To:
RNS
Date:
24 April 2019
From:
F&C Commercial Property Trust Limited (the “Company”)
L.E.I.
213800A2B1H4ULF3K397
Results in Respect of the Year Ended
31 December 2018 (audited)
Financial Headlines
- Share price total return of -4.3 per cent*
- Portfolio total return of 4.0 per cent*
- Dividend cover decreased to 80.2 per cent from 83.1 per
cent*
- Yield on year-end share price of 4.8 per cent*. Maintained
dividend at 6.0 pence per share for
the 13th successive year
*see Alternative Performance Measures
Chairman’s Statement
Introduction
The UK direct commercial property market as measured by the MSCI
Quarterly Property Universe (‘MSCI’) delivered positive return of
6.2 per cent during 2018, driven primarily by an income return of
4.4 per cent. Total return performance slowed as the year
progressed, affected by muted economic growth, the approach of the
Brexit deadline and a marked deterioration in the performance of
retail property, particularly in the regions. The industrial and
distribution sector was again the stand-out performer, delivering
another year of double-digit total return. The office market
performed broadly in line with the all-property index. Investment
activity remained resilient over the year with both UK institutions
and overseas buyers being net investors in UK property.
Performance for the Year
The net asset value (‘NAV’) total return for the year was 3.3
per cent and the share price total return was -4.3 per cent. The
total return from the portfolio was 4.0 per cent, lagging the MSCI
Index. Performance is lower quartile compared with the MSCI Index
over three and five years but the longer-term historic performance
of the portfolio remains strong with MSCI rating it top quartile
over ten years.
The share price at the year-end was 124.6p, representing a
discount of 10.9 per cent to the NAV per share of 139.8p (compared
to a 3.8 per cent discount as at 31 December
2017). We continue to monitor the level of discount which we
believe reflects both the uncertainties in the market surrounding
Brexit and the concerns over the retail sector.
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
2017 |
141.2 |
Unrealised decrease in valuation of
direct property portfolio |
(0.7) |
Realised gain on sale of direct
property |
0.3 |
Other net revenue |
5.0 |
Dividends paid |
(6.0) |
NAV per share as at 31 December
2018 |
139.8 |
During 2018 the loss on capital for the Company was -0.1 per
cent, compared to MSCI which recorded a capital return of 1.7 per
cent. The strongest contributions came from the Alternatives and
Industrial sectors.
In absolute terms, the most significant contributors to returns
were:
• Winchester, Student Accommodation, Burma Road – reflecting the
increased income to be received following its annual rent
review.
• London, St Christopher’s
Place Estate – continues to benefit from the high number of
completed and ongoing initiatives that reached fruition at
different stages during the period.
• Camberley, Building B, Watchmoor Park – sold during the year
for £5.1 million, significantly ahead of the December 2017 valuation of £2.4 million.
• Manchester, Kings Street –
successfully completed a number of leases; the building is now
fully let.
Negative contributions came from:
• Reading, Thames Valley One and Two, Thames Valley Park – all
of building one and majority of building two are void and were
earmarked for sale. These sales completed in January 2019 and the valuations at 31 December 2018 were adjusted to reflect the
final sale price. This sale removes the Company’s largest void and
significantly reduces ongoing non-recoverable costs and capital
expenditure.
• Newbury, Newbury Retail Park
– reflecting the fact that the park has a number of Company
Voluntary Arrangement’s (‘CVA’s’) in place. Poundworld has entered
administration and the unit is now vacant.
• Solihull, Sears Retail Park –
Homebase has a CVA in place which will result in their unit being
vacated.
There have been a number of high profile CVA’s, administrations
and failures in the retail sector over the past year and this has
had a direct effect on the Company’s retail parks at Newbury and Solihull. New Look, Mothercare and Homebase
have all entered CVA’s and Poundworld has gone into administration.
This has resulted in the downward pressure on rents and, in some
cases, the likely vacation of the properties.
The Manager has produced a number of plans to manage this
situation which could produce a positive outcome over the
longer-term and negotiations are ongoing. There will be a
short-term fall in rental income and there has been a fall in the
market values of the properties to reflect this.
Borrowings and Loan 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, available until June 2021. The Group’s total loan to value, net
of cash, was 21.2 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. This maintains the annual dividend of 6.0p
per share since 2006 and provides a dividend yield of 4.8 per cent
based on the year-end share price. Barring unforeseen
circumstances, the Board intends that dividends in 2019 will
continue to be paid monthly at the same rate.
The Company’s level of dividend cover for the year (excluding
capital gains and losses on properties) was 80.2 per cent. This was
lower than the 83.1 per cent cover achieved last year. While the
purchase of the office building at Cathedral Square, Bristol in December
2017 increased the level of rental income by £1.4 million in
2018, there have been a number of development initiatives ongoing
during the year which have led to a short-term negative impact on
the level of rents received, as these buildings have been
empty.
