Earnings Release • Dec 31, 2014
Earnings Release
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Interim Report For the six months ended 31 December 2014
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.
The Company's investment managers and property managers are respectively F&C Investment Business Limited and F&C REIT Property Management Limited. Both of these companies are part of the F&C Asset Management plc group.
£316.8 million at 31 December 2014
£209.6 million at 31 December 2014
At launch, on 1 June 2004, the Company had a capital structure comprising approximately 60 per cent ordinary shares and 40 per cent bank debt.
Ordinary shareholders are entitled to all dividends declared by the Company and to all the Company's assets after repayment of its borrowings. As at 31 December 2014 borrowings consisted of a loan drawn down of £102 million on a £115 million revolving credit facility due to expire on 10 January 2017. The loan carries interest at 0.45 per cent over LIBOR for a loan to value ratio less than 40 per cent; this variable rate had been fixed through an interest rate swap on £100 million of the loan drawn down, which matures on 10 January 2017. This swap fixes interest payable on £100 million of the loan at 5.555 per cent per annum.
The Company is an Alternative Investment Fund ("AIF") under the European Union's Alternative Investment Fund Managers' Directive ("AIFMD"). Its Alternative Investment Fund Manager ("AIFM") is F&C Investment Business Limited. Further disclosures required under the AIFMD can be found on the Company's website www.fcre.co.uk or www.fcre.gg.
The Company's shares are eligible for Individual Savings Accounts (ISAs).
The Company's internet address is: www.fcre.co.uk www.fcre.gg
| Total Return |
Six months to 31 December 2014 |
|---|---|
| Net asset value per share* |
+11.9% |
| Ordinary Share price* |
+15.0% |
| Investment Property Databank UK Quarterly Index |
+8.6% |
| FTSE All-Share Index* |
-0.4% |
| Capital Values |
31 December 2014 |
30 June 2014 |
Change |
|---|---|---|---|
| Total assets less current liabilities (£000's) |
316,789 | 307,275 | +3.1% |
| Net asset value per share |
90.8p | 83.4p | +8.9% |
| Ordinary Share price |
94.0p | 84.0p | +11.9% |
| Investment Property Databank UK Quarterly Index |
109.8 | 103.6 | +6.0% |
| FTSE All-Share Index |
3,532.7 | 3,600.2 | -1.9% |
| Ordinary Share price premium to net asset value per share |
3.5% | 0.7% | |
| Net Gearing† |
30.7% | 31.7% |
* Total return assumes that gross dividends are reinvested.
† (Bank debt less net current assets, excluding swap liability) ÷ investment properties.
Sources: F&C Investment Business, Investment Property Databank ('IPD'), and Datastream.
The Group has experienced another robust six months with sentiment towards UK commercial property remaining positive. The net asset value ('NAV') total return per share for the period was 11.9 per cent with this return being positively impacted by the effects of gearing and the reduction in the swap liability. The NAV per share at the period end was 90.8 pence.
The share price performance was also strong with a total return of 15.0 per cent over the period and the shares were trading at a premium to the NAV of 3.5 per cent at the period end, compared to a premium of 0.7 per cent as at 30 June 2014.
The shareholders authorised the Company to issue up to 23 million Ordinary Shares without pre-emption rights at the recent Annual General Meeting. Following this authority and with the Company's share price consistently trading at a premium to the NAV, 3 million Ordinary Shares have been issued at a 4 per cent premium to the prevailing NAV since the period end. This has helped to satisfy the continuing demand for the Company's shares. It is expected that a prospectus will be published in the near future, providing the Company with the flexibility to raise additional share capital through a Placing Programme of up to 100 million shares. Once the Annual General Meeting authority has been exhausted, the Company will convene further general meetings to seek shareholder approval for the additional disapplication of pre-emption rights in relation to the issue of New Shares under the Placing Programme.
