Quarterly Report • Dec 31, 2017
Quarterly Report
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The Company is an authorised closed-ended Guernsey-registered investment company and its shares have a premium listing on the Official List of the UK Listing Authority and are traded on the Main Market of the London Stock Exchange. The Interim Report of the Company consolidates the results of its subsidiary undertakings, which collectively are referred to throughout this document as 'the Group', details of which are contained in note 14 to the Accounts.
The Group elected into the UK REIT regime from 1 January 2015.
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 BMO REP Property Management Limited. Both of these companies are part of the F&C Asset Management plc group ('F&C') and, collectively, are referred to in this document as 'the Manager'.
F&C is wholly owned by Bank of Montreal ('BMO') and is part of the BMO Global Asset Management group of companies.
The Company's equity capital structure consists of Ordinary Shares. Subject to the solvency test provided for in the Companies (Guernsey) Law, 2008, (as amended), being satisfied, ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets greater than the value of the liabilities.
The Company uses a number of alternative performance measures in the discussion of its business performance and financial position. Further information is provided on page 21.
The Company's shares are eligible for Individual Savings Accounts ('ISAs'). Further information is provided on page 20.
The Company's internet address is: www.fcre.co.uk and www.fcre.gg
Potential investors are reminded that the value of investments and the income from them may go down as well as up and investors may not receive back the full amount invested. Tax benefits may vary as a result of statutory changes and their value will depend on individual circumstances.
* See Alternative Performance Measures on page 21.
| Six months to 31 December 2017 |
|||
|---|---|---|---|
| Total Returns* |
|||
| Net asset value per share |
+7.4% | ||
| Ordinary share price |
-0.9% | ||
| Portfolio ungeared return |
+6.2% | ||
| MSCI Investment Property Databank ('IPD') All Quarterly and Monthly Valued Fund Benchmark |
+5.4% | ||
| FTSE All-Share Index |
+7.2% | ||
| Six months to 31 December 2017 |
Year ended 30 June 2017 |
% Change | |
| Capital Values |
|||
| Total assets less current liabilities (£000's) |
354,921 | 346,255 | +2.5% |
| Net asset value per share |
104.9p | 100.1p | +4.8% |
| Ordinary share price |
103.3p | 106.8p | –3.3% |
| Investment Property Databank UK Quarterly Index |
124.0 | 120.2 | +3.2% |
| FTSE All-Share Index |
4,221.8 | 4,002.2 | +5.5% |
| Ordinary share price (discount)/premium to net asset value per share* |
(1.5)% | 6.7% | |
| Net gearing* |
28.2% | 28.3% | |
| Six months to 31 December 2017 |
Six months to 31 December 2016 |
|
|---|---|---|
| Earnings and Dividends |
||
| Earnings per ordinary share |
7.3p | 0.5p |
| Dividends paid per ordinary share |
2.5p | 2.5p |
| Annualised dividend yield* |
4.8% | 5.1% |
Notes
* See Alternative Performance Measures on page 21.
Sources: F&C Investment Business, MSCI Investment Property Databank ('IPD'), and Thomson Reuters Eikon.
Despite continuing uncertainties about the outcome of the Brexit negotiations, the UK commercial property market has witnessed strong demand and the Group has experienced six months of steady performance with capital values increasing in the period by 3.5 per cent. The net asset value ('NAV') total return* per share for the period was 7.4 per cent and the NAV per share at the period end was 104.9 pence.
Despite the positive returns on the portfolio, there was still a degree of caution in the market and the share price fell by 3.3 per cent over the six months. The share price total return* was -0.9 per cent over the period and the shares were trading at a slight discount* to the NAV of 1.5 per cent at the period end, compared to a premium of 6.7 per cent as at 30 June 2017.
The UK commercial property market delivered a total return of 5.4 per cent as measured by the Investment Property Databank ('IPD') UK Quarterly Index for all assets in the six months to 31 December 2017, and 10.3 per cent over the year to December as momentum built over the period. Performance was driven by strength in investment demand, with overseas buyers still active and institutions returning to the market later in the period. Industrial property and alternative asset sectors continued to outperform with all the standard segments of the IPD Index delivering positive benchmark total returns for the period.
In the six months to 31 December 2017, the income return held steady as capital growth improved and the all-property initial yield edged lower. Open market rental value growth was positive but the bulk of the upward move in capital value was due to yield compression.