The key projects have been at Cassini House in London and an office at Edinburgh Park. The
combined reduction in rent against 2017 for these properties
amounted to £1.3 million, although the buildings will be income
producing once the developments are completed. Another negative
factor has been the level of tax payable in the current year which
continues to increase.
REIT Conversion
On 23 April 2019, the Company
announced a proposal to take the necessary steps to join the UK
REIT regime. The Group is now subject to a rising level of taxation
and this will increase substantially following the policy changes
announced in the Autumn Budget 2017. Non-UK resident companies that
have UK property income, such as the property holding subsidiaries
in the Group, will be charged UK corporation tax from 6 April 2020, rather than being subject to UK
income tax as they are at present. In addition, the Board notes
that from 6 April 2019 non-resident
landlords who invest in UK properties, such as the Group as it is
currently structured, will be brought into the UK Capital Gains tax
regime.
In the light of the current and continuing increase in tax, the
Board has determined that action is necessary to preserve the
ongoing effectiveness of the group from a UK tax perspective in
advance of the above changes. Accordingly, the Board has proposed
that the Company takes the necessary steps on behalf of the Group
in order to achieve real estate investment trust (‘REIT’)
status.
In order to facilitate the Group qualifying as a REIT as per the
Circular issued to shareholders in April
2019, certain amendments to the Company’s articles of
incorporation are required. These changes address the REIT rules
regarding the payment of dividends to substantial shareholders
(being a shareholder who holds 10 per cent or more of the Company
as more fully described in the circular) and the requirement that
the Company and its Group are UK resident for tax purposes. An
extraordinary general meeting will be held on 30 May 2019 immediately prior to the Annual
General Meeting, to consider these proposals and, if passed, the
Company will enter the REIT regime from 3
June 2019. The adoption of REIT status by the Group will
alter the shareholders’ tax positions in respect of the receipt of
dividends made under the REIT regime. On the basis that REIT status
is achieved with effect from 3 June
2019, the first distribution that the Company could make
under the REIT regime would relate to profits earned from
31 May 2019. The amount and payment
date of such property income distribution will be announced in
October 2019. For more detail, a copy
of the Circular can be downloaded from the Company’s website at
fccpt.co.uk.
Change of Company Name
In 2014 the Company’s investment manager, F&C Investment
Business Limited, was acquired by BMO (‘Bank of Montreal’). BMO
transitioned the majority of its remaining F&C branded products
and funds to BMO in November 2018.
Its savings plans, through which many of our shareholders invest,
have also aligned to the BMO brand. The Board is therefore
recommending that the Company changes its name from F&C
Commercial Property Trust Limited to BMO Commercial Property Trust
Limited and is seeking shareholder approval at the Annual General
Meeting. If approved, this renaming will take effect on
3 June 2019.
Board Composition
Having served nine years on the Board, I will step down as
Chairman of the Company and retire from the Board at the Annual
General Meeting. Martin Moore,
Senior Independent Director of the Company, will take over as
Chairman and Paul Marcuse will take on the role of Senior
Independent Director.
If the REIT conversion proposals are approved, Peter Cornell and David
Preston, both Guernsey directors, will stand down from the
Board with effect from 30 May 2019
and Linda Wilding, who is UK based,
will join the Board. Both Peter and David joined the Board in
April 2015 and I would like to thank
them for their valuable contribution over the last four years.
Linda qualified as a chartered accountant with Ernst &
Young, before working in the private equity division of Mercury
Asset Management from 1989 to 2001, rising to the position of
Managing Director. She has served as a non-executive director
(including as Chairman) on a number of boards. She is currently a
non-executive director of UDG Healthcare plc and Electra plc. She
was a non-executive director and latterly chair of Corin plc from
2006 to 2012 and was a non-executive director of Touchstone
Innovations plc until 2017.
John Wythe, who was appointed in
September 2018, will stand for
election at the Annual General Meeting of the Company. John brings
considerable experience of the property market as Chairman of the
Trustees of The Portman Estates after a long career with Prudential
Property Investment Managers Ltd, now M & G Real Estate.
Following the above changes, the Board will consist of five
Directors, three male and two female, four of which will be based
in the UK and one in Guernsey.
Responsible Property Investment
I am particularly pleased with the progress that has been made
with our Responsible Property Investment (RPI) strategy and the
positive engagement we have had with a number of our key
shareholders in this area.
