Quarterly Report • Oct 16, 2013
Quarterly Report
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Annual Report and Consolidated Accounts 30 June 2013
The Company is an authorised closed-ended Guernsey-registered investment company and its shares are listed on the Official List of the UK Listing Authority and on the Channel Islands Stock Exchange, and traded on the London Stock Exchange and the Channel Islands Stock Exchange. It was incorporated on 10 May 2004 and launched on 1 June 2004. In April 2013, shareholders approved a change of company name from IRP Property Investments Limited to F&C UK Real Estate Investments Limited.
On 11 April 2013, the Company merged with ISIS Property Trust Limited (IPT). This was achieved by a Scheme of Reconstruction through which IPT Shareholders received New Shares issued by the Company on a NAV for NAV basis. The enlarged Group had a market capitalisation of £151 million as at 30 June 2013.
The Company has a wholly owned subsidiary, F&C UK Real Estate Finance Limited which wholly owns IRP Holdings Limited and IPT Property Holdings Limited which hold and manage the investment properties. The report and accounts of the Company also consolidate the results of all its subsidiaries.
At 30 June 2013 total assets less current liabilities were £272.0 million and shareholders' funds were £149.1 million.
The investment objective of the Company 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.
The Board has appointed F&C Investment Business Limited as the Company's investment manager and F&C REIT Property Management Limited as the Company's property manager. Both of these companies are part of F&C Asset Management plc group and, collectively, are referred to in this document as 'the Manager'. Further details of the management contract are provided in the Notes to the Accounts.
The Company's shares are eligible for Individual Savings Accounts $('ISAs').$
The Company's internet address is: www.fcre.co.uk www.fcre.gg
| Company Summary | |
|---|---|
| Financial Highlights | 1 |
| Performance Summary | 1 |
| Chairman's Statement | 2 |
| Investment Manager | 5 |
| Manager's Review | 6 |
| Portfolio Statistics | 10 |
| Property Portfolio | 12 |
| Board of Directors | 13 |
| Report of the Directors | 14 |
| Directors' Remuneration Report | 20 |
| Directors' Responsibility Statement | 22 |
| Independent Auditor's Report | 23 |
| Consolidated Statement of Comprehensive Income |
24 |
| Consolidated Balance Sheet | 25 |
| Consolidated Statement of Changes in Equity 26 | |
| Consolidated Cash Flow Statement | 27 |
| Notes to the Accounts | 28 |
| Notice of Annual General Meeting | 46 |
| Shareholder Information | 48 |
| Historic Record | 48 |
Corporate Information
| Year ended 30 June 2013 |
Year ended 30 June 2012 |
Cumulative since launch |
|
|---|---|---|---|
| Total Return Net asset value per share Ordinary share price Portfolio ungeared return Investment Property Databank UK Quarterly Index FTSE All-Share Index* |
$+3.9%$ $+19.5%$ $+4.0%$ $+4.8%$ $+17.9%$ |
$+0.8%$ $-19.0%$ $+5.3%$ $+4.6%$ $-3.1%$ |
$+43.0%$ +49.9% $+71.6%$ $+54.0%$ $+105.7%$ |
| 30 June 2013 |
30 June 2012 |
% Change | |
| Capital Values Total assets less current liabilities (£000's) Net asset value per share Ordinary share price Investment Property Databank UK Quarterly Index FTSE All-Share Index Ordinary share price premium/(discount) to net asset value per share Net gearingt |
272,001 71.7p 72.5p 93.7 3,289.7 1.1% 39.7% |
158,433 76.2p 66.0p 94.6 2,891.5 $(13.4)\%$ 40.4% |
$+71.7%$ $-5.9\%$ $+9.8%$ $-1.0%$ $+13.8%$ |
| Year ended 30 June 2013 |
Year ended 30 June 2012 |
||
| Earnings and Dividends Earnings per ordinary share# Dividends paid per ordinary share§ Dividend yield‡ |
1.2p 7.2 p 9.9% |
2.9 D 7.2p 10.9% |
|
| Ongoing Charges As a percentage of average net assets As a percentage of average net assets (excluding direct property expenses) |
2.6% 2.0% |
2.7% 2.0% |
|
| 12 month Highs |
12 month Lows |
||
| Highs/Lows Net asset value per share Ordinary share price Premium/(discount) |
76.2p 75.0p 5.6% |
71.0p 57.5p $(20.1)\%$ |
Total return assuming gross dividends reinvested.
(Bank debt less net current assets, excluding swap liability) ÷ investment properties.
Earnings per ordinary share include capital losses on investment properties.
§ Calculated on an IFRS basis and therefore excludes the 4th interim dividend for 2012/13 and 2011/12.
Calculated on annualised dividends of 7.2p per share for 2012/2013 and 7.2p for 2011/2012. An analysis of dividend payments is contained in note 7 on page 37. Ongoing charges which include direct operating property costs are defined within The Association of Investment Companies Guidelines. A second Ongoing Charges figure is shown which excludes direct operating property costs as these are variable in nature.
Sources: F&C Investment Business, Investment Property Databank ('IPD') and Datastream.
In April this year the Company completed the merger of its entire assets with the assets of ISIS Property Trust Limited ("IPT"). This was affected through a Scheme of Reconstruction through which IPT Shareholders received New Shares issued by the Company on a NAV for NAV basis. The combination of these complementary property businesses resulted in the enlarged Group which was renamed F&C UK Real Estate Investments Limited ('FCRE'), having a market capitalisation of £151 million at the year end. We believe that this has enhanced liquidity in the shares and increased the attractiveness of the enlarged Group. This transaction resulted in a more diversified property portfolio and has given the Group more flexibility for its future investment strategy. The merged entity will also benefit from a material reduction in the Total Expense Ratio moving forward.
Share price performance has been strong, particularly in the second half of the year and was trading at a premium to net asset value of 1.1 per cent at the year end, with the price at 72.5 pence per share. The share price total return for the year was 19.5 per cent reflecting the shift in sentiment for UK commercial property from the previous year end when the shares were trading at a discount of 13.4 per cent.
The net asset value ('NAV') total return for the year was 3.9 per cent with a NAV as at 30 June 2013 of 71.7 pence per share. The movement in the interest rate swap valuations had a positive impact on the NAV, with the liabilities decreasing by £3.8 million during the year, increasing the NAV per share by 2.4 pence. The swap valuation is significant and reduced the NAV by 6.9 pence per share at the year end; however future movements should reflect positively over time as the liability reduces to nil by the conclusion of the contract in January 2017.
The Company has experienced continued market demand for its shares and subsequent to the year end, the Company has issued 5 million Ordinary Shares of 1 pence each at a price of 73.5 pence per share, a 2.5 per cent premium to the latest published net asset value, as at 30 June 2013. This is the Company's first tap issue since inception.
The UK commercial property market as a whole has seen a return to positive quarterly returns, resulting in an annual total return of 4.8 per cent for the year ended 30 June 2013, as measured by the Investment Property Databank ('IPD') Quarterly Funds Index. Capital values fell over the course of the year; although the improvement in the market resulted in a positive capital return during the final three months. Performance in the year to June 2013 remained highly polarised, with Central London offices and shops strongly out-performing.
At 30 June 2013 the portfolio was valued at £276.6 million, returning 4.0 per cent over the twelve months. The range of returns for individual properties and sectors was very diverse with Central London offices being particularly strong. The Manager is continuing with a strategy of disposing smaller and non-performing assets which no longer fit the profile of the enlarged Group. There have been a number of new lettings and lease renewals
and restructures throughout the portfolio which has enabled the Group to maintain the relatively low vacancy rate of 3.2 per cent at the year end and an average weighted unexpired lease term of 7.9 years.
Three interim dividends of 1.80 pence per share were paid during the year. As announced on 7 February 2013, as part of the merger proposals and following consultation with larger shareholders, it was proposed that FCRE's dividend would be set at a sustainable level, which was expected to be fully covered by net rental income when the Group was fully invested. In order to achieve this policy the dividend of FCRE will be reduced by approximately 30 per cent to 5.0 pence per share per annum, a yield of 6.9 per cent on the year end share price. Accordingly, a fourth interim dividend of 1.25 pence per share was paid on 27 September 2013, giving a total dividend for the year ended 30 June 2013 of 6.65 pence per share. In the absence of unforeseen circumstances, it is the intention of the Group to continue to pay quarterly interim dividends at the revised rate.
The net gearing level as at 30 June 2013 was 39.7 per cent, which compares with 40.4 per cent as at 30 June 2012 and 40.0 per cent at launch on 1 June 2004.
As part of the merger, the Facilities of the Group and IPT which were previously in place were replaced with a new term and revolving credit loan facility. The New Facility permits a maximum amount of £115 million to be drawn down. The interest rate swaps which were in place for the Group and IPT, and which fix the interest payable in respect of £100 million in aggregate of the existing borrowings, were novated to a subsidiary of the Group, F&C UK Real Estate Finance Limited without any amendments or additional cost. As a condition of obtaining the consent of Lloyds TSB Bank to the merger, the aggregate margin under the New Facility with £112 million drawn down will increase by 0.18 per cent
per annum (based on the current loan to value and drawn down amounts) giving a fixed interest rate payable on £100 million of the New Facility of 5.77 per cent per annum (including the margin increase referred to above) and a floating rate which is currently around 1 per cent per annum on the balance. The New Facility is repayable in January 2017, the same repayment date as applied under the previous Facilities. The other terms of the New Facility and related security and finance documents are substantially similar to the terms of the previous Facilities.
The Group had £5.8 million of cash available at 30 June 2013 and an undrawn loan facility of £3 million. It is the Company's intention to maintain a prudent attitude to gearing.
On 11 April 2013, following the merger, Vikram Lall, Graham Harrison and Michael Soames who were previously Directors of IPT, were appointed as Directors of the Company. Chris Spencer and Giles Weaver retired from the Board on the same day. Mr Spencer and Mr Weaver have been important members of the Board since the launch of the Company and we thank them for their hard work over the years.
It was with enormous sadness that the Board announced that Michael Soames died suddenly on 2 June 2013. Michael had been a Director of IPT since its launch in October 2003 and had made a valuable contribution over many years. He will be greatly missed by the Board and the Manager.
Against a background of some caution, there is a consensus that the property market has reached the low point in this cycle. As the economy improves, increased demand for property should help to support rental growth in areas of tight supply and this is expected to continue to favour well-let property in established locations. The Board believes that the Group's portfolio is well placed to take
advantage of market conditions and the Manager will continue with the strategy to dispose of smaller properties. This and the recent success in issuing new shares will provide the Group with working capital and allow the Manager to seek new investments for the portfolio.
Quentin Spicer Chairman 4 October 2013
The Board has appointed F&C Investment Business Limited (referred to throughout this document as 'FCIB' or 'the Investment Manager') as the Company's investment manager and F&C REIT Property Management Limited (referred) $\overline{10}$ throughout this document as 'F&C REIT' or 'the Property Manager') as the Company's property manager. FCIB and F&C REIT are, collectively, referred to in this document as 'the Manager', and are both part of F&C Asset Management plc ('F&C').
F&C is a leading asset manager in both the UK and Europe and has £92.3 billion of funds under management (as at 30 June 2013). The shares of F&C are traded on the London Stock Exchange. F&C provides investment management and other services to a range of investment companies. In addition, it is one of the largest property managers in the UK, with property funds under management of £7.8 billion (as at 30 June 2013), and manages property investments on behalf of a wide range of clients including the Company and F&C Commercial Property Trust Limited.
lan McBryde Investment Manager joined F&C Asset Management plc in 1982 and is a director of F&C REIT Asset Management. He is a fellow of the Royal Institution of Chartered Surveyors.
1-2 Network, Bracknell
The UK commercial property market delivered a portfolio total return of 4.8 per cent in the year to June 2013, as measured by the Investment Property Databank ("IPD") Quarterly Universe. This represents a modest improvement on the 4.6 per cent return of the previous year. However, in contrast to the previous year, performance saw quarter on quarter improvements.
Performance was supported by a portfolio income return of 5.8 per cent. Although capital values fell over the course of the year, the improvement in the market resulted in a positive out-turn during the final three month period.
The year to June 2013 has seen the UK economy gradually recovering, with GDP turning positive during the latter part of the period, helped by some easing in monetary conditions. The government remains committed to fiscal austerity and the need to re-balance the public accounts, which may limit the speed of the upturn but there are signs that business and consumer sentiment are steadying.
Investment activity in the UK commercial property sector totalled £36 billion in the year to June 2013, more than 15 per cent above the previous year. according to Property Data. The market remains driven by overseas investors, especially for Central London offices. However, the year also witnessed investors broadening their interest to other sectors of the market and to the regions. The low level of gilt yields attracted investors seeking long-term stable income and this has produced intense competition for long-leased and index-linked stock.
