To: RNS
Date: 26
April 2024
From: Balanced
Commercial Property Trust Limited (the “Company”)
L.E.I. 213800A2B1H4ULF3K397
Results in
Respect of the Year Ended 31 December
2023 (audited)
The full
Annual Report for the year ended 31 December
2023 will be available to view on the Company’s
website:
balancedcommercialproperty.co.uk
Headlines
-
Earnings
per Ordinary Share were -3.7 pence
per share for the year ended 31 December
2023 (2022: -13.1 pence per
share).
-
Net asset
value per Ordinary Share was 109.8
pence as at 31 December 2023
(2022: 118.5 pence).
-
Rental
income was £59.2 million for the year ended 31 December 2023 (2022: £58.7
million).
-
Net asset
value total return of -3.3* per cent for the year ended
31 December 2023 (2022: -9.2 per
cent).
-
Share
price total return of -12.5* per cent for the year ended
31 December 2023 (2022: -11.7 per
cent).
-
From
October 2023, the rate of monthly
interim dividends was increased to 0.44
pence per share.
This
represented an increase of 10.0 per cent compared to the previous
monthly dividends.
-
Dividend
cover on a cash basis was 104.7* per cent for the year ended
31 December 2023 (2022: 104.8 per
cent).
-
The
Company signed up to a new £320 million Debt Facility provided by
incumbent lender Barclays and a new lender HSBC.
-
Disposed
of two office holdings at an aggregate sales price of £14.3 million
for the year ended 31 December
2023.
A further
two office disposals were completed post year-end with an aggregate
sales price of £54.6 million.
These
disposals are part of the strategic repositioning of the
portfolio.
-
Major
development scheme at Strategic Park, Southampton completed, delivering a rent roll
in excess of £1.4 million per annum and a 12 month total return of
13.4 per cent.
-
4 per cent
increase in Scope 1 and 2 absolute emissions (-26 per cent in
2022).
Emissions
intensity reduced by 16 per cent (-13 per cent in
2022).
*see
Alternative Performance Measures
Chairman’s
Statement
The
macro-economic risk factors that were prevalent in 2022 began to
ease during 2023. While the UK slipped into a shallow technical
recession in the second half of the year, this is forecast to be
short and inflation, which has weighed heavily on financial
markets, fell towards the end of the year.
Uncertainties
linger as interest rates remain at a 15-year high, the rate of
inflation is still above target, and we are in an environment of
significant geo-political risk. The last eighteen months have been
challenging for real estate as investment performance suffered due
to rising interest rates leading to yield increases and a repricing
of the asset class. Investors faced the impact of higher borrowing
costs and reduced capital flows as the attractiveness of real
estate deteriorated. As a consequence, UK investment volumes were
low by recent measures with some properties proving to be highly
illiquid. On a positive note, the occupational markets have proven
to be more resilient than many expected.
Company
Performance
Against
this challenging economic and property market backdrop, the Company
has delivered a net asset value (‘NAV’) total return of -3.3 per
cent for the year. The NAV per share as at 31 December 2023 was 109.8
pence, down 7.3 per cent from 118.5
pence per share as at 31 December
2022.
The share
price total return for the year was -12.5 per cent with the
discount to NAV standing at 34.0 per cent at the year end, as the
negative sentiment towards the commercial real estate sector
continued to affect the rating of the shares. The Board has
continued its focus on rebalancing the portfolio with the disposal
of two office holdings in December
2023 and a further two office sales since the year end, and
there has been positive movement in the share price in 2024. At the
time of writing the share price is 78.7
pence per share, a discount of 28.3 per cent to the
NAV.
The
following table provides an analysis of the movement in the NAV per
share during the year.
|
Pence
per share *
|
NAV per
share as at 31 December 2022
|
118.5
|
Unrealised
decrease in valuation of property portfolio
|
(8.1)
|
Realised
loss on sale of properties
|
(0.6)
|
Movement
in interest rate swap
|
(0.1)
|
Net
revenue
|
5.0
|
Dividends
paid
|
(4.9)
|
NAV per
share as at 31 December 2023
|
109.8
|
*Based on
the average number of shares in issue during the
year.
Portfolio
Performance
The
Company’s portfolio delivered a total return of -0.7 per cent over
the year, outperforming the MSCI UK Quarterly Property Index to
December 2023 (‘MSCI’) return of -1.5
per cent. Relative outperformance was driven by an income return of
5.4 per cent against the Index return of 4.7 per cent, with capital
returns in line against the Index at
-5.9 per
cent.
We are at
a stage of the cycle where income is driving returns and as such it
was pleasing to see the portfolio’s net operating income grow by
5.3 per cent with all sub-sectors delivering rental growth and the
completion of 76 leasing initiatives across the
portfolio.
Despite
the relative outperformance against the Index, the portfolio was
negatively impacted by the Company’s exposure to the office sector.
This is being addressed with momentum in our sales programme, which
as mentioned above has seen the disposal of two office holdings in
December 2023 and a further two sales
since the year end, raising total proceeds of £68.9 million. The
portfolio’s exposure to the office sector has fallen to 22.2 per
cent at the time of writing, which is less than the Index weighting
(24.2 per cent). We anticipate further sales activity within the
capital markets as we continue to recycle capital to improve
performance.
Dividends
The
Company paid twelve interim dividends totalling 4.92 pence per share during the year, being nine
monthly dividends of 0.4 pence per
share, followed by a 10 per cent increase and three further monthly
dividends at a rate of 0.44 pence per
share. The level of dividend cover for the period was 104.7 per
cent on a cash basis and the Board will continue to keep the level
of dividend under review.
Borrowings
The
Company has a £260 million term loan in place with L&G which
matures on 31 December 2024. As
previously announced, the Company signed up to a new debt facility
in September 2023 provided by
incumbent lender, Barclays Bank plc, and a new lender, HSBC UK Bank
Plc. This facility is in two tranches and includes a committed £260
million Term Loan, which can only be drawn to refinance the
existing £260 million L&G Loan.
There is
also a £60 million Revolving credit facility, £30 million of which
was drawn down at the year-end and has subsequently ben
repaid.
The new
debt facility enables the Company to retain the competitively
priced L&G Loan which is fixed at 3.32 per cent up to maturity,
whilst also ensuring the future liquidity needs of the Company are
fully funded at an acceptable commitment fee.
As at
31 December 2023, the Company’s loan
to value, net of cash (‘LTV’) was 24.4 per cent and the weighted
average interest rate on the Group’s total current borrowings was
3.8 per cent.
Continuation
Vote
In
accordance with the Articles of Incorporation, the Directors are
required to put an ordinary resolution to shareholders in relation
to the continuation of the Company in 2024 (the
"Continuation
Vote"). If at
that meeting such resolution is not passed, the Board shall, within
twelve months of such meeting, convene an extraordinary general
meeting of the Company at which a special resolution shall be
proposed to the members of the Company for the winding up of the
Company and/or a special resolution shall be proposed to the
members of the Company for the reconstruction of the Company,
provided that such resolution for the reconstruction of the Company
shall, if passed, provide an option to Shareholders to elect to
realise their investment in the Company in full. The Board’s
assessment of going concern can be found below.
On
15 April 2024, the Board announced
that it has been carefully considering for some time, with its
advisers, its strategic options to enhance value for its
shareholders, and that it has formalised these deliberations into a
strategic review process (the "Strategic
Review")
(further details of which are set out below).
Once the
Strategic Review has been completed, the Board will convene a
general meeting of the Company at which the Continuation Vote will
be proposed.
Strategic
Review
Despite
the Company's successful and ongoing strategic disposal programme,
which has reduced the portfolio's exposure to the underperforming
office sector, and recent improvements in the Company's share
rating, its share price remains at a material discount to the
Company's net asset value. The Board, together with its advisers,
has therefore been carefully considering the Company’s strategic
options for some time.
As part of
the Strategic Review, the Board will consider all options
including, but not limited to, continuing the Company with further
actions to narrow the share price discount to NAV; selling the
Company's portfolio or subsidiaries (or portion thereof); returning
capital to shareholders; changing the Company's investment strategy
and/or management arrangements; commencing a managed wind down;
selling the entire issued share capital of the Company or
undertaking some other form of consolidation, combination, merger
or comparable corporate action.
Shareholders
are welcome to send their comments to chairmanBCPT@georgeson.com,
in particular on their priorities for their investment in the
Company and the options described above.
We have
commenced this Strategic Review to determine the best way to
enhance value for shareholders, after which the independent Board
will determine the best way forward for the Company as a whole. The
outcome of the Strategic Review is expected to be announced in Q3
2024, and thereafter the Continuation Vote will also be held. The
Board looks forward to updating shareholders on the progress of the
Strategic Review and will make further announcements in due course,
noting that there is currently no certainty as to the outcome of
the Strategic Review.
Board
Composition
Karima Fahmy was appointed as an independent non-executive
Director of the Company with effect from 19
January 2024. Karima is a corporate lawyer with extensive
experience of the UK property sector.
Following
a significant increase in other time commitments, Hugh Scott-Barrett retired from his role as
non-executive Senior Independent Director in February 2024. I would like to thank Hugh for his
considerable contribution to the Company and wise counsel over
recent years. I am pleased to confirm that Isobel Sharp, who is Audit and Risk Committee
Chair, has also assumed the role of Senior Independent
Director.
Environmental,
Social and Governance (‘ESG’)
Every
Board director is a member of the ESG Committee which is
established to ensure that the Managers are driving year-on-year
improvements in portfolio performance, process and
governance.
The Board
was pleased to note the Company’s return to the top of its Global
Real Estate Sustainability Benchmark peer group in 2023, achieving
a score of 79/100, conferring a three green star rating.
As work
has continued to future-proof the portfolio in line with our Net
Zero Carbon target and the Minimum Energy Efficiency Standards, the
Company is also focused on the ESG fields of social, biodiversity
and transitional risk where we expect to make meaningful progress
during the upcoming year. Given the composition and quality of the
portfolio, the Board and Managers remain of the view that the
Company’s asset base is well-positioned in relation to the evolving
ESG landscape.
