3.0 |
Medium to High |
2.5 |
5.3 |
Low to Medium |
4.8 |
6.1 |
Low |
16.8 |
21.9 |
Negligible and
Government |
65.1 |
58.6 |
Source: IRIS Report, MSCI Inc
The largest occupiers, based as a percentage of contracted rent,
as at 31 December 2017, are
summarised as follows:
Income
Concentration |
Company name |
% of Total Income |
GB Gas Holdings
Limited |
4.4 |
Virgin Atlantic
Limited |
4.1 |
Kimberly-Clark
Limited |
4.0 |
Apache North Sea
Limited |
3.9 |
Nexen Petroleum UK
Limited |
3.8 |
Mothercare UK
Limited |
3.5 |
JP Morgan Chase
Bank |
3.4 |
Asda Stores
Limited |
3.1 |
University of
Winchester |
2.9 |
DHL Supply Chain
Limited |
2.8 |
Total |
35.9 |
Source: BMO REP Asset Management
plc
The bad debt provision as at
31 December 2017 was low at £67,000,
which is all rent receivable that is greater than three months
overdue and represents 0.1 per cent of the contracted rent. There
is a wide diversity of occupiers within the portfolio, which is set
out below, and is compared with the Benchmark by contracted rent,
as at 31 December 2017. The portfolio
does not have as high a concentrated risk against retail trade and
services occupiers and has a higher exposure to financial services
and manufacturing.
Income
Concentration by Industry % Contracted Rent |
|
Portfolio
(%) |
Benchmark
(%) |
Retail Trade |
28.0 |
34.9 |
Financial Services |
23.3 |
14.7 |
Manufacturing |
19.6 |
7.5 |
Services |
13.8 |
22.6 |
Transportation,
Communications |
4.1 |
6.2 |
Mining |
3.8 |
0.5 |
Wholesale Trade |
3.0 |
5.6 |
Public
Administration |
2.9 |
4.1 |
Other |
1.5 |
3.9 |
Source: IRIS Report, MSCI Inc
Retail
Retail Portfolio
Performance |
|
2017 |
2016 |
No of properties ** |
8 |
8 |
Valuation (£’000) |
626,400 |
601,030 |
|
Portfolio
(%) |
Benchmark
(%) |
Retail Portfolio Capital
Return* |
3.6 |
1.7 |
Retail Portfolio Income Return* |
4.1 |
5.1 |
Retail Portfolio Total Return* |
7.8 |
6.9 |
Source: BMO REP Asset Management plc, MSCI Inc
** St Christopher’s Place is regarded
as 1 investment which comprises of 44 individual properties.
The total return on the retail
portfolio was 7.8* per cent compared with the benchmark total
return of 6.9 per cent.
St Christopher’s
Place
St Christopher’s Place Estate is the
largest asset in the portfolio with a year-end value in excess of
£320 million. The Estate is a core holding for the Company and
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 a total return of 10.3* per cent and a 7.3 per cent increase
in its capital value as a result of a number of asset management
initiatives and rental growth across the retail, restaurant and
office sectors.
In the first half of the year the
redevelopment of 71-77 Wigmore Street completed on time and under
budget and the entire redevelopment is now let at rents exceeding
appraisal targets. Restaurant operator Hoppers opened at number 77
in September; Danish Bakery Ole & Steen commenced trading at
number 71 in early 2018, whereas all residential units were let
within three months of opening. The project demonstrates the
strength of occupational demand and calibre of tenants attracted to
this core Central London
asset.
The re-positioning of the food and
beverage offer on James Street has also progressed over the year.
Following the surrender of the La Tasca lease at 30-34 James Street
we have exchanged terms for a new letting to a prestigious
London operator. The rent has also
increased significantly from £211,000 per annum to £360,000 per
annum. Elsewhere at 42 and 44 James Street we achieved the
surrender of two leases and have been able to agree terms to a new
concept food operator for a newly configured and modern double
frontage unit.
At 374 Oxford Street, the Company
secured the renewal of two Body Shop leases for their unit at a
combined rent of £1,166,000 per annum, reflecting a significant
uplift of c. 75 per cent. The Estate continues to offer further
value enhancement opportunities over the short and medium term.