The improvement has been largely investment-led and the occupational market has been more subdued, with rental growth patchy and largely focused on Central London. It has remained challenging to grow the income stream given occupier caution, the impact of rising business rates on the ability of tenants to pay higher rents and tenant administrations. Demand is still predominantly driven by negotiating new leases rather than growth.
The property market in the year to June 2013 remained highly polarised, with Central London offices and shops strongly out-performing other regions. Most regions outside London recorded falls in capital values for the full year. This masks an improving tone to much of the regional property market during the three months to June 2013, but the regions were still generally under-performing London.
The retail sector as a whole under-performed the all-property average, affected by subdued consumer spending, margin pressure on retailers and the
14 Berkeley Street, London W1
continued diversion of trade online and to supermarkets. Standard retail properties in the regions and retail warehousing were especially vulnerable but there were bright spots such as London retail and supermarkets. In the office market, double digit annual total returns in the West End contrasted with negative total returns for offices outside London and the South East. The industrial sector also delivered a mixed performance. Distribution warehousing saw total returns improve from a year earlier to out-perform the all-property average but standard industrial properties were weaker. Again, there was a regional dimension with the heartlands of London, the South East and the Midlands out-performing more peripheral locations.
Unit 3663, Echo Park, Banbury
Prime property generally out-performed secondary stock during the year with the disparity especially marked for town centre retail and non-London offices, although there were tentative signs of greater interest in good secondary stock towards the end of the reporting period.
The past year recorded a relatively muted performance but with signs of improvement becoming increasingly apparent.
On 11 April 2013 the Group merged with ISIS Property Trust Limited ("IPT") and was renamed F&C UK Real Estate Investments Limited. The merged Group resulted in a sizeable increase in the size of the portfolio to £276.8 million. This effectively diversified further the property and tenant exposure, provided greater flexibility in banking covenants, and over time will allow the Group to obtain exposure to assets with a larger lot size. The two portfolios both had complementary geographic and sector exposure whilst maintaining an overweight position in London and the South-East.
the Previously Group's portfolio comprised 33 properties with an aggregate market value of £157.9 million and a rent roll of £11.5 million, giving a net initial yield of 6.9 per cent. The IPT portfolio comprised 23 properties with an aggregate market value of £119.2 million and a rent roll of £8.6 million, giving a net initial yield of 6.8 per cent.
At the time of the merger the combined portfolio had an aggregate market value of £276.8 million and a rent roll of £20.1 million, giving a net initial yield of 6.9 per cent.
At 30 June 2013 the portfolio was valued at £276.6 million, which showed an increase in capital value of £1.19 million or 0.4 per cent on a like for like basis
Standard Hill, Nottingham
County House, County Square, Chelmsford
over the valuation of the portfolios at merger. There have also been two property sales in the period between merger and the year end. An industrial property at 6 James Street, York and a unit shop at 67/69 King Street, South Shields were sold for a total of £1.52 million, in line with the previously reported valuations.
100 Princes Street, Edinburgh
Over the year to 30 June 2013, the portfolio returned 4.0 per cent, which reflected an income return of 7.1 per cent, but with a capital fall of 2.9 per cent. The range of returns for individual properties and sectors was very diverse. West End offices, which account for 6.7 per cent of the portfolio by value, outperformed and industrial properties, making up 29.3 per cent of the portfolio had positive returns. However, portfolio returns were particularly disadvantaged by Rest of UK offices.
The vacancy rate on the portfolio reduced from 3.7 per cent at the time of the merger to 3.2 per cent as at 30 June. Dreams plc went into administration during the second quarter of 2013 but the Group was able to relet Unit A, Halls Mill Retail Park, Bury virtually immediately. Steinhoff UK Group Properties Limited (trading as Bensons for Beds) took a lease of the 10,000 square foot unit at £150,000 per annum, the same rent as previously paid by Dreams, on a ten year lease with a break at the fifth year and an 18 month rent free period.
The Group negotiated a lease extension with Bunzl UK Limited at the Maxi Centre, Theale which comprises a modern distribution unit of 61,000 square foot. The existing lease, due to expire in September 2014 has been extended until December 2023 (with a tenant's option to break in 2016 and 2018) at a rent of £500,880 per annum with a 10 month rent free period.
There have been a number of smaller lettings and this has enabled the Group to maintain a relatively low vacancy rate. At Above Bar Church, Southampton, the Group secured a new letting of the unit that became vacant earlier in 2012 as a result of Bon Marche going into administration. The unit has now been let to The Works Stores Limited on the basis of a new ten year lease, with a tenant's break at the fifth year, on a stepped rent averaging £120,000 per annum for the first five years, and subject to a six month rent free period. At 67/69 King Street, South Shields, the vacant shop unit was let to Greenwoods Menswear Limited, at a rent increasing to £30,000 per annum on the basis of a five year lease. The property was subsequently sold. At 25 Northbrook Street, Newbury, the tenant renewed its lease for a further five years at £40,000 per annum, but subject to a break at the third year. At George Street, Croydon, the upper floors, used as serviced offices, were re-let for a further 15 years at £21,000 per annum.
In addition the Manager has continued to identify opportunities to extend and re-gear leases in order to add value. As at 30 June the average weighted unexpired lease term was 7.9 years.
The market cycle shows signs of having passed its low point, but uncertainties remain. Problems in the Eurozone still need to be resolved and consensus forecasts are for modest UK growth, although it is expected to be sustained over the medium-term. As the economy improves and excess capacity is eliminated, the impact of minimal new development may become increasingly felt, helping to support rental growth in areas of tight supply. More generally, the challenge will continue to be to protect and enhance the income stream from property and this is expected to continue to favour well-let property in en er established locations.
occupancy levels. Since the merger with IPT, the Manager has sought to dispose of smaller assets which no longer commensurate with the size of the Group's portfolio and which add little value to ultimate performance. This strategy and the recent success in issuing new shares will allow the Group to reduce borrowings and associated risk. The improved level of working capital also gives the Manager ready access to funds for improvements to property, as well as for restructuring leases with key tenants. Further targeted sales will also enable the Manager to seek new investments and enhance the quality of the Group's portfolio.
Against this background the Manager believes that the Group's portfolio is well placed to take advantage of improvements in market sentiment and that this will feed through to valuations and
F&C REIT Asset Management
4 October 2013
Geographical Analysis as at 30 June 2013 (prior year comparatives in brackets)
Sector Analysis as at 30 June 2013 (prior year comparatives in brackets)
Covenant Strength as at 30 June 2013 (prior year comparatives in brackets)
As measured by: Investment Property Databank (IPD)
F&C UK Real Estate Investments Limited
| Property | Sector | Book Cost £'000 |
Market Value £'000 |
$%$ of Total Assets (less Current Liabilities) |
|---|---|---|---|---|
| London W1, 14 Berkeley Street Banbury, 3663 Unit, Echo Park Colnbrook, Units 1-8 Lakeside Road Eastleigh, Southampton International Park |
Offices Industrial Industrial Industrial |
17,750 14,576 11,074 11,375 |
18,600 16,500 12,000 10,585 |
6.8% 6.1% 4.4% 3.9% |
| Leamington Spa, 30-40 The Parade & 47/59a Warwick Street York, Clifton Moor Gate * |
Retail Retail Warehouse |
9,340 8,550 |
10,150 8,875 |
3.8% 3.3% |
| Chelmsford, County House, County Square | Offices | 8,500 | 8,500 | 3.1% |
| Andover, Keens House, Anton Mill Road Luton, Enterprise Way |
Offices Retail Warehouse |
7,600 7,700 |
7,700 7,700 |
2.8% 2.8% |
| Bellshill, Mercury House, Strathclyde Business Park | Offices | 11,680 | 7,600 | 2.8% |
| Ten largest property holdings | 108,145 | 108,210 | 39.8% | |
| Hemel Hempstead, Hemel Gateway New Malden, 7 Beverley Way Bury, Halls Mill Retail Park, Foundry Street |
Industrial Retail Warehouse Retail |
8,510 7,241 6,950 |
7,550 7,250 7,150 |
2.8% 2.7% 2.6% |
| Winchester, 7-8 High St.& 50 Colebrook Street Northallerton, Willowbeck Road |
Retail Retail Warehouse |
4,721 6,909 |
6,800 6,700 |
2.5% 2.5% |
| Bracknell, 1-2 Network Bracknell, Eastern Road | Industrial | 6,643 | 6,650 | 2.4% |
| Edinburgh, 1-2 Lochside Way, Edinburgh Park St Albans, 16, 18 & 20 Upper Marlborough Road |
Offices Offices |
15,166 5,871 |
6,600 5,900 |
2.4% 2.2% |
| Hull, King William House, Market Place * Rugby, Swift House, Cosford Lane * |
Offices | 5,903 | 5,500 | 2.0% |
| Industrial | 6,700 | 5,500 | 2.0% | |
| Twenty largest property holdings | 182,759 | 173,810 | 63.9% | |
| Theale, Maxi Centre, Brunel Road Nelson, Churchill Way |
Industrial Retail Warehouse |
5,500 5,567 |
5,500 5,400 |
2.0% 2.0% |
| Guildford, 51-53 High Street Eastleigh, Wide Lane |
Retail Industrial |
3,940 4,800 |
5,250 4,950 |
1.9% 1.8% |
| Horsham, Foundry Lane | Industrial | 4,750 | 4,750 | 1.8% |
| Nottingham, Standard Hill Brookwood, The Clock Tower |
Offices Offices |
4,710 5,160 |
4,750 4,450 |
1.8% 1.6% |
| London SW1, 24 Haymarket & 1/2 Panton Street * | Retail | 3,078 | 4,300 | 1.6% |
| Sutton Coldfield, 63-67 The Parade Swindon, 18/19 Regent Street |
Retail Retail |
4,330 4,500 |
4,250 4,150 |
1.6% 1.5% |
| Thirty largest property holdings | 229,094 | 221,560 | 81.5% | |
| Newbury, The Triangle, Pinchington Lane Nottingham, 21/22 Long Row East and 2/6 King Street |
Retail Warehouse Retail |
4,100 3,575 |
4,100 3,700 |
1.5% 1.3% |
| Milton Keynes, Site E Chippenham Drive | Industrial | 4,734 | 3,550 | 1.3% |
| Birmingham, 155a/163, High Street, Kings Heath Rayleigh, 41-55 High Street |
Retail Retail |
3,450 3,450 |
3,450 3,450 |
1.3% 1.3% |
| Nottingham, 25-27 Bridlesmith Gate | Retail | 3,359 | 3,370 | 1.2% |
| Sunningdale, 53/79 Chobham Road, Berkshire Croydon, 17, 19 & 21 George Street |
Retail Retail |
1,912 2,980 |
3,195 2,810 |
1.2% 1.0% |
| Edinburgh, 100A Princes Street | Retail | 2,395 | 2,780 | 1.0% |
| Redhill, 15 London Road | Offices | 2.700 | 2,680 | 1.0% |
| Forty largest property holdings | 261,749 | 254,645 | 93.6% | |
| Kingston upon Thames, 11 Church Street Romford, Unit 1, King George Close |
Retail Industrial |
2,450 2,330 |
2,600 2,330 |
1.0% 0.9% |
| Rayleigh, 81/87 High Street | Retail | 1,770 | 2,250 | 0.8% |
| Gateshead, Sands Road Brighton, 2-3 Pavilion Buildings * |
Retail Warehouse Retail |
2,382 1,968 |
2,165 2,000 |
0.8% 0.7% |
| Southampton, Units 1 & 2, Above Bar Church * | Retail | 4,161 | 2,000 | 0.7% |
| Guildford, 7/11 Bridge Street Wickford, 12/20 High Street |
Retail Retail |
2,451 | 1,820 | 0.7% |
| Swindon, Unit 5, Newcombe Drive | Industrial | 1,310 1,280 |
1,600 1,170 |
0.6% 0.4% |
| Marlow, Globe Park, Unit GP9 | Offices | 3,796 | 1,150 | 0.4% |
| Fifty largest property holdings | 285,647 | 273,730 | 100.6% | |
| Southend, 49/57 High Street Middlesbrough, 47/49 Linthorpe Road |
Retail Retail |
1,200 950 |
1,150 | 0.4% |
| Newbury, 25 Northbrook Street * | Retail | 630 | 925 500 |
0.4% 0.2% |
| Rochdale, 40 Yorkshire Street | Retail | 730 | 300 | $0.1\%$ |
| Market value of property portfolio | 289,157 | 276,605 | 101.7% | |
| Unamortised lease incentives | (5, 542) | $(2.0)\%$ | ||
| Balance sheet carrying value | 271,063 | 99.7% | ||
| Net current assets | 938 | 0.3% | ||
| Total assets less current liabilities | 272,001 | 100.0% |
*Leasehold property
is a resident of Guernsey and chairman of the Guernsey Housing Association LBG, RAB Special Situations Company Limited, Quintain (Guernsev) Limited and
Squarestone Brasil Limited. He is also a non-executive director of other property investment funds.
was appointed as a Director on 11 April 2013 and is a resident of Guernsey. co-founder $He$ is and managing director of Asset Risk Consultants Limited, investment consulting an
practice. He is a non-executive director of a number of investment and asset management companies.
is a UK resident. He is a chartered surveyor and was, until 1 January 2006, deputy senior partner of Cushman & Wakefield Healey & Baker. He joined one of its predecessor firms in 1972
and was head of the firm's investment group for twelve years until the end of 2002. He advises a number of institutions on property matters and is also a non-executive director of Helical Bar plc and McKay Securities plc, which are listed property companies.