Outlook
Market
participants across real estate and the wider financial sectors
have been keenly monitoring the outlook for UK interest rates, with
the potential for a cut in the base rate in the second half of
2024. There are also upcoming general elections, most notably in
the UK and US, which add an extra layer of complexity to the
outlook.
The year
ahead will most likely see continued divergence in performance
across property sectors, sub-sectors and markets. Asset
fundamentals rather than market yield compression should provide a
platform for value creation, and we believe that this is an
opportune time for a diversified strategy.
Paul
Marcuse
Chairman
26 April 2024
This
announcement may contain forward-looking statements with respect to
the financial condition, results of operations and business of the
Company. Such statements involve risk and uncertainty because they
relate to future events and circumstances that could cause actual
results to differ materially from those expressed or implied by
forward-looking statements. The forward-looking statements are
based on the Directors’ current view and on information known to
them at the date of this document. Nothing should be construed as a
profit forecast.
Managers’
Review
Property
Headlines over the Year
-
A
portfolio total return -0.7* per cent over the 12 months to
31 December 2023 versus the MSCI UK
Quarterly Property Index ('MSCI') return of -1.5 per
cent.
-
Relative
outperformance delivered through income generation and proactive
asset management, driving 5.3 per cent increase in portfolio net
operating income.
-
Accretive
asset management activity delivered underlines strong asset
fundamentals, attractive sector exposures and significant latent
income growth potential within the portfolio.
-
Portfolio
offers potential day one income reversion of 16.0 per cent with a
further 31.0 per cent of income subject to contractual uplifts
guaranteeing additional rental growth.
-
The
disposal of four office assets completed (two post year-end) as
part of the strategic repositioning of the portfolio, raising
proceeds of £68.9 million delivered at an aggregate discount to NAV
of 2.6 per cent and reducing portfolio exposure to the office
sector to 22.2 per cent.
-
Major
development scheme at Strategic Park, Southampton completed, delivering a rent roll
in excess of £1.4 million per annum and a 12-month total return of
13.4 per cent.
*see
Alternative Performance Measures
Property
Market Review
2023 was a
challenging year for UK real estate due to the macro-economic
environment and a 15 year high in interest rates. Volatility in
financial markets, uncertainty as to the interest rate outlook and
persistently high inflation dampened investor appetite and the
relative attractiveness of real estate.
UK real
estate investment volumes totalled circa £40 billion in 2023, a
fall of 40 per cent year on year. Despite the negative headlines
around offices, they were the second most traded sector in 2023,
accounting for approximately 24 per cent of deal volume. The
tentative emergence of counter-cyclical and opportunistic
strategies has been supported by an occupational market that
continues to display resilience and even growth, albeit this is
increasingly nuanced by micro-location and asset
fundamentals.
As income
has driven returns, we have seen an increasing divergence in
performance across the sub-sectors due to differing rental growth
prospects. As a result, weaker office segments have lost market
share to ‘beds, sheds, and meds’, being the sectors delivering
rental growth founded on structural undersupply and positive
thematic support. Industrials generated the highest rental growth
over the year at 7.1 per cent and were unsurprisingly the most
traded sector. Retail warehousing, underpinned by low vacancy and a
negligible development pipeline, supported positive rental growth
over the year of 1.8 per cent and is expected to gain further
momentum in 2024.
All this
is to say that delivering relative outperformance has become a more
nuanced pursuit founded on disciplined management of both portfolio
composition and the standing asset base. The notable absence of the
distressed (or even motivated) selling of real estate assets has
put the onus on returns being generated through proactive asset
management and diversification of income streams. Crystallising
rental growth through leasing initiatives, driving capital growth
through refurbishments, enhancing occupational and investment
prospects through asset repositioning relies heavily on expertise
to leverage strong underlying asset and portfolio
fundamentals.
Portfolio performance
The total
return from the portfolio was -0.7 per cent over the twelve months,
compared with the MSCI return of -1.5 per cent, a 74-basis point
performance premium.
At a time
when returns are driven by income, the Company’s portfolio is
generating a yield advantage and the portfolio delivered an income
return of 5.4 per cent over the year, a 75-basis point premium over
the MSCI. The portfolio’s capital growth was in line with MSCI at
-5.9 per cent over the year.
Capital Growth
Over the
period, portfolio yields have moved as follows:
|
Net
initial yield (%)
|
Equivalent
yield (%)
|
Reversionary
yield (%)
|
|
Dec
23
|
Dec
22
|
Dec
23
|
Dec
22
|
Dec
23
|
Dec
22
|
Industrial
|
4.5
|
4.5
|
6.0
|
5.9
|
6.3
|
6.2
|
Offices
|
7.4
|
5.8
|
8.2
|
6.9
|
8.4
|
7.0
|
Retail*
|
4.7
|
4.4
|
5.1
|
4.9
|
4.8
|
4.7
|
Retail
Warehousing
|
6.3
|
5.7
|
6.2
|
6.1
|
6.1
|
6.0
|
Alternatives
|
4.8
|
4.5
|
4.7
|
4.5
|
4.6
|
4.5
|
Portfolio
|
5.5
|
5.0
|
6.5
|
6.1
|
6.2
|
5.8
|
*including
St Christopher’s Place
At the
sector level, the Company’s industrial, retail (including retail
warehousing) and alternatives holdings all generated material
relative capital outperformance over the index.
Performance
at the portfolio level was impacted by offices, which delivered
relative capital underperformance against the index of 503 basis
points. The largest driver behind this was the regional office
assets, a sub-sector that faces investment illiquidity, constrained
transaction volumes and a muted performance outlook.
|
Balanced
Commercial Property Trust
|
MSCI
UK Quarterly Index
|
Sector
|
Income
Return (%)
|
Capital
Return (%)
|
Total
Return (%)
|
Total
Return (%)
|
All
Retail
|
4.9
|
-4.1
|
0.7
|
-0.3
|
Offices
|
7.1
|
-18.2
|
-12.2
|
-10.4
|
Industrial
|
4.7
|
3.0
|
7.9
|
3.9
|
Alternatives
|
4.9
|
-2.8
|
2.0
|
-0.1
|
All
Property
|
5.4
|
-5.9
|
-0.7
|
-1.5
|
Income Return
Over the
year the portfolio saw net operating income growth of 5.3 per cent
and generated ERV growth of 1.9 per cent. The key driver of the
increase in passing rent was active asset management across the
portfolio, as a total of 76 leasing initiatives completed over the
12 months.
The
portfolio vacancy rate rose slightly from 5.9 per cent by Estimated
Rental Value (ERV) to 6.7 per cent. 1.0 per cent of the vacant
space is now contractually committed and 4.3 per cent relates to
Stockley Park in Uxbridge, which is a repositioning opportunity.
The uplift in the void rate is primarily linked to two restaurant
units at St Christopher’s Place where leases have been forfeited
due to the tenants breaching lease obligations, although there is a
good level of new tenant interest in these units.
The
portfolio has historically sustained a low long-term vacancy, with
the average over the last 5 years standing at 5.1 per
cent.
The
portfolio offers a potential income reversion of 16.0 per cent. It
also offers an attractive mix of income duration from its higher
yielding assets and the opportunity to realise performance from its
growth assets. The portfolio’s WAULT (weighted average unexpired
lease term) stands at 4.7 years (to lease breaks). The industrial
assets offer the highest income reversion of over 40 per cent, an
equivalent yield of 6.0 per cent and a short WAULT of 2.5 years
(including rent reviews as lease events), enabling the reversion to
be delivered at lease events in the near term.
Approximately
31 per cent of the Company’s income profile is subject to
contractual uplifts offering guaranteed income growth. Index-linked
rent reviews support 8.8 per cent of the income, while 22.2 per
cent is subject to fixed uplifts.
The table
below sets out an analysis of the portfolio’s income
reversion.
Investment
Activity
Despite a
challenging investment market, we have successfully completed the
sale of four office holdings. Two of these completed in
December 2023, with further sales
post year end in January and March
2024. Three of the four sales have been in the structurally
challenged out-of-town business park sub-sector, with the fourth
being a low-yielding, multi-let office in London’s West End.
Following the completion of these four disposals (two of these are
post year-end), the portfolio’s exposure to the office sector has
fallen to 22.2 per cent.
The assets
sold are:
-
Nevis & Ness House, Edinburgh Park – a 42,000 sq ft
headquarters office occupied by Diageo Scotland
Limited.
-
Building
4, Prime Four Business Park, Aberdeen – a 25,000 sq ft training centre
occupied by Maersk Training UK Limited.
-
2-4
King Street, London SW1 – a multi-let holding of 14,600 sq
ft in London’s West End sold in January
2024.
-
The
Leonardo Building, Crawley – a
110,000 sq ft headquarters office occupied by Virgin Atlantic
Limited sold in March
2024.
The sales
have been completed at an aggregate price of £68.9 million,
representing a 2.6 per cent discount to the valuation preceding the
sales contracting.
The
pricing achieved on these disposals underlines the value in the
Company’s investment ethos of focussing on high quality real estate
with strong fundamentals, which lends relative resilience and
liquidity. We are actively reviewing a pipeline of further
disposals from both the office sector and wider portfolio,
targeting assets where value can be crystallised following the
successful delivery of asset business plans.
Asset
Management
Active
asset management is the key determinant of relative outperformance,
enabling rental growth to be converted into income while also
generating capital growth through the enhancement of asset leasing
profiles.
Industrial and logistics
The
Company’s industrial and logistics assets offer an attractive day
one income reversion and have generated rental growth of 2.6 per
cent over the twelve months. A number of highly accretive asset
management initiatives have been executed over the year,
underpinning a 2.8 per cent uplift in passing rent and supporting
relative income and capital outperformance.