The Elizabeth Line (Crossrail 1) is due
to open in December 2018, which has
prompted a public consultation on a proposed ‘Transformation of
Oxford Street’ which promotes the eventual pedestrianisation of
Oxford Street. To support this process, as well as to protect and
improve the interests of the Company, we remain actively engaged
with key stakeholders including Transport for London, Westminster City Council and the New
West End Company. We continue to promote opportunities for reduced
through traffic on James Street and we aim for this to form part of
the overall strategy for environmental improvements to this part of
the West End.
Other In-Town
Retail
At the Company’s retail and leisure
holding in Wimbledon, Blacks renewed their lease for a term of 10
years at a higher rent, which will positively support the current
round of rent reviews and lease renewals. We are actively
consulting with Merton Council on future planning policy for
Wimbledon Town Centre, which is undergoing a major review and also
continue to consult as necessary on a potential Crossrail 2.
Although final announcements on the future of the project have been
delayed, the potential impact of Crossrail 2 would present
significant long-term opportunities for the asset. We will continue
to explore these projects over the coming year.
Retail
Warehouses
There was positive income growth at the
Company’s “out of town retail” holdings. At Newbury Retail Park
Unit 14, the only vacant unit is now under offer to two well-known
occupiers who will complement the existing offer at the park. The
unit, which comprises 5,000 sq ft, is being split into two
premises. This provides more variety of unit size at the park and
achieves overall rent of c. £50,000 per annum higher than the
existing rental value for the unit. Planning consent has been
received with enabling works already underway and occupation
expected this summer.
At Sears Retail Park in Solihull, the completion of a long outstanding
2012 rent review saw additional income received of £18,400 per
annum. Having secured planning consent, the project team is in
detailed discussions with Argos and Boots to allow works to start
on the upgrade to the shop fronts of units 3 and 4, which is part
of the ongoing retail park refurbishment program. Unfortunately,
2017 saw furniture retailer Multiyork enter administration. The
retailer accounted for c. 4.4 per cent of income at the park and
ceased trading in January 2018.
Marketing of the space has commenced and owing to the local
dominance of the park this presents the Company a number of
opportunities to secure stronger long-term income for the
asset.
Offices
Offices Portfolio
Performance |
|
2017 |
2016 |
No of properties |
17 |
16 |
Valuation (£’000) |
513,562 |
469,375 |
|
Portfolio
(%) |
Benchmark
(%) |
Offices Portfolio Capital
Return* |
1.6 |
4.2 |
Offices Portfolio Income
Return* |
4.2 |
3.9 |
Offices Portfolio Total Return* |
5.9 |
8.2 |
Source: BMO REP Asset Management plc, MSCI Inc
The total return for the office
portfolio was 5.9* per cent compared to the benchmark total return
of 8.2 per cent. The Company’s relative underperformance is driven
by the higher than average level of vacancy in the South East out
of town assets, notably TVP One at Thames Valley Park in Reading
and Building B at Watchmoor Park in Camberley, as well as the
former HSBC office in Edinburgh Park.
Owing to a challenging office
occupational market, planning consent for residential use was
sought and successfully achieved for one building at Watchmoor
Park, although this was unsuccessful at Thames Valley Park where we
are now exploring other options. The strategy at Watchmoor Park is
to exit at least one of the buildings via a sale to a residential
developer. At Edinburgh Park, we are now in advanced legal
negotiations for a lease of the entire building to a major
multi-national corporate and we aim to complete the lease in H1
2018. Enabling works for the proposed refurbishment are already
progressing.
Our London assets let well during the year. New
leases were contracted for five floors within Cassini House, St
James’ Street SW1, at rents of £50 to £107 per sq ft. At 2-4 King
Street the refurbishment works are now compete with two further
floors letting up at rents of £90 to £99 per sq ft, with the final
vacant floor under offer. 82 King Street in Manchester is fully let with the latest
letting achieving £35 per sq ft and reflecting the growth of prime
rents for strong regional centres across the UK.