The publication of the inaugural RPI Report for the Group for
2017 was a significant milestone in our pledge to drive greater
transparency into our performance on material Environmental, Social
& related Governance (ESG) factors and we have had some
excellent feedback on it from shareholders. We continue to place
considerable emphasis on our RPI commitments and are pleased to
provide a further summary of progress in the Annual Report,
complemented by our RPI Report 2018 which will be available on the
Company’s website and gives greater detail and insight on our
performance against relevant metrics.
Annual General Meeting
The Annual General Meeting will be held at 12.30pm on Thursday 30 May
2019 at Trafalgar Court, Les Banques, St. Peter Port,
Guernsey, GY1 3QL.
Outlook
Investors have remained cautious given the uncertainty in the
macro-economic and political spheres, with income protection a
major consideration. We would expect this to persist as Brexit and
its aftermath unfolds and should global growth slow and UK interest
rates rise. We anticipate further problems in the retail sector
which will drive valuations lower. The next two years are therefore
predicted to be a period of relative weakness. However, the market
is expected to be supported by its income return and continued
interest from overseas buyers. Over the longer-term, we are
forecasting a modest recovery with total return performance
underpinned by the income return.
Notwithstanding the uncertainties, the Company has a strong
financial structure and a high quality 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.
I leave your company in the safe and experienced hands of my
successor, the rest of the Board and the BMO management team. It
only remains for me to express my appreciation to the Board, the
manager and shareholders during my time as chairman for their
contributions and support.
Chris
Russell
Chairman
Managers’ Review
Property headlines over the year
- 12 month total return of 4.0* per cent.
- Significant capital projects at Nevis and Ness House ,Edinburgh Park; Cassini
House, London and at the St
Christopher’s Place Estate.
- Completed the strategic office sales of Building B, Watchmoor
Park, Camberley and two office buildings in Reading in
January.
- Purchase of an industrial unit in Estuary Business Park,
Liverpool.
*see Alternative Performance Measures
2018 Property Market Review
The market total return for the year, as measured by the MSCI UK
Quarterly Property Universe, was 6.2 per cent. A relatively subdued
economic growth out-turn, coupled with the uncertainty surrounding
Brexit acted to constrain occupier and investor sentiment and as a
consequence rental growth and capital growth decelerated in the
year, although both remained positive at 0.5 per cent and 1.7 per
cent respectively. There was some modest yield compression
(signalling market strength) during the year at the all-property
level.
Key Benchmark Metrics –
All Property |
|
2018
% |
2017
% |
Total Returns |
6.2 |
10.3 |
Income Return |
4.4 |
4.6 |
Capital Return |
1.7 |
5.4 |
Open Market Rental Value Growth |
0.5 |
2.2 |
Initial Yield |
4.5 |
4.7 |
Equivalent Yield |
5.5 |
5.6 |
Source: MSCI Inc
Investment activity in 2018 was lower than in the previous year
but well above the long-term average, supported by overseas buying
and net investment by institutions and local authorities.
Performance in 2018 was highly polarized by sector. As in the
previous year, performance was driven by industrials and
distribution, with a 16.4 per cent total return. This sector has
now delivered double-digit performance in five out of the past six
years being underpinned by strength in both occupier and investor
demand, pushing annual rental growth up to 4.6 per cent and driving
the equivalent yield (the UK property markets measure of current
yield) to below the all-property average at 5.3 per cent. The
reverse was true for retail where a succession of Company Voluntary
Arrangements (‘CVAs’), store portfolio rationalisations and
business failures affected both occupier and investor sentiment.
Retail rental growth in the year was negative and yields shifted
outwards. Central London retail
delivered total returns broadly in line with the all-property
average at 6.1 per cent, which is disappointing by recent
standards. However, other parts of the retail market were much
weaker with regional high streets, shopping centres and retail
warehousing all recording negative annual total returns. The
weakness in the sector is now affecting many major towns and large
retailers. The problems related to the sector are structural,
involving elements such as the growth of online sales, high
business rates, excess and rising supply, increasing retailer costs
and profit margin pressure. This will take time to resolve and
pricing will continue to be affected.
The office market delivered a total return of 6.4 per cent with
Rest of UK offices out-performing whilst the West End market was
relatively weak. City offices surprised positively, with overseas
buyers seemingly little troubled by Brexit threats. Alternatives
recorded an above average 7.4 per cent total return in the year,
supported by strong investor sentiment for longer let leases with a
linkage to inflation. This was further strengthened by investment
from balanced portfolio’s looking to diversify and the growth of
specialist single strategy funds.
Overall the year was one of consolidation, which saw
all-property total returns broadly in line with the historic norm.
Domestic investors remained cautious, focusing on long-term secure
income streams often linked to the alternative sector and prime
property. The UK commercial property market has delivered ten
consecutive years of positive total returns supported by relatively
attractive income returns which are not available from UK gilts and
in certain sectors from overseas investors. There are headwinds
facing this long-lived cycle and a reversion to the longer-term
average return dominated by income is in prospect.