Chairman of the Audit Committee
was appointed as a Director on 11 April 2013 and is a UK resident. He is a qualified chartered accountant and was, until 2003, an executive
director of Brewin Dolphin Holdings plc with responsibility for corporate finance. Prior to joining Brewin Dolphin, he worked as a corporate financier for many years. He is a non-executive director of a number of companies.
is a resident of Guernsey. He worked with the Financial Times for thirteen vears before becoming a Far East Regional Strategist for Smith New Court Securities in 1990. In 1993 he joined
Schroders in the Channel Islands as investment director of Schroders (C.I.) Limited and was managing director from April 2000 to January 2004. He continued as a non-executive director of Schroders (C.I.) Limited before standing down at the end of 2008. He is non-executive chairman of Goldman Sachs Dynamic Opportunities, a London listed company and he is also a non-executive director of various other investment companies.
All directors are non-executive directors of F&C UK Real Estate Investments Limited.
The Directors present the report and accounts of F&C UK Real Estate Investments Limited, ('the Group') (formerly IRP Property Investments Limited) for the year ended 30 June 2013.
The results for the year are set out in the attached accounts.
The Company has paid interim dividends in the year ended 30 June 2013 as follows:
| date | Payment Rate per share |
|
|---|---|---|
| Fourth interim for | ||
| prior year | 28 September 2012 | 1.8p |
| First interim | 28 December 2012 | 1.8p |
| Second interim | 28 March 2013 | 1.8p |
| Third interim | 28 June 2013 | 1.8p |
It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not therefore recommend a final dividend. A fourth interim dividend of 1.25p was paid on 27 September 2013 to shareholders on the register on 13 September 2013. There was a deficit on revenue reserves after the payment of dividends of 1.0p per share.
The Company is an authorised closed ended Guernsey-registered company and during the year carried on business as a property investment company.
The Company has a wholly-owned subsidiary, F&C UK Real Estate Finance Limited, which wholly owns IRP Holdings Limited and IPT Property Holdings Limited which hold and manage the investment properties.
The Board of Directors is responsible for the overall stewardship of the Group, including investment and dividend policies, corporate strategy, corporate governance, and risk management. As set out in the Directors' Responsibility Statement on page 22 the Board is also responsible for the preparation of the Annual Report and financial statements for each financial period. Biographical details of the Directors, all of whom are non-executive, can be found on page 13. The Company has no executive Directors or employees.
In April this year the Company completed the acquisition of the entire assets of ISIS Property Trust Limited ("IPT"). This was affected through a Scheme of Reconstruction through which IPT Shareholders received New Shares issued by the Company on a NAV for NAV basis. The combination of these complementary property businesses resulted in the
enlarged Group which was renamed F&C UK Real Estate Investments Limited ('FCRE'), having a market capitalisation of £151 million at the year end.
The Company has experienced continued market demand for its shares and subsequent to the year end has issued 5 million Ordinary Shares of 1 pence each at a price of 73.5 pence per share, a 2.5 per cent premium to the latest published net asset value, as at 30 June 2013. This is the Company's first tap issue since inception.
The Group's investment objective is to provide ordinary shareholders with an attractive level of income together with the potential for income and capital growth from investing in a diversified UK commercial property portfolio.
The Group holds a diversified portfolio of freehold and predominantly long leasehold (over 60 years remaining at the time of acquisition) UK commercial properties. It invests principally in three commercial property sectors: office, retail (including retail warehouses) and industrial.
The Group invests predominantly in income producing investments. Investment decisions are based on analysis of, amongst other things, prospects for future income and capital growth, sector and geographic prospects, tenant covenant strength, lease length, initial and equivalent vields and the potential for development or redevelopment of the property. The Group will not invest in other investment companies or funds.
Investment risks are spread through investing in a range of geographical areas and sectors, and through letting properties, where possible, to low risk tenants. The Group has not set any maximum geographic exposures, but the maximum weightings in the principal property sectors (stated as a percentage of total assets) are: office: 60 per cent; retail: 60 per cent; and industrial: 50 per cent. No single property may exceed 15 per cent of total assets* and the five largest properties may not exceed 45 per cent of total assets.* Income receivable from any one tenant, or tenants within the same group, in any one financial year shall not exceed 20 per cent of the total rental income of the Group in that financial year. At least 90 per cent by value of properties held shall be in the form of freehold, feuhold or long leasehold (over 60 years remaining at the time of acquisition) properties or the equivalent.
The Group uses gearing to enhance returns over the long term. Gearing, represented by borrowings as a percentage of investment properties, may not
*applicable only on acquisition or disposal of a property. does not apply to lettings to the Government of the United Kingdom. exceed 60 per cent. However, it is the Board's present intention that borrowings will be limited to a maximum of 40 per cent of total assets at the time of borrowing. The Board receives recommendations on gearing levels from the Manager and is responsible for setting the gearing range within which the Manager may operate. The Group's borrowings are represented by a £112 million bank loan, which is described in more detail in note 13 to the accounts. The gearing level as at 30 June 2013 was 38.0 per cent of total assets.
At each Board meeting, the Board receives a detailed presentation from the Manager together with a comprehensive analysis of the performance of the Group and compliance with investment restrictions during the reporting period. An analysis of how the portfolio was invested as at 30 June 2013 is contained within the Manager's Review on pages 6 to 9 and a full portfolio listing is provided on page 12.
The Group's assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also the particular circumstances of the properties in which it is invested and their tenants. More detailed explanations of these risks and the way in which they are managed are contained under the headings of Credit Risk, Liquidity Risk and Interest Rate Exposure and Market Price Risk in note 18 to the accounts. The Manager also seeks 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.
Other risks faced by the Group include the following:
misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of requlations.
Operational - failure of the Manager's accounting systems or disruption to the Manager's business. or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.
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 Group's property portfolio, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council. The Group's internal controls are described in more detail on pages 18 and 19.
The Board and the Manager recognise the importance of the share price relative to net asset value in maintaining shareholder value. The Manager meets with current and potential new shareholders, and with stockbroking analysts who cover the investment trust sector, on a regular basis. In addition, communication of quarterly portfolio information is provided through the Group's website.
A review of the Group's returns during the financial year, the position of the Company at the year-end, and the outlook for the coming year is contained in the Chairman's Statement and the Manager's Review.
The Board uses a number of performance measures to assess the Group's success in meeting its objectives. The key performance indicators are as follows:
Performance against these indicators is contained in the Financial Highlights on page 1, the Chairman's Statement on pages 2 to 4 and/or in the Historic Record on page 48.
The Chairman's Statement contains an outlook for the property market and the future strategy of the Group.
The Directors who held office during the year and their interests in the shares of the Company as at 30 June (all of which were beneficial) were:
| 2013 Ordinary shares |
2012 Ordinary shares |
|
|---|---|---|
| Q Spicer | 220,000 | 220,000 |
| A F. G. Gulliford | 144,030 | 144,030 |
| C W Sherwell | 20,000 | 20,000 |
| C P Spencer (1) | n/a | 38,000 |
| C G H Weaver (1) | n/a | 50,000 |
| $V$ Lall (2) | 137,265 | n/a |
| G M Harrison (2) | 22,895 | n/a |
| M S Soames (3) | n/a | n/a |
(1) Retired from the Board on 11 April 2013.
(2) Appointed to the Board on 11 April 2013.
(3) Served on the Board from 11 April 2013, until his death on 2 June 2013.
Between 30 June 2013 and 4 October 2013 there were no changes to Directors' shareholdings.
The Directors are also directors of F&C UK Real Estate Finance Limited and its subsidiary undertakings IRP Holdings Limited and IPT Property Holdings Limited.
As explained in more detail under Corporate Governance on pages 16 to 18, the Board has agreed that all the Directors will retire annually. Accordingly Mr Spicer, Mr Gulliford and Mr Sherwell will retire at the Annual General Meeting and, being eligible, will offer themselves for re-election. Mr Lall and Mr Harrison will also retire at the first Annual General Meeting following their appointment, and will offer themselves for re-election. The Board believes that, following internal performance evaluations, their performance continues to be effective and demonstrates commitment, and believes that it is therefore in the interests of shareholders that they are re-elected.
There are no service contracts in existence between the Company and any Director. Each of the Directors was appointed by a letter of appointment which sets out the main terms of his appointment.
F&C Investment Business Limited provides investment management services to the Group. Details of the agreement between the Group and F&C Investment Business Limited in respect of management services provided is given in note 3 to the accounts.
The Board keeps under review the appropriateness of the Manager's appointment. In doing so the Committee considers the investment performance of the Group and the capability and resources of the deliver satisfactory Manager to investment
performance. It also considers the length of the notice period of the investment management contract and the fees payable to the Manager, together with the standard of the other services provided.
The Directors are satisfied with the Manager's ability to deliver satisfactory investment performance, and the quality of other services provided. It is therefore their opinion that the continuing appointment of the Manager on the terms agreed is in the best interests of shareholders.
As at 30 June 2013 there were 208,050,491 ordinary shares of 1 pence each in issue. Subject to the Articles of Incorporation, all shares rank equally for dividends and distributions and carry one vote each and there are no restrictions concerning the transfer of ordinary shares in the Company. No agreements between the holders of ordinary shares regarding their transfer is known to the Company and there is no agreement which the Company is party to that affects its control following a take over bid.
At 30 June 2013 the following holdings representing more than 3 per cent of the Company's issued share capital had been notified to the Company.
| Number of ordinary shares Held |
Percentage Held + |
|
|---|---|---|
| F&C Asset Management | 36,971,948 | 17.8 |
| Lloyds Banking Group plc* | 22,612,765 | 10.9 |
| Deutsche Bank AG* | 14,551,235 | 70 |
* Included within these holdings are 5,000,000 shares owned by Deutsche Bank AG but managed by Lloyds Banking Group plc.
Since 30 June 2013, the Company has issued 5 million Ordinary Shares which has increased the number of shares in issue to 213,050,491. Between 30 June 2013 and 4 October 2013, Lloyds Banking Group plc reduced its holdings in the Company to 18,687,865 representing 8.8 per cent of voting rights and Deutsche Bank AG reduced its holding to 12,290,028 representing 5.8 per cent of voting rights (based on 213,050,491 Ordinary Shares in issue as at 4 October 2013).
The Company is obliged to comply with the UK Corporate Governance Code issued by the Financial Reporting Council in June 2010, or explain any non compliance. It has always been the Company's policy to comply with best practice on corporate governance and it has in place a framework for corporate governance which it believes is suitable for an investment company.
The Board has also considered the principles and recommendations of the Association of Investment Companies Code of Corporate Governance (the "AIC Code") and follows the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide") which complements the UK Corporate Governance Code, and provides a framework of best practice for investment companies.
The AIC Code and the AIC Guide are available on the AIC's website, www.theaic.co.uk. The UK Corporate Governance Code is available on the website, Financial Reporting Council's www.frc.org.uk.
The Board considers that it is appropriate to report against the principles and recommendations of the AIC Code and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code).
The Board has considered the amendments to the UK Corporate Governance Code which apply to accounting periods beginning on or after 1 October 2012. It is the intention of the Board that, except for the matters disclosed below, that the Group will comply fully with the Code throughout the year ended 30 June 2014.
Since all the Directors are non-executive, in accordance with the AIC Code and the preamble to the UK Corporate Governance Code, the provisions of the UK Corporate Governance Code on the role of the chief executive (Section A) and, except in so far as they apply to non-executive Directors, on Directors' remuneration. (Section D) are not relevant to the Company, and are not reported on further.
The Guernsey Financial Services Commission issued a Finance Sector Code of Corporate Governance ('the GFSC Code') which came into effect on 1 January 2012. As the Company already reports against the AIC Code and the UK Corporate Governance Code it is deemed that it has met the requirements of the GFSC Code and has therefore not reported further on its compliance with that code. The GFSC Code is available on the Guernsey Financial Services Commission's website, www.gfsc.gg.
