London weighting pays off for F and C Commercial

F and C Commercial Property Trust just about achieved an increase in net asset value (NAV) per share total return in the first half of 2012 as property values declined.

The company's NAV total return for the six month period ended 30th June was 1.4%, slightly ahead of the 1.2% return of its benchmark index, the Investment Property Databank (IPD) All Quarterly and Monthly Valued Funds.

The ungeared total return from the property portfolio, before finance costs and corporate expenses, was 2.1%, which again gave the IPD return a beating.

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The company's overweight position in properties in Central London, where both shops and offices outperformed the broader market, stood the trust in good stead.

The total return from the company's retail properties during the period was 2.5% which compares with the benchmark total return of 0.4%.

F&C Commercial Property's office portfolio delivered a total return of 1.2%, under-performing the IPD benchmark return of 2.1%. The under-performance of the office sector was largely due to the South East office portfolio which produced a total return of minus 3.7% compared with a benchmark total return of minus 0.5%.

Unusually for an investment trust, the shares trade at a slight premium to NAV per share, ending the half-year trading at 104.2p versus a NAV per share of 98.9p. The end-June NAV was down from 100.5p at the end of 2011.

Both the benchmark and the portfolio recorded a fall in capital values, and overall returns were therefore driven by income, company Chairman Chris Russell said. The property portfolio was externally valued at £940.2m as at the end of June.

"Outside the capital, the picture was much weaker with total returns turning negative in the six month period for shopping centres, shops outside the South East and offices outside London," Russell revealed.

At the end of the reporting period, the company's borrowings were represented by £230m of secured bonds, which have been assigned an 'Aaa' rating by Moody's Investor Services and mature in 2015, and a £50m secured bank loan which is repayable in 2017. The company's level of gearing, net of cash, as at 30th June 2012 was 24.6%.

Since the end of June the group has entered into a new £30m committed bank facility which will mature on June 30th, 2014, in order to pay for its acquisition of some office blocks in Aberdeen.

The trust is expecting the UK commercial property market to continue to be affected by the uncertain economic environment and general level of risk aversion, with the trend of prime properties outperforming secondary properties continuing.

"Against this background, the managers will continue to take positive steps to protect the company's income stream in terms of covenant strength and lease length, and will continue to seek successful asset management initiatives and acquisitions of prime properties with attractive income characteristics," Russell said.

Half-year rental income eased to £29.58m from £31.73m in the first half of 2011. The company booked an unrealised loss of £7.35m on the revaluation of investment properties, which contrasted with the first half of last year, when it booked a gain of £19.00m on revalued properties. As a consequence, total income more than halved to £22.2m from £50.6m the year before.

Profit before tax tumbled to £9.44m from £38.36m the year before. Earnings per share plunged to 1.3p from 5.5p in the first half of 2011.

The group pays its dividends monthly and churned up halfpenny dividends every month in the first half of the year, giving an aggregate half-year dividend of 6.0p.

JH