Valuation and Portfolio
Total Portfolio
Performance |
|
2018 |
2017 |
No of properties |
38 |
37 |
Valuation (£’000) |
1,430,190 |
1,418,612 |
Average Lot Size (£’m) |
37.6 |
38.3 |
|
Portfolio
(%) |
Benchmark
(%) |
Portfolio Capital Return |
(0.1) |
1.7 |
Portfolio Income Return |
4.1 |
4.4 |
Portfolio Total Return |
4.0 |
6.2 |
The total return from the portfolio
over the year was 4.0 per cent compared to the MSCI UK Quarterly
Property Universe of 6.2 per cent. The strongest performance in the
portfolio was attributable to the student accommodation at
Winchester whilst offices and retail in the Rest of UK outperformed
their comparative.
The most significant negative impact to
returns was due to the valuation movements on the Company’s retail
warehouses, with the valuation of Solihull falling by 13.0 per cent and
Newbury by 22.8 per cent.
Initiatives are in place to address the impact of last year’s
CVA’s. There was also a negative impact from the valuation
write-downs on the office sales that were undertaken during the
year and relative underperformance as a result of an underweight
position to Industrial South East.
Reclassification of Sector
Weightings
A key theme in the property sector over 2018 was an increase in
the number of CVA’s or administrations among retail businesses.
Historically, the Company’s investments in the St. Christopher’s
Place Estate and at Wimbledon Broadway have been shown as retail in
their entirety, consistent with how they are classified within the
MSCI property index. At a time when shareholders and analysts are
now scrutinising any portfolio’s retail exposure, it is important
to provide more detail as to the true retail exposure. St.
Christopher’s Place comprises approximately 150 lettable units made
up of over 50 shops and restaurants, 40 office suites and 60
residential apartments. Wimbledon Broadway comprises a number of
retail units, a cinema, a gym and some food and beverage units.
These assets fall into the following underlying segments:
Sector
Analysis St. Christopher Place & Wimbledon |
|
% of capital value as
at 31 Dec 2018 |
Retail |
47.6 |
Food &
Beverage |
20.6 |
Residential |
15.0 |
Office |
10.7 |
Leisure |
6.1 |
Source: BMO REP Asset Management plc
Residential and leisure will now be more appropriately
classified under the alternatives sector category. Food and
beverage will remain in the retail category.
The effect that this reclassification had on the weightings
reported in 2017 is as follows:
Effect of
Sector Reclassification |
|
% of total property
portfolio |
|
Reclassified
2017
(%) |
2017
(%) |
Offices |
39.2 |
36.2 |
Retail |
22.4 |
31.0 |
Retail Warehouses |
13.1 |
13.1 |
Industrial |
16.9 |
16.9 |
Alternative |
8.4 |
2.8 |
Source: BMO REP Asset Management plc
Sector
Analysis (% of total property portfolio) |
|
2018
(%) |
Reclassified
2017
(%) |
Offices |
39.9 |
39.2 |
Retail |
22.4 |
22.4 |
Retail Warehouses |
10.9 |
13.1 |
Industrial |
17.8 |
16.9 |
Alternative |
9.0 |
8.4 |
Source: BMO REP Asset Management
plc
Geographical Analysis (% of total property portfolio) |
|
2018
(%) |
2017
(%) |
South East |
23.4 |
25.2 |
London – West End |
35.3 |
34.3 |
Eastern |
2.1 |
2.0 |
Midlands |
11.8 |
12.5 |
Scotland |
12.3 |
11.8 |
North West |
11.4 |
10.6 |
Rest of London |
1.4 |
1.4 |
South West |
2.3 |
2.2 |
Source: BMO REP Asset Management
plc
Income analysis
Although the portfolio has suffered a number of retailer
defaults it still benefits from a secure income stream. The void
rate, excluding properties being developed or extensively
refurbished is 8.5 per cent. However, as a result of the office
sales that completed in January 2019,
this would equate to 5.1 per cent at year end.