The City occupational market for small
suites remains challenging. At 7 Birchin Lane, EC3, two new
lettings were secured on the ground and first floor (c. 5,200 sq
ft) with one regear on the fifth floor (c. 2,500 sq ft) at rents
ranging from £54 to £61 per sq ft. The property is now over 70 per
cent occupied with one further suite under offer. The recent
lettings success at the property has been influenced by the
strategy to offer more flexible lease terms to tenants to compete
with co-working providers.
Office Purchase
In December the Company completed the
purchase of 1 Cathedral Square, Bristol, a four-storey Grade-A office at a
purchase price of £33.5m (reflecting a net initial yield of 5.00
per cent). The property is let to two strong covenants in Dyson
Technology Limited and the University of Bristol. Bristol has been a targeted location for the
Company given the prospects for rental growth driven by strong
occupational demand and a lack of supply of prime accommodation.
The purchase is in accordance with the Company strategy to acquire
prime office assets in city and town centres which attract a
skilled, professional and young working population which should
support long-term tenant demand and prove to be resilient to
structural change.
Industrial & Logistics
Industrial &
Logistics Portfolio Performance |
|
2017 |
2016 |
No of properties |
11 |
11 |
Valuation (£’000) |
239,350 |
214,450 |
|
Portfolio
(%) |
Benchmark
(%) |
Industrial & Logistics Portfolio
Capital Return* |
11.6 |
13.9 |
Industrial & Logistics Portfolio
Income Return* |
5.6 |
4.9 |
Industrial & Logistics Portfolio
Total Return* |
17.7 |
19.4 |
Source: BMO REP Asset Management plc, MSCI Inc
The total return for the industrial and
logistics portfolio delivered 17.7* per cent versus the benchmark
total return of 19.4 per cent, representing another strong year for
the sector. If 2016 was characterised by the notable performance of
“Big Box’s’”, where the majority of the portfolio’s assets in this
sector are held, 2017 saw the broader industrial market deliver
high capital growth with significant yield compression for
secondary and tertiary assets, especially
for those located in the South East. As
noted elsewhere the lower than benchmark weighting to South East
industrials contributed to underperformance of both the sector and
portfolio. However, the rest of UK Industrial outperformed its
segment and the portfolio has achieved prolonged outperformance in
this sector over the longer term.
In terms of asset activity, at Plot E4
DIRFT in Daventry we completed the
lease renewal to Mothercare in February. The new agreement saw a c.
20 per cent increase in valuation of the asset from £28.25 million
to £33.9 million. At the DHL logistics facility in Liverpool we achieved a 20 per cent increase
in rent at the review in March, supporting our positive long-term
view of the logistics market in the North West Region.
There was much activity at our
multi-let trading estate, Cowdray Trade Park in Colchester. The rental tone has increased
recently to between £6.25 to £7.00 per sq ft, which was captured in
a number of rent reviews and lease renewals including Rexel UK
Limited extending for a further five years. There is also a 1.45
acre site incorporating a former dilapidated unit, where we will
shortly be submitting a planning application for a number of trade
counter units ranging from 3,715 to 20,000 sq ft with a target to
commence works later in 2018.
The weight of investor demand has seen
pricing of opportunities in both the Industrial and Logistics
markets look a little over-heated for many assets but we continue
to monitor the market closely and will look to invest further into
opportunities offering fair value and long-term growth
prospects.
Industrial Sale
The Company exchanged contracts to sell
Ozalid Works in Colchester to
Persimmon Homes Limited subject to a satisfactory planning consent
being received. The property comprises a site and dilapidated light
industrial units that are currently being vacated. A revised
planning application was submitted in January 2018 with a target decision date of
spring 2018. The sale has been divided into two separate plots and
if a revised satisfactory planning consent is achieved the sale
will be phased over twelve months.
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 8.9* per cent last year in addition to
consecutive years of strong performance. This lease is subject to
annual RPI increases and the annual rent is now £1,809,382 per
annum.