The UK commercial property market continued to deliver a strong performance in the six months to 31 December 2014. Total returns at the all property level for standing investments were 8.6 per cent, according to the Investment Property Databank Quarterly Index ('IPD'). The income return during the period was 2.6 per cent with performance being driven by a 5.9 per cent rise in capital values. Rental growth improved to 1.7 per cent over the period.
Although performance has been supported by a growing economy and some improvement in the occupational market, total returns have been boosted by strong inflows of investment into the asset class. This contributed to a period of further yield compression in most parts of the market. London has continued to out-perform but the recovery is broadening and industrial property and South East offices have also recorded above average performance. The period has also seen greater interest in more secondary stock and the yield gap between prime and secondary has narrowed. All the IPD standard segments recorded positive total returns and higher capital values during the six month period.
The six month period to 31 December 2014 recorded further capital growth in the Company's portfolio, with overall values increasing by 6.0 per cent over the period. Industrial properties witnessed the highest capital returns at 8.7 per cent, followed by Offices which increased in value by 6.9 per cent. Retail performance was rather more lack lustre with Retail Warehouses increasing in value by 5.9 per cent and standard High Street retail by 1.8 per cent. With the benefit of an income return of 2.8 per cent over the period, the portfolio produced an ungeared total return of 8.9 per cent for the six months ended 31 December 2014.
At the property level, 1-2 Lochside Way, Edinburgh produced the largest capital uplift of £1.7 million, or 23.5 per cent, to £9.0 million on the back of an improving market and the lease renewal with the tenant HSBC plc. The property, located in Edinburgh Park, Scotland's premier out of town office location, comprises two linked buildings totalling 42,400 square feet constructed in 1998. The existing lease expired in August 2014 and terms agreed for a renewal for a period of 10 years, with a break at the fifth year, at a rent that equated to £16.50 per square foot, subject to a rent free period of 12 months but a penalty if the tenant exercises the break.
14 Berkeley Street, London W1, remains the Company's largest asset and is strategically situated in a prime Mayfair location between Berkeley Square and Piccadilly. The property comprises 6 floors of offices, and a Land Rover showroom on the ground and basement floors let to Pendragon. Over the last few years, the property has produced strong rental and capital growth, not only due to its prime West End location, but also due to a programme of upgrading and refurbishment which has been carried out to the property. Over the six months to 31 December 2014 further inward yield movement as well as rental growth, pushing rental values to £95 per square foot, has led to the value increasing by a further £1.6 million over the period to £23.7 million, an increase of 7.6 per cent.
With industrial properties producing the highest sector returns, Echo Park, Banbury, a regional distribution of 195,000 square feet is the Company's second largest asset. Let to the parent company of '3663' and Bidvest for a further 11 years, it increased in value by 8.4 per cent to £20.8 million, an initial yield of 5.6 per cent. At Eastleigh, the value of two prime industrial units totalling 111,000 square feet at Southampton International Park, increased by £1.3 million, or 11.1 per cent, to £13.5 million.
High Street retail remains a mixed picture with a number of the Company's properties located in strong locations producing above average returns. On the flip side, we witnessed further falls in value on some of the shops in poorer locations, where the occupational market is challenging. However, we do see an improving picture which should lead to lettings and the eventual sale of some of these assets.
Following the capital raising, and the acquisition of Rotherham and Bromsgrove earlier in the year, the Company completed the acquisition of Unit A3, Glory Park, Wooburn Green, High Wycombe in July 2014 for £6.97 million, reflecting a yield of 7.0 per cent. The property comprises a Grade A specification, modern business park office building, close to the M40 motorway. Totalling 19,572 square feet on three floors, the building is let to two tenants in the pharmaceutical sector with the majority of the income secured for 10 years.
The portfolio continues to be well and securely let with all of the ten largest tenants by rent paid, either classified as Negligible or Low risk, according to IPD. The vacancy rate stood at 5.0 per cent by estimated rental value as at 31 December 2014, and good progress is being made to let vacant units. The average unexpired weighted lease term stands at 8.1 years, compared to 7.8 years at 30 June 2014.