Lease
Expiry Profile |
At 31
December 2018 the weighted average lease length for the portfolio,
assuming all break options are exercised, was 7.1 years (2017: 7.3
years) |
% of leases expiring
(weighted by rental value) |
2018
(%) |
2017
(%) |
0 – 5 years |
44.4 |
46.9 |
5 – 10 years |
30.2 |
27.3 |
10 – 15 years |
17.1 |
15.6 |
15 – 25 years |
8.3 |
10.2 |
Source: BMO REP Asset Management
plc
Covenant
Strength (% of income by risk bands) |
|
2018
(%) |
2017
(%) |
Unscored and
ineligible |
5.9 |
5.0 |
Maximum |
10.3 |
4.0 |
High |
2.1 |
1.8 |
Medium to High |
3.2 |
2.5 |
Low to Medium |
4.5 |
4.8 |
Low |
19.9 |
16.8 |
Negligible and
Government |
54.1 |
65.1 |
Source: IRIS Report, MSCI Inc
The largest occupiers, based as a percentage of contracted rent,
as at 31 December 2018, are
summarised as follows:
Income
Concentration |
Company name |
% of Total Income |
Apache North Sea
Limited |
4.5 |
GB Gas Holdings
Limited |
4.4 |
Virgin Atlantic
Limited |
4.2 |
Kimberly-Clark
Limited |
4.1 |
Nexen Petroleum UK
Limited |
3.8 |
JP Morgan Chase
Bank |
3.4 |
Mothercare UK
Limited |
3.1 |
University of
Winchester |
3.0 |
DHL Supply Chain
Limited |
2.8 |
Transocean Drilling UK
Limited |
2.7 |
Total |
36.0 |
Source: BMO REP Asset Management
plc
Retail
Retailers have endured an extremely
challenging year because of reasons well publicised in the UK’s
media. This is resulting in a concentrated period of failures,
administrations and CVAs and as a consequence many retailers are
demanding lower rents and flexibility in leasing. The Company has
no exposure to shopping centres and limited exposure to the High
Street. However, the Company’s retail parks in Newbury and Solihull have been impacted by the stress in
the sector with New Look, Mothercare and Homebase entering into
CVA’s and Poundworld into administration. Specifically, at
Newbury the CVA’s have resulted in
New Look occupying one unit at a 20 per cent rent reduction,
Homebase on 35 per cent rent reduction, and Mothercare on a 70 per
cent rent reduction (with the intention to close the unit within
twelve months of the CVA). At Solihull, Homebase have paid the full rent to
year end, but the store closed at end of February 2019. In total, the rent at Newbury has reduced by £740,050 per annum and
at Solihull by £1.04 million per
annum.
We have identified a number of
initiatives to attract new retailers to the properties, but these
do require planning approvals and advanced negotiations with key
retailers are taking place. Planning applications to facilitate new
lettings have been submitted but have to date not been determined
by the appropriate Local Authorities. It is hoped these consents
will be forthcoming during the first half of 2019, which will then
allow the commencement of asset management initiatives, including a
variety of development, refurbishment and the reconfiguration of
units, as well as allowing lettings to contract.
St Christopher’s
Place
Our asset management strategy continues
to drive income growth by way of refurbishment, selective
relettings, the repositioning of James Street and the delivery of a
carefully curated line up of retail and restaurants. Additionally,
a number of apartments and offices have been refurbished during the
year, all of which have been successfully re-let.
On James
Street, two units have been refurbished with lettings
contracted to Caprice Holdings (Harry’s Bar) and Homeslice.
Over the next twelve to twenty-four
months, there are meaningful opportunities affecting eleven
buildings in total, to refurbish and, in some cases, redevelop
buildings, subject to securing planning consents and vacant
possession.
There have been two CVAs on the Estate,
Carluccios and Aldo, but in both cases the units were retained and
the contracted rent unaffected.
Industrial Purchase
In May
2018, the Company completed the purchase of Hurricane 47,
Estuary Business Park, Liverpool
for £3.995 million together with an adjoining 3.6 acre site with
planning consent of a further 52,000 sq. ft. unit. This site was
purchased for £1.080 million. Hurricane 47 comprises a 47,462 sq.
ft. unit which was developed speculatively and completed in
April 2018. Hurricane 47 is being
formally marketed and there is a reasonable level of occupier
interest. The Company has entered into a forward commitment to
acquire the second warehouse on completion of construction works
for an additional sum of £3 million. It is expected that works will
start on site in May 2019 with
completion scheduled for March
2020.
Industrial Sale Update
The conditional contract for the sale
of the former Ozalid Works site in Colchester remains with Persimmon Homes. The
sale is conditional upon Persimmon Homes securing a revised
planning consent. Progress continues to be made to negotiate and
secure an acceptable planning consent which will discharge the
conditionality of the sale. The planning process has been slower
than expected but it is hoped the planning application will be
determined during the second quarter of 2019.
Offices
A significant project for the Company
has been the refurbishment of Nevis and Ness House at Edinburgh Park. Diageo
committed to this building for their new Scottish headquarters and
the property is currently being refurbished in accordance with
Diageo’s requirements at a cost of £6.5 million. The refurbishment
works completed in March 2019 and the
new 16-year lease with a break at year 10, contracted at £21 per
square foot.
At Cassini House, London SW1, the top three floors have been
refurbished and this completes the phased refurbishment of the
whole building. Two of the three floors are under offer and the new
letting should shortly complete. The remaining floor is being
marketed with a good level of interest identified.