Outlook
After another year of absolute high
total returns for the UK commercial property market, we expect 2018
to produce more muted but stable returns broadly in line with the
long-term average. The yield compression experienced in the
industrial markets that has driven recent performance is likely to
abate and we believe most commercial sectors have reached a pricing
apex.
Uncertainty from the Brexit
negotiations will continue and this should soften rental growth in
some markets. Interest rates increased over the year from historic
lows and following a period of strong inflation and economic growth
we expect further increases over 2018.
The environment and outlook in retail
has deteriorated recently with a number of Company Voluntary
Arrangements (‘CVA’s) and restructurings being announced. This will
not only put pressure on rental growth from this sector but also on
maintaining current income.
In terms of property pricing, the
margin above government bonds (the adopted proxy for the risk-free
rate of investment) has been far above the long-term average for a
sustained period. Therefore, current pricing is reasonably well
placed to absorb further increases in interest rates but any
continued yield compression is unlikely.
We will seek new acquisitions on a
selective basis and we will continue to favour quality industrial
and logistics, town centre offices in targeted locations and the
alternative sector. We will continue to focus on asset management
initiatives apparent in the portfolio and to reducing the exposure
to voids. Despite forecasting more modest performance in the short
term, UK commercial property continues to offer investors
attractive long-term income returns and the Company’s portfolio is
well positioned whilst we navigate this period of political
uncertainty.
Richard
Kirby
Fund Manager
BMO REP Asset Management plc
*see Alternative Performance Measures
F&C Commercial Property Trust
Limited
Consolidated Statement of
Comprehensive Income (audited)
|
|
Year
ended
31 December
2017 |
Year
ended
31 December
2016 |
|
|
£’000 |
£’000 |
Revenue |
|
|
|
Rental income |
|
64,775 |
64,628 |
|
|
--------- |
--------- |
Total revenue |
|
64,775 |
64,628 |
|
|
|
|
Gains on investment
properties |
|
|
|
Unrealised gains on revaluation of
investment properties |
|
52,854 |
9,507 |
(Losses)/gains on sale of investment
properties realised |
|
(5) |
215 |
|
|
---------- |
---------- |
Total
income |
|
117,624 |
74,350 |
|
|
---------- |
---------- |
Expenditure |
|
|
|
Investment management
fee |
|
(7,692) |
(6,406) |
Other expenses |
|
(5,659) |
(5,056) |
|
|
---------- |
---------- |
Total expenditure |
|
(13,351) |
(11,462) |
|
|
----------- |
----------- |
Operating profit before finance
costs and taxation |
|
104,273 |
62,888 |
|
|
----------- |
----------- |
Net finance costs |
|
|
|
Interest receivable |
|
72 |
69 |
Finance costs |
|
(10,932) |
(11,269) |
Loss on redemption of interest rate
swap |
|
- |
(1,283) |
|
|
----------- |
----------- |
|
|
(10,860) |
(12,483) |
|
|
----------- |
----------- |
Profit before
taxation |
|
93,413 |
50,405 |
|
|
|
|
Taxation |
|
(703) |
(251) |
|
|
---------- |
---------- |
Profit for the
year |
|
92,710 |
50,154 |
|
|
---------- |
---------- |
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 swaps |
|
457 |
(717) |
|
|
---------- |
---------- |
Total comprehensive income for
the year, net of tax |
|
93,167 |
50,983 |
|
|
---------- |
---------- |
|
|
|
|
Basic and diluted earnings per
share |
|
11.6p |
6.3p |
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
operations.