The Company's Articles of Association require all Directors to retire by rotation at least every three However, in accordance with the vears. recommendations of the AIC Code and the UK Corporate Governance Code, the Board has agreed that all Directors will retire annually and, if appropriate, seek re-election. The Board's policy on tenure is that continuity and experience are considered to add significantly to the strength of the Board and, as such, no limit on the overall length of service of any of the Company's Directors, including the Chairman has been imposed. Mr Spicer, Mr Sherwell and Mr Gulliford will have served on the Board in excess of nine years at the next Annual General Meeting. The Board does not consider that length of service affects the ability of each Director to act independently and also considers that each
Director is independent in character and judgement. The Board do not consider it appropriate for a Senior Independent Director to be appointed as recommended by provision 4.1 of the AIC Code.
The Board consists solely of non-executive Directors of which Mr Q Spicer is Chairman. All Directors are considered by the Board to be independent, (as defined by the AIC Code), of the Group's Manager as at 30 June 2013. New Directors will receive an induction from the Manager and Secretary on joining the Board, and all Directors receive other relevant training as necessary.
The basis on which the Group aims to generate value over the longer term is set out in its objective, investment policy and strategy as contained within the Business Review on pages 14 and 15. A management agreement between the Group and its Manager sets out the matters over which the Manager has authority and the limits beyond which Board approval must be sought. All other matters, including strategy, investment and dividend policies, gearing and corporate governance procedures, are reserved for the approval of the Board of Directors. The Board currently meets at least quarterly and receives full information on the Group's investment performance, assets, liabilities and other relevant information in advance of Board meetings.
Throughout the year a number of committees have been in operation. The committees are the Property Valuation Committee, the Audit Committee, the Management Engagement Committee and the Nomination Committee. The Committees operate within clearly defined terms of reference which are available for inspection on request.
The Property Valuation Committee, chaired by Mr A Gulliford, comprises the full Board and is convened for the purpose of reviewing the quarterly independent property valuation reports prior to their submission to the Board.
The Audit Committee, chaired by Mr V Lall, comprises all of the Directors. The duties of the Audit Committee in discharging its responsibilities include reviewing the Annual and Interim Accounts, the system of internal controls and the terms of appointment of the auditor together with its remuneration. It is also the forum through which the external auditor reports to the Board of Directors and meets at least twice yearly. The objectivity of the auditor is reviewed by the Audit Committee which also reviews the terms under which the external auditor is appointed to perform non-audit services. The Committee reviews the scope and results of the audit, its cost-effectiveness and the independence and objectivity of the external auditor, with particular regard to non-audit fees. Such fees amounted to £118,000 for the year ended 30 June 2013 (year ended 30 June 2012: £13,000) and related to the provision of taxation services, reviewing the interim report and services provided on the merger with ISIS Property Trust.
Notwithstanding such services the Audit Committee considers Ernst & Young LLP to be independent of the Group.
The Management Engagement Committee, chaired by Mr Q Spicer, comprises the full Board and reviews the appropriateness of the Manager's continuing appointment together with the terms and conditions thereof on a regular basis.
The Nomination Committee, chaired by Mr Q Spicer, comprises the full Board and is convened for the purpose of considering the appointment of additional Directors as and when considered appropriate. During the year the performance of the Board. committees and individual Directors was evaluated through an assessment process, led by the Chairman. The performance of the Chairman was evaluated by the other Directors.
Individual Directors may, at the expense of the Group, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Group maintains appropriate Directors' and Officers' liability insurance.
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, forecast rental income and other forecast cash flows. The Group has an agreement relating to its borrowing facility with which it has complied during the year. 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 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 Manager acquires, develops and manages properties on behalf of the Group. It is recognised that these activities have both direct and indirect environmental impacts.
The Board has endorsed the Manager's own environmental policy which is to work in partnership with contractors, suppliers, tenants and consultants to minimise those impacts, seeking continuous improvements in environmental performance and conducting regular reviews.
The Board is responsible for the Group's system of internal control and for reviewing its effectiveness. The Board has therefore established an ongoing process designed to meet the particular needs of the Group in managing the risks to which it is exposed, consistent with internal control quidance issued by the Financial Reporting Council. The process is based principally on the Manager's existing risk-based approach to internal control whereby a risk matrix is created that identifies the key functions carried out by the Manager and other service providers, the individual activities undertaken within those functions, the risks associated with each activity and the controls employed to minimise those risks. A residual risk rating is then applied. The risk matrix is regularly updated and the Board is provided with regular reports highlighting all material changes to the risk ratings and confirming the action which has been, or is being, taken. A formal annual review of these procedures is carried out by the Audit Committee and includes consideration of AAF (01/06) and similar reports issued by the Manager and other service providers.
Such review procedures have been in place throughout the year and up to the date of approval
The table below sets out the number of scheduled Board and Committee meetings attended by each Director during the year.
| Board Meetings Attended |
Property Valuation Committee Attended |
Audit Committee Attended |
Management Engagement Committee Attended |
Nomination Committee Attended |
|
|---|---|---|---|---|---|
| Q Spicer | З | З | |||
| A E G Gulliford | 3 | ||||
| C W Sherwell | |||||
| C P Spencer (1) | |||||
| C G H Weaver (1) | |||||
| G M Harrison (2) | |||||
| $V$ Lall (2) | |||||
| M S Soames (3) |
In addition to the scheduled meetings detailed above, there were a further 3 Board Meetings and 4 Board Committee meetings held in Guernsey during the year, attended by non UK resident Directors.
(1) Retired from the Board on 11 April 2013.
(2) Appointed to the Board on 11 April 2013.
(3) Served on the Board from 11 April 2013, until his death on 2 June 2013.
of the Annual Report, and the Board is satisfied with their effectiveness. These procedures are designed to manage rather than eliminate risk and, by their nature can only provide reasonable, but not absolute, assurance against material misstatement or loss.
At each Board meeting the Board monitors the investment performance of the Group in comparison to its stated objective and against comparable companies. The Board also reviews the Group's activities since the last Board meeting to ensure that the Manager adheres to the agreed investment policy and approved investment guidelines and, if necessary, approves changes to such policy and guidelines. In addition, at each Board meeting, the Board receives reports from the Secretary in respect of compliance matters and duties performed on behalf of the Group.
The Board has reviewed the need for an internal audit function. The Board has decided that the systems and procedures employed by the Manager and the Secretary, including their internal audit functions, provide sufficient assurance that a sound system of internal control, which safeguards the Group's assets, is maintained. An internal audit function specific to the Group is therefore considered unnecessary.
The Group proactively seeks the views of shareholders and places great importance on communication with them. The Board receives regular reports on the views of shareholders and the Chairman and other Directors are available to meet shareholders if required. The Notice of Annual General Meeting to be held on 19 November 2013 at 12 noon is set out on pages 46 and 47. It is hoped that this will provide a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors and Manager of the Company.
In accordance with the provisions of the Listing Rules, the directors of an overseas premium listed company are not permitted to allot new shares (or grant rights over shares) for cash without first offering them to existing shareholders in proportion to their existing holdings.
The Board therefore proposes a resolution at this year's Annual General Meeting which, if passed, will continue to disapply pre-emption rights.
Resolution 10 therefore, gives the Directors, for the period until the conclusion of the Annual General Meeting in 2014 or, if earlier, on the expiry of 15 months from the passing of Resolution 10, the necessary authority to either allot securities or sell shares held in treasury, otherwise than to existing shareholders on a pro-rata basis, up to an aggregate nominal amount of £213,050. This is equivalent to 10 per cent of the issued ordinary
share capital of the Company as at 4 October 2013. It is expected that the Company will seek this authority on an annual basis.
The Directors will only allot new shares pursuant to this authority if they believe it to be advantageous to the Company's shareholders to do so and in no circumstances that would result in a dilution to the published net asset value per share, at the time of the allotment.
The Group did not buy back any shares during the year.
Resolution 11, as set out in the notice of the Annual General Meeting, seeks renewed authority for the Company to make market purchases of up to 14.99 per cent of the issued ordinary share capital, such authority to last until the earlier of 31 December 2014 and the Annual General Meeting in 2014. Any buy back of ordinary shares will be made subject to Guernsey law and within any guidelines established from time to time by the Board and the making and timing of any buy backs will be at the absolute discretion of the Board. Purchases of ordinary shares will only be made through the market for cash at prices below the prevailing net asset value of the ordinary shares (as last calculated) where the Directors believe such purchases will enhance shareholder value. The price paid will not be less than the nominal value of 1p per share. Such purchases will also only be made in accordance with the rules of the UK Listing Authority which provide that the price to be paid must not be more than 5 per cent above the average of the middle market quotations for the ordinary shares for the five business days before the shares are purchased. Any shares purchased under this authority will be cancelled or held in treasury.
The Directors confirm that, so far as each of the Directors is aware, there is no relevant information of which the Company's auditor is unaware and the Directors have taken all the steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Ernst & Young LLP has expressed its willingness to continue in office as auditor and a resolution proposing its re-appointment will be submitted at the Annual General Meeting.
Q Spicer Director
G M Harrison Director
4 October 2013
Gmil
The Board's policy is that the remuneration of the Directors should reflect the experience of the Board as a whole, the time commitment required, and be fair and comparable with that of other similar companies. Furthermore, the level of remuneration should be sufficient to attract and retain the Directors needed to oversee the Group properly and to reflect its specific circumstances. It is intended that this policy will continue for the year ending 30 June 2014 and subsequent years.
The fees for the Directors are determined within the limit set out in the Articles of Incorporation. The present limit is an aggregate of £200,000 per annum. Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits.
The Board comprises only non-executive Directors and considers, at least annually, the level of the Directors' fees, in accordance with the UK Corporate Governance Code. Normally, the Company Secretary provides information on comparative levels of Directors' fees in advance of each review.
It is the Board's policy that Directors do not have service contracts and that each new Director is provided with a letter of appointment.
The terms of Directors' appointments provide that Directors should retire and be subject to election at the first Annual General Meeting after their appointment. However, in accordance with the recommendations of the UK Corporate Governance Code, the Board has agreed that all Directors will retire annually. There is no notice period and no provision for compensation upon early termination of appointment.
| Director | Date of Appointment |
Due date for Re-election |
|---|---|---|
| Q Spicer | 12/05/2004 | AGM 2013 |
| A E G Gulliford | 12/05/2004 | AGM 2013 |
| C W Sherwell | 12/05/2004 | AGM 2013 |
| V Lall | 11/04/2013 | AGM 2013 |
| G M Harrison | 11/04/2013 | AGM 2013 |
The Board is responsible for the Group's investment strategy and performance, although the management of the Group's investment portfolio is delegated to the Manager through the investment management agreement. The graph below compares, for the five financial years ended 30 June 2013, the total return (assuming all dividends are reinvested) to ordinary shareholders compared with the total return on a notional investment from the IPD Quarterly Universe. This index was chosen as it is considered a comparable index. An explanation of the performance of the Group for the year ended 30 June 2013 is given in the Chairman's Statement and Manager's Review.
The Directors who served during the year received the following emoluments in the form of fees:
| 2013 £ |
2012 £ |
|
|---|---|---|
| Q Spicer | 30,000 | 30,000 |
| A E G Gulliford | 25,000 | 25,000 |
| C W Sherwell | 25,000 | 25,000 |
| C P Spencer (1) | 19,520 | 25,000 |
| C G H Weaver (1) | 19,520 | 25,000 |
| G M Harrison (2) | 5.479 | |
| $V \mid \textit{all}^{(2)}$ | 5,699 | |
| M S Soames (3) | 3,562 | |
| Total | 133,780 | 130,000 |
An ordinary resolution for the approval of this report will be put to shareholders at the forthcoming Annual General Meeting.
On behalf of the board
Q Spicer Director
G M Harrison Director
4 October 2013
Gonne.
(1) Retired from the Board on 11 April 2013.
(2) Appointed to the Board on 11 April 2013.
(3) Served on the Board from 11 April 2013, until his death on 2 June 2013.
The Directors are responsible for preparing the Report of the Directors and the financial statements in accordance with applicable law and requlations.
Guernsey company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the EU and applicable law.
The financial statements are required by law to give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.
In preparing these financial statements, the Directors are required to:
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irreqularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors Report (including a Business Review) and Corporate Governance Statement that comply with these laws and those regulations.
We confirm that to the best of our knowledge:
On behalf of the Board Q Spicer Chairman
4 October 2013
We have audited the Group financial statements (the 'financial statements') of F&C UK Real Estate Investments Limited for the year ended 30 June 2013 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and the related notes 1 to 22. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Group's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Group's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group and the Group's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Directors' Responsibility Statement set out on page 22, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the
financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion the financial statements:
We have nothing to report in respect of the matters set out below.
Under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the company's compliance with the provisions of the 2010 UK Corporate Governance Code1 specified for our review.