The properties at Prime Four,
Aberdeen are now due their rent
reviews at the agreed minimum uplift of 3 per cent per annum.
Office Sales
It has been the Company’s strategy to
sell a number of its vacant non-income producing properties where
the immediate re-letting prospects were challenging. In November
the Company completed the sale of Building B, Watchmoor Park,
Camberley for a price of £5.1 million. The property is an entirely
vacant, three storey office building totalling 32,641 sq. ft. The
sale price was in-line with the external September valuation but
significantly ahead of the £2.4 million valuation as at
31 December 2017. In December 2018, the Company exchanged contracts
for the sale of its freehold interest in two further office
properties, Thames Valley Park One and Thames Valley Park Two. The
sale completed in January 2019 at a
combined sale price of £24.4 million compared with the previous
external valuation of £27.0 million. This is a strategic sale,
Thames Valley Park One comprises 75,000 sq. ft. and is entirely
vacant and requiring extensive refurbishment. Thames Valley Park
Two is a separate building of approximately 55,000 sq. ft. of which
28,900 sq. ft. is vacant. At a time of significant uncertainty
these non-core disposals address the Company’s largest void
exposure by rental value, releases capital to be invested in income
producing properties, significantly reduces non-recoverable
expenditure and removes a future substantive capital expenditure
requirement of approximately £8.0 million.
The Alternative Property Sector
Following the re-classification of
sector weightings highlighted above the Company’s weighting to
alternatives has increased to 9 per cent from approximately 3 per
cent. To confirm, the Company’s exposure relates to the
purpose-built student accommodation block in Winchester, the
residential properties within St Christopher’s Place and the
leisure units at Wimbledon Broadway.
Outlook
The final quarter of 2018 saw a sharp
downgrade for retail property and nervousness in the property
equity and “open ended” property funds. These elements may well
affect the UK commercial property market in 2019 and 2020 as
valuers respond to both the weaker trend in retail and pricing
evidence from transactions. Brexit and its economic and political
ramifications will affect sentiment more widely and it is likely
over the first half of 2019 businesses will delay making decisions.
Therefore the expected number of capital market and leasing
transactions will reduce. In the absence of a clean Brexit a period
of market volatility could be in prospect. Possible future
increases in interest rates may also affect investment decisions,
particularly in areas of the market that are keenly priced and
dependent on aggressive rental growth assumptions. Over the
longer-term, factors such as property’s attractive income return,
the constrained supply of stock (outside retail), restrained bank
lending, the opportunities offered by demographic and technological
change will come to the fore and as the economy adapts to the
post-Brexit world.
The portfolio is currently experiencing
some stress in the retail sector as highlighted above but asset
management initiatives are well underway to address the loss of
income and capital value. There are a significant number of
projects identified within the portfolio that will be the focus of
activity and attention over the next eighteen months timeframe. A
number of sales have also been identified and the recycling of
capital into an uncertain market may offer timing opportunities to
acquire quality assets at more attractive prices. Overall the
Company is well positioned to progress the significant number of
opportunities available in its own portfolio, as well as other
opportunities that may arise in the wider market.
Richard
Kirby
Fund Manager
BMO REP Asset Management plc
F&C Commercial Property Trust Limited
Consolidated Statement of Comprehensive Income (audited)
|
|
Year
ended
31 December
2018 |
Year
ended
31 December
2017 |
|
|
£’000 |
£’000 |
Revenue |
|
|
|
Rental income |
|
64,903 |
64,775 |
Other income |
|
1,483 |
- |
|
|
--------- |
--------- |
Total revenue |
|
66,386 |
64,775 |
|
|
|
|
(Losses)/gains on investment
properties |
|
|
|
Unrealised (losses)/gains on
revaluation of investment properties |
|
(6,171) |
52,854 |
Gains/(losses) on sale of investment
properties realised |
|
2,613 |
(5) |
|
|
---------- |
---------- |
Total
income |
|
62,828 |
117,624 |
|
|
---------- |
---------- |
Expenditure |
|
|
|
Investment management
fee |
|
(7,823) |
(7,692) |
Other expenses |
|
(6,191) |
(5,659) |
|
|
---------- |
---------- |
Total expenditure |
|
(14,014) |
(13,351) |
|
|
----------- |
----------- |
Operating profit before finance
costs and taxation |
|
48,814 |
104,273 |
|
|
----------- |
----------- |
Net finance costs |
|
|
|
Interest receivable |
|
6 |
72 |