The Group's property portfolio produced an ungeared return* of 6.2 per cent over the six months to December, outperforming the IPD Quarterly Index. Performance was led by a top quartile income return* of 2.6 per cent. The portfolio's industrial and distribution assets were again the key contributors to performance, producing a total return in excess of both the IPD UK Quarterly Index and the sector level return for the period. The exposure to industrial and logistics property at close to 35 per cent of portfolio value continues to be the mainstay of the Fund strategy alongside the majority weighting to the core south east markets.
In a further continuation of the trend witnessed last year, the portfolio's retail assets also outperformed their peers; however the portfolio's office assets, led lower by the regional holdings, delivered poorer performance in both actual and relative terms. The Company's retail warehousing continues to deliver an income return, a key contributor to dividend cover, and outperform the peer group. Indeed, active asset management at the retail warehouse located at Northfields Retail Park, Rotherham delivered the highest weighted contribution to portfolio return of any property over the period.
Given the weight of money pursuing core assets, particularly industrials, alternatives and long Income assets the Company has preserved its measured, opportunistic approach to the
deployment of capital, with emphasis on the disposal of non-core assets, reflected in recent sales from the retail portfolio. Acquisitions that meet the returns criteria for the Company have been more difficult to come by in a very competitive marketplace. However we believe the acquisition of the single let industrial asset at Lister Road, Basingstoke, yielding 5.2 per cent and let for 9 years meets our criteria in the current market.
The portfolio continues to offer sustainable defensive fundamentals, including an above market income yield, a low void rate of 3.8 per cent and contractual income with an average weighted lease term of 6 years.
The first interim dividend for the year ending 30 June 2018 of 1.25 pence per share was paid in December 2017, with a second interim dividend of 1.25 pence per share to be paid on 29 March 2018 to shareholders on the register on 9 March 2018.
The dividend cover* for the six months was 92.6 per cent, although this excludes the receipt of a negotiated surrender premium of £4,375,000 from the previous tenant at Northfields Retail Park, Rotherham. This property was subsequently re-let.
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 5.0 pence per share per annum.
The Group currently has borrowings of £103 million made up of a £90 million non-amortising term loan facility agreement with Canada Life Investments which expires in November 2026 and a £20 million 5-year revolving credit facility agreement with Barclays Bank plc which expires in November 2020, £13 million of which is currently drawn down. Net gearing* represented 28.2 per cent of the investment properties of the Group as at 31 December 2017. The weighted average interest rate (including amortisation of refinancing costs) on the Group's total current borrowings is 3.2 per cent. The Company continues to maintain a prudent attitude to gearing.
The Group had £9.6 million of cash available at 31 December 2017 with a further £7.0 million of the revolving credit facility also available if required.
The Company continues to make good progress with its Environmental, Social and Governance ('ESG') related activities. The portfolio now has energy performance ratings for all of its assets and has developed a detailed strategy for addressing and maintaining a low exposure to the risks presented by energy efficiency legislation. The Company has also completed individual property sustainability appraisals to capture other investment critical information.
A major exercise is currently under way to establish baseline carbon usage for directly managed properties against which year on year reduction targets can be set, alongside longerterm portfolio objectives consistent with climate science. At asset level, directly managed assets are shortly expected to achieve the ISO14,001 environmental accreditation whilst the Manager continues to implement green lease clauses as standard, whenever possible and commercially viable. The Company will make its inaugural submission to the influential annual GRESB survey this year whilst the Manager's recruitment of additional resource to help manage and monitor continual improvement is further indication of the Company's aspiration to further improve its ESG credentials.
Although there were some signs of progress in the EU negotiations as the period drew to a close, the outlook continues to be dominated by Brexit considerations and wider political uncertainty. Interest rates were raised during this reporting period and the timing and magnitude of further increases is also likely to be a consideration for property investors moving forward. Within property, performance has been buoyed by investment, especially from overseas, but the impact of proposed new tax regulations on foreign buyers in 2019, if implemented, is unclear. The economy is recording positive, if modest, growth, which is expected to persist on consensus forecasts. Sentiment is adjusting to the changed political and economic environment, however, our outlook on the market remains cautious.
Chairman 23 February 2018
* See Alternative Performance Measures on page 21
as at 31 December 2017, % of total property portfolio
South East (44.2%) London – West End (10.5%) South West (0.3%) Eastern (12.7%) West Midlands (7.0%) East Midlands (4.9%) North East (0.7%) North West (3.5%) Scotland (4.1%) Yorkshire and Humberside (8.5%) Rest of London (3.6%)
as at 31 December 2017, % of total property portfolio
As at 31 December 2017 the average lease length for the portfolio, assuming all break options are exercised, was 6.0 years (as at 30 June 2017: 6.6 years).