Michael Bane For and on behalf of Ernst & Young LLP Recognised Auditors Guernsey Channel Islands 4 October 2013
The UK Corporate Governance Code was issued in May 2010 and applies to financial years beginning on or after 29 June 2010.
| Notes | 2013 £'000 |
2012 £'000 |
|---|---|---|
| 13,791 | 11,788 | |
| 13,791 | 11,788 | |
| $\mathrel{\mathsf{g}}$ | (4, 313) | (2,483) |
| 9,478 | 9,305 | |
| 3 | (1, 242) | (1, 137) |
| $\overline{4}$ | (746) | |
| $\overline{4}$ | (1, 204) | (1, 253) |
| (3, 192) | (2,390) | |
| 6,286 | 6,915 | |
| 15 | 12 | |
| 5 | (4, 222) | (3, 453) |
| (4, 207) | (3, 441) | |
| 2,079 | 3,474 | |
| 6 | (479) | (303) |
| 1,600 | 3,171 | |
| 3,783 | (2, 515) | |
| 5,383 | 656 | |
All items in the above statement derive from continuing operations.
All of the profit for the year is attributable to the owners of the Company.
| as at 30 June | Notes | 2013 £'000 |
2012 £'000 |
|---|---|---|---|
| Non-current assets | |||
| Investment properties | 9 | 271,063 | 160,310 |
| 271,063 | 160,310 | ||
| Current assets | |||
| Trade and other receivables | 11 | 6,362 | 3,133 |
| Cash and cash equivalents | 12 | 5,775 | 1,396 |
| 12,137 | 4,529 | ||
| Total assets | 283,200 | 164,839 | |
| $\epsilon$ | |||
| Non-current liabilities | |||
| Interest-bearing bank loan | 13 | (112,998) | (65, 423) |
| Interest rate swap | 13 | (9,888) | (8,825) |
| (122, 886) | (74, 248) | ||
| Current liabilities | |||
| Trade and other payables | 14 | (6, 181) | (3,623) |
| Income tax payable | (472) | (170) | |
| Interest rate swap | 13 | (4, 546) | (2,613) |
| (11, 199) | (6, 406) | ||
| Total liabilities | (134, 085) | (80, 654) | |
| Net assets | 149,115 | 84,185 | |
| Represented by: | |||
| Share capital | 15 | 2,081 | 1,105 |
| Special distributable reserve | 153,929 | 89,445 | |
| Capital reserve | 760 | 5,073 | |
| Other reserve | (7,655) | (11, 438) | |
| Equity shareholders' funds | 149,115 | 84,185 | |
| Net asset value per share | 16 | 71.7p | 76.2p |
The accounts on pages 24 to 45 were approved and authorised for issue by the Board of Directors on 4 October 2013 and signed on its behalf by:
Q Spicer, Director
Lynul
CM Harrison, Director
for the year ended 30 June 2013
| At 30 June 2013 | 2,081 | 153,929 | 760 | (7,655) | 149,115 | ||
|---|---|---|---|---|---|---|---|
| Transfer of net deficit for year | (2,043) | $\sim$ | 2,043 | ||||
| Transfer in respect of losses on investment properties | (4, 313) | - | 4,313 | ||||
| Dividends paid | - | (7,956) | (7,956) | ||||
| Issue of ordinary shares on merger | 976 | 66,527 | $\sim$ | 67,503 | |||
| Total comprehensive income for the year | - | 3,783 | 1,600 | 5,383 | |||
| Other comprehensive gains | 3,783 | - | 3,783 | ||||
| Profit for the year | $\qquad \qquad$ | 1,600 | 1,600 | ||||
| At 1 July 2012 | 1,105 | 89,445 | 5,073 | (11, 438) | 84,185 | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Capital | Reserve | Reserve | Reserve | Reserve | Total | ||
| Share Distributable | Capital | Other | Revenue | ||||
| Special |
| 84,185 | (11, 438) | 5,073 | 89,445 | 1,105 | At 30 June 2012 | ||
|---|---|---|---|---|---|---|---|
| 2.302 | - | (2,302) | Transfer of net deficit for year | ||||
| 2,483 | - | (2,483) | Transfer in respect of losses on investment properties | ||||
| (7,956) | (7,956) | - | 7 | Dividends paid | |||
| 656 | 3,171 | (2,515) | - | Total comprehensive income for the year | |||
| (2, 515) | - | (2,515) | - | Other comprehensive losses | |||
| 3,171 | 3,171 | Profit for the year | |||||
| 91,485 | (8,923) | 7,556 | 91,747 | 1,105 | At 1 July 2011 | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | Notes | |
| Total | Reserve | Reserve | Reserve | Reserve | Capital | ||
| Revenue | Other | Capital | Share Distributable | ||||
| Special |
| for the year ended 30 June | Notes | 2013 £'000 |
2012 £'000 |
|
|---|---|---|---|---|
| Cash flows from operating activities | ||||
| Net profit for the year before taxation | 2,079 | 3,474 | ||
| Adjustments for: | ||||
| Losses on investment properties | 4,313 | 2,483 | ||
| Decrease in operating trade and other receivables | 1,619 | 337 | ||
| Decrease in operating trade and other payables | (1,646) | (181) | ||
| Interest received | (15) | (12) | ||
| Finance costs | 4,222 | 3,453 | ||
| 10,572 | 9,554 | |||
| Taxation paid | (177) | (216) | ||
| Net cash inflow from operating activities | 10,395 | 9,338 | ||
| Cash flows from investing activities | ||||
| Purchase of investment properties | 9 | (3,359) | ||
| Capital expenditure | 9 | (329) | (160) | |
| Sale of investment properties | 9 | 1,522 | ||
| Cash transferred on merger | $\mathfrak{p}$ | 658 | ||
| Interest received | 15 | 12 | ||
| Net cash inflow/(outflow) from investing activities | 1,866 | (3,507) | ||
| Cash flows from financing activities | ||||
| Dividends paid | (7,956) | (7,956) | ||
| Bank loan interest paid | (698) | (760) | ||
| Payments under interest rate swap arrangement | 5 | (3,228) | (2,650) | |
| Bank loan drawn down | 4,000 | 5,000 | ||
| Net cash outflow from financing activities | (7, 882) | (6, 366) | ||
| Net increase/(decrease) in cash and cash equivalents | 4,379 | (535) | ||
| Opening cash and cash equivalents | 1,396 | 1,931 | ||
| Closing cash and cash equivalents | 5,775 | 1,396 |
for the year ended 30 June 2013
A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.
The consolidated accounts have been prepared and approved in accordance with International Financial Reporting Standards ('IFRS') issued by, or adopted by, the International Accounting Standards Board (the IASB), interpretations issued by the IFRS Interpretations Committee, as adopted by the EU, applicable legal and regulatory requirements of the Companies (Guernsey) Law, 2008 and the Listing Rules of the UK Listing Authority.
The financial statements have been prepared on the historical cost basis except for investment properties and the interest rate swap which are measured at fair value.
The notes and financial statements are presented in pounds sterling (presentational currency) and are rounded to the nearest thousand except where otherwise indicated.
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenue and expenses during the period. The nature of the estimation means that actual outcomes could differ from those estimates. Significant estimates and assumptions are made in the valuation of investment properties held. Further information on the valuation, market risk and sensitivity to market changes are detailed in note 1(f) and note 9.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 9.
The accounting policies adopted are consistent with those of the previous financial year, except that the following amendments to existing standards have been adopted in the current year:
(vi) New Standards and interpretations not yet adopted The following new standards have been issued but are not effective for this accounting period and have not been adopted early:
The impact of the adoption of the above mentioned standards/interpretations on the financial statements of the Group is still being assessed. Other standards and interpretations have been issued by the IASB but they are not considered relevant for the purpose of the Group.
for the year ended 30 June 2013
The consolidated accounts comprise the accounts of the Company and its subsidiaries drawn up to 30 June each year. The financial statements of the subsidiaries are prepared for the same accounting period as the parent company, using consistent accounting policies.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
Rental income, excluding VAT, arising on investment properties is accounted for in the Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term of ongoing leases. Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.
Interest income is accounted for on an accruals basis using the effective interest method.
Expenses are accounted for on an accruals basis. The Group's investment management and administration fees, finance costs and all other expenses are charged through the Consolidated Statement of Comprehensive Income.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the Consolidated Statement of Comprehensive Income. Positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation are periodically evaluated and provisions established where appropriate.
Deferred income tax is provided using the liability method on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. In determining the expected manner of realisation of an asset the directors consider that the Group will recover the value of investment property through sale. Deferred income tax relating to items recognised directly in equity is recognised in equity and not in the Consolidated Statement of Comprehensive Income.
Investment properties consist of land and buildings (principally offices, commercial warehouses and retail property) which are not occupied for use by, or in the operations of, the Group, nor for sale in the ordinary course of business, but are held to earn rental income together with the potential for capital and income growth.
Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period incurred and included within the book cost of the property.
After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in the Consolidated Statement of Comprehensive Income. Fair value is based on the open market valuation provided by DTZ Debenham Tie Leung Limited, chartered surveyors, at the balance sheet date using recognised valuation techniques suitably adjusted for unamortised lease incentives and lease surrender premiums. These techniques comprise both the Yield Method and the Discounted Cash Flow Method. In some cases, the fair values are determined based on recent real estate transactions with similar characteristics and location to those of the Group's assets.
The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. In addition, development risks (such as construction and letting risks) are also taken into consideration when determining the fair value of investment properties under construction. These estimates are based on local market conditions existing at the balance sheet date.
The Traditional Method converts anticipated future cash flow benefits in the form of rental income into present value. This approach requires careful estimation of future benefits and application of investor yield or return requirements. One approach to value the property on this basis is to capitalise net rental income on the basis of an Initial Yield, generally referred to as the 'All Risks Yield' approach or 'Net Initial Yield' approach.
The Discounted Cash Flow Method involves the projection of a series of periodic cash flows either to an operating property or a development property. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish an indication of the present value of the income stream associated with the property. The calculated periodic cash flow is typically estimated as gross income less vacancy and collection losses and less operating expenses/outgoings, A series of periodic net operating incomes, along with an estimate of the reversion/terminal/exit value (which uses the traditional valuation approach) anticipated at the end of the projection period, are discounted to present value. The aggregate of the net present values equals the market value of the property.
Investment properties held under finance leases and leased out under operating leases are classified as investment property and stated at fair value.
On derecognition, realised gains and losses on disposals of investment properties are recognised in the Consolidated Statement of Comprehensive Income and transferred to the Capital Reserve.
Recognition and derecognition generally occurs on the exchange of signed contracts between a willing buyer and a willing seller.
The Group uses derivative financial instruments to hedge its risk associated with interest rate fluctuations. The Group's policy is not to trade in derivative instruments.
Derivative instruments are initially recognised in the Balance Sheet at their fair value. Fair value is determined by the Directors using evidence provided by Lloyds TSB Bank Plc who use a model for the valuation. Transaction costs are expensed immediately.
The effective portion of the gains or losses arising on the fair value of cash flow hedges in the form of derivative instruments are taken directly to other comprehensive income, while any ineffective portion is recognised immediately in the Consolidated Statement of Comprehensive Income. Amounts recognised in other comprehensive income are taken to a reserve created specifically for that purpose, described as the Other Reserve in the Balance Sheet.
On maturity, early redemption and if the forecast transaction is no longer expected to occur, the unrealised gains or losses arising from cash flow hedges in the form of derivative instruments, initially recognised in the Statement of Changes in Equity, are reclassified to the Consolidated Statement of Comprehensive Income.
The Group considers its interest rate swap qualifies for hedge accounting when the following criteria are satisfied:
Incremental external costs directly attributable to an equity transaction that would have otherwise been avoided are written off against the special reserve.
for the year ended 30 June 2013
Cash and cash equivalents consist of cash in hand at bank and short-term deposits in banks with an original maturity of three months or less.
Trade receivables, which are generally due for settlement at the relevant quarter end, are recognised and carried at the original invoice amount less an allowance for any uncollectible amounts. A provision for doubtful debts is made when amounts are more than three months old unless there is certainty of recovery. Bad debts are written off when identified. Reverse lease surrender premiums and other incentives provided to tenants are recognised as an asset and amortised over the period from the date of lease commencement to the earliest termination date.
All bank loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of arrangement costs associated with the borrowing. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any loan arrangement costs and any discount or premium on settlement.
Borrowing costs directly attributable to the acquisition or construction of a qualifying asset are capitalised. Otherwise, they are expensed in the period incurred.
On maturity bank loans are recognised at par, which is equivalent to amortised cost. Bank loans redeemed before maturity are recognised at amortised cost with any charges associated with early redemption being taken to the Consolidated Statement of Comprehensive Income.
The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases, which recognise rental income over the life of the lease and property.
Under the Company's Articles of Incorporation, the Company may issue an unlimited number of Ordinary Shares. Subject to the solvency test contained in the Companies (Guernsey) Law, 2008 being satisfied, ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the Company. All Ordinary Shares carry equal voting rights.