Finance costs |
|
(10,912) |
(10,932) |
|
|
----------- |
----------- |
|
|
(10,906) |
(10,860) |
|
|
----------- |
----------- |
Profit before
taxation |
|
37,908 |
93,413 |
|
|
|
|
Taxation |
|
(1,510) |
(703) |
|
|
---------- |
---------- |
Profit for the
year |
|
36,398 |
92,710 |
|
|
---------- |
---------- |
Other comprehensive
income |
|
|
|
Items that are or may be
reclassified subsequently to profit or loss |
|
|
|
Movement in fair value of effective
interest rate swaps |
|
362 |
457 |
|
|
---------- |
---------- |
Total comprehensive income for
the year, net of tax |
|
36,760 |
93,167 |
|
|
---------- |
---------- |
|
|
|
|
Basic and diluted earnings per
share |
|
4.6p |
11.6p |
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
2018
£’000 |
As at
31 December 2017
£’000 |
Non-current assets |
|
|
Investment properties |
1,384,856 |
1,398,894 |
Trade and other receivables |
19,344 |
20,734 |
Interest rate swap |
102 |
- |
|
------------ |
------------ |
|
1,404,302 |
1,419,628 |
|
------------ |
------------ |
Current assets |
|
|
Investment properties held for
sale |
23,562 |
- |
Trade and other receivables |
6,630 |
3,288 |
Cash and cash equivalents |
10,127 |
35,156 |
|
------------ |
------------ |
|
40,319 |
38,444 |
|
------------ |
------------ |
Total assets |
1,444,621 |
1,458,072 |
|
------------ |
------------ |
|
|
|
Current liabilities |
|
|
Trade and other
payables
Taxation payable |
(16,282)
(1,029) |
(18,936)
(739) |
|
------------ |
------------ |
|
(17,311) |
(19,675) |
Non-current liabilities |
|
|
Trade and other payables |
(1,847) |
(1,812) |
Interest-bearing loans |
(308,015) |
(307,675) |
Interest rate swaps |
- |
(260) |
|
------------ |
------------ |
|
(309,862) |
(309,747) |
|
------------ |
------------ |
Total liabilities |
(327,173) |
(329,422) |
|
------------ |
------------ |
Net assets |
1,117,448 |
1,128,650 |
|
------------ |
------------ |
|
|
|
Represented by: |
|
|
Share capital |
7,994 |
7,994 |
Special reserve |
589,593 |
589,593 |
Capital reserve – investments
sold |
1,708 |
7,063 |
Capital reserve – investments
held |
410,237 |
408,440 |
Hedging reserve |
102 |
(260) |
Revenue reserve |
107,814 |
115,820 |
|
------------ |
------------ |
Equity shareholders’
funds |
1,117,448 |
1,128,650 |
|
------------ |
------------ |
|
|
|
Net asset value per
share |
139.8p |
141.2p |
F&C Commercial Property Trust Limited
Consolidated Statement of Changes in Equity
for the year ended 31 December
2018 (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 2018 |
7,994 |
- |
- |
589,593 |
7,063 |
408,440 |
(260) |
115,820 |
1,128,650 |
Total comprehensive
income for the year |
|
|
|
|
|
|
|
|
|
Profit for the
year |
- |
- |
- |
- |
- |
- |
- |
36,398 |
36,398 |
Movement in fair value
of interest rate swaps |
- |
- |
- |
- |
- |
- |
362 |
- |
362 |
Transfer in respect of unrealised
losses on investment properties |
- |
- |
- |
- |
- |
(6,171) |
- |
6,171 |
- |
Gains on sale of investment
properties realised |
- |
- |
- |
- |
2,613 |
- |
- |
(2,613) |
- |
Transfer of prior years’
revaluations to realised reserve |
- |
- |
- |
- |
(7,968) |
7,968 |
- |
- |
- |
Total comprehensive income for
the year |
- |
- |
- |
- |
(5,355) |
1,797 |
362 |
39,956 |
36,760 |
|
|
|
|
|
|
|
|
|
|
Transactions with owners of the
Company recognised directly in equity |
|
|
|
|
|
|
|
|
|
Dividends paid |
- |
- |
- |
- |
- |
- |
- |
(47,962) |
(47,962) |
At 31 December 2018 |
7,994 |
- |
- |
589,593 |
1,708 |
410,237 |
102 |
107,814 |
1,117,448 |
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 |
F&C Commercial Property Trust Limited
Consolidated Statement of Cash Flows (audited)
|
Year ended 31
December 2018 |
Year ended 31
December 2017 |
|
£’000 |
£’000 |
Cash flows from
operating activities |
|
|
Profit for the year
before taxation |
37,908 |
93,413 |
Adjustments for: |
|
|
Finance costs |
10,912 |
10,932 |
Interest receivable |
(6) |
(72) |
Unrealised losses/(gains) on
revaluation of investment properties |
6,171 |
(52,854) |
(Gains)/losses on sale of investment
properties realised |
(2,613) |
5 |
Increase in operating trade and
other receivables |
(2,054) |
(3,204) |
(Decrease)/increase in operating
trade and other payables |
(2,317) |
200 |
|
----------- |
----------- |
Cash generated from
operations |
48,001 |
48,420 |
|
----------- |
----------- |
Interest received |
6 |
72 |
Interest and bank fees paid |
(10,551) |
(10,559) |
Tax paid |
(1,220) |
(203) |
|
----------- |
----------- |
|
(11,765) |
(10,690) |
|
----------- |
----------- |
Net cash inflow from
operating activities |
36,236 |
37,730 |
|
----------- |
----------- |
Cash flows from
investing activities |
|
|
Purchase of investment
properties |
(5,754) |
(32,802) |
Sale of investment properties |
5,100 |
- |
Capital expenditure |
(12,649) |
(6,831) |
|
----------- |
----------- |
Net cash outflow from investing
activities |