Notable
successes included:
Hurricane
52, Estuary Business Park, Liverpool
The
development of a highly specified 52,500 sq ft logistics unit
reached practical completion in August
2022. Following a competitive best-bids process, the unit
was let in July 2023 to clothing
manufacturer Montirex on a 10-year lease (break at year 5) at a
rent showing a 7.2 per cent premium to the ERV. The asset recorded
a total return of 28.3 per cent over the year.
The
Cowdray Centre, Colchester
This
multi-let estate continues to see buoyant levels of occupier
activity, supported by a phased programme of refurbishments which
has driven renewed occupier demand, rental growth and value
appreciation.
The asset
offers a day one income reversion of 44 per cent and the staggered
nature of the leasing profile is crystalising this into
performance. Rent reviews with Rexel UK and Jump Street have seen
rents increase by 66 per cent and generated additional income
totalling £69,500 per annum. Lease renewals completed with The
Range (CDS Superstores), Jayar Components and Cowdray Carpet Centre
have secured an income stream totalling £425,000 per annum. In
February 2024, MKM Building Supplies
entered into a new 20-year lease (break year 15) on a new
refurbished unit, whilst lease renewal negotiations continue with
Pickfords Move Management and Hermes Parcelnet, which will serve to
further increase and strengthen the asset’s income
profile.
The estate
also comprises a development site where planning consent has been
secured for a trade-centre scheme and the construction package is
currently out to tender.
8 Hams
Hall Distribution Park, Birmingham
A bespoke
logistics facility of 264,000 sq ft occupied by Nestle Purina until
March 2025. In August, Nestle
completed a 10-year (break at year 5) reversionary lease from
March 2025 in exchange for a 3.5
month rent free period.
Units
1 & 2 Strategic Park, Southampton
The major
refurbishment of this two-unit industrial scheme completed in
October 2023 and both units have now
been let at rents ahead of pro-forma ERV’s. The initiative has
delivered:
-
Income
performance, boosting the Company’s income by in excess of £1.4m
per annum and generating an uplift to the previous combined passing
rent of 27.5 per cent and bettering the ERV underwritten in the
asset business plan by 2.4 per cent.
-
Capital
performance, as capital growth of 15.7 per cent underpins a total
return of 13.4 per cent over a 12-month period, and
-
ESG
enhancements with A-rated EPCs, a BREEAM Very Good certification
and a full solar photovoltaic system installed on the roof. Both
tenants have committed to acquire the electricity generated on-site
and the solar installation is forecast to produce an additional
operational income return of circa 7.5 per cent per
annum.
Over the
course of 2024, industrial units with an ERV in excess of £5.2m are
subject to an upcoming or outstanding lease event (including new
leases completed post-period at Colchester and Southampton as referenced above), offering a
meaningful opportunity to crystallise further income
growth.
Retail Warehousing
A highly
successful leasing strategy completed in 2022, securing full
occupation of both retail warehouse parks and solidifying a robust
grocery, discount and convenience-led tenant roster. This has
afforded the holdings an attractive, stable, and growing income
profile which has seen the passing rent from the Newbury and Solihull retail parks increase by 9.4 per cent
over the year.
We are
working to enhance the operational income further through the
addition of solar photovoltaic installations across various retail
units.
Offices
The
Company’s office holdings continue to see robust levels of
occupational activity, with six new leases concluded, representing
a rent roll of £868,000 per annum, delivered within 1.4 per cent of
ERV. There have also been 3 rent reviews settled at a 0.8 per cent
premium to the previous passing rents.
7
Birchin Lane, London
EC3
The
portfolio’s sole City of London
holding has been subject to a phased programme of refurbishment,
delivering Category A ‘Plug & Play’ space along with upgraded
ESG credentials including B-rated EPCs. During the year, four
suites have been refurbished, three of which have been let at rents
at a 10 per cent premium to the ERV and the most recent letting on
the 1st
floor
concluding at a rent showing a 17.6 per cent uplift to the previous
ERV.
King Street, Manchester
This
multi-let office remains fully occupied, underlining the continued
appeal of this prestigious office building. Over the course of the
year, three existing tenants – Foresight Group, Lloyds Bank and
Markel Insurance – all committed to new leases, securing a rent
roll of £314,000 per annum, at a 0.7 per cent premium to ERV.
Markel Insurance also settled the September
2021 rent review on their second suite on the 11th floor at
a 1.3 per cent uplift.
Stockley Park, Uxbridge
This is
the portfolio’s largest void with an ERV in excess of £3.0m per
annum. This former HQ office building is subject to a repositioning
strategy to convert the building to a post-operative healthcare
use. The local planning authority has been engaged, offering
in-principle support to the initiative and a planning application
has recently been submitted. During 2024 we expect to achieve a
number of milestones allowing for incremental crystallisation of
value throughout the process, such as the receipt of planning
consent, the contractual commitment of the occupier and the
commencement of the development phase.
Retail
St
Christopher’s Place (mixed-use Food & Beverage (‘F&B’),
retail, residential and offices)
This asset
is a unique property; a prime Central
London estate comprising 172 lettable units and 40
buildings, diversified across the retail, leisure, residential and
office sectors as follows:
Sector
|
Exposure
(%
of asset capital value)
|
Retail
|
31.2
|
Food &
beverage
|
33.5
|
Offices
|
14.8
|
Residential
|
20.5
|
The estate
is valued at a 23.7 per cent discount to its pre-pandemic level and
therefore represents a key growth asset as it moves through its
recovery phase.
The West
End retail market is enjoying a notable recovery, with 2023
footfall up 5 per cent year-on-year, while Oxford Street
outperformed and recorded a 12 per cent uplift in footfall
year-on-year. The 12 months saw growth in international travel (+31
per cent) and hotel occupancy rates (+6 per cent), all of which
served to increase overall spend in the West End by 4 per cent. As
a result of an improving market backdrop, Oxford Street saw a
record year for new letting activity with some 250,000 sq ft of
deals completing, with the candy and tourist shops that have
blighted the street in recent years having retrenched and the vast
majority of all vacant space to the west of Oxford Circus is either
under offer or subject to redevelopment.
The St
Christopher’s Place Estate is starting to see the benefits of this
wider recovery and over the twelve months we delivered 54 leasing
initiatives across the estate, including 43 new leases and tenancy
agreements that account for an income stream in excess of
£2.3m.
As a
result of this the annual net operating income increased by 5.1 per
cent year-on-year and there are a further 9 occupational deals
under offer with legals progressing.
Disappointingly,
the tenants of the Estate’s Oxford Street units, Aldo and The Body
Shop, have both entered administration and ceased trading from
their premises in recent weeks.
As a
result, both Oxford Street units became empty post-period, albeit
remain subject to leases.
The units
are being actively marketed and have received encouraging levels of
occupational interest at this early stage.
In order
to drive continued income and capital growth a number of key
strategic initiatives are being progressed:
-
Enhancing
the F&B offering.
The
conversion of traditional retail to F&B drives investment
fundamentals through superior rents, longer leases and sharper
capitalisation rates, while also enhancing the consumer experience
and occupier dynamics of the estate. Over the course of the year,
F&B has become the dominant use at the estate, increasing from
26.8 per cent to 33.5 per cent as 5 F&B occupational deals
completed.
-
SCP as
a West End office hub.
Occupier
demand for smaller floorplates is predominantly centred on fully
fitted ‘Plug & Play’ space. Fitted space increases the
optionality for occupier demand and materially reduces void
periods, rent free periods and achieves higher rents. We are
proactively repositioning suites to meet this key source of demand
and since the start of 2024, 11 new office tenancies have
completed.
-
Leveraging
improving occupational market dynamics to enhance occupancy and
income.
The
rebasing of occupational costs on Oxford Street has spurred an
increase in retailer demand. The Estate is benefitting from this
recovery and over half of the vacant space at SCP is under offer at
the time of writing. We are seeking to leverage this momentum to
continue to build critical mass across the Estate’s retail, F&B
and office elements, with demand tension a key determinant of
rental growth.
Alternatives
The
portfolio’s alternatives holdings include the purpose-built student
accommodation in Winchester (which is subject to a long-term,
index-linked lease to the university), residential properties at St
Christopher’s Place and the leisure units at Wimbledon Broadway (a
gym and cinema).
The
residential element of St Christopher’s Place is substantial,
accounting for 4.7 per cent of the value of the Company’s portfolio
and saw its net operating income increase by 6.6 per cent as
occupancy and rental levels recovered.
Strategic Portfolio Initiatives
We believe
the future drivers of relative outperformance will become
increasingly nuanced. Allocation towards structurally supported
growth sectors remains critical, however, the supply-demand
dynamics within sub-sectors (such as big-box vs mid-box industrial
or discount vs fashion-led retail), micro-locations (availability
of workforce and areas of meaningful undersupply such as along key
arterial routes or in last mile locations) and at the asset level
(the long-term functional relevance of the building) will all
dictate the consistent delivery of long-term
outperformance.
To that
end, we will continue to leverage the portfolio’s strong underlying
fundamentals, with its attractive reversionary potential and latent
opportunities to deliver consistent income growth as the key driver
of total returns. Key strategic initiatives include:
-
Income
compounding – the
portfolio offers an attractive income reversion alongside
attributes supporting the conversion of potential into growth. This
includes a consistently low void rate, high quality tenant base,
exposure to index-linked lease structures, a WAULT facilitating the
execution of asset management strategies and a portfolio
composition delivering continued rental growth.
-
Active
asset management – a high
quality portfolio offers investment and occupational fundamentals
that support the delivery of value-add strategies, which are key
drivers of income and capital growth as well as relative
outperformance.
-
Opportunistic
recycling of capital –
selective disposals will continue to reduce the portfolio’s
exposure to the more challenging sub-markets, increasing the
portfolio’s alignment to growth sectors and assets.