The special reserve is a distributable reserve to be used for all purposes permitted under Guernsey law, including the buy back of shares and the payment of dividends.
The surplus of net proceeds received from the issue of new ordinary shares over the nominal value of such shares, is credited to this account. The nominal value of the shares issued is recognised in share capital.
The following are accounted for in this reserve:
gains and losses on the disposal of investment properties
increases and decreases in the fair value of investment properties held at the year-end.
The following are accounted for in this reserve:
Any surplus arising from the net profit on ordinary activities after taxation, after adding back capital gains or losses and after payment of dividends, is taken to this reserve, with any deficit charged to the special reserve.
The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group considers whether the acquisition represents the acquisition of a business. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property. More specifically, consideration is made of the extent to which significant processes are acquired and, in particular, the extent of ancillary services provided by the subsidiary.
In April this year the Company completed the 100 per cent acquisition of ISIS Property Trust Limited ('IPT') (referred to hereafter as the merger). This was affected through a Scheme of Reconstruction through which IPT Shareholders received New Shares issued by the Company on a NAV for NAV basis. The combination of these complementary property businesses resulted in the enlarged Group which was renamed F&C UK Real Estate Investments Limited ('FCRE'), having a market capitalisation of £151 million at the year end. We believe that this has enhanced liquidity in the shares and increased the attractiveness of the enlarged Group.
Net assets of the Group set out below have been prepared to show the effect of the transaction, following the acquisition of the entire trading assets and liabilities of IPT by the Group on 11 April 2013 at fair value. Other Adjustments shown below of £746,000 are the actual expenses of the merger which have been deducted from the cash balance at the year end and charged against expenses in the Statement of Comprehensive Income.
| Group's Net | ||||
|---|---|---|---|---|
| Assets (excluding | IPT's Net | |||
| IPT) as at | Assets as at | |||
| 11 April | 11 April | Other | ||
| 2013 | 2013 | Adjustments | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Non-current assets | ||||
| Investment properties | 155,149 | 116,259 | 271,408 | |
| Current assets | ||||
| Trade and other receivables | 3,046 | 4,847 | 7,893 | |
| Cash and cash equivalents | 2,653 | 658 | (746) | 2,565 |
| 5,699 | 5,505 | (746) | 10,458 | |
| Total assets | 160,848 | 121,764 | (746) | 281,866 |
| Non-current liabilities | ||||
| Interest-bearing bank loan | (68, 441) | (43, 279) | (111, 720) | |
| Interest rate swap | (7, 402) | (4,936) | (12, 338) | |
| (75, 843) | (48, 215) | - | (124, 058) | |
| Current liabilities | ||||
| Trade and other payables | (5, 772) | (4, 204) | (9,976) | |
| Interest rate swap | (2,766) | (1, 842) | (4,608) | |
| (8,538) | (6,046) | (14, 584) | ||
| Total liabilities | (84, 381) | (54, 261) | (138, 642) | |
| Net assets | 76,467 | 67,503 | (746) | 143,224 |
| Shareholders' funds | 76,467 | 67,503 | (746) | 143,224 |
| Number of shares in issue as at 11 April 2013 | 110,500,000 |
|---|---|
| Number of IPT shares in issue pre-merger | 75,650,000 |
| Conversion factor: | $1.2895*$ |
| New shares to be issued (adjusted for fractions) | 97.550.491 |
| Shares in issue following the merger | 208,050,491 |
* The conversion factor was calculated using the net asset value of both companies as at 11 April 2013.
for the year ended 30 June 2013
| 2. Scheme of Reconstruction ('the Merger') (continued) | |
|---|---|
| Goodwill | £'000 |
| Fair Value of IPT Net assets as at 11 April 2013 | 67,503 |
| Fair Value of Net assets Transferred to Group | 67,503 |
| 97,550,491 shares issued to IPT shareholders at 69.2 pence per share (adjusted for fractions) | 67,503 |
| Goodwill | Nil |
The Statement of Comprehensive Income of the Group set out below has been prepared to show the effect that the transaction has had between the acquisition date on 11 April 2013 and the year end.
| Total per | |||
|---|---|---|---|
| Statement of | |||
| Group's Income | IPT's | Comprehensive | |
| (excluding IPT) | Income for period | Income | |
| for the year ended | 11 April 2013 to | for year ended | |
| 30 June 2013 | 30 June 2013 | 30 June 2013 | |
| £'000 | £'000 | £'000 | |
| Total Revenue | 11,664 | 2,127 | 13,791 |
| (Losses)/gains on investment properties | (5,001) | 688 | (4, 313) |
| Total Expenditure | (2,912) | (280) | (3, 192) |
| Net operating profit before finance costs | 3,751 | 2,535 | 6,286 |
| Net finance costs | (3,707) | (500) | (4,207) |
| Net profit from ordinary activities before taxation | 44 | 2,035 | 2,079 |
| Taxation on profit on ordinary activities | (320) | (159) | (479) |
| (Loss)/profit for the year | (276) | 1,876 | 1,600 |
The Statement of Comprehensive Income of the Group set out below has been prepared to show the effect that the transaction would have had if the acquisition of IPT had occurred at the start of the financial year.
| Group's Income | |||
|---|---|---|---|
| (excluding IPT) | IPT's Income for | Total Income | |
| for the year ended | year ended | for year ended | |
| 30 June 2013 | 30 June 2013 | 30 June 2013 | |
| £'000 | £'000 | £'000 | |
| Total Revenue | 11,664 | 8,734 | 20,398 |
| Losses on investment properties | (5,001) | (2,858) | (7, 859) |
| Total Expenditure | (2,912) | (1,282) | (4, 194) |
| Net operating profit before finance costs | 3,751 | 4.594 | 8,345 |
| Net finance costs | (3,707) | (2,251) | (5,958) |
| Net profit from ordinary activities before taxation | 44 | 2,343 | 2,387 |
| Taxation on profit on ordinary activities | (320) | (347) | (667) |
| (Loss)/profit for the year | (276) | 1,996 | 1,720 |
s k
| 2013 | ||
|---|---|---|
| £'000 | ||
| Investment management fee | 1.242 | .137 |
The fees of any managing agents appointed by the Manager are payable out of the investment management fee. From 11 April 2013, the Group's Manager receives a fee of 0.6 per cent per annum of the Total Assets (prior to 11 April 2013, the fee was 0.7 per cent per annum of Total Assets), including cash held provided that no fee is payable on any cash held in excess of 5 per cent of the net assets of the Group.
From 11 April 2013 a performance fee is payable equal to 15 per cent of the amount by which the total return of the Group's directly held properties exceeds 115 per cent of the total return on the Group's benchmark and multiplied by the Group's total assets. The Group's benchmark for direct property performance is the IPD total return on direct UK commercial property held by the quarterly index in the IPD universe. The performance fee therefore excludes the impact of cash and/or gearing.
The performance fee payable in each financial year is capped at an amount which, when taken with the aggregate base management fee payable in each financial year, equals 0.75 per cent of the average adjusted total assets of the Group. Performance fees in excess of this capped return can be carried forward for up to two subsequent financial years subject to the annual 0.75 per cent cap.
The performance fee is measured over a rolling three year period and the performance fee payable in respect of any one financial year is equal to the total performance fee earned over that three year period less any performance fees already paid in the previous two years. In the event that the amount already paid in the previous two years is in excess of the amount earned over the rolling three year period, such excess shall be repaid to the Group by the Managers. A performance fee is payable in the event of outperformance of the benchmark even if the total return is negative.
The Manager also receives an administration fee, which from 11 April 2013 was rebased to £100,000 per annum. This fee is recalculated from 1 July each year to reflect movements in the consumer price index.
The notice period in relation to the termination of the investment management agreement is six months by either party.
The investment management agreement may be terminated earlier provided that a payment in lieu of notice, equivalent to the amount the Investment Manager would otherwise have received during the notice period, is made.
| Year ended | Year ended | |
|---|---|---|
| 30 June | 30 June | |
| 2013 | 2012 | |
| £'000 | £'000 | |
| Direct operating expenses of let rental property | 398 | 440 |
| Direct operating expenses of vacant property | 91 | 120 |
| Bad debts | 43 | 108 |
| Valuation and other professional fees | 165 | 135 |
| Directors' fees | 134 | 130 |
| Administration fee payable to the Manager | 81 | 73 |
| Auditor's remuneration for: | ||
| - statutory audit | 50 | 37 |
| - interim review | 3 | 3 |
| - tax services | 20 | 10 |
| Other | 219 | 197 |
| 1,204 | 1,253 |
Expenses of the Merger amounted to £746,000. Of this amount £95,000 was paid to the auditor for tax advice and work performed as the reporting accountant.
The valuers, DTZ Debenham Tie Leung Limited provide valuation services in respect of the property portfolio. An annual fee equal to 0.0225 (2012: 0.0225) per cent of the aggregate value of the property portfolio was paid quarterly.
for the year ended 30 June 2013
| Year ended | Year ended | |
|---|---|---|
| 30 June | 30 June | |
| 2013 | 2012 | |
| £'000 | £'000 | |
| Interest on principal loan amount | 670 | 735 |
| Interest in respect of rate swap arrangement | 3,228 | 2,650 |
| Write-off of loan set up costs | 278 | |
| Amortisation of loan set up costs | 32 | 43 |
| Other interest/fees | 14 | 25 |
| 4,222 | 3,453 |
| Year ended | Year ended | |
|---|---|---|
| 30 June | 30 June | |
| 2013 | 2012 | |
| £'000 | £'000 | |
| Current income tax charge | 479 | 303 |
| Total tax charge | 479 | 303 |
A reconciliation of the income tax charge applicable to the results from ordinary activities at the statutory income tax rate to the charge for the year is as follows:
| Net profit before taxation | 2,079 | 3,474 |
|---|---|---|
| UK income tax at an effective rate of 20.0 per cent (2012: 20.0 per cent) | 416 | 695 |
| Effects of: | ||
| Capital losses on revaluation of investment properties not taxable | 863 | 497 |
| Income not taxable, including interest receivable | (3) | (2) |
| Expenditure not allowed for income tax purposes (including set-up costs) | 1,109 | 785 |
| Allowable inter company debt financing costs | (1, 962) | (1,670) |
| Deferred tax asset not provided for | (23) | (2) |
| Current year income tax charge | 400 | 303 |
| Tax relating to prior periods | 79 | |
| Total tax charge | 479 | 303 |
The Company is exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 (as amended) as a category B collective investment vehicle, as has its subsidiaries. A fixed annual tax exemption fee of £600 per company is payable to the States of Guernsey in respect of this. No charge to Guernsey taxation will arise on capital gains. At 30 June 2013, the Group provided for deferred tax at the rate of Guernsey tax (zero per cent) expected to apply on recovery of the carrying amount of its assets through sale.
The Directors intend to conduct the Group's affairs such that management and control is not exercised in the United Kingdom and so that neither the Company nor any of its subsidiaries carries on any trade in the United Kingdom. Accordingly, the Company and its subsidiaries will not be liable for United Kingdom taxation on their income or gains other than certain income deriving from a United Kingdom source, as described below.
The Company and its subsidiaries are subject to United Kingdom income tax at 20 per cent (the rate relevant to non-resident landlords) on rental income arising on the property portfolio after deduction of its allowable debt financing costs and other allowable expenses.
| Year ended | Year ended | |
|---|---|---|
| 30 June | 30 June 2012 |
|
| 2013 | ||
| £'000 | £'000 | |
| Dividends on Ordinary Shares: | ||
| Fourth interim for the prior year of 1.8 pence per share paid on | ||
| 28 September 2012 (2011: 1.8 pence) | 1,989 | 1,989 |
| First interim of 1.8 pence per share paid on 28 December 2012 (2011: 1.8 pence) | 1,989 | 1,989 |
| Second interim of 1.8 pence per share paid on 28 March 2013 (2012: 1.8 pence) | 1,989 | 1,989 |
| Third interim of 1.8 pence per share paid on 28 June 2013 (2012: 1.8 pence) | 1,989 | 1.989 |
| 7.956 | 7.956 |
A fourth interim dividend of 1.25 pence per share was paid on 27 September 2013 to shareholders on the register on 13 September 2013. Although this payment of £2,663,000 relates to the year ended 30 June 2013, under IFRS it will be accounted for in the year ending 30 June 2014.