F&C Commercial Property Trust Limited
Consolidated Balance Sheet
(audited)
|
As at
31 December
2017
£’000 |
As at
31 December 2016
£’000 |
Non-current assets |
|
|
Investment properties |
1,398,894 |
1,306,002 |
Trade and other receivables |
20,734 |
17,827 |
|
------------ |
------------ |
|
1,419,628 |
1,323,829 |
|
------------ |
------------ |
Current assets |
|
|
Trade and other receivables |
3,288 |
3,093 |
Cash and cash equivalents |
35,156 |
85,021 |
|
------------ |
------------ |
|
38,444 |
88,114 |
|
------------ |
------------ |
Total assets |
1,458,072 |
1,411,943 |
|
------------ |
------------ |
|
|
|
Current liabilities |
|
|
Trade and other
payables
Taxation payable |
(18,936)
(739) |
(18,631)
(240) |
|
------------ |
------------ |
|
(19,675) |
(18,871) |
Non-current liabilities |
|
|
Trade and other payables |
(1,812) |
(1,565) |
Interest-bearing loans |
(307,675) |
(307,345) |
Interest rate swaps |
(260) |
(717) |
|
------------ |
------------ |
|
(309,747) |
(309,627) |
|
------------ |
------------ |
Total liabilities |
(329,422) |
(328,498) |
|
------------ |
------------ |
Net assets |
1,128,650 |
1,083,445 |
|
------------ |
------------ |
|
|
|
Represented by: |
|
|
Share capital |
7,994 |
7,994 |
Share premium |
- |
127,612 |
Reverse acquisition reserve |
- |
831 |
Special reserve |
589,593 |
461,150 |
Capital reserve – investments
sold |
7,063 |
7,068 |
Capital reserve – investments
held |
408,440 |
355,586 |
Hedging reserve |
(260) |
(717) |
Revenue reserve |
115,820 |
123,921 |
|
------------ |
------------ |
Equity shareholders’
funds |
1,128,650 |
1,083,445 |
|
------------ |
------------ |
|
|
|
Net asset value per
share |
141.2p |
135.5p |
F&C Commercial Property Trust
Limited
Consolidated Statement of Changes in
Equity
for the year ended 31 December 2017 (audited)
|
Share Capital
£’000 |
Share Premium £’000 |
Reverse Acquisition Reserve
£’000 |
Special
Reserve
£’000 |
Capital
Reserve -
Investments Sold
£’000 |
Capital
Reserve – Investments Held
£’000 |
Hedging Reserve
£’000 |
Revenue
Reserve
£’000 |
Total
£’000 |
At 1 January 2017 |
7,994 |
127,612 |
831 |
461,150 |
7,068 |
355,586 |
(717) |
123,921 |
1,083,445 |
Total comprehensive
income for the year |
|
|
|
|
|
|
|
|
|
Transfer
to Special
Reserve |
- |
(127,612) |
(831) |
128,443 |
- |
- |
- |
- |
- |
Profit for the
year |
- |
- |
- |
- |
- |
- |
- |
92,710 |
92,710 |
Movement in fair value
of interest rate swaps |
- |
- |
- |
- |
- |
- |
457 |
- |
457 |
Transfer in respect of unrealised
gains on investment properties |
- |
- |
- |
- |
- |
52,854 |
- |
(52,854) |
- |
Loss on sale of investment
properties realised |
- |
- |
- |
- |
(5) |
- |
- |
5 |
- |
Total comprehensive income for
the year |
- |
(127,612) |
(831) |
128,443 |
(5) |
52,854 |
457 |
39,861 |
93,167 |
|
|
|
|
|
|
|
|
|
|
Transactions with owners of the
Company recognised directly in equity |
|
|
|
|
|
|
|
|
|
Dividends paid |
- |
- |
- |
- |
- |
- |
- |
(47,962) |
(47,962) |
At 31 December 2017 |
7,994 |
- |
- |
589,593 |
7,063 |
408,440 |
(260) |
115,820 |
1,128,650 |
Consolidated Statement of Changes in
Equity
for the year ended 31 December 2016 (audited)
|
Share Capital
£’000 |
Share Premium £’000 |
Reverse Acquisition Reserve
£’000 |
Special
Reserve
£’000 |
Capital
Reserve -
Investments Sold
£’000 |
Capital
Reserve – Investments Held
£’000 |
Hedging Reserve
£’000 |
Revenue
Reserve
£’000 |
Total
£’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
year |
- |
- |
- |
- |
- |
- |
- |
50,154 |
50,154 |
Movement in fair value
of interest rate swaps |
- |
- |
- |
- |
- |
- |
829 |
- |
829 |
Transfer in respect of
unrealised gains on investment properties |
- |
- |