Outlook
The
macro-economic outlook improved materially towards the end of 2023
driven by a significant fall in the rate of inflation which raised
expectations that the Bank of England would cut the interest rate sooner
than was expected just a few months previously. However, while
inflation has continued to moderate it is still higher than the
Bank of England’s 2 per cent target. As a consequence, the Bank may
not begin to cut rates until inflation is closer to target and wage
growth has cooled further. Financial analysts are expecting to see
a cut in the base rate later this year.
Barring
not insubstantial geo-political risk,
possible
interest rate cuts during the year will bode well for property
pricing and allow the real estate market to look beyond this period
of relative stabilisation to a prospective recovery.
As for
whether pricing has now bottomed out, the UK has seen the strongest
rebasing of valuations of all major European real estate markets.
While there may be some further softening at the market level, we
do not expect a substantial valuation correction in 2024. Quality
stock will most likely be less affected than secondary assets where
any repricing is expected to be more aggressive. Downside risks
remain, primarily the potential for refinancing pressures to
precipitate distressed selling. However, we have not seen the
levels of distress in real estate markets that many had
anticipated, and a more stable economic outlook may result in a
more manageable financial environment.
Against
this background and in a context where outperformance is nuanced,
the portfolio’s growth characteristics and high quality, liquid
asset base will continue to offer opportunities as we aim to
deliver attractive risk-adjusted returns.
Sector
Analysis (% of total property portfolio)
|
|
2023
(%)
|
2022
(%)
|
Industrial
|
32.3
|
28.9
|
Offices
|
26.5
|
31.6
|
Retail
|
18.4
|
17.4
|
Retail
Warehouses
|
12.3
|
11.6
|
Alternative
|
10.5
|
10.5
|
Source:
Columbia Threadneedle REP AM plc
Geographical
Analysis (% of total property portfolio)
|
|
2023
(%)
|
2022
(%)
|
London –
West End
|
28.7
|
27.5
|
South
East
|
24.2
|
23.4
|
Midlands
|
23.3
|
21.3
|
North
West
|
12.5
|
12.2
|
Scotland
|
7.3
|
11.6
|
South
West
|
2.2
|
2.3
|
Rest of
London
|
1.8
|
1.7
|
Source:
Columbia Threadneedle REP AM plc
Lease
Expiry Profile
|
At 31
December 2023 the weighted average lease length for the portfolio,
assuming all break options are exercised, was 4.7 years (2022: 5.2
years)
|
%
of leases expiring (weighted by rental value)
|
2023
(%)
|
2022
(%)
|
0 – 5
years
|
64.9
|
40.1
|
5 – 10
years
|
24.0
|
36.7
|
10 – 15
years
|
9.6
|
15.0
|
15 – 25
years
|
1.5
|
8.2
|
Source:
Columbia Threadneedle REP AM plc
The
largest occupiers, based as a percentage of contracted rent, as at
31 December 2023, are summarised as
follows:
Income
Concentration
|
Company
name
|
%
of Total Income
|
Apache
North Sea Limited
|
4.6
|
CNOOC
Petroleum Europe Limited
|
4.5
|
JP Morgan
Chase Bank, National Association
|
4.5
|
Kimberley-Clark
Limited
|
3.6
|
University
of Winchester
|
3.6
|
Marks and
Spencer plc
|
3.6
|
Virgin
Atlantic Limited
|
3.5
|
Nestle
Purina UK Commercial Operators Limited
|
3.2
|
Transocean
Drilling UK Limited
|
3.2
|
DHL Supply
Chain Limited
|
3.2
|
Total
|
37.5
|
Source:
Columbia Threadneedle REP AM plc
Richard Kirby and Daniel Walsgrove
Columbia
Threadneedle REP AM plc
26 April 2024
Please
note that past performance is not necessarily a guide to the future
and that the value of investments and the income from them may fall
as well as rise. Investors may not get back the amount they
originally invested.
All
enquiries to:
The
Company Secretary
Northern
Trust International Fund Administration (Guernsey)
Limited
Trafalgar
Court
Les
Banques
St.
Peter Port
Guernsey
GY1 3QL
Tel: 01481
745436
Fax: 01481
745186
Richard Kirby
Columbia
Threadneedle REP AM plc
Tel:
0207 499
2244
Innes Urquhart
Winterflood
Securities Limited
Tel:
0203 100
0265
Dion Di Miceli / Tom
MacDonald / Stuart Muress /
James Atkinson
Barclays
Bank PLC
Tel: 0207
623 2323
BarclaysInvestmentCompanies@barclays.com
Balanced
Commercial Property Trust Limited
Consolidated
Statement of Comprehensive Income (audited)
|
|
Year
ended
31
December
2023
|
Year
ended
31
December
2022
|
|
|
£’000
|
£’000
|
Revenue
|
|
|
|
Rental
income
|
|
59,228
|
58,676
|
Other
income
|
|
119
|
42
|
|
|
---------
|
---------
|
Total
revenue
|
|
59,347
|
58,718
|
|
|
|
|
Losses
on investment properties
|
|
|
|
Unrealised
losses on revaluation of investment properties
|
|
(56,940)
|
(129,096)
|
Losses on
sale of investment properties realised
|
|
(4,533)
|
(5)
|
|
|
----------
|
----------
|
Total
loss |
|
(2,126)
|
(70,383)
|
|
|
----------
|
----------
|
Expenditure
|
|
|
|
Investment
management fee
|
|
(5,968)
|
(6,861)
|
Other
expenses
|
|
(7,336)
|
(6,479)
|
|
|
----------
|
----------
|
Total
expenditure
|
|
(13,304)
|
(13,340)
|
|
|
-----------
|
-----------
|
Operating
loss before finance costs and taxation
|
|
(15,430)
|
(83,723)
|
|
|
-----------
|
-----------
|
Net
finance costs
|
|
|
|
Interest
income
|
|
2,051
|
807
|
Finance
costs
|
|
(12,617)
|
(11,116)
|
|
|
-----------
|
-----------
|
|
|
(10,566)
|
(10,309)
|
|
|
-----------
|
-----------
|
Loss
before taxation |
|
(25,996)
|
(94,032)
|
|
|
|
|
Taxation
|
|
(71)
|
(345)
|
|
|
----------
|
----------
|
Loss for
the year |
|
(26,067)
|
(94,377)
|
|
|
----------
|
----------
|
Other
comprehensive income
|
|
|
|
Items
that are or may be reclassified subsequently to profit or
loss
|
|
|
|
Movement
in fair value of effective interest rate swap
|
|
(843)
|
723
|
|
|
----------
|
----------
|
Total
comprehensive loss for the year
|
|
(26,910)
|
(93,654)
|
|
|
----------
|
----------
|
|
|
|
|
Basic
and diluted earnings per share
|
|
(3.7)p
|
(13.1)p
|
EPRA
earnings per share |
|
5.1p |
4.8p |
All of the
profit and total comprehensive income or losses for the year is
attributable to the owners of the Group.
All items
in the above statement derive from continuing
operations.
Balanced
Commercial Property Trust Limited
Consolidated
Balance Sheet (audited)
|
As
at
31
December
2023
£’000
|
As
at
31
December 2022
£’000
|
Non-current
assets
|
|
|
Investment
properties
|
936,993
|
1,075,082
|
Trade and
other receivables
|
14,354
|
20,372
|
|
------------
|
------------
|
|
951,347
|
1,095,454
|
|
------------
|
------------
|
Current
assets |
|
|
Investment properties held for sale |
71,277
|
-
|
Trade and
other receivables
|
12,005
|
12,811
|
Interest
rate swap asset
|
-
|
1,030
|
Cash and
cash equivalents
|
41,717
|
54,837
|
|
------------
|
------------
|
|
124,999
|
68,678
|
|
------------
|
------------
|
Total
assets |
1,076,346
|
1,164,132
|
|
------------
|
------------
|
|
|
|
Current
liabilities |
|
|
Trade and
other payables
|
(17,067)
|
(21,140)
|
Interest-bearing
loan
|
(259,689)
|
(49,889)
|
|
------------
|
------------
|
|
(276,756)
|
(71,029)
|
Non-current
liabilities |
|
|
Trade and other payables |
(2,774)
|
(2,250)
|
Interest-bearing
loans
|
(26,777)
|
(259,388)
|
|
------------
|
------------
|
|
(29,551)
|
(261,638)
|
|
------------
|
------------
|
Total
liabilities |
(306,307)
|
(332,667)
|
|
------------
|
------------
|
Net
assets |
770,039
|
831,465
|
|
------------
|
------------
|
|
|
|
Represented
by: |
|
|
Share
capital
|
7,994
|
7,994
|
Special
reserve
|
485,840
|
485,840
|
Capital
reserve – investments sold
|
62,109
|
75,005
|
Capital
reserve – investments held
|
97,583
|
146,160
|
Hedging
reserve
|
-
|
1,030
|
Revenue
reserve
|
116,513
|
115,436
|
|
------------
|
------------
|
Equity
shareholders’ funds |
770,039
|
831,465
|
|
------------
|
------------
|
Net asset
value per share |
109.8p
|
118.5p
|
EPRA
net tangible assets per
share |
109.8p
|
118.4p
|
Balanced
Commercial Property Trust Limited
Consolidated
Statement of Changes in Equity
for
the year ended 31 December 2023
(audited)
|
Share
Capital
£’000
|
Special
Reserve
£’000
|
Capital
Reserve
-
Investments
Sold
£’000
|
Capital
Reserve – Investments
Held
£’000
|
Hedging
Reserve
£’000
|
Revenue
Reserve
£’000
|
Total
£’000
|
At
1 January 2023
|
7,994
|
485,840
|
75,005
|
146,160
|
1,030
|
115,436
|
831,465
|
Total
comprehensive income for the year
|
|
|
|
|
|
|
|
Loss for
the year
|
-
|
-
|
-
|
-
|
-
|
(26,067)
|
(26,067)
|
Transfer of
prior years’
revaluation
to realised reserve
|
-
|
-
|
(8,363)
|
8,363
|
-
|
-
|
-
|
Transfer in
respect of unrealised losses on investment properties
|
-
|
-
|
-
|
(56,940)
|
-
|
56,940
|
-
-
|
Losses on
sale of investment properties realised
|
-
|
-
|
(4,533)
|
-
|
-
|
4,533
|
-
-
|
Movement in
fair value of interest rate swap
|
-
|
-
|
-
|
-
|
(843)
|
-
|
(843)
|
Transfer of
loss on maturity of interest rate swap
|
-
|
-
|
-
|
-
|
(187)
|
187
|
-
|
Total
comprehensive income for the year
|
-
|
-
|
(12,896)
|
(48,577)
|
(1,030)
|
35,593
|
(26,910)
|
|
|
|
|
|
|
|
|
Transactions
with owners of the Company recognised directly in
equity
|
|
|
|
|
|
|
|