as at 31 December 2017
| Sector | |
|---|---|
| Properties valued in excess of £10.0 million | |
| London W1, 14 Berkeley Street | Office |
| Banbury, Unit 3663, Echo Park | Industrial |
| Colnbrook, Units 1-8, Lakeside Road | Industrial |
| Eastleigh, Southampton International Park | Industrial |
| Hemel Hempstead, Hemel Gateway | Industrial |
| York, Clifton Moor Gate* | Retail Warehouse |
| Bracknell, 1/2 Network Bracknell, Eastern Road | Industrial |
| Leamington Spa, 30/40 The Parade & 47/59A Warwick Street | Retail |
| Properties valued between £7.5 million and £10.0 million | |
| Edinburgh, Units 1 & 2 Lochside Way, Edinburgh Park | Office |
| Basingstoke, Unit K60, Bunzl | Industrial |
| Eastleigh, Airways 1/2, Wide Lane | Industrial |
| Andover, Keens House, Anton Mill Road | Office |
| Rotherham, Unit 1, Northfields Retail Park | Retail Warehouse |
| New Malden, 7 Beverley Way | Retail Warehouse |
| Theale, Maxi Centre, Brunel Road | Industrial |
| Milton Keynes, Site E, Chippenham Drive | Industrial |
| Chelmsford, County House, County Square | Office |
| London, 24 Haymarket & 1-2 Panton Street* | Retail |
| Bromsgrove, Brook Retail Park, Sherwood Road | Retail Warehouse |
| Luton, Enterprise Way | Retail Warehouse |
| High Wycombe, Glory Park | Office |
| Winchester, 7-8 High Street & 50 Colebrook Street | Retail |
| Properties valued between £5.0 million and £7.5 million | |
| Northallerton, Willowbeck Road | Retail Warehouse |
| Bury, Halls Mill Retail Park, Foundry Street | Retail Warehouse |
| Guildford, 51/53 High Street | Retail |
| St Albans, 16, 18 & 20 Upper Marlborough Road | Office |
| Nottingham, Standard Hill | Office |
| Nelson, Churchill Way | Retail Warehouse |
| Properties valued under £5.0 million | |
| Brookwood, The Clock Tower | Office |
| Bellshill, Mercury House, 1 Dove Wynd, Strathclyde Business Park | Office |
| Newbury, The Triangle, Pinchington Lane | Retail Warehouse |
| Sunningdale, 53/79 Chobham Road, Berkshire | Retail |
| Nottingham, 21/22 Long Row East and 2/6 King Street | Retail |
| Kingston upon Thames, 11 Church Street | Retail |
| Rayleigh, 41/47 & 55/55a High Street | Retail |
| Nottingham, Park View House, The Ropewalk | Office |
| Nottingham, 25/27 Bridlesmith Gate | Retail |
| Redhill, 15 London Road | Office |
| Sutton Coldfield, 63/67 The Parade | Retail |
| Birmingham, 157/163 High Street, Kings Heath | Retail |
| Rayleigh, 81/87 High Street | Retail |
| Gateshead, Sands Road, Swalwell | Retail Warehouse |
| Swindon, 18-19 Regent Street | Retail |
* Leasehold Property
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, credit, operational and environmental 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 2017. 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
Chairman 23 February 2018
| For the period ended | ||||
|---|---|---|---|---|
| Six months to | Six months to | Year to | ||
| 31 December | 31 December | 30 June | ||
| 2017 | 2016 | 2017 | ||
| Notes | (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | ||
| Revenue | ||||
| 2 | Rental income Other income |
9,403 4,375 |
10,322 – |
19,191 – |
| Total revenue | 13,778 | 10,322 | 19,191 | |
| 6 | Gains/(losses) on investment properties Gains/(losses) on sale of investment properties realised |
20 | (207) | 781 |
| 6 | Unrealised gains/(losses) on revaluation of investment properties | 7,711 | (4,827) | 2,008 |
| Total income | 21,509 | 5,288 | 21,980 | |
| Expenditure | ||||
| Investment management fee | (1,052) | (1,046) | (2,013) | |
| 3 | Other expenses | (866) | (1,080) | (1,966) |
| Total expenditure | (1,918) | (2,126) | (3,979) | |
| Net operating profit before finance costs and taxation | 19,591 | 3,162 | 18,001 | |
| Net finance costs | ||||
| Interest receivable | 1 | 2 | 4 | |
| Finance costs | (1,766) | (1,824) | (3,598) | |
| (1,765) | (1,822) | (3,594) | ||
| Net profit from ordinary activities before taxation | 17,826 | 1,340 | 14,407 | |
| Taxation on profit on ordinary activities | (147) | (155) | (306) | |
| Profit for the period | 17,679 | 1,185 | 14,101 | |
| 5 | Basic and diluted earnings per share | 7.3p | 0.5p | 5.9p |
All items in the above statement derive from continuing operations.