- |
- |
- |
9,507 |
- |
(9,507) |
- |
Gains on sale of investment
properties realised |
- |
- |
- |
- |
215 |
- |
- |
(215) |
- |
Transfer of prior years’ revaluation
to realised reserve |
- |
- |
- |
- |
28,261 |
(28,261) |
- |
- |
- |
Transfer from special reserve |
- |
- |
- |
(13,379) |
- |
- |
- |
13,379 |
- |
Total comprehensive income for
the year |
- |
- |
- |
(13,379) |
28,476 |
(18,754) |
829 |
53,811 |
50,983 |
|
|
|
|
|
|
|
|
|
|
Transactions with owners of the
Company recognised directly in equity |
|
|
|
|
|
|
|
|
|
Dividends paid |
- |
- |
- |
- |
- |
- |
- |
(47,962) |
(47,962) |
At 31 December 2016 |
7,994 |
127,612 |
831 |
461,150 |
7,068 |
355,586 |
(717) |
123,921 |
1,083,445 |
F&C Commercial Property Trust
Limited
Consolidated Statement of Cash Flows
(audited)
|
Year ended 31
December 2017 |
Year ended 31
December 2016 |
|
£’000 |
£’000 |
Cash flows from operating
activities |
|
|
Profit for the year before
taxation |
93,413 |
50,405 |
Adjustments for: |
|
|
Finance
costs |
10,932 |
11,269 |
Interest
receivable |
(72) |
(69) |
Unrealised
gains on revaluation of investment properties |
(52,854) |
(9,507) |
Losses/(Gains) on sale of investment properties realised |
5 |
(215) |
Loss on
redemption of interest rate swap |
- |
1,283 |
Increase in
operating trade and other receivables |
(3,204) |
(888) |
Increase/(Decrease) in operating trade and other payables |
200 |
(5,746) |
|
----------- |
----------- |
|
48,420 |
46,532 |
|
----------- |
----------- |
Interest
received |
72 |
69 |
Interest
and bank fees paid |
(10,559) |
(10,778) |
Tax
paid |
(203) |
(71) |
|
----------- |
----------- |
|
(10,690) |
(10,780) |
|
----------- |
----------- |
Net cash inflow from operating
activities |
37,730 |
35,752 |
|
----------- |
----------- |
Cash flows from investing
activities |
|
|
Purchase of investment
properties |
(32,802) |
- |
Sale of investment properties |
- |
54,291 |
Capital expenditure |
(6,831) |
(10,510) |
|
----------- |
----------- |
Net cash (outflow)/inflow from
investing activities |
(39,633) |
43,781 |
|
----------- |
----------- |
Cash flows from financing
activities |
|
|
Dividends paid |
(47,962) |
(47,962) |
Draw down of Barclays Loan, net of
costs |
- |
49,489 |
Repayment of Barclays Loan |
- |
(50,000) |
Revolving credit facility
arrangement costs |
- |
(511) |
Swap breakage costs
Draw down of Barclays Loan revolving credit facility
Repayment of Barclays Loan revolving credit facility |
-
35,000
(35,000) |
(1,283)
-
- |
|
----------- |
----------- |
Net cash outflow from financing
activities |
(47,962) |
(50,267) |
|
----------- |
----------- |
Net (decrease)/increase in cash
and cash equivalents |
(49,865) |
29,266 |
Opening cash and cash
equivalents |
85,021 |
55,755 |
|
----------- |
----------- |
Closing cash and cash
equivalents |
35,156 |
85,021 |
|
----------- |
----------- |
F&C Commercial Property Trust
Limited
Principal Risks and Future
Prospects
Each year the Board carries out a comprehensive, robust
assessment of the principal risks and uncertainties that could
threaten the Company's success. The consequences for its business
model, liquidity, future prospects and viability form an integral
part of this assessment.
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.
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.
• Tax structuring and
compliance – 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. Changes to tax legislation could have an adverse
financial impact.
• 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.
The principal risks encountered
during the year, how they are mitigated and actions taken to
address these are set out in the table below.