Dividends
paid
|
-
|
-
|
-
|
-
|
-
|
(34,516)
|
(34,516)
|
At
31 December 2023
|
7,994
|
485,840
|
62,109
|
97,583
|
-
|
116,513
|
770,039
|
Consolidated
Statement of Changes in Equity
for
the year ended 31 December 2022
(audited)
|
Share
Capital
£’000
|
Special
Reserve
£’000
|
Capital
Reserve
-
Investments
Sold
£’000
|
Capital
Reserve – Investments
Held
£’000
|
Hedging
Reserve
£’000
|
Revenue
Reserve
£’000
|
Total
£’000
|
At
1 January 2022
|
7,531
|
544,813
|
75,010
|
275,256
|
307
|
114,603
|
1,017,520
|
Total
comprehensive income for the year
|
|
|
|
|
|
|
|
Loss for
the year
|
-
|
-
|
-
|
-
|
-
|
(94,377)
|
(94,377)
|
Movement in
fair value of interest rate swap
|
-
|
-
|
-
|
-
|
723
|
-
|
723
|
Transfer in
respect of unrealised losses on investment properties
|
-
|
-
|
-
|
(129,096)
|
-
|
129,096
|
-
-
|
Losses on
sale of investment properties realised
|
-
|
-
|
(5)
|
-
|
-
|
5
|
-
|
Total
comprehensive income for the year
|
-
|
-
|
(5)
|
(129,096)
|
723
|
34,724
|
(93,654)
|
|
|
|
|
|
|
|
|
Transactions
with owners of the Company recognised directly in
equity
|
|
|
|
|
|
|
|
Transfer
from share capital to special reserve
|
463
|
(463)
|
-
|
-
|
-
|
-
|
-
|
Buyback to
Treasury
|
-
|
(58,510)
|
-
|
-
|
-
|
-
|
(58,510)
|
Dividends
paid
|
-
|
-
|
-
|
-
|
-
|
(33,891)
|
(33,891)
|
At
31 December 2022
|
7,994
|
485,840
|
75,005
|
146,160
|
1,030
|
115,436
|
831,465
|
|
|
|
|
|
|
|
|
Balanced
Commercial Property Trust Limited
Consolidated
Statement of Cash Flows (audited)
|
Year
ended 31 December 2023
|
Year
ended 31 December 2022
|
|
£’000
|
£’000
|
Cash flows from operating activities |
|
|
Loss
before taxation
|
(25,996)
|
(94,032)
|
Adjustments
for:
|
|
|
Finance
costs
|
12,617
|
11,116
|
Interest
income
|
(2,051)
|
(807)
|
Unrealised
losses on revaluation of investment properties
|
56,940
|
129,096
|
Losses on
sale of investment properties realised
|
4,533
|
5
|
Decrease/(increase)
in operating trade and other receivables
|
6,840
|
(5,032)
|
(Decrease)/increase
in operating trade and other payables
|
(4,013)
|
3,412
|
|
-----------
|
-----------
|
Cash
generated from operations
|
48,870
|
43,758
|
|
-----------
|
-----------
|
Interest
received
|
2,035
|
807
|
Interest
and bank fees paid
|
(10,902)
|
(10,987)
|
Taxation
paid
|
(71)
|
(345)
|
|
-----------
|
-----------
|
|
(8,938)
|
(10,525)
|
|
-----------
|
-----------
|
Net cash
inflow from operating activities
|
39,932
|
33,233
|
|
-----------
|
-----------
|
Cash flows
from investing activities
|
|
|
Purchase of investment properties
|
(884)
|
(812)
|
Sale of
investment properties
|
14,300
|
-
|
Capital
expenditure on investment properties
|
(8,021)
|
(23,258)
|
|
-----------
|
-----------
|
Net
cash inflow/(outflow) from investing activities
|
5,395
|
(24,070)
|
|
-----------
|
-----------
|
Cash flows
from financing activities
|
|
|
Dividends
paid
|
(34,516)
|
(33,891)
|
Issue
costs for loan facility extension and Barclays/HSBC
agreement
|
(3,931)
|
(6)
|
Repayment
of Barclays loan
|
(50,000)
|
-
|
Drawdown
of Barclays/HSBC loan
|
30,000
|
-
|
Buybacks
to Treasury
|
-
|
(58,510)
|
|
-----------
|
-----------
|
Net
cash outflow from financing activities
|
(58,447)
|
(92,407)
|
|
-----------
|
-----------
|
Net
decrease in cash and cash equivalents
|
(13,120)
|
(83,244)
|
Cash and
cash equivalents at the beginning of the year
|
54,837
|
138,081
|
|
-----------
|
-----------
|
Cash
and cash equivalents at the end of the year
|
41,717
|
54,837
|
|
-----------
|
-----------
|
Balanced
Commercial Property Trust Limited
Principal
Risks and Future Prospects
The Board
applies the principles detailed in the internal control guidance
issued by the Financial Reporting Council and has established an
ongoing process designed to meet the particular needs of the
Company in managing the risks and uncertainties to which it is
exposed.
It has
been another challenging year, which continues to be marked by an
elevated cost-of-living and geopolitical events such as the war in
Ukraine and the escalation of
tensions in the Middle
East.
Against
this background, we have continued to see higher levels of
inflation in the UK, albeit the rate has slowed sharply as monetary
policy continues to work through the economy, and it is far from
11.1 per cent peak in October
2022.
In
response, the Bank of England
continued to raise interest rates which at the time of writing have
stabilised at 5.25 per cent.
This
volatile economic environment has had an ongoing effect on many of
our principal risks during the year and the Board met regularly
with the Managers to assess these risks and how they could be
managed.
The
principal risks and uncertainties faced by the Company are set out
in the table below.
The Audit
and Risk Committee seeks to mitigate and manage these risks and
uncertainties through continual review, policy-setting and
enforcement of contractual obligations, as well as a review of the
Internal Control reports prepared in accordance with ISAE 3402 and
AAF(01/20).
To
mitigate investment and strategic risks the Board regularly
monitors the investment environment and the management of the
Company’s property portfolio. The Managers seek to alleviate the
portfolio risks through active asset management, monitoring key
risk metrics and carrying out due diligence on prospective tenants
and asset acquisitions. All of the properties in the portfolio are
insured.
As well as
considering current risks, the Audit and Risk Committee, Board and
the Investment Managers carry out a separate assessment of emerging
risks when reviewing strategy and evaluate how these could be
managed or mitigated. The line between current and emerging risks
is often blurred and many of the emerging risks identified are
already being managed to some degree where their effects are
beginning to impact.
The
principal emerging risks identified are outlined below:
Economic
and geopolitical events have been a catalyst for higher levels of
inflation and consecutive interest rate rises, which have slowed
economic growth. Interest rates have increased from 0.25 per cent
to 5.25 per cent in the last two and a half years. The Bank of
England held the rate at 5.25 per
cent at its September 2023 meeting,
breaking the run of 14 consecutive hikes and consensus estimates
are currently forecasting a gradual cut in the base rate from the
second half of 2024.
Against
this background, sentiment for real estate as an asset class has
been poor, given the high income returns available from cash and
fixed income.
Property
valuations have been marked down to reflect the risk of premium for
investing in property (as an illiquid asset) in a higher interest
rate environment.
In
addition, the increased cost of debt has led to weak liquidity in
the real estate capital markets.
The ESG
agenda is a very prominent one and continues to grow in its
importance to shareholders, future investors, our customers and the
wider community. We have made significant progress in this area and
we intend to continue to do so. The increasing market attention
being paid to climate risk, to net zero carbon ambition and to
social impact have been notable features of the evolving agenda
over recent years and those need to be considered more explicitly
in property investment and management activity.
Failure to
respond to the evolving regulatory requirements and public
expectations would be reputationally damaging and could have a
negative effect on property valuations leaving some properties
difficult to let.
The
structural change in the office market continues to evolve
following Covid-19. There
is a clear focus on higher quality space in central locations, as
companies look to offer a more structured hybrid model of operation
where strong ESG and wellbeing credentials are essential. This has
been at the expense of lower quality stock and a two-tier market
has emerged with the rebasing of both capital values and rents.
This is still developing and continues to be monitored but investor
sentiment to offices is poor with few active buyers in the market,
and this is impacting on pricing.
There
continues to be an increasing emerging risk from cyber threats. As
an externally managed investment company we are dependent on the
controls and systems of the Managers and other third-party
providers. The Board reviews on an annual basis, the systems and
procedures that they have in place to control these
threats.
The
principal risks and uncertainties faced by the Company, and the
Board’s mitigation approach, are described in the table
below.
Highest
Risks
|
Mitigation
|
Investment
Performance Risk
Unfavourable
markets, poor stock selection, including inappropriate asset
allocation and underperformance against the benchmark. This risk
may be exacerbated by gearing levels. The outlook for the office
sector capital markets is challenging.
Economic
backdrop of inflationary pressures, higher interest rates and the
risk of an economic recession.
A
relatively illiquid investment market.