The basic and diluted earnings per ordinary share are based on the net profit for the year of £1,600,000 (year ended 30 June 2012: £3,171,000) and on 132,148,191 (year ended 30 June 2012: 110,500,000) ordinary shares, being the weighted average number of shares in issue during the year.
| Year ended 30 June 2013 |
Year ended 30 June |
|
|---|---|---|
| 2012 | ||
| £'000 | £'000 | |
| Freehold and leasehold properties | ||
| Opening market value | 162,820 | 161,490 |
| Capital expenditure and purchase of investment properties | 329 | 3,519 |
| Investment properties transferred on merger | 116,259 | |
| Sales proceeds | (1, 522) | |
| Losses on investment properties | (4, 313) | (2,483) |
| Movement in lease incentive receivable | 3,032 | 294 |
| Closing market value | 276,605 | 162,820 |
| Adjustment for lease incentives | (5, 542) | (2,510) |
| Balance sheet carrying value | 271,063 | 160,310 |
All the Group's investment properties were valued as at 30 June 2013 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'). DTZ completed a valuation of Group investment properties at 30 June 2013 on an open market basis in accordance with the requirements of the Appraisal and Valuation Manual published by the RICS. Fair value is determined on a market value basis in accordance with International Valuation Standards (IVS), as set out by the International Valuation Standards Committee (IVSC). The valuation is prepared on an aggregated ungeared basis. It is also determined using market based evidence, which is the amount for which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction as at the valuation date. The critical assumptions made in valuing the properties are detailed in Note 1(f). The market value of these investment properties amounted to £276,605,000 (2012: £162,820,000), however an adjustment has been made for lease incentives of £5,542,000 (2012: £2,510,000) that are already accounted for as an asset.
The properties acquired from ISIS Property Trust Limited had a market value of £119,155,000 at the date of acquisition. An adjustment was made for lease incentives of £2,896,000 already accounted for as an asset.
The property valuer is independent and external to the Group and the Manager.
for the year ended 30 June 2013
The property valuer takes account of deleterious materials included in the construction of the investment properties in arriving at its estimate of open market valuation, when the Manager advises the presence of such materials. In arriving at their estimates of market values, the valuers have used their market knowledge and professional judgement and not only relied on historical transactional comparables.
The Group has entered into leases on its property portfolio as lessor (See note 20 for further information). No one property accounts for more than 6.8 per cent of total assets less current liabilities of the Group. The market values of the properties are shown on page 12. All leasehold investment properties have more than 60 years remaining on the lease term.
There are no restrictions on the realisability of the Group's investment properties or on the remittance of income or proceeds of disposal. However, the Group's investments comprise UK commercial property, which may be difficult to realise, as described in Liquidity risk, note 18. There is also uncertainty in respect of valuations as detailed in Market risk, note 18.
The Group is under no contractual obligations to purchase, construct or develop any investment property. The majority of leases are on a full repairing basis and as such the Group is not liable for costs in respect of repairs, maintenance or enhancements to such properties.
The Company owns 100 per cent of the issued ordinary share capital of F&C UK Real Estate Finance Limited ('FREF') 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.
In addition to its investment in the shares of IRPH, FREF had lent £128,330,000 to IRPH as at 30 June 2013 (2012: £128,330,000). The principal loan is repayable on 30 May 2014 and is unsecured. Interest is payable in arrears at a fixed rate of 7.65 per cent per annum or such other interest rate that may be agreed from time to time between IRPH and FREE.
In addition to its investment in the shares of IPTH, FREF had lent £87,382,000 to IPTH as at 30 June 2013. This loan is repayable on 10 October 2013 and is unsecured. Interest is payable quarterly in arrears at a fixed rate of 7.43 per cent per annum or such other interest rate that may be agreed from time to time between IPTH and FREF.
| Name of subsidiary undertaking | Class of share |
$%$ of class held |
Country of incorporation |
|---|---|---|---|
| F&C UK Real Estate Finance Limited | Ordinary | 100 | Guernsey |
| IRP Holdings Limited | Ordinary | 100 | Guernsey |
| IPT Property Holdings Limited | Ordinary | 100 | Guernsey |
The Company's holding represents all the voting rights of F&C UK Real Estate Finance Limited which holds all the voting rights of IRP Holdings Limited and IPT Property Holdings Limited.
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Rents receivable (net of provision for bad debts) | 524 | 457 |
| Other debtors and prepayments | 5,838 | 2,676 |
| 6,362 | 3,133 |
As at 30 June, the analysis of trade receivables per aged analysis is as follows:
| Total £'000 |
$<$ 30 days £'000 |
30-60 days £'000 |
£'000 | 60-90 days 90-120 days £'000 |
$>120$ days £'000 |
|
|---|---|---|---|---|---|---|
| 2013 | 674 | 527 | (3) | mo | - | 150 |
| 2012 | 662 | 316 | 62 | 280 |
Rents receivable, which are generally due for settlement at the relevant quarter end, are recognised and carried at the original invoice amount less an allowance for any uncollectible amounts. A provision for doubtful debts is made when the amounts are more than 3 months overdue unless there is certainty of recovery. The provision at 30 June 2013 is £150,000 which is the total amount receivable over 120 days per the above table (2012: £205,000).
Included within other debtors and prepayments is the prepayment for rent-free periods recognised over the life of the lease. At 30 June 2013 this amounted to £3,165,000 (2012: £1,725,000). The remaining balance within other debtors and prepayments consists of sundry debtors and the reverse lease surrender premium paid to Banbury, New Malden, Bracknell and St. Albans of £2,377,000 (2012: reverse lease surrender premium paid to Banbury of £785,000).
All cash balances were held in cash, current accounts or in banks on short term deposits with an original maturity of three months or less at the year-end.
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Facility | 115,000 | 75,000 |
| Opening loan drawn down | 65,000 | 60,000 |
| Loan drawn during the year pre-merger | 3,000 | 5,000 |
| Loan repaid on merger | (68,000) | |
| New loan drawn down on merger | 111,000 | |
| Loan drawn post-merger | 1,000 | |
| Set up costs | (100) | (427) |
| Accumulated amortisation of set up costs | 236 | |
| Accrued variable rate interest on bank loan | 1,098 | 614 |
| Total due | 112,998 | 65,423 |
The Company has a £115 million facility with Lloyds TSB Bank plc ('Lloyds'), of which £112 million is drawn down.
The bank loan is secured on the entire property portfolio of the Group. Under the bank covenants related to the loan, the Company is to ensure that at all times:
The Company met the covenant tests during the year.
Interest rate exposure has been hedged by the purchase of an interest rate swap contract. The hedge has been achieved by matching the notional amount of the swap with £100 million of the loan matching the swap term to the loan term.
Interest on the swap is receivable at a variable rate calculated on the same LIBOR basis as for the bank loan (as detailed below but excluding margins) and payable at a fixed rate of 5.77 per cent per annum.
for the year ended 30 June 2013
The fair value of the liability in respect of the interest rate swap contract at 30 June 2013 is £14,434,000 of which £4,546,000 is treated as a current liability (2012: £11,438,000 of which £2,613,000 is treated as a current liability). This is based on the marked to market value.
Interest accrues on the bank loan at a variable rate, based on LIBOR plus margin and mandatory lending costs and is payable quarterly. The LIBOR rate used is the screen rate available for sterling at 11 am on the date of commencement of each investment period of one month. The margin is 0.475 per cent per annum on a loan to value ratio between 40 and 50 per cent. The amount payable by the Company in respect of the variable LIBOR part of the bank loan is fixed at 5.77 per cent through an interest rate swap against £100 million of the loan. The additional £12 million of the loan drawn down pays interest at one month LIBOR plus 47.5 basis points based on a loan to value ratio between 40 and 50 per cent. Interest on the swap is payable quarterly. The interest rate swap expires on 10 January 2017. The loan is repayable on 10 January 2017.
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Rental income received in advance | 3,710 | 2,302 |
| VAT payable | 886 | 514 |
| Manager's fees payable | 438 | 302 |
| Other payables | 1,147 | 505 |
| 6,181 | 3,623 |
The Company's payment policy is to ensure settlement of supplier invoices in accordance with stated terms.
| Allotted, called-up and fully paid | |
|---|---|
| 110,500,000 Ordinary Shares of 1 pence each in issue at 30 June 2012 | 1.105 |
| Issue of 97,550,491 Ordinary Shares of 1 pence each on 11 April 2013 | 976 |
| 208,050,491 Ordinary Shares of 1 pence each in issue at 30 June 2013 | 2,081 |
£'OOO
Ordinary shareholders have the right to vote at meetings of the Company. All Ordinary Shares carry equal voting rights.
The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objective, both of which are detailed in the Report of the Directors on pages 14 and 15 and in note 18.
The Company issued 97,550,491 Ordinary Shares during the year (2012: nil) for a consideration of £67,503,000. The surplus of net proceeds received from the issue of new shares over the par value of such shares is £66,527,000 and is credited to the special distributable reserve.
The objective of the Company is to provide ordinary shareholders with an attractive level of income together with the potential for income and capital growth from investing in a diversified UK commercial property portfolio. In pursuing this objective, the Board has responsibility for ensuring the Company's ability to continue as a going concern. This involves the ability to issue and buy back share capital within limits set by shareholders in general meeting; borrow monies in the short and long term; and pay dividends out of reserves all of which are considered and approved by the Board on a regular basis. Dividends are set out in note 7 to the accounts and borrowings are set out in note 13.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made to the objectives, policies or processes during the years ended 30 June 2013 or 30 June 2012.
The net asset value per ordinary share is based on net assets of £149,115,000 (2012: £84,185,000) and 208,050,491 (2012: 110,500,000) ordinary shares, being the number of ordinary shares in issue at the year-end.
No Director has an interest in any transactions which are or were unusual in their nature or significant to the nature of the Group.
F&C Investment Business Limited received fees for its services as Investment Manager. Further details are provided in note 3. The total charge to the Consolidated Statement of Comprehensive Income during the year was £1,242,000 (2012; £1,137,000) of which £438,000 (2012: £302,000) remained payable at the year-end. Property management is delegated to F&C REIT Property Management Limited.
The Directors of the Company received fees for their services. Further details are provided in the Directors' Remuneration Report on pages 20 and 21 and in note 4 on page 35. Total fees for the year were £134,000 (2012: £130,000) of which £nil (2012: £nil) remained payable at the year-end.
The Group has no ultimate controlling party.
The Group's investment objective is to provide ordinary shareholders with an attractive level of income together with the potential for income and capital 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 comprise cash, receivables, a bank loan, an interest rate swap and payables.
The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk and market risk (those relating to interest rate changes and pricing movements).
There was no foreign currency risk as at 30 June 2013 or 30 June 2012 as assets and liabilities are maintained in Sterling. The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Group are detailed below.
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.
At 30 June 2013 and 2012, the maturity of the Group's financial assets were due within three months:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Three months | Three months | |||
| or less | or less | |||
| £'000 | £'000 | |||
| Cash | 5,775 | 1,396 | ||
| Rent receivable | 524 | 457 | ||
| Other debtors | 477 | 154 | ||
| 6,776 | 2,007 |
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 until it is re-let. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Manager monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants.
for the year ended 30 June 2013
The Group has a diversified tenant portfolio. The maximum credit risk from the rent receivables of the Group at 30 June 2013 is £524,000 (2012: £457,000). Rental deposits from tenants at 30 June 2013 were £449,000 (2012: £159,000).
It is the practice of the Group to provide for rental debtors greater than three months overdue unless there is certainty of recovery. At 30 June 2013 the provision was £150,000 (2012: £205,000). Of this amount £nil was subsequently written off and £nil has been recovered.
All of the cash is placed with financial institutions with a credit rating of A or above. Bankruptcy or insolvency 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, the Manager would move the cash holdings to another financial institution.
The Group can also spread counterparty risk by placing cash balances with more than one financial institution. The Directors consider the residual credit risk to be minimal.
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 in which the Group invests is 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 Manager and monitored on a quarterly basis by the Board.
In certain circumstances, the terms of the Group's bank loan (detailed in note 13) entitles the lender to require early repayment for example if covenants are breached, and in such circumstances the Group's ability to maintain dividend levels and the net asset value attributable to the ordinary shares could be adversely affected.