The Company has continued to sell some of the smaller and poorly performing assets and disposed of three properties with a total value of £5.3 million, during the first half. This brings the number of sales since the merger to 10 properties with total receipts of £22.8 million.
An extraordinary general meeting was held in December 2014, primarily to make the necessary amendments to the Company's articles of incorporation in connection with the proposals for the Company to become tax resident in the UK for the purposes of entering into the UK REIT regime. As previously announced, all resolutions proposed at the general meeting were duly approved by shareholders and the Company entered the UK REIT regime with effect from 1 January 2015.
As explained in a recent Circular to shareholders, by obtaining UK-REIT status, the Group is no longer subject to UK income tax on
the profits and gains from their qualifying property rental business provided that it meets certain conditions. This will effectively reduce the burden of taxation for most shareholders as the payment of UK income tax on the Group's property rental income was likely to increase significantly moving forward, if UK REIT status had not been obtained.
Following the Company's entry into the UK REIT regime Mr Christopher Sherwell and Mr Graham Harrison have retired from the Board with effect from 31 December 2014.
Christopher has been on the Board since the launch of the Company in 2004, and Graham was an original member of the ISIS Property Trust Board, joining the Board as part of the merger in 2013. We wish them both every success in the future and I would like to record formally our gratitude to them for their significant contribution over the years.
We are currently in the process of recruiting suitable replacements and expect to be in a position to make a formal announcement on Board refreshment in the very near future.
The first interim dividend for the year ending 30 June 2015 of 1.25 pence per share was paid in December 2014, with a second interim dividend of 1.25 pence per share to be paid on 31 March 2015 to shareholders on the register on 13 March 2015.
The dividend is currently at a sustainable level and in the absence of unforeseen circumstances, it is expected that the Company will continue to pay quarterly dividends at this rate, the equivalent of 5 pence per share per annum.
The net gearing level as at 31 December 2014 was 30.7 per cent, which compares with 31.7 per cent as at 30 June 2014 and 40.0 per cent at launch on 1 June 2004. The fall in the gearing percentage was a combination of the loan drawn down being reduced to £102.0 million from £109.0 million and the increase in the overall market value of the portfolio.
The Group had £6.1 million of cash available at 31 December 2014 and an undrawn loan facility of £13.0 million. The Company continues to maintain a prudent attitude to gearing.
This reporting period has delivered exceptional performance which is unlikely to be sustained, but with property yields remaining attractive against the risk free rate and interest rates expected to stay low for some time, the outlook for property remains favourable. The approaching UK election and possible EU referendum together with global economic and political uncertainty may act to temper performance and at some point the scope for property yields to compress further will end and some outward adjustment is possible. The Manager is predicting a gradual return to more sustainable levels of performance over the coming five years with rental growth becoming a more important factor in performance, and for total returns to be increasingly driven by income return. The portfolio remains robust with 58 per cent by value situated in London and the South East region, and with a varied and balanced portfolio there are further opportunities to identify asset management opportunities to add value. The Company has announced the details of a further placing of shares and the Manager is working to identify suitable properties to purchase.