(13,303) |
(39,633) |
|
----------- |
----------- |
Cash flows from
financing activities |
|
|
Dividends paid |
(47,962) |
(47,962) |
Draw down of Barclays
Loan revolving credit facility
Repayment of Barclays Loan revolving credit facility |
-
- |
35,000
(35,000) |
|
----------- |
----------- |
Net cash outflow from financing
activities |
(47,962) |
(47,962) |
|
----------- |
----------- |
Net decrease in cash and cash
equivalents |
(25,029) |
(49,865) |
Opening cash and cash
equivalents |
35,156 |
85,021 |
|
----------- |
----------- |
Closing cash and cash
equivalents |
10,127 |
35,156 |
|
----------- |
----------- |
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 – the Company should ensure compliance with relevant tax
rules and thresholds at all time. 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. |
Transactional volumes in 2018 were at very healthy levels, although
we have seen volumes fall in the first quarter of 2019.
Nevertheless, there has been sufficient transactions to date with
trades in all sectors in which the Company invests which provide
evidence for our valuations. This level of trading has continued
despite the political uncertainty of recent months. |
Unchanged 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. There is increased volatility
at the present time given the uncertainties surrounding
Brexit. |
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 increased in 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 were implemented
in April 2019 which will also impact the Company moving
forward. |
The
Company has announced plans to adopt UK REIT status subject to
shareholder approval. 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. An extraordinary general meeting is scheduled for
30 May 2019 at which shareholders will vote on 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 impacted by a number of CVA’s and
administrations at its retail parks. There is a short-term impact
on retail income and the valuation of these assets. The Manager has
business plans in place to asset manage these events. |
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 six years and a property
portfolio with an average unexpired lease length of 7.1 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 2024, 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 2024.
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
the foreseeable future, which is considered 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 2018, 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; 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
2018
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
2019 to shareholders on the register on 12 April 2019.
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
2018. 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 0.75 per cent as at
31 December 2018 (2017: 0.50 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 2018 (2017: 799,366,108).
At 31 December 2018, the Company
did not hold any Ordinary Shares in treasury (2017: nil).
4. The basic and
diluted earnings per Ordinary Share are based on the profit for the
year of £36,398,000 (2017: £92,710,000) and on 799,366,108 (2017:
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 £3,600,000 as at 31 December 2018 (2017: £6,800,000). These
commitments related mainly to contracted development work at the
Group’s property at Nevis and Ness
Houses, Edinburgh Park.
7. These are not
full statutory accounts. The full audited accounts for the year to
31 December 2018 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. This price is not identical to
the NAV. If the share price is lower than the NAV per share, the
shares are trading at a discount. This could indicate 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 year (less Gains/losses on investment
properties) cover the dividend paid.
A reconciliation of dividend cover is
shown below:
|
|
|
2018 |
2017 |
|
|
|
£’000 |
£’000 |
|
|
|
|
|
Profit for the year |
|
|
36,398 |
92,710 |
Add back: |
Unrealised losses / (gains) on
revaluation of investment properties |
|
6,171 |
(52,854) |
|
(Gains) / losses on sales of
investment properties realised |
|
(2,613) |
5 |
|
Other income |
|
(1,483) |
- |
Profit before investment
gains and losses |
(a) |
38,473 |
39,861 |
Dividends |
|
(b) |
47,962 |
47,962 |
Dividend Cover
percentage (c= a/b) |
(c) |
80.2 |
83.1 |
|
|
|
|
|
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. The calculation is carried out
by MSCI Inc.
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. The
calculation is carried out by MSCI Inc.
Portfolio (Property) Total Return –
Combining the Portfolio Capital Return and Portfolio Income Return
over the period, calculated on a quarterly time-weighted basis. The
calculation is carried out by MSCI Inc.
Total Return – The theoretical 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