Principal Risk |
Mitigation |
Actions taken in the year |
Valuers have
difficulty in valuing the property assets due to lack of market
evidence or market uncertainty. Error in the calculation/
application of the Company Net Asset Value ('NAV') leads to a
material misstatement. |
Professional external valuers are appointed to value the portfolio
on a quarterly basis. There is regular liaison with the valuers
regarding all elements of the portfolio. There is attendance by one
or more Directors at the valuation meetings and the Auditors attend
the year end valuation meeting. |
Valuing
properties was challenging in the aftermath of the Brexit vote in
June 2016. There has been more transactional based market evidence
this year which the valuers have used to assist them in producing
the quarterly valuations. There was attendance by one or more
Directors at the valuation meetings throughout the year. |
Risk reduced in the year under review |
Unfavourable markets, poor stock selection, inappropriate asset
allocation and under-performance against benchmark and/or peer
group.
This risk may be exacerbated by gearing levels. |
The
underlying investment strategy, performance, gearing and income
forecasts are reviewed with the Investment Manager at each Board
Meeting. The Company's portfolio is well diversified and of a high
quality. Gearing is kept at modest levels. |
The Board
review the Manager's performance at quarterly Board Meetings
against key performance indicators and is satisfied that the
Manager's long-term performance is in line with expectations. |
Risk unchanged throughout the year under review |
Non-resident landlords
will be taxable under the UK corporation tax regime from April
2020. This change could have a material impact on the Company's tax
affairs. Additionally, new capital gains tax rules are set to be
implemented in April 2019 which will also impact the Company moving
forward. |
Adoption
of UK REIT status is under consideration. Under current tax
legislation, the principal tax advantage for the Company in doing
this is that the Group's net rental income derived from its
property rental business would be exempt from UK taxation. The same
treatment would apply to capital gains arising on the disposal of
relevant rental properties. |
The
changes in taxation were formalised in the UK Chancellor's Budget
in November 2017 and the Company's professional advisors have been
engaged to advise on these regulatory changes and look at the
feasibility of the Company adopting UK REIT status. |
Risk increased in the year under review |
The retail market has
witnessed a number of company voluntary arrangements, profit
warning announcements and administrations in recent months. There
is an increased risk of tenant defaults in this sector which could
put the level of dividend cover at risk. |
The
Manager provides regular information on the expected level of
rental income that will be generated from the underlying
properties. The Portfolio is well diversified by geography and
sector and the exposure to individual tenants is monitored and
managed to ensure there is no over exposure. |
The
portfolio has been lightly impacted to date and the Manager has
business plans in place to asset manage any tenant default. |
Risk increased in the year under review |
Viability Assessment and Statement
The Board conducted this review over a five year time horizon, a
period thought to be appropriate for a Company investing in
commercial property with a long-term investment outlook; with
primary borrowings secured for a further seven years and a property
portfolio with an average unexpired lease length of 7.3 years. The
assessment has been undertaken, taking into account the principal
risks and uncertainties faced by the Group which could threaten its
objective, strategy, future performance, liquidity and
solvency.
The major risks identified as relevant to the viability
assessment were those relating to a downturn in the UK commercial
property market and its resultant effect on the valuation of the
investment property portfolio, the level of rental income being
received and the effect that this would have on cash resources and
financial covenants. The Board took into account the illiquid
nature of the Company’s property portfolio, the existence of the
long-term borrowing facility, the effects of any significant future
falls in investment property values and property income receipts on
the ability to repay and re-negotiate borrowings, maintain dividend
payments and retain investors. These matters were assessed over a
period to March 2023, and the
Directors will continue to assess viability over five year rolling
periods, taking account of foreseeable severe but plausible
scenarios.
In the ordinary course of business, the Board reviews a detailed
financial model on a quarterly basis, incorporating market
consensus forecast returns, projected out to the maturity of its
principal loan of £260 million which is due to mature in 2024 and
coincides with the next continuation vote. This model uses prudent
assumptions and factors in any potential capital commitments. For
the purpose of assessing the viability of the Group, the model has
been adjusted to look at the next five years and is stress tested
with projected returns comparable to the commercial property market
crash experienced between 2007 and 2009. The model projects a worst
case scenario of an equivalent fall in capital and income values
over the next two years, followed by three years of zero growth.