Chairman 23 February 2015
Lease Expiry
6 F&C UK Real Estate Investments Limited
as at 31 December 2014
| Estimated Market Value |
% of Total Assets (less current |
||
|---|---|---|---|
| Property | Sector | £'000 | liabilities) |
| London W1, 14 Berkeley Street Banbury, 3663 Unit, Echo Park |
Offices Industrial |
23,725 20,875 |
7.5% 6.6% |
| Eastleigh, Southampton International Park | Industrial | 13,575 | 4.3% |
| Colnbrook, Units 1-8 Lakeside Road | Industrial | 12,700 | 4.0% |
| Rotherham, Northfields Retail Park York,Clifton Moor Gate* |
Retail Warehouse Retail Warehouse |
12,250 11,300 |
3.9% 3.5% |
| Leamington Spa, 30-40 The Parade & 47/59a Warwick Street | Retail | 10,250 | 3.2% |
| Hemel Hempstead, Hemel Gateway | Industrial | 10,075 | 3.2% |
| Chelmsford, County House, County Square | Offices | 10,000 | 3.1% |
| Edinburgh, 1-2 Lochside Way, Edinburgh Park | Offices | 9,075 | 2.9% |
| Ten largest property holdings | 133,825 | 42.2% | |
| Andover, Keens House, Anton Mill Road | Offices | 8,700 | 2.7% |
| Bracknell, 1-2 Network, Eastern Road | Industrial | 8,475 | 2.7% |
| Bury, Halls Mill Retail Park, Foundry Street | Retail | 8,300 | 2.6% |
| Luton, Enterprise Way Bromsgrove, Brook Retail Park, Sherwood Road |
Retail Warehouse Retail Warehouse |
8,150 8,125 |
2.6% 2.6% |
| New Malden, 7 Beverley Way | Retail Warehouse | 7,850 | 2.5% |
| Bellshill, Mercury House, Strathclyde Business Park | Offices | 7,500 | 2.4% |
| Winchester, 7-8 High St.& 50 Colebrook Street | Retail | 7,425 | 2.4% |
| Northallerton, Willowbeck Road | Retail Warehouse | 7,400 | 2.3% |
| High Wycombe, Glory Park | Offices | 7,375 | 2.3% |
| Twenty largest property holdings | 213,125 | 67.3% | |
| Eastleigh, Wide Lane | Industrial | 6,850 | 2.2% |
| Theale, Maxi Centre, Brunel Road | Industrial | 6,700 | 2.1% |
| St Albans,16,18 & 20 Upper Marlborough Road | Offices | 6,300 | 2.0% |
| Guildford,51-53 High Street | Retail | 5,900 | 1.8% |
| Brookwood,The Clock Tower Nelson, Churchill Way |
Offices Retail Warehouse |
5,700 5,675 |
1.8% 1.8% |
| London SW1, 24 Haymarket & 1/2 Panton Street* | Retail | 5,650 | 1.8% |
| Nottingham, Standard Hill | Offices | 5,175 | 1.6% |
| Newbury, The Triangle, Pinchington Lane | Retail Warehouse | 4,735 | 1.5% |
| Hull, King William House, Market Place* | Offices | 4,100 | 1.3% |
| Thirty largest property holdings | 269,910 | 85.2% | |
| Nottingham, 21/22 Long Row East and 2/6 King Street | Retail | 3,950 | 1.2% |
| Rayleigh, 41-55 High Street | Retail | 3,800 | 1.2% |
| Nottingham, 25-27 Bridlesmith Gate | Retail | 3,725 | 1.2% |
| Sutton Coldfield, 63-67 The Parade | Retail | 3,650 | 1.2% |
| Sunningdale, 53/79 Chobham Road, Berkshire Kingston upon Thames, 11 Church Street |
Retail Retail |
3,610 3,550 |
1.2% 1.1% |
| Milton Keynes,Site E Chippenham Drive | Industrial | 3,550 | 1.1% |
| Birmingham, 155a/163 High Street, Kings Heath | Retail | 3,225 | 1.0% |
| Redhill, 15 London Road | Offices | 3,200 | 1.0% |
| Croydon, 17, 19 & 21 George Street | Retail | 3,000 | 0.9% |
| Forty largest property holdings | 305,170 | 96.3% | |
| Edinburgh, 100A Princes Street | Retail | 2,975 | 0.9% |
| Swindon, 18/19 Regent Street | Retail | 2,625 | 0.8% |
| Rayleigh, 81/87 High Street | Retail | 2,450 | 0.8% |
| Gateshead, Sands Road | Retail Warehouse | 2,370 | 0.8% |
| Guildford, 7/11 Bridge Street | Retail | 2,000 | 0.6% |
| Swindon, Unit 5, Newcombe Drive Middlesbrough, 47/49 Linthorpe Road |
Industrial Retail |
1,100 875 |
0.4% 0.3% |
| Newbury, 25 Northbrook Street* | Retail | 450 | 0.1% |
| Rochdale, 40 Yorkshire Street | Retail | 390 | 0.1% |
| Market value of property portfolio | 320,405 | 101.1% | |
| Unamortised lease incentives | (5,482) | (1.7)% | |
| Balance sheet carrying value | 314,923 | 99.4% | |
| Net current assets | 1,866 | 0.6% | |
| Total assets less current liabilities | 316,789 | 100.0% | |
* Leasehold Property.