At the reporting date, the maturity of the Group's liabilities was:
| three months | ||||
|---|---|---|---|---|
| Three months | but less | More than | ||
| or less | than one year | one year | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Bank loan | 1,439 | 1,022 | 117,046 | 119,507 |
| Interest rate swap | 1,136 | 3,410 | 9,888 | 14,434 |
| Trade and other payables | 1,585 | $\overline{\phantom{a}}$ | 1,585 | |
| 4,160 | 4,432 | 126,934 | 135,526 |
| More than three months |
||||
|---|---|---|---|---|
| Three months | but less | More than | ||
| or less | than one year | one year | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Bank loan | 796 | 553 | 68,025 | 69,374 |
| Interest rate swap | 653 | 1,960 | 8,825 | 11,438 |
| Trade and other payables | 807 | 807 | ||
| 2,256 | 2,513 | 76,850 | 81,619 |
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 tables below set out the carrying amount of the Group's financial instruments that are exposed to interest rate risk.
| Within | Between | More than | ||
|---|---|---|---|---|
| 1 year | 1-5 years | 5 years | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Floating rate | ||||
| Cash | 5,775 | 5,775 | ||
| Bank loan | - | (112,000) | (112,000) | |
| Fixed rate | ||||
| Interest rate swap | (4, 546) | (9,888) | (14, 434) | |
| 1,229 | (121, 888) | - | (120, 659) | |
| As at 30 June 2012 | ||||
| Within | Between | More than | ||
| 1 year | 1-5 years | 5 years | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Floating rate | ||||
| Cash | 1,396 | 1,396 | ||
| Bank loan | (65,000) | (65,000) | ||
| Fixed rate | ||||
| Interest rate swap | (2,613) | (8,825) | (11, 438) | |
| (1, 217) | (73, 825) | (75, 042) |
Interest is receivable on cash at a variable rate. At the year-end rates receivable ranged from 0.37 per cent on current account balances to 0.53 per cent for deposit account balances. Interest is payable on the bank loan at a variable rate of LIBOR plus a margin of 0.475 per cent. The effect of the interest rate swap is to fix interest payable at 5.77 per cent per annum. The effective rate of interest on the loan is 0.98 per cent. Interest on financial instruments classified as floating rate is repriced at intervals of less than one year.
Exposure varies throughout the year as a consequence of changes in the composition of the net assets of the Group arising out of the investment and risk management policies.
In addition, tenant deposits are held in interest-bearing bank accounts. These accounts earn interest at base rate less 0.75 per cent and receive no interest at this time as the base rate is too low. Interest accrued on these accounts is paid to the tenant.
The Group's exposure to interest rate risk relates primarily to the Group's long-term debt obligations. The Group's policy is to manage its interest rate risk using an interest rate swap, in which the Group has agreed to exchange the difference between fixed and variable interest amounts, calculated by reference to an agreed upon notional principal amount. The swap is designed to fix the interest payable on the loan. The interest rate swap covers £100 million of the loan and has the same duration. Interest fixing periods are identical and on this basis the swap contract complies with IAS 39's criteria for hedge accounting.
An increase of 0.5 per cent in interest rates as at the reporting date would have increased net assets by £1.8 million (2012: £1.4 million) and reduced the reported profit by £31,000 (2012: reduced profit by £18,000). A decrease of 0.5 per cent would have reduced net assets by £1.8 million (2012: £1.4 million) and increased the reported profit by £31,000 (2012: increased profit by £18,000). These movements principally relate to the valuation of the interest rate swap. These movements are calculated as at 30 June 2013 which may not be reflective of actual future conditions.
for the year ended 30 June 2013
As at 30 June 2013, all of the Group's financial instruments (other than the bank loan) were included in the balance sheet at fair value, which in the opinion of the Directors is not materially different from their book value.
Any changes in market conditions will directly affect the profit/loss reported through the Consolidated Statement of Comprehensive Income. Details of the Group's investment property portfolio at the balance sheet date are disclosed on page 12. A 10 per cent increase in the value of the investment properties held as at 30 June 2013 would have increased net assets available to shareholders and increased the net income for the year by £27.1 million (2012: £16.0 million); an equal change in the opposite direction would have decreased net assets and decreased the net income by an equivalent amount.
The calculations above are based on investment property valuations at the respective balance sheet dates and are not representative of the year as a whole, nor reflective of future market conditions.
In the opinion of the Directors there is no material difference between the carrying value and fair value of assets and liabilities that are included in the financial statements on a basis other than fair value.
The Directors and Manager regularly review the principles applied by the property valuers to ensure that they comply with the Group's accounting policies and with fair value principles.
The following table shows an analysis of the fair values of financial instruments recognised in the balance sheet by level of the fair value hierarchy*:
| Total | |||||
|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | fair value | ||
| £'000 | £'000 | £'000 | £'000 | ||
| 30 June 2013 | |||||
| Interest rate swap | $\overline{\phantom{a}}$ | (14, 434) | - | (14, 434) | |
| 30 June 2012 | |||||
| Interest rate swap | $\overline{\phantom{a}}$ | (11, 438) | - | (11, 438) |
*Explanation of fair value hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 - The use of a model with inputs (other than quoted prices included in level 1) that are directly or indirectly observable market data.
Level 3 - The use of a model with inputs that are not based on observable market data.
The Group had no capital commitments as at 30 June 2013 (2012: £nil).
The Group leases out its investment properties under operating leases.
The future income based on the lessor lease length (all break options being exercised) at the year-end was as follows (based on annual rentals):
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Less than one year | 19,241 | 11,460 |
| Between one and five years | 62,372 | 38,049 |
| Over five years | 74,789 | 44,229 |
| Total | 156,402 | 93,738 |
The largest single tenant at the year end accounted for £1.2 million and 6.3 per cent of the current annual rental income (2012: £1.3 million and 11.6 per cent of current annual rental income).
The unoccupied property expressed as a percentage of estimated total rental value was 3.2 per cent at the year-end (2012: 5.4 per cent).
The Group has entered into commercial property leases on its investment property portfolio as a lessor. These properties, held under operating leases, are measured under the fair value model as the properties are held to earn rentals. The majority of these non-cancellable leases have remaining non-cancellable lease terms of between 5 and 15 years.
Analyses of the nature of investment properties and leases are provided in 'Portfolio Statistics' on pages 10 and 11.
The Board has considered the requirements of IFRS8 'Operating Segments'. The Board is of the opinion 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 consolidated financial statements. The portfolio statistics are shown on pages 10 and 11.
The Company has issued 5 million Ordinary Shares of 1 pence each at a price of 73.5 pence per share, a premium to the prevailing net asset value of 2.5 per cent.
k,
Notice is hereby given that the ninth Annual General Meeting of F&C UK Real Estate Investments Limited will be held at Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL on 19 November 2013 at 12 noon for the following purposes.
require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement as if the power conferred hereby had not expired; and
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court, Les Banques
St Peter Port, Guernsey GY1 3QL
4 October 2013
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 Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL on request. Where dividends are paid directly to shareholders' bank accounts, dividend tax vouchers are sent directly to shareholders' registered addresses.
The Company's ordinary shares are listed on the London Stock Exchange and the Channel Islands 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 Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL under the signature of the registered holder.
Contact Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL. Additional information regarding the Company may also be found at its website addresses which are:
Earnings/
www.fcre.co.uk www.fcre.gg
| Financial Calendar 2013/14 | ||
|---|---|---|
| 19 November 2013 | Annual General Meeting | |
| December 2013 | Payment of first interim dividend | |
| February 2014 | Announcement of interim results | |
| February 2014 | Posting of Interim Report | |
| March 2014 | Payment of second interim dividend | |
| June 2014 | Payment of third interim dividend | |
| September 2014 | Announcement of annual results | |
| September 2014 | Posting of Annual Report | |
| September 2014 | Payment of fourth interim dividend |
| Total assets less current liabilities £'000 |
Shareholders' funds £'000 |
Net asset value per ordinary share р |
Ordinary share price р |
Premium/ (discount) % |
(loss) per ordinary share р |
Dividends paid per ordinary share р |
Ongoing charges* $\%$ |
|
|---|---|---|---|---|---|---|---|---|
| 1 June 2004 (launch) | 176.814 | 106,152 | 96.0 | 100.0 | 4.2 | |||
| 30 June 2005 | 202,007 | 124.478 | 112.6 | 124.5 | 10.6 | 26.2 | 5.615 | 1.8 |
| 30 June 2006 | 231.118 | 157.136 | 142.2 | 142.5 | 0.2 | 33.1 | 6.750 | 1.7 |
| 30 June 2007 | 236,703 | 176.377 | 159.6 | 125.5 | (21.4) | 18.8 | 6.876 | 1.5 |
| 30 June 2008 | 191,773 | 133.657 | 121.0 | 75.0 | (38.0) | (30.4) | 7.210 | 1.5 |
| 30 June 2009 | 146.844 | 80,535 | 72.9 | 57.5 | (21.1) | (33.4) | 7.20 | 1.9 |
| 30 June 2010 | 162.095 | 94.328 | 85.4 | 84.3 | (1.3) | 23.6 | 7.20 | 1.8 |
| 30 June 2011 | 158,217 | 91,485 | 82.8 | 90.0 | 8.7 | 3.3 | 7.20 | 1.7 |
| 30 June 2012 | 158,433 | 84,185 | 76.2 | 66.0 | (13.4) | 2.9 | 7.20 | 2.0 |
| 30 June 2013 t | 272,001 | 149,115 | 71.7 | 72.5 | 1.1 | 1.2 | 7.20 | 2.0 |
*as a percentage of average net assets (excluding direct property expenses). t post the merger with ISIS Property Trust
In recent years, many companies have become aware that their shareholders have been targeted by unauthorised overseas-based brokers selling what turn out to be non-existent or high risk shares, or expressing a wish to buy their shares. If you receive unsolicited investment advice or requests:
More detailed information on this can be found on the FCA website www.fca.org.uk/consumers/scams
Quentin Spicer (Chairman)‡ Andrew E G Gulliford Christopher W Sherwell Graham M Harrison Vikram Lall*
PO Box 255 Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL
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 Tel: 0207 628 8000
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
Mourant Ozannes 1 Le Marchant Street St Peter Port Guernsey GY1 4HP
Dickson Minto WS 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
‡Chairman of the Nomination Committee and of the Management Engagement Committee *Chairman of the Audit Committee
www.fcre.co.uk www.fcre.gg
PO Box 255 Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL Tel: 01481 745001
Computershare Investor Services (Guernsey) Limited 3rd Floor, Natwest House Le Truchot St Peter Port Guernsey GY1 1WD
All Correspondence to: Computershare Investor Services (Guernsey) Limited c/o The Pavilions, Bridgwater Road, Bristol, BS99 6ZY
To be effective, all proxy appointments must be lodged with the Company's Registrars at: c/o The Pavilions, Bridgwater Road, Bristol BS99 6ZY by 15 November 2013 at 12.00 noon.
3. The 'Vote Withheld' option overleaf is provided to enable you to abstain on any particular resolution. However, it should be noted that a 'Vote Withheld' is not a vote in law and will not be counted in the calculation of the proportion of the votes 'For' and 'Against' a resolution.
4. Pursuant to Article 41 of the Uncertificated Securities (Guernsey) Regulations 2009, entitlement to attend and vote at the meeting and the number of votes which may be cast thereat will be determined by reference to the Register of Members of the Company at close of business on the day which is 48 hours before the time of the meeting. Changes to entries on the Register of Members after that time shall be disregarded in determining the rights of any person to attend and vote at the meeting.
Kindly Note: This form is issued only to the addressee(s) and is specific to the unique designated account printed hereon. This personalised form is not transferable between different (i) account holders; or (ii) uniquely designated accounts. The Company and Computershare Investor Services (Guernsey) Limited accept no liability for any instruction that does not comply with these conditions.
Please complete this box only if you wish to appoint a third party proxy other than the Chairman or the Company Secretary. Please leave this box blank if you want to select the Chairman or the Company Secretary. Do not insert your own name(s).
| I/We hereby appoint the Chairman of the Meeting or the Company Secretary OR the person indicated in the box above as my/our proxy to attend, speak and vote in respect of my/our full voting entitlement* on my/our behalf at the Annual General Meeting of F&C UK REAL ESTATE INVESTMENTS LIMITED to be held at Trafalgar Court, Les Banques, St. Peter Port, Guernsey, Channel Islands on 19 November 2013 at 12.00 noon, and at any adjourned meeting. |
||||
|---|---|---|---|---|
| * For the appointment of more than one proxy, please refer to Explanatory Note 2 (see front). Please mark here to indicate that this proxy appointment is one of multiple appointments being made. |
Please use a black pen. Mark with an X inside the box as shown in this example. |
✘ | ||
| Resolutions | For | Vote Against Withheld |
||
| 1. | To receive and approve the Annual Report and Accounts. | |||
| 2. | To receive and approve the Directors' Remuneration Report. | |||
| 3. | Re-election of Mr C W Sherwell. | |||
| 4. | Re-election of Mr Q Spicer. | |||
| 5. | Re-election of Mr A E G Gulliford. | |||
| 6. | Election of Mr V Lall. | |||
| 7. | Election of Mr G Harrison. | |||
| 8. | Re-appointment of the Auditor. | |||
| 9. | Authorising the Directors to determine the Auditor's remuneration. | |||
| 10. Authorising the Directors to allot securities without rights of pre-emption. | ||||
| 11. | Authorise the Directors to buy back shares. | |||
I/We instruct my/our proxy as indicated on this form. Unless otherwise instructed the proxy may vote as he or she sees fit or abstain in relation to any business of the Meeting.
DD / MM / YY
In the case of a corporation, this proxy must be given under its common seal or be signed on its behalf by an attorney or officer duly authorised, stating their capacity (e.g. director, secretary).
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