ESG risk
attached to the developing regulatory backdrop and capital
expenditure required to maintain compliance.
|
The
investment performance, gearing and income forecasts are reviewed
with the Investment Managers at each Board
Meeting.
The
Managers provide regular information on the expected level of
rental income that will be generated from underlying
properties.
The
portfolio is well diversified by geography and sector and the
exposure to individual tenants is monitored and managed to ensure
there is no over exposure.
The
Company sold £14.3 million of offices during
the year and exposure at the year-end was 26.5 per
cent.
Post year-end, the Company sold a further £54.6 million of offices
with the current exposure at 22.2 per cent.
The
Managers in-house ESG team continually monitor regulatory
background and best practice standards, while the overall quality
of the portfolio provides some protection against
this.
All
portfolio assets have been subject to Net Zero Carbon assessments
alongside modelling of the interventions required to meet hardening
Minimum Energy Efficiency Standards thresholds. All actions
scheduled for implementation in the 2023 financial year have been
delivered or progressed as detailed in the ESG Report.
There has
been significant leasing activity and a number of lease renewals
completed during the year particularly in the industrial portfolio
and St Christopher’s Place, which has helped performance during a
period of falling valuations. The portfolio offers significant
in-built income growth, as evidenced by the reversionary yield of
6.2 per cent.
|
Risk
increased in the year under review
|
Discount/Premium
Risk
Share
price of the investment company is lower/higher than the NAV. As a
result of such imbalances, the attractiveness of the Company to
investors is diminished.
The
discount continues to be wide (34 per cent at the year-end but
narrowing to 28.3 per cent on 25 April 2024) in an environment of
higher interest rates where high income returns can be achieved
through cash and income products. Investor sentiment towards real
estate as an asset class is relatively weak, and the office sector
in particular.
.
|
The
discount is reported to and reviewed by the Board on an ongoing
basis. Share buybacks as a means of narrowing the discount or as an
attractive investment for the Company are considered and weighed up
against the risks as alternatives. The position is monitored by the
Managers and Brokers on a daily basis and any material changes are
investigated and communicated to the Board. The
Company has paused share buybacks since September 2022, with the
preservation of cash and maintaining lower gearing levels taking
precedence in current markets.
Investors
have access to the Managers and the underlying team who will
respond to any queries they have on the discount. The Managers
engage with the shareholder base on a quarterly basis to update on
Net Asset Value performance. The Managers also attend ad hoc
meetings with shareholders as required, as well as various industry
events to promote the Company to current and prospective
investors.
The
Brokers and the Managers’ sales team liaise with current and
prospective investors to try to generate demand for the Company’s
shares.
|
Risk
unchanged in the year under review
|
Financial
Risk Management
Risk of
financial or reputational damage due to a failure to manage
appropriately financial risk.
This
includes management of cash resources and debt.
The
company’s principal £260 million debt facility expires on 31
December 2024 and a £100 million facility with Barclays was due to
expire in July 2024. Early action on this was required.
|
The level
of cash is continually monitored by the Managers. A financial model
is maintained, which includes a five-year cash flow forecast and is
reviewed at quarterly Board meetings.
The cash
position is also reviewed by the Board on a monthly basis as part
of the dividend approval process.
Loan
covenants are monitored carefully by the Managers and reviewed at
least quarterly at Board meetings.
The
Company entered into a two-year £320 million loan agreement in
September 2023, with the option of two one-year extensions. This is
a two-tiered facility with Barclays and HBSC which includes a £60
million revolving credit facility and a term loan which takes the
form of a commitment to provide up to £260 million to repay the
existing loan with L&G, which is due to mature in 2024. As part
of this process, the
£100
million facility with Barclays was paid down and
cancelled.
In the
current interest rate environment, drawing down the new term loan
in full will be more expensive than the current debt and the
interest would have to be fixed using an interest rate swap. The
Company is therefore looking to reduce its gearing exposure through
property sales, and the new loan provides optionality on the
gearing levels post 2024.
|
Risk
decreased in the year under review
|
Product
Strategy Risk
Risk
that the Product Strategy (including investment guidelines and
policies) lacks sustainability or is no longer appealing to the
market.
Risk that
the strategy is not clearly defined/ articulated or directed to the
correct target audience.
The
Company has a Continuation vote in 2024.
ESG
related initiatives are a core part of the long-term
strategy.
This was
recognised as a significant area of risk for the Company in 2022
and the rating therefore remains unchanged during the
year.
|
The
underlying investment strategy is kept under constant appraisal and
the Board has a strategy session annually, in conjunction with the
Manager. The strategy is communicated to interested parties on a
regular basis via stock exchange announcements, the interim and
annual report and investor/consultant calls and visits.
The
portfolio has a material exposure to the office sector which has
underperformed. The Manager has therefore commenced a rebalancing
exercise and has sold £68.9 million of office property to date
(£54.6 million of which was post year-end), with further sales in
this sector anticipated.
The
Continuation Vote and the Strategic Review, announced following the
year end, are covered in the Chairman’s Statement. The Board looks
forward to updating shareholders on the progress of the Strategic
Review and the arrangements for the Continuation Vote in due
course, noting that there is currently no certainty as to the
outcome of the Strategic Review
There is
significant ongoing work on the Company’s ESG strategy. A
peer-group leading GRESB (Global Real Estate Sustainability
Benchmark) score in 2023 underlines the efforts made in ensuring
ESG is fully integrated into the investment and management
process.
ESG
enhancements form a key element of asset-level strategies including
the degasification of buildings, the installation of solar
photovoltaic systems and incremental improvements to energy
efficiency through cyclical refurbishment of holdings.
|
Risk
unchanged in the year under review
|
Viability
Assessment and Statement
The Board
conducted this review over a five-year time horizon, a period
thought to be appropriate for a Company investing in commercial
property with a long-term investment outlook and with an average
unexpired lease length of 4.7 years. The Company has its principal
borrowings with L&G secured until 31
December 2024 and entered into a new agreement with Barclays
and HSBC in September 2023 for a term
loan of up to £260 million which can only be used to repay the
L&G loan.
This new
loan is currently available until September
2025 with the option of two one-year extensions.
The
Company is also subject to a Continuation Vote in 2024, which will
be held after the completion of the Board's Strategic Review
(expected to be in Q3 2024). The date of the vote is therefore yet
to be determined. If the Continuation Vote is not passed, the
Directors are required to put forward proposals for the
reconstruction, reorganisation or winding-up of the Company to the
shareholders for their approval within twelve months following the
date of the Continuation Vote. These proposals may or may not
involve winding-up the Company or liquidating all or part of the
Company’s then existing portfolio of investments and, accordingly,
failure to pass a Continuation Vote in 2024 will not necessarily
result in the winding-up of the Company or liquidation of all or
some of its investments. There is currently no certainty as to the
outcome of the Strategic Review.
The
Viability Statement has been prepared on the assumption that the
Board recommends continuation of the Company in its current form
and that shareholders approve the Board’s
recommendation.
The
assessment also takes into account the principal risks and
uncertainties faced by the Company which could threaten its
objective, strategy, future performance, liquidity and
solvency.
The major
risks identified as relevant to the viability assessment were those
relating to a further downturn in the UK commercial property market
and its resultant effect on the valuation of the investment
property portfolio, the level of rental income being received and
the effect that this would have on cash resources and financial
covenants. The UK commercial real estate market has experienced a
downturn since the second half of 2022, driven by geopolitical
challenges, high levels of inflation, rising interest rates and a
slowdown of economic growth.
There has
been significant repricing of property valuations with the sector
experiencing capital falls of 21.7 per cent over the eighteen
months to 31 December 2023, as
measured by the MSCI UK Quarterly Property Index
(‘MSCI’).
A stress
test was conducted over the five-year period to April 2029, on very prudent assumptions. Taken
into account that the portfolio has already experienced a
significant valuation adjustment in the last 18 months, the
modelling uses a severe but plausible downside scenario which takes
into account the illiquid nature of the Company’s property
portfolio, further significant future falls in the investment
property values, the availability of borrowings and substantial
falls in property income receipts.
The
viability assessment modelling used the following
assumptions:
-
The most
negative of all property capital returns as measured by MSCI over
one to seven years using historic data that goes back to 1985, with
capital values falling by as much as 36.6 per
cent.
This takes
into account that the property market has already experienced
capital falls of 21.7 per cent in the last 18 months and therefore
the most significant fall from the year end is a further 14.9 per
cent. Under this approach, there will also be years where a modest
recovery is forecast.
-
The full
£260 million term loan with Barclays and HSBC is drawn down to
repay the L&G loan at the end of 2024.
-
Debt
refinanced at 1 per cent above the current long-term debt forecasts
and assumed to be available for the full assessment
period.
-
Loan
covenant tests remain the same as those currently in place
following a refinancing of debt.
-
Tenant
defaults of 10 per cent for the first year, followed by 5 per cent
for the following year before returning to normal levels
thereafter.
-
Tenant
lease breaks are exercised at the earliest opportunity, followed by
a substantial void period.
From
between 9 and 37 months (depending on the property).
-
Dividends
are maintained at current levels.
-
Capital
expenditure of c.£50 million over the five-year period, £4.5
million per annum relating to ESG related expenditure.
The
results of this modelling were as follows:
|
NAV
|
Dividend
Cover
|
LTV
(Net)
|
2024
|
90.4p
|
67.8%
|
26.3%
|
2025
|
89.8p
|
47.6%
|
29.1%
|
2026
|
93.9p
|
56.9%
|
30.5%
|
2027
|
92.2p
|
82.8%
|
31.7%
|
2028
|
93.2p
|
93.4%
|
32.0%
|
Even under
this negative scenario the Company remains viable with loan
covenant tests forecast to be passed and the current dividend rate
maintained. The level of the NAV remains positive under this
negative scenario.
The
Company continues to have sufficient assets to ensure that it could
pay down its debt in an orderly fashion through sales should it
choose to do so and would also have the option of reducing the
level of dividends to preserve cash.