| Six months to | Six months to | Year to | |
|---|---|---|---|
| 31 December | 31 December | 30 June | |
| 2014 | 2013 | 2014 | |
| Notes | (unaudited) | (unaudited) | (audited) |
| £'000 | £'000 | £'000 | |
| Revenue | |||
| Rental income | 9,523 | 10,159 | 19,603 |
| Gains on investment properties 2 |
17,851 | 8,569 | 21,253 |
| Total income | 27,374 | 18,728 | 40,856 |
| Expenditure | |||
| Investment management fee | (1,007) | (839) | (1,707) |
| Expenses of merger | – | (32) | (32) |
| Direct operating expenses of let rental property | (396) | (385) | (733) |
| Direct operating expenses of vacant property | (121) | (137) | (259) |
| Provision for bad debts | (24) | 3 | (15) |
| Administrative fee | (51) | (52) | (102) |
| Valuation and other professional fees | (211) | (82) | (170) |
| Directors' fees | (72) | (66) | (131) |
| Other expenses | (168) | (142) | (287) |
| Total expenditure | (2,050) | (1,732) | (3,436) |
| Net operating profit before finance costs | 25,324 | 16,996 | 37,420 |
| Net finance costs | |||
| Interest receivable | 9 | 26 | 49 |
| Finance costs | (2,951) | (3,102) | (6,016) |
| (2,942) | (3,076) | (5,967) | |
| Net profit from ordinary activities | |||
| before taxation | 22,382 | 13,920 | 31,453 |
| Taxation on profit on ordinary activities | (136) | (320) | (540) |
| Net profit for the period | 22,246 | 13,600 | 30,913 |
| Other comprehensive income to be reclassified | |||
| to profit or loss in subsequent periods: | |||
| Net gain on cash flow hedges, net of tax | 524 | 3,090 | 5,198 |
| Total comprehensive income for the | |||
| period, net of tax | 22,770 | 16,690 | 36,111 |
| Basic and diluted earnings per share 3 |
9.6p | 6.4p | 14.4p |
This financial information has been prepared on the basis of the accounting standards and policies set out in the Annual Report and Accounts for the year ended 30 June 2014.
All items in the above statement derive from continuing operations. All of the profit for the period is attributable to the owner.
| Notes | 31 December 2014 (unaudited) £'000 |
31 December 2013 (unaudited) £'000 |
30 June 2014 (audited) £'000 |
|
|---|---|---|---|---|
| Non-current assets Investment properties |
2 | 314,923 | 278,195 | 295,387 |
| Current assets | ||||
| Trade and other receivables | 6,435 | 6,389 | 6,061 | |
| Cash and cash equivalents | 6,093 | 8,471 | 16,773 | |
| 12,528 | 14,860 | 22,834 | ||
| Total assets | 327,451 | 293,055 | 318,221 | |
| Non-current liabilities | ||||
| Interest-bearing bank loan | (102,988) | (109,940) | (109,930) | |
| Interest rate swap | (4,234) | (6,784) | (4,776) | |
| (107,222) | (116,724) | (114,706) | ||
| Current liabilities | ||||
| Trade and other payables | (5,992) | (7,187) | (6,110) | |
| Income tax payable | (193) | (467) | (377) | |
| Interest rate swap | (4,477) | (4,560) | (4,459) | |
| (10,662) | (12,214) | (10,946) | ||
| Total liabilities | (117,884) | (128,938) | (125,652) | |
| Net assets | 209,567 | 164,117 | 192,569 | |
| Represented by: | ||||
| Share capital | 2,309 | 2,131 | 2,309 | |
| Special distributable reserve | 169,327 | 157,222 | 170,704 | |
| Capital reserve | 39,864 | 9,329 | 22,013 | |
| Other reserve Equity shareholders' funds |
(1,933) 209,567 |
(4,565) 164,117 |
(2,457) 192,569 |
|
| Net asset value per share | 4 | 90.8p | 77.0p | 83.4p |
| Consolidated Statement |
of | Changes in |
Equity | |
| Six months to | Six months to | Year to | ||