All of the profit for the period is attributable to the owners of the Group.
| 10 Net asset value per share |
104.9p | 97.2p | 100.1p |
|---|---|---|---|
| Equity shareholders' funds | 252,503 | 231,959 | 240,842 |
| Capital reserve Revenue reserve |
69,005 3,930 |
53,451 754 |
61,274 – |
| Special distributable reserve | 177,161 | 175,367 | 177,161 |
| Represented by: 9 Share capital |
2,407 | 2,387 | 2,407 |
| Net assets | 252,503 | 231,959 | 240,842 |
| Total liabilities | (108,695) | (112,861) | (111,742) |
| (6,277) | (7,193) | (6,329) | |
| Current liabilities Trade and other payables Tax payable |
(6,130) (147) |
(6,754) (439) |
(6,023) (306) |
| (102,418) | (105,668) | (105,413) | |
| Non-current liabilities 7 Interest-bearing bank loans Trade and other payables |
(102,170) (248) |
(104,956) (712) |
(105,061) (352) |
| Total assets | 361,198 | 344,820 | 352,584 |
| 10,855 | 13,616 | 17,856 | |
| Current assets Trade and other receivables Cash and cash equivalents |
1,277 9,578 |
1,616 12,000 |
1,291 16,565 |
| 350,343 | 331,204 | 334,728 | |
| Non-current assets 6 Investment properties Trade and other receivables |
346,449 3,894 |
326,445 4,759 |
330,834 3,894 |
| 2017 (unaudited) £'000 |
2016 (unaudited) £'000 |
2017 (audited) £'000 |
|
| As at | 31 December | Restated* 31 December |
30 June |
* See Note 1
| Share Capital £'000 |
Special Distributable Reserve £'000 |
Capital Reserve £'000 |
Revenue Reserve £'000 |
Total £'000 |
||
|---|---|---|---|---|---|---|
| At 1 July 2017 | 2,407 | 177,161 | 61,274 | – | 240,842 | |
| Profit for the period | – | – | – | 17,679 | 17,679 | |
| 4 | Dividends paid | – | – | – | (6,018) | (6,018) |
| Transfer in respect of gains on investment properties | – | – | 7,731 | (7,731) | – | |
| At 31 December 2017 | 2,407 | 177,161 | 69,005 | 3,930 | 252,503 |
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | |
|---|---|---|---|---|---|---|
| At 1 July 2017 | 2,407 | 177,161 | 61,274 | – | 240,842 | |
| Profit for the period | – | – | – | 17,679 | 17,679 | |
| 4 | Dividends paid | – | – | – | (6,018) | (6,018) |
| Transfer in respect of gains on investment properties | – | – | 7,731 | (7,731) | – | |
| At 31 December 2017 | 2,407 | 177,161 | 69,005 | 3,930 | 252,503 | |
| For the period ended 31 December 2016 | ||||||
| Special | ||||||
| Share | Distributable | Capital | Revenue | |||
| Capital | Reserve | Reserve | Reserve | Total | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 July 2016 | 2,387 | 175,367 | 58,485 | 503 | 236,742 | |
| Profit for the period | – | – | – | 1,185 | 1,185 | |
| 4 | Dividends paid | – | – | – | (5,968) | (5,968) |
| Transfer in respect of losses on investment properties | – | – | (5,034) | 5,034 | – | |
| At 31 December 2016 | 2,387 | 175,367 | 53,451 | 754 | 231,959 | |
| For the year ended 30 June 2017 | ||||||
| Special | ||||||
| Share | Distributable | Capital | Revenue | |||
| Notes | Capital | Reserve | Reserve | Reserve | Total | |
| Share Capital £'000 |
Special Distributable Reserve £'000 |
Capital Reserve £'000 |
Revenue Reserve £'000 |
Total £'000 |
||
|---|---|---|---|---|---|---|
| At 1 July 2016 | 2,387 | 175,367 | 58,485 | 503 | 236,742 | |
| Profit for the year | – | – | – | 14,101 | 14,101 | |
| Issue of ordinary shares | 20 | 1,965 | – | – | 1,985 | |
| 4 | Dividends paid | – | – | – | (11,986) | (11,986) |
| Transfer in respect of gains on | ||||||
| investment properties | – | – | 2,789 | (2,789) | – | |
| Transfer to revenue reserve | – | (171) | – | 171 | – | |
| At 30 June 2017 | 2,407 | 177,161 | 61,274 | – | 240,842 |
| For the period ended | ||
|---|---|---|
| Six months to | Six months to | Year to | ||
|---|---|---|---|---|
| 31 December | 31 December | 30 June | ||
| 2017 | 2016 | 2017 | ||
| (unaudited) | (unaudited) | (audited) | ||
| Notes | £'000 | £'000 | £'000 | |
| Cash flows from operating activities | ||||
| Net profit for the period before taxation | 17,826 | 1,340 | 14,407 | |
| Adjustments for: | ||||
| 6 | (Gains)/losses on sale of investment properties realised | (20) | 207 | (781) |
| 6 | Unrealised (gains)/losses on revaluation of investment properties | (7,711) | 4,827 | (2,008) |