The model demonstrated that even under these extreme circumstances
the Company remains viable.
Based on their assessment, and in the context of the Group’s
business model, strategy and operational arrangements set out
above, the Directors have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as
they fall due over the five year period to March 2023.
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 Report and Accounts
In accordance with Chapter 4 of the Disclosure and Transparency
Rules, we confirm that to the best of our knowledge:
- The financial statements contained within
the Annual Report and Accounts for the year ended
31 December 2017, 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, fiancial 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 consolidated financial statements include details of
related party transactions; and
In the opinion of the Directors:
- 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.
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
2017
1. The Board has
declared a twelfth, and last, interim dividend for the year of
0.50p per share to be paid on 30 April
2018 to shareholders on the register on 13 April 2018.
It is the Directors’ intention that the Company will continue to
pay dividends monthly.
2. Financial
Instruments and investment properties
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
2017. 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 the Bank of England which was 0.50 per cent as at
31 December 2017 (2016: 0.25 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 2017 (2016: 799,366,108).
At 31 December 2017, the Company
did not hold any Ordinary Shares in treasury (2016: nil).
4. The basic and
diluted earnings per Ordinary Share are based on the profit for the
year of £92,710,000 (2016: £50,154,000) and on 799,366,108 (2016:
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.
The results of the above entities are consolidated within the
Group financial statements.
6. The Group had
capital commitments totalling £6,800,000 as at 31 December 2017 (2016: £4,271,000). These
commitments related mainly to contracted development work at the
Group’s property at Cassini House, London SW1.
7. These are not
full statutory accounts. The full audited accounts for the year to
31 December 2017 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
Alternative Performance Measures
The Company uses the following
Alternative Performance Measures (‘APMs’). APMs do not have a
standard meaning prescribed by GAAP and therefore may not be
comparable to similar measures presented by other entities.
Discount or Premium – the share price
of an Investment Company is derived from buyers and sellers trading
their shares on the stock market. If the share price is lower than
the NAV per share, the shares are trading at a discount. This
usually indicates that there are more sellers than buyers. Shares
trading at a price above the NAV per share, are said to be at a
premium.
Dividend Cover – The percentage by
which Profits for the period (less Gains/losses on investment
properties and loss on redemption on interest rate swaps) cover the
dividend paid.
A reconciliation of dividend cover is
shown below:
|
|
|
2017 |
2016 |
|
|
|
£’000 |
£’000 |
|
|
|
|
|
Profit for the period |
|
|
92,710 |
50,154 |
Add back: |
Unrealised gains on revaluation of
investment properties |
|
(52,854) |
(9,507) |
|
Losses/(gains) on sales of
investment properties realised |
|
5 |
(215) |
|
Loss on redemption of interest rate
swap |
|
- |
1,283 |
Profit before investment
gains and losses |
|
39,861 |
41,715 |
Dividends |
|
|
47,962 |
47,962 |
Dividend Cover
percentage |
|
83.1 |
87.0 |
|
|
|
|
|
Dividend Yield – The annualised
dividend divided by the share price at the year end.
Net Gearing – Borrowings less cash
divided by total assets (less current liabilities and cash).
Portfolio (Property) Capital Return –
The change in property value during the period after taking account
of property purchases and sales and capital expenditure, calculated
on a quarterly time-weighted basis.
Portfolio (Property) Income Return –
The income derived from a property during the period as a
percentage of the property value, taking account of direct property
expenditure, calculated on a quarterly time-weighted basis.
Portfolio (Property) Total Return –
Combining the Portfolio Capital Return and Portfolio Income Return
over the period, calculated on a quarterly time-weighted basis.
Total Return – The return to shareholders calculated on a per
share basis by adding dividends paid in the period to the increase
or decrease in the Share Price or NAV. The dividends are assumed to
have been reinvested in the form of Ordinary Shares or Net Assets,
respectively, on the date on which they were quoted
ex-dividend.
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