| 31 December | 31 December | 30 June | ||
| 2014 | 2013 | 2014 | ||
| Notes | (unaudited) | (unaudited) | (audited) |
| Six months to 31 December 2014 (unaudited) £'000 |
Six months to 31 December 2013 (unaudited) £'000 |
Year to 30 June 2014 (audited) £'000 |
||
|---|---|---|---|---|
| Opening net assets | 192,569 | 149,115 | 149,115 | |
| Net profit for the period | 22,246 | 13,600 | 30,913 | |
| Dividends paid | 5 | (5,772) | (5,326) | (10,840) |
| Movement in other reserve | 524 | 3,090 | 5,198 | |
| Issue of ordinary shares | – | 3,638 | 18,183 | |
| Closing net assets | 209,567 | 164,117 | 192,569 |
| Six months to | Six months to | Year to | |
|---|---|---|---|
| Six months to | Six months to | Year to | |
| 31 December | 31 December | 30 June | |
| 31 December | 31 December | 30 June | |
| 2014 | 2013 | 2014 | |
| 2013 | 2012 | 2013 | |
| (unaudited) | (unaudited) | (audited) | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| £'000 | £'000 | £'000 | |
| Cash flows from operating activities Cash flows from operating activities |
|||
| Net profit for the period before taxation Net operating profit/(loss) for the period before |
22,382 | 13,920 | 31,453 |
| Adjustments for: taxation |
13,920 | (1,370) | 2,079 |
| Adjustments for: Gains on investment properties |
(17,851) | (8,569) | (21,253) |
| (Increase)/decrease in operating trade and (Gains)/losses on investment properties |
(8,569) | 4,273 | 4,313 |
| (Increase)/decrease in operating trade and other other receivables |
(374) | (20) | 301 |
| (Decrease)/increase in operating trade and other receivables |
(20) | 28 | 1,619 |
| Increase/(decrease) in operating trade and other payables |
(118) | 1,006 | (71) |
| Interest received | 1,006 | (26) | (1,646) |
| payables | (9) | (86) | (49) |
| Finance costs | 2,951 | 3,102 | 6,016 |
| Interest received | (26) | (5) | (15) |
| Finance costs | 3,102 | 1,746 | 4,222 |
| 6,981 | 9,413 | 16,397 | |
| Taxation paid | 9,413 | 4,586 | 10,572 |
| (320) | (325) | (636) | |
| Taxation paid | (325) | (114) | (177) |
| Net cash inflow from operating activities | 6,661 | 9,088 | 15,761 |
| Net cash inflow from operating activities Cash flows from investing activities |
9,088 | 4,472 | 10,395 |
| Purchase of investment properties Cash flows from investing activities |
(6,935) | – | (18,812) |
| Capital expenditure | (22) | (38) | (329) |
| Capital expenditure | (38) | (28) | (48) |
| Sale of investment properties | 5,272 | 1,475 | 15,789 |
| Sale of investment properties | 1,475 | – | 1,522 |
| Interest received | 9 | 26 | 658 |
| Cash transferred on merger | – | – | 49 |
| Interest received | 26 | 5 | 15 |
| Net cash (outflow)/inflow from investing activities | (1,676) | 1,463 | (3,022) |
| Net cash inflow/(outflow) from investing activities Cash flows from financing activities |
1,463 | (23) | 1,866 |
| Shares issued (net of costs) Cash flows from financing activities |
– | 3,638 | 18,183 |
| Dividends paid | (5,772) | (5,326) | (10,840) |
| Shares issued (net of costs) | 3,638 | – | – |
| Bank loaninterest paid | (5,326) | (3,978) | (1,467) |
| Dividends paid | (479) | (860) | (7,956) |
| Payments under interest rate swap arrangement | (2,414) | (2,307) | (4,617) |
| Bank loan interest paid | (860) | (342) | (698) |
| Bank loan repaid | (7,000) | (3,000) | (3,000) |
| Payments under interest swap arrangement | (2,307) | (1,389) | (3,228) |