In the
ordinary course of business, the Board reviews a detailed financial
model on a quarterly basis, incorporating forecast returns for the
portfolio, projected out for five years. This model uses realistic
assumptions and factors in any potential capital
commitments.
The
Company's £260 million loan with L&G is available until
December 2024. The market value of
the properties secured under this loan would have to drop by a
further 20 per cent from 31 December
2023 valuations before breaching the Loan to Value (‘LTV’)
test on the facility. The loan interest cover test would only be
breached by a fall in net rental income of 67 per cent. We are
comfortable that these covenants will continue to be
met.
The
Company’s £60 million revolving credit facility with Barclays and
HSBC (£30 million of which was drawn down at the year end and has
subsequently been repaid) is forecast to meet covenant tests during
2024. The market value of the properties secured under this loan
would have to drop by 36 per cent from 31
December 2023 valuations before breaching the LTV test on
the facility. The loan interest cover test would only be breached
by a fall in net rental income of 30 per cent. The Board is
comfortable that these covenants can continue to be met.
The
Company has a further £68 million of properties which are not
secured against any lender and could be transferred to the lenders
to support covenant tests if required.
Based on
this assessment, and in the context of the Company’s business
model, strategy and operational arrangements set out above, the
Directors have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the five-year period to April
2029.
Balanced
Commercial Property Trust Limited
Going
Concern
In
assessing the going concern basis of accounting the Directors have
had regard to the guidance issued by the Financial Reporting
Council. They have reviewed detailed cash flow, income and expense
projections in order to assess the Company’s ability to pay its
operational expenses, loan interest and dividends. The Directors
have examined significant areas of possible financial risk
including cash and cash requirements, refinancing of loans and
review of debt covenants, in particular those relating to loan to
value and interest cover.
At
31 December 2023, the Company was in
a net current liability position because the current L&G term
loan is due for repayment in December
2024.
In
September 2023, the Company signed up
to a new £260 million term loan with Barclays/HSBC which can only
be drawn to repay the current L&G loan.
This
term loan agreement expires in September
2025 and has the option of two one-year
extensions.
Furthermore,
the Directors note that section 9 of the Association of Investment
Companies’ Statement of Recommended Practice states it is usually
more appropriate to prepare the financial statements on a going
concern basis unless a Continuation Vote has been held and
shareholders have voted against continuation.
On this
basis, the Board believes it is appropriate to adopt the going
concern basis in preparing the financial statements.
Although
the Board is confident that the Company will have sufficient
financial resources to meet its obligations due within twelve
months from the date of approval of the financial statements, the
Continuation Vote is due to take place in 2024. If the Continuation
Vote is not passed by shareholders, then the Board will be required
to bring proposals to shareholders that may include a restructuring
or wind down of the Company in its current form. The Directors’
note that the ultimate decision on the future state of the Company
is outside the control of the Directors’ and will be known only
after the Continuation Vote. The uncertain future outcome of the
Continuation Vote and the impact this has on the Company’s future
state indicates the existence of a material uncertainty that may
cast significant doubt on the Company's ability to continue as a
going concern. The Company’s longer-term viability is considered in
the Viability Assessment and Statement above.
The
auditors PwC have drawn attention to the note in the consolidated
financial statements discussing the material uncertainty regarding
going concern, but their opinion is not modified in respect of this
matter.
Statement
of Directors' Responsibilities in Respect of the Annual Report and
Accounts
In
accordance with Chapter 4 of the Disclosures Guidance and
Transparency Rule 4.1.12, each of the Directors confirm that to the
best of their knowledge:
-
The
financial statements contained within the Annual Report
and Financial Statements for the year ended 31 December 2023, of which this statement of
results is an extract, prepared in accordance with International
Financial Reporting Standards as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Group and the undertakings included in the
consolidation taken as a whole and comply with The Companies
(Guernsey) Law, 2008; and
-
Within
the Annual Report
and Financial Statements for the year ended 31 December 2023, the Strategic Report
(comprising the Chairman’s Statement; Business Model and Strategy;
Promoting the Success of the Company; Key Performance Indicators,
Principal Risks and Future Prospects; Managers’ Review; Property
Portfolio and Environmental, Social and Governance) and the
Directors’ Report includes a fair review of the development and
performance of the business and the position of the Group and the
undertakings included in the consolidation taken as a whole
together with a description of the principal risks and
uncertainties that they face; and
-
The
consolidated financial statements and Directors’ Report within the
Annual Report and Accounts for the year ended 31 December 2023 include details of related party
transactions; and
-
The
Annual Report and consolidated financial statements, taken as a
whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
On
behalf of the Board
Paul
Marcuse
Director
26 April 2024
Balanced
Commercial Property Trust Limited
Notes
to the audited Consolidated Financial
Statements
for
the year ended 31 December
2023
-
Financial
Risk Management
The
Group’s investment objective is to provide ordinary shareholders
with an attractive level of income together with the potential for
capital and income growth from investing in a diversified UK
commercial property portfolio.
Consistent
with that objective, the Group holds UK commercial property
investments. In addition, the Group’s financial instruments during
the year comprised interest-bearing loans, cash, trade receivables
and payables that arise directly from its operations. The Group
does not have exposure to any derivative instruments at
31 December 2023.
The
interest rate swap entered into to hedge the interest paid on the
£50 million Barclays term loan expired in July 2023.
The Group
is exposed to various types of risk that are associated with
financial instruments. The most important types are credit risk,
liquidity risk, interest rate risk and market price risk. There is
no foreign currency risk as all assets and liabilities of the Group
are maintained in pounds sterling.
The Board
reviews and agrees policies for managing the Group’s risk exposure.
These policies are summarised below and have remained unchanged for
the year under review. These disclosures include, where
appropriate, consideration of the Group’s investment properties
which, whilst not constituting financial instruments as defined by
IFRS, are considered by the Board to be integral to the Group’s
overall risk exposure.
Credit risk
Credit
risk is the risk that a counterparty will default on its
contractual obligation and will cause a financial loss for the
other party by failing to discharge an obligation, and principally
arises from the Group’s receivables from customers. The Group has
no significant concentrations of credit risk as the Group has a
diverse tenant portfolio. The largest single tenant at the year-end
accounted for 4.6 per cent (2022: 4.7 per cent) of the current
annual rental income.
The
Managers have a credit team which has set out policies and
procedures for managing exposure to credit. Some of the processes
and policies include:
-
an
assessment of the credit worthiness of the lessee and its ability
to pay is performed before lease is granted;
-
where
appropriate, guarantees and collateral is held against such
receivables;
-
after
granting the credit, the credit department assesses the age
analysis on a monthly basis and follows up on all outstanding
payments; and
-
management
of the credit department determine the appropriate provision and
which amounts should be written off.
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.
Deposits
refundable to tenants may be withheld by the Group in part or in
whole if receivables due from the tenant are not settled or in case
of other breaches of contract.
The fair
value of cash and cash equivalents as at 31
December 2023 and 31 December
2022 approximates the carrying value.
Cash
balances are held and derivatives are agreed only with financial
institutions with a credit rating of A or better. Bankruptcy or
insolvency of such financial institutions may cause the Group’s
ability to access cash placed on deposit to be delayed or limited.
Should the credit quality or the financial position of the banks
currently employed significantly deteriorate, cash holdings would
be moved to another bank. The utilisation of credit limits is
regularly monitored. As at
31 December 2023, the Group's cash
balances are held with Barclays Bank PLC.
Liquidity risk
Liquidity
risk is the risk that the Group will encounter in realising assets
or otherwise raising funds to meet financial commitments. The
Group’s investments comprise UK commercial property. Property and
property-related assets in which the Group invests are not traded
in an organised public market and may be illiquid. As a result, the
Group may not be able to liquidate quickly its investments in these
properties at an amount close to their fair value in order to meet
its liquidity requirements.
The
Group’s liquidity risk is managed on an ongoing basis by the
Managers and monitored on a quarterly basis by the Board. In order
to mitigate liquidity risk, the Group aims to have sufficient cash
balances (including the expected proceeds of any property sales) to
meet its obligations for a period of at least twelve
months.
Interest rate risk
Some of
the Group’s financial instruments are interest bearing. They are a
mix of both fixed and variable rate instruments with differing
maturities. As a consequence, the Group is exposed to interest rate
risk due to fluctuations in the prevailing market rate.
The
Group’s exposure to interest rate risk relates primarily to its
debt obligations. Debt obligations and the interest rate risk they
confer to the Group is considered by the Board on a quarterly
basis. Debt obligations consist of a £260 million L&G loan on
which the rate has been fixed at 3.32 per cent until the maturity
date of 31 December 2024. Up until
14 September 2023, the Group also had
a £50 million Barclays term loan on which the rate was fixed
through an interest rate swap at 2.367 per cent per annum (the swap
expired on 31
July 2023). This loan was repaid and cancelled on
14 September 2023.
The Group
entered into a new £60 million revolving credit facility (RCF) with
Barclays/HSBC in September 2023 and
£30 million of this facility was drawn at 31
December 2023.
Interest
payable on this new RCF is variable and based on SONIA plus 1.80
per cent per annum.
The RCF
pays an undrawn commitment fee of 0.63 per cent per annum. The
Group also entered into a £260 million term loan commitment with
Barclays/HSBC which is currently undrawn. This term loan paid an
undrawn commitment fee of 0.45 per cent per annum for the period to
31 December 2023.
When the
Group retains cash balances, they are ordinarily held on
interest-bearing deposit accounts. The benchmark which determines
the interest income received on interest-bearing cash balances is
the bank base rate of the Bank of England which was 5.25 per cent as at
31 December 2023 (2022: 3.5 per
cent). The Company’s policy is to hold cash in variable rate or
short-term fixed rate bank accounts and not usually in fixed rate
securities with a term greater than three months.
