CVAs hit F&C Commercial Property Trust – F&C Commercial Property Trust has published results for the year ended 31 December 2018. Highlights are:
- NAV total return 3.3% and share price total return of -4.3 per cent, both lagging the 6.2% return generated by the MSCI Quarterly Property Universe
- Portfolio total return of 4.0 per cent
- Dividend cover decreased to 80.2 per cent from 83.1 per cent (implying a revenue return of 4.81p)
- Yield on year-end share price of 4.8 per cent
- Maintained dividend at 6.0 pence per share for the 13th successive year and the board plans to maintain it again this year
- The share price at the year-end was 124.6p, representing a discount of 10.9%
Discussing the drivers of the portfolio’s performance, the company said that, in absolute terms, the most significant contributors to returns were:
- Winchester, Student Accommodation, Burma Road – reflecting the increased income to be received following its annual rent review.
- London, St Christopher’s Place Estate – continues to benefit from the high number of completed and ongoing initiatives that reached fruition at different stages during the period.
- Camberley, Building B, Watchmoor Park – sold during the year for GBP5.1 million, significantly ahead of the December 2017 valuation of GBP2.4 million.
- Manchester, Kings Street – successfully completed a number of leases; the building is now fully let.
Negative contributions came from:
- Reading, Thames Valley One and Two, Thames Valley Park – all of building one and majority of building two are void and were earmarked for sale. These sales completed in January 2019 and the valuations at 31 December 2018 were adjusted to reflect the final sale price. This sale removes the Company’s largest void and significantly reduces ongoing non-recoverable costs and capital expenditure.
- Newbury, Newbury Retail Park – reflecting the fact that the park has a number of Company Voluntary Arrangement’s (‘CVA’s’) in place. Poundworld has entered administration and the unit is now vacant.
- Solihull, Sears Retail Park – Homebase has a CVA in place which will result in their unit being vacated.
The valuation of Solihull fell by 13.0% and Newbury by 22.8% “There have been a number of high profile CVA’s, administrations and failures in the retail sector over the past year and this has had a direct effect on the company’s retail parks at Newbury and Solihull. New Look, Mothercare and Homebase have all entered CVA’s and Poundworld has gone into administration. This has resulted in the downward pressure on rents and, in some cases, the likely vacation of the properties.
The manager has produced a number of plans to manage this situation which could produce a