| Bank loan (repaid)/drawn down | (3,000) | 3,000 | 4,000 |
| Net cash outflow from financing activities | (15,665) | (7,855) | (1,741) |
| Net cash outflow from financing activities Net (decrease)/increase in cash and |
(7,855) | (2,709) | (7,882) |
| Net increase in cash and cash equivalents |
(10,680) | 2,696 | 10,998 |
| Opening cash and cash equivalents | 16,773 | 5,775 | 5,775 |
| cash equivalents | 2,696 | 1,740 | 4,379 |
| Opening cash and cash equivalents | 5,775 | 1,396 | 1,396 |
| Closing cash and cash equivalents | 6,093 | 8,471 | 16,773 |
| Closing cash and cash equivalents | 8,471 | 3,136 | 5,775 |
1. The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), IAS 34 'Interim Financial Reporting' and the accounting policies set out in the statutory accounts of the Group for the year ended 30 June 2014. The condensed consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the Group for the year ended 30 June 2014 which were prepared under full IFRS requirements.
The Group has adopted the following new amendments effective as of 1 January 2014. The following changes are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 30 June 2015.
● In October 2012, the IASB issued amendments to IFRS 10 'Consolidated financial statements', IFRS 12 'Disclosure of interests in other entities' and IAS 27 'Separate financial statements' – Investment entities. The amendments define an investment entity and introduce an exception to consolidating particular subsidiaries for investment entities. These amendments require an investment entity to measure those subsidiaries at fair value through profit or loss in accordance with IFRS 9 'Financial Instruments' in its consolidated and separate financial statements. The amendments also introduce new disclosure requirements for investment entities in IFRS 12 and IAS 27. These amendments do not have any material impact on the consolidated financial statements as presented.
| 2. Investment properties | Six month period to 31 December 2014 £'000 |
|---|---|
| Opening market value | 300,590 |
| Capital expenditure and purchases | 6,957 |
| Sales | (5,272) |
| Gains on investment properties | 17,851 |
| Movement in lease incentive receivable | 279 |
| Closing market value | 320,405 |
| Adjustment for lease incentives | (5,482) |
| Balance sheet carrying value | 314,923 |
All the Group's investment properties were valued as at 31 December 2014 by qualified professional valuers working in the company of DTZ Debenham Tie Leung Limited ('DTZ'), Chartered Surveyors. All such valuers are chartered surveyors, being members of the Royal Institute of Chartered Surveyors ('RICS'). There were no significant changes to the valuation techniques used during the period and these valuation techniques are detailed in the consolidated financial statements as at and for the year ended 30 June 2014. The market value of these investment properties amounted to £320,405,000 (31 December 2013: £283,695,000; 30 June 2014: £300,590,000), however an adjustment has been made for lease incentives of £5,482,000 that are already accounted for as an asset.
3. Earnings per Ordinary Share are based on 230,855,539 Ordinary Shares, being the weighted average number of shares in issue during the period (31 December 2013: 212,603,916 and 30 June 2014: 214,347,657). Earnings for the six months to 31 December 2014 should not be taken as a guide to the results for the year to 30 June 2015.