Market price risk
The
Group’s strategy for the management of market price risk is driven
by the investment policy. The management of market price risk is
part of the investment management process and is typical of
commercial property investment. The portfolio is managed with an
awareness of the effects of adverse valuation movements through
detailed and continuing analysis, with an objective of maximising
overall returns to shareholders. Investments in property and
property-related assets are inherently difficult to value due to
the individual nature of each property. As a result, valuations are
subject to substantial uncertainty. There is no assurance that the
estimates resulting from the valuation process will reflect the
actual sales price even where such sales occur shortly after the
valuation date. Such risk is minimised through the appointment of
external property valuers.
-
Share
Capital
There were
701,550,187 Ordinary Shares in issue at 31
December 2023 (2022: 701,550,187).
At
31 December 2023, the Company held
97,815,921 Ordinary Shares in treasury (2022:
97,815,921).
-
Basic
and diluted earnings per share
The basic
and diluted earnings per Ordinary Share are based on the loss for
the year of £26,067,000 (2022: loss
£94,377,000)
and on 701,550,187 (2022: 720,956,458) Ordinary Shares, being the
weighted average number of shares in issue during the
year.
-
List of
Subsidiaries
The
Company owns 100 per cent of the issued ordinary share capital of
FCPT Holdings Limited, a company registered in Guernsey. The
principal activity of FCPT Holdings Limited is to act as a holding
company and it owns 100 per cent of the ordinary share capital of
F&C Commercial Property Holdings Limited, a company registered
in Guernsey whose principal business is that of an investment and
property company, and 100 per cent of the ordinary share capital of
Winchester Burma Limited, a company registered in Guernsey whose
principal business is that of an investment and property
company.
The
Company owns 100 per cent of the issued ordinary share capital of
SCP Estate Holdings Limited, a company registered in Guernsey. The
principal activity of SCP Estate Holdings Limited is to act as a
holding company and it owns 100 per cent of the ordinary share
capital of SCP Estate Limited, a company registered in Guernsey
whose principal business is that of an investment and property
company, and 100 per cent of the ordinary share capital of Prime
Four Limited, a company registered in Guernsey whose principal
business is that of an investment and property company.
The
Company owns 100 per cent of the issued ordinary share capital of
Leonardo Crawley Limited, a company registered in Guernsey whose
principal business is that of an investment and property
company.
The
results of the above entities are consolidated within the Group
financial statements.
-
These are not
full statutory accounts. The full audited accounts for the year to
31 December 2023 will be sent to
shareholders and will be available for inspection at Trafalgar
Court, Les Banques, St Peter Port, Guernsey GY1 3QL, the registered
office of the Company, and from the Company’s website:
balancedcommercialproperty.co.uk
-
The
Annual General Meeting will be held in the building of the
Company's UK legal advisers, Dickson Minto WS, at Dashwood House,
69 Old Broad Street, London EC2M
1QS on Thursday 20 June 2024 at
12:30pm.
Alternative
Performance Measures
The
Company uses the following Alternative Performance Measures
(‘APMs’). APMs do not have a standard meaning prescribed by GAAP
and therefore may not be comparable to similar measures presented
by other entities.
Discount
or Premium – the
share price of an Investment Company is derived from buyers and
sellers trading their shares on the stock market. This price is not
identical to the NAV. If the share price is lower than the NAV per
share, the shares are trading at a discount. This could indicate
that there are more sellers than buyers. Shares trading at a price
above the NAV per share, are said to be at a premium.
|
|
2023
pence
|
2022
pence
|
Net Asset Value per share |
(a)
|
109.8
|
118.5
|
Share
price per share
(b)
|
72.5
|
88.5
|
Discount
(c = (b-a)/a)
(c)
|
(34.0)%
|
(25.3)%
|
Dividend
Cover on a cash basis – The
percentage by which Profits for the year (less gains/losses on
investment properties) adjusted by capital and rental lease
incentives amortisation and interest bearing loans amortisation of
set-up costs cover the dividends paid.
|
|
|
2023
|
2022
|
|
|
|
£’000
|
£’000
|
|
|
|
|
|
Loss for
the year |
|
|
(26,067)
|
(94,377)
|
Add back: |
Unrealised
losses on revaluation of investment properties
|
|
56,940
|
129,096
|
|
Losses on
sales of investment properties realised
|
|
4,533
|
5
|
|
Loss on
maturity of interest rate swap
|
|
187
|
-
|
|
Capital
and rental lease incentives amortisation
|
|
3,346
|
155
|
|
Interest
bearing loans amortisation of set-up costs
|
|
953
|
642
|
|
Set up
costs written-off on £100m Barclays loan
|
|
167
|
-
|
|
Set-up
costs of loan extension and £320m Barclays/HSBC loan
|
|
(3,931)
|
-
|
Profit
before investment losses and amortisation
|
(a)
|
36,128
|
35,521
|
Dividends |
|
(b)
|
34,516
|
33,891
|
Dividend
Cover on a cash basis (c= a/b)
|
(c)
|
104.7%
|
104.8%
|
Accounting
Dividend Cover – The
percentage by which profits for the year (less gains/losses on
investment properties and non-recurring other income) cover the
dividend paid.
|
|
|
2023
|
2022
|
|
|
|
£’000
|
£’000
|
|
|
|
|
|
Loss for
the year |
|
|
(26,067)
|
(94,377)
|
Add back: |
Unrealised
losses on revaluation of investment properties
|
|
56,940
|
129,096
|
|
Losses on
sales of investment properties realised
|
|
4,533
|
5
|
|
Loss on
maturity of interest rate swap
Other
income
|
|
187
(119)
|
-
(42)
|
Profit
before investment losses and other income
|
(a)
|
35,474
|
34,682
|
Dividends |
|
(b)
|
34,516
|
33,891
|
Accounting
Dividend Cover (c= a/b)
|
(c)
|
102.8%
|
102.3%
|
Dividend
Yield – The
dividends paid during the year divided by the share price at the
year end.
Net
Gearing –
Borrowings less cash divided by total assets (less current
liabilities and cash).
|
|
2023
|
2022
|
|
|
£’000
|
£’000
|
Interest
bearing loans
|
|
290,000
|
310,000
|
Less cash
and cash equivalents
|
|
(41,717)
|
(54,837)
|
Total
|
(a)
|
248,283
|
255,163
|
Total
assets less current liabilities and cash (excluding current
interest-bearing loan)
|
(b)
|
1,017,562
|
1,088,155
|
Net
Gearing (c=a/b)
|
(c)
|
24.4%
|
23.4%
|
Ongoing
Charges – All
operating costs incurred by the Group, expressed as a proportion of
its average Net Assets over the reporting year.
The costs
of buying and selling investments and derivatives are excluded, as
are interest costs, taxation, non-recurring costs and the costs of
buying back or issuing Ordinary Shares.
An
additional Ongoing Charge figure is calculated which excludes
direct operating property costs as these are variable in nature and
tend to be specific to lease events occurring during the
year.
|
|
2023
|
2022
|
|
|
|
£’000
|
£’000
|
|
|
|
|
|
|
Investment management fee |
|
5,968
|
6,861
|
|
Other expenses |
|
7,336
|
6,479
|
|
Less non-recurring costs – impairment provision |
|
(538)
|
478
|
|
Less other
non-recurring costs
|
(239)
|
(30)
|
|
Total
(a)
|
12,527
|
13,788
|
|
Average
net assets
(b)
|
811,005
|
991,293
|
|
Ongoing
charges (c=a/b)
(c)
|
1.54%
|
1.39%
|
|
|
|
|
|
|
|
|
|
2023
|
2022
|
|
|
|
£’000
|
£’000
|
|
|
|
|
|
|
Investment management fee |
|
5,968
|
6,861
|
|
Other expenses |
|
7,336
|
6,479
|
|
Less
direct operating property costs
|
(4,728)
|
(5,255)
|
|
Less non-recurring costs – impairment provision |
|
(538)
|
478
|
|
Less other
non-recurring costs
|
(239)
|
(30)
|
|
Total
(a)
|
7,799
|
8,533
|
|
Average
net assets
(b)
|
811,005
|
991,293
|
|
Ongoing
charges excluding direct operating
(c)
property
costs (c=a/b)
|
0.96%
|
0.86%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
(Property) Capital Return – The
change in property value during the year after taking account of
property purchases and sales and capital expenditure, calculated on
a quarterly time-weighted basis. The calculation is carried out by
MSCI Inc.
Portfolio
(Property) Income Return – The
income derived from a property during the year as a percentage of
the property value, taking account of direct property expenditure,
calculated on a quarterly time-weighted basis. The calculation is
carried out by MSCI Inc.
Portfolio
(Property) Total Return –
Combining the Portfolio Capital Return and Portfolio Income Return
over the year, calculated on a quarterly time-weighted basis. The
calculation is carried out by MSCI Inc.
Total
Return – The
theoretical return to shareholders calculated on a per share basis
by adding dividends paid in the year to the increase or decrease in
the Share Price or NAV. The dividends are assumed to have been
reinvested in the form of Ordinary Shares or Net Assets,
respectively, on the date on which they were quoted
ex-dividend.
|
|
2023
|
2022
|
NAV per share at start of year - pence |
|
118.5
|
135.1
|
NAV per share at end of year - pence |
|
109.8
|
118.5
|
Change in the year |
|
-7.3%
|
-12.3%
|
Impact of dividend reinvestments |
|
+4.0%
|
+3.1%
|
NAV total
return for the year |
|
-3.3%
|
-9.2%
|
|
|
|
|
|
|
|
|
|
2023
|
2022
|
Share price per share at start of year - pence |
|
88.5
|
105.0
|
Share price per share at end of year - pence |
|
72.5
|
88.5
|
Change in the year |
|
-18.1%
|
-15.7%
|
Impact of dividend reinvestments |
|
+5.6%
|
+4.0%
|
Share
price total return for the year |
|
-12.5%
|
-11.7%
|