| Decrease in operating trade and other receivables | 14 | 639 | 1,829 | |
| Increase/(decrease) in operating trade and other payables | 3 | 594 | (497) | |
| Interest received | (1) | (2) | (4) | |
| Finance costs | 1,766 | 1,824 | 3,598 | |
| 11,877 | 9,429 | 16,544 | ||
| Taxation paid | (306) | – | (284) | |
| Net cash inflow from operating activities | 11,571 | 9,429 | 16,260 | |
| Cash flows from investing activities | ||||
| Purchase of investment properties | (10,191) | – | (450) | |
| 6 | Capital expenditure | (986) | (228) | (1,257) |
| 6 | Sale of investment properties | 3,293 | 2,547 | 7,460 |
| Interest received | 1 | 2 | 4 | |
| Net cash (outflow)/inflow from investing activities | (7,883) | 2,321 | 5,757 | |
| Cash flows from financing activities | ||||
| Shares issued (net of costs) | – | – | 1,985 | |
| 4 | Dividends paid | (6,018) | (5,968) | (11,986) |
| Bank loan interest paid | (1,657) | (1,713) | (3,382) | |
| Bank loan repaid, net of costs – Barclays | (3,000) | (4,000) | (4,000) | |
| Net cash outflow from financing activities | (10,675) | (11,681) | (17,383) | |
| Net (decrease)/increase in cash and cash equivalents | (6,987) | 69 | 4,634 | |
| Opening cash and cash equivalents | 16,565 | 11,931 | 11,931 | |
| Closing cash and cash equivalents | 9,578 | 12,000 | 16,565 |
The condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority, IAS 34 'Interim Financial Reporting' and the accounting policies set out in the statutory accounts of the Group for the year ended 30 June 2017. The condensed consolidated financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the consolidated financial statements for the Group for the year ended 30 June 2017 which were prepared under full IFRS requirements. The accounting policies used in preparation of the condensed consolidated financial statements are consistent with those of the consolidated financial statements of the Group for the year ended 30 June 2017.
In the previously issued interim financial statements of the Company for the period ended 31 December 2016, lease incentives of £5,005,000 and cash deposits held for tenants of £756,000 were classified as current assets. In the comparative figures of the current year financial statements, £4,047,000 for lease incentives and £712,000 for tenant deposits have been reclassified to non-current assets. The Directors have considered the impact on the previously issued financial statements of the Company and have noted that no adjustment is required to the previously reported total assets, liabilities or equity of the Company. On this basis, the Directors do not consider the above reclassification between current and non-current assets to be material to the users of the financial statements.
The Company received £4,375,000 for the surrender of a leasehold interest at Northfields Retail Park, Rotherham. The Company entered into a lease arrangement at this property with a new tenant and it is now fully let.
| Six months to | Six months to | Year to | |
|---|---|---|---|
| 31 December | 31 December | 30 June | |
| 2017 | 2016 | 2017 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Direct operating expenses of let rental property | 457 | 429 | 825 |
| Direct operating expenses of vacant property | (7) | 153 | 107 |
| Provision for bad debts | 3 | 60 | 194 |
| Administrative fee | 52 | 52 | 102 |
| Valuation and other professional fees | 114 | 92 | 265 |
| Directors' fees | 77 | 72 | 144 |
| Other expenses | 170 | 222 | 329 |
| 866 | 1,080 | 1,966 |
| Six months to 31 December 2017 |
Six months to 31 December 2016 |
Year ended 30 June 2017 |
|||||
|---|---|---|---|---|---|---|---|
| £'000 | Rate (pence) | £'000 | Rate (pence) | £'000 | Rate (pence) | ||
| Property Income Distributions: | |||||||
| Fourth interim for the prior year | 3,009 | 1.25 | 2,984 | 1.25 | 2,984 | 1.25 | |
| First interim | 3,009 | 1.25 | 2,984 | 1.25 | 2,984 | 1.25 | |
| Second interim | 3,009 | 1.25 | |||||
| Third interim | 3,009 | 1.25 | |||||
| 6,018 | 2.50 | 5,968 | 2.50 | 11,986 | 5.00 |
A second interim dividend for the year to 30 June 2018, of 1.25 pence per share, will be paid on 29 March 2018 to shareholders on the register at close of business on 9 March 2018.
Earnings per Ordinary Share are based on 240,705,539 Ordinary Shares, being the weighted average number of shares in issue during the period (31 December 2016: 238,705,539 and 30 June 2017: 239,568,005). Earnings for the six months to 31 December 2017 should not be taken as a guide to the results for the year to 30 June 2018.
| Six months to | Six months to | Year ended | |
|---|---|---|---|
| 31 December | 31 December | 30 June | |
| 2017 | 2016 | 2017 | |
| £'000 | £'000 | £'000 | |
| Freehold and leasehold properties | |||
| Opening market value | 335,350 | 339,150 | 339,150 |
| Purchase of investment properties | 10,191 | – | 450 |
| Capital expenditure | 986 | 228 | 1,257 |
| Sales – net proceeds | (3,293) | (2,547) | (7,460) |
| – gains/(losses) on sales | 900 | (3,387) | (2,404) |
| Unrealised (gains)/losses realised during the period | (880) | 3,180 | 3,185 |
| Unrealised gains on investment properties | 12,013 | 5,263 | 13,344 |
| Unrealised losses on investment properties | (4,302) | (10,090) | (11,336) |
| Movement in lease incentive receivable | (235) | (347) | (836) |
| Closing market value | 350,730 | 331,450 | 335,350 |
| Adjustment for lease incentives | (4,281) | (5,005) | (4,516) |
| Balance sheet carrying value | 346,449 | 326,445 | 330,834 |
All the Group's investment properties were valued as at 31 December 2017 by qualified professional valuers working in the company of Cushman & Wakefield, Chartered Surveyors. All such valuers are chartered surveyors, being members of the Royal Institution 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 2017. The market value of these investment properties amounted to £350,730,000 (31 December 2016: £331,450,000; 30 June 2017: £335,350,000), however an adjustment has been made for lease incentives of £4,281,000 that are already accounted for as an asset (31 December 2016: £5,005,000; 30 June 2017: £4,516,000).
On 9 November 2015, the Group entered into an eleven year £90 million non-amortising term loan agreement with Canada Life and a five year £20 million revolving credit facility agreement with Barclays. The interest rate payable on the Canada Life loan is at a fixed rate of 3.36% per annum and the interest payable on the Barclays loan is at a variable rate based on 3 month LIBOR plus a margin of 1.45% per annum. During the period, the Company repaid £3 million of the revolving credit facility to Barclays.
At 31 December 2017 borrowings of £103 million were drawn down. The balance sheet value is stated at an amortised cost of £102,170,000 (31 December 2016: £104,956,000 and 30 June 2017: £105,061,000). Amortised cost is calculated by deducting loan arrangement costs, which are amortised back over the life of the loan. The fair value of the Canada Life loan is shown in note 8.
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:
All of the Group's investments in direct property are included in Level 3 as it involves the use of significant inputs. There were no transfers between levels of the fair value hierarchy during the six month period ended 31 December 2017.
Other than the fair values stated in the table below, the fair value of all other financial assets and liabilities is not materially different from their carrying value in the financial statements.
| 31 December | 31 December | 30 June | |
|---|---|---|---|
| 2017 | 2016 | 2017 | |
| £'000 | £'000 | £'000 | |
| £90 million Canada Life Loan 2026* | (97,334) | (97,872) | (97,695) |
*The fair value of the interest-bearing Canada Life Loan is based on the yield on the Treasury 2% 2025 which would be used as the basis for calculating the early repayment of such loan plus the appropriate margin.
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 2017.
| £'000 | |
|---|---|
| Allotted, called-up and fully paid | |
| 240,705,539 Ordinary Shares of 1 pence each in issue at 31 December 2017 | 2,407 |
The Company issued nil Ordinary Shares during the period.
The net asset value per Ordinary Share is based on net assets of £252,503,000 (31 December 2016: £231,959,000 and 30 June 2017: £240,842,000) and 240,705,539 Ordinary Shares (31 December 2016: 238,705,539 and 30 June 2017: 240,705,539), being the number of shares in issue at the period end.
In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. They have considered the current cash position of the Group, the availability of the loans and compliance with their covenants, forecast rental income and other forecast cash flows. The Group has agreements relating to its borrowing facilities with which it has complied during the period. Based on this information the Directors believe that the Group has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of the approval of the accounts. For this reason, they continue to adopt the going concern basis in preparing the accounts.
The Directors of the Company received fees for their services and dividends from their shareholdings in the Company. No fees remained payable at the period end.
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 of 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.
The Group results consolidate those 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 a property investment company. These companies are 100 per cent owned by the Group's ultimate parent company, which is F&C UK Real Estate Investments Limited.
There are no material subsequent events that need to be disclosed.
Ordinary dividends are paid quarterly in March, June, September and December each year. Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can complete a mandate form for the purpose. Mandates may be obtained from Computershare Investor Services (Guernsey) Limited, c/o Queensway House, Hilgrove Street, St. Helier, Jersey JE1 1ES on request. Where dividends are paid directly to shareholders' bank accounts, dividend tax vouchers are sent to shareholders' registered addresses.
The Company's Ordinary Shares are listed on the Main Market of the London Stock Exchange. Prices are given daily in the Financial Times under "Investment Companies" and in other newspapers.
Communications with shareholders are mailed to the address held on the share register. In the event of a change of address or other amendment this should be notified to Computershare Investor Services (Guernsey) Limited, c/o Queensway House, Hilgrove Street, St. Helier, Jersey JE1 1ES under the signature of the registered holder.
Contact Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St. Peter Port, Guernsey, Channel Islands GY1 3QL. Additional information regarding the Company may also be found on its website:
| Financial Calendar 2018 | |
|---|---|
| April 2018 | Q3 2018 Net Asset Value announcement |
| July 2018 | Q4 2018 Net Asset Value announcement |
| September 2018 | Announcement of annual results |
| October 2018 | Q1 2019 Net Asset Value announcement |
| November 2018 | Annual General Meeting |
Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be worthless or non existent, or to buy shares at an inflated price in return for an upfront payment.
If you are approached by fraudsters please tell the Financial Conduct Authority ('FCA') by using the share fraud reporting form at www.fca.org.uk/scams where you can find out more about investment scams. You can also call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
One of the most convenient ways to invest in F&C UK Real Estate Investments Limited is through one of the savings plans run by F&C Investments.
You can use your ISA allowance to make an annual taxefficient investment of up to £20,000 for the 2017/18 tax year with a lump sum from £500 or regular savings from £50 a month per Trust. You can also transfer any existing ISAs to us whilst maintaining the tax benefits.
You can invest up to £4,128 for the tax year 2017/18 from £500 lump sum or £30 a month per Trust, or a combination of both. Please note, if your child already has a Child Trust Fund (CTF), then you cannot open a separate JISA, however you can transfer the existing CTF (held either with F&C or another provider) to an F&C JISA.
If your child has a CTF you can invest up to £4,128 for the 2017/18 tax year, from £100 lump sum or £25 a month per Trust, or a combination of both. You can also transfer a CTF from another provider to an F&C CTF. Please note, the CTF has been replaced by the JISA and is only available to investors who already hold a CTF.
This is a flexible way to invest in our range of Investment Trusts. There are no maximum contributions, and investments can be made from £500 lump sum or £50 a month per Trust. You can also make additional lump sum top-ups at any time from £250 per Trust.
This is a flexible way to save for a child in our range of Investment Trusts. There are no maximum contributions, and the plan can easily be set up under bare trust (where the child is noted as the beneficial owner) or kept in your name if you wish to retain control over the investment. Investments can be made from a £250 lump sum or £25 a month per Trust. You can also make additional lump sum top-ups at any time from £100 per Trust.
*The CTF and JISA accounts are opened in the child's name and they have access to the money at age 18. **Calls may be recorded or monitored for training and quality purposes.
Annual management charges and other charges apply according to the type of plan.
Annual account charge ISA: £60+VAT PIP: £40+VAT JISA/CIP/CTF: £25+VAT
You can pay the annual charge from your account, or by direct debit (in addition to any annual subscription limits).
ISA: 0.2% PIP/CIP/JISA: postal instructions £12, online instructions £8 per Trust.
Dealing charges apply when shares are bought or sold but not on the reinvestment of dividends or the investment of monthly direct debits for the PIP, CIP and JISA.
There are no dealing charges on a CTF but a switching charge of £25 applies if more than 2 switches are carried out in one year.
Government stamp duty of 0.5% also applies on the purchase of shares (where applicable).
There may be additional charges made if you transfer a plan to another provider or transfer the shares from your plan.
For full details of our savings plans and charges, please read the Key Features and Terms and Conditions of the plan – available on our website fandc.com/literature.
To open a new F&C savings plan, apply online at fandc.com/apply
Note, this is not available if you are transferring an existing plan with another provider to F&C, or if you are applying for a new plan in more than one name.
Call: 0800 136 420** (8.30am – 5.30pm, weekdays) Email: [email protected]
| PO Box 11114 |
|---|
| Chelmsford |
| CM99 2DG |
Call: 0345 600 3030** (9.00am – 5.00pm, weekdays) Email: [email protected] By post: F&C Plan Administration Centre
You can also invest in the trust through online dealing platforms for private investors that offer share dealing and ISAs. Companies include: Alliance Trust Savings, Barclays Stockbrokers, Halifax, Hargreaves Lansdown, HSBC, Interactive Investor, Lloyds Bank, Selftrade, TD Direct Investing, The Share Centre
The value of investments can go down as well as up and you may not get back your original investment. Tax benefits depend on your individual circumstances and tax allowances and rules may change. Please read our Key Features Document before you invest and this can be found on our website fandc.co.uk. F&C cannot give advice on the suitability of investing in our investment trust or savings plans. If you have any doubt as to the suitability of an investment, please contact a professional financial adviser.
F&C Investments and the F&C Investments logo are trademarks of F&C Management Limited. © F&C Management Limited 2017. Issued and approved by F&C Management Limited which is authorised and regulated by the Financial Conduct Authority FRN: 119230 and is a member of the F&C Group of which the ultimate parent company is the Bank of Montreal. Registered Office: Exchange House, Primrose Street, London EC2A 2NY. Registered in England & Wales No 517895. L56_02/17_CM11982
The Company uses the following Alternative Performance Measures ('APMs'). APMs do not have a standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other entities.
Discount or Premium – The share price of an Investment Company is derived from buyers and sellers trading their shares on the stock market. If the share price is lower than the NAV per share, the shares are trading at a discount. This usually indicates that there are more sellers than buyers. Shares trading at a price above the NAV per share, are said to be at a premium.
Dividend Cover – The percentage by which profits for the year (less gains/losses on investment properties) cover the dividend paid.
A reconciliation of dividend cover is shown below:
| Six months to | Six months to | Year to | |
|---|---|---|---|
| 31 December | 31 December | 30 June | |
| 2017 | 2016 | 2017 | |
| £'000 | £'000 | £'000 | |
| Profit for the year | 17,679 | 1,185 | 14,101 |
| Add back: Realised (gains)/losses | (20) | 207 | (781) |
| Unrealised (gains)/losses | (7,711) | 4,827 | (2,008) |
| Other income | (4,375) | – | – |
| Profit before investment gains and losses | 5,573 | 6,219 | 11,312 |
| Dividends | 6,018 | 5,968 | 11,986 |
| Dividend Cover percentage | 92.6 | 104.2 | 94.4 |
Dividend Yield – The annualised dividend divided by the share price at the period end. An analysis of dividends is contained in note 4 to the accounts.
Net Gearing – Borrowings less net current assets divided by value of investment properties.
Portfolio (Property) Capital Return – The change in property value during the period after taking account of property purchases and sales and capital expenditure, calculated on a quarterly time-weighted basis.
Portfolio (Property) Income Return – The income derived from a property during the period as a percentage of the property value, taking account of direct property expenditure, calculated on a quarterly time-weighted basis.
Portfolio (Property) Total Return – Combining the Portfolio Capital Return and Portfolio Income Return over the period, calculated on a quarterly time-weighted basis.
Total Return – The return to shareholders calculated on a per share basis by adding dividends paid in the period to the increase or decrease in the Share Price or NAV. The dividends are assumed to have been reinvested in the form of Ordinary Shares or Net Assets, respectively, on the date on which they were quoted ex-dividend.
Vikram Lall (Chairman) ‡ Andrew Gulliford§ Mark Carpenter David Ross† Alexa Henderson*
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 Quartermile 4 7a Nightingale Way Edinburgh EH3 9EG
BMO REP Property Management Limited 5 Wigmore Street London W1U 1PB
Cushman & Wakefield 48 Warwick Street London W1B 5NL
PricewaterhouseCoopers CI LLP Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey GY1 4ND
Mourant Ozannes 1 Le Marchant Street St Peter Port Guernsey GY1 4HP
Dickson Minto Broadgate Tower 20 Primrose Street London EC2A 2EW
Barclays Bank plc 1 Churchill Place Canary Wharf London E14 5HP
Cenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS
JPMorgan Europe Limited 25 Bank Street Canary Wharf London E14 5JP
www.fcre.co.uk or www.fcre.gg
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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