4. The net asset value per Ordinary Share is based on net assets of £209,567,000 (31 December 2013: £164,117,000 and 30 June 2014: £192,569,000) and 230,855,539 Ordinary Shares (31 December 2013: 213,050,491 and 30 June 2014: 230,855,539), being the number of shares in issue at the period end.
| 5. Dividends paid | Six months to 31 December 2014 |
Six months to 31 December 2013 |
Year ended 30 June 2014 |
|||
|---|---|---|---|---|---|---|
| Rate | Rate | Rate | ||||
| £'000 | (pence) | £'000 | (pence) | £'000 | (pence) | |
| Fourth interim dividend | 2,886 | 1.25 | 2,663 | 1.25 | 2,663 | 1.25 |
| First interim dividend | 2,886 | 1.25 | 2,663 | 1.25 | 2,663 | 1.25 |
| Second interim dividend | 2,663 | 1.25 | ||||
| Third interim dividend | 2,851 | 1.25 | ||||
| 5,772 | 2.50 | 5,326 | 2.50 | 10,840 | 5.0 |
A second interim dividend for the year to 30 June 2015, of 1.25 pence per share, will be paid on 31 March 2015 to shareholders on the register at close of business on 13 March 2015.
6. The fair value measurements for financial assets and financial liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows:
There were no transfers between levels of the fair value hierarchy during the six month period ended 31 December 2014.
The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 30 June 2014.
7. The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Group has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group's performance is the total return on the Group's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the condensed consolidated financial statements.
8. No Director has an interest in any transactions which are or were unusual in their nature or significant to the Group. F&C Investment Business Limited received fees for its services as Investment Managers. The total charge to the Income Statement during the period was £1,007,000 of which £nil remained payable at the period end.
The Directors of the Company received fees for their services totalling £72,000, of which £nil remained payable at the period end.
9. The accounts have not been audited nor reviewed under the requirements of ISRE 2410 'Review of interim financial information performed by the independent auditor of the Company'.
10. The Group results consolidate those of F&C UK Real Estate Finance Limited, which owns 100 per cent of the issued share capital of IRP Holdings Limited ('IRPH') and IPT Property Holdings Limited ('IPTH'). IRPH and IPTH are companies incorporated in Guernsey whose principal business is that of an investment and property company.
The Group's assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the UK commercial property market in general but also the particular circumstances of the properties in which it is invested and their tenants. Other risks faced by the Group include market, investment and strategic, regulatory, tax efficiency, financial, reporting and operational risks. The Group is also exposed to risks in relation to its financial instruments. These risks, and the way in which they are mitigated and managed, are described in more detail under the heading 'Principal Risks and Risk Management' within the Business Model and Strategy in the Group's Annual Report for the year ended 30 June 2014. The Group's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Group's financial year.
We confirm that to the best of our knowledge:
On behalf of the Board
Quentin Spicer Chairman
23 February 2015
Quentin Spicer (Chairman) Andrew E G Gulliford Vikram Lall ‡
Northern Trust International Fund Administration Services (Guernsey) Limited PO Box 255 Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL Tel: 01481 745001
F&C Investment Business Limited 80 George Street Edinburgh EH2 3BU
F&C REIT Property Management Limited 5 Wigmore Street London W1U 1PB
DTZ Debenham Tie Leung Limited 48 Warwick Street London W1B 5NL
Ernst & Young LLP Royal Chambers St Julian's Avenue St Peter Port Guernsey GY1 4AF
‡ Chairman of the Audit Committee.
Website: www.fcre.co.uk or www.fcre.gg
J.P. Morgan Europe Limited 25 Bank Street Canary Wharf London E14 5JP
Mourant Ozannes 1 Le Marchant Street St Peter Port Guernsey GY1 4HP
Dickson Minto Broadgate Tower 20 Primrose Street London EC2A 2EW
RBS International PO Box 62 1 Glategny Esplanade St Peter Port Guernsey GY1 4BQ
Lloyds TSB Bank PLC Lochrin Square 92 Fountainbridge Edinburgh EH3 9QA
Cenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS
PO Box 255 Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL
Computershare Investor Services (Guernsey) Limited c/o Queensway House Hilgrove Street St Helier Jersey Channel Islands JE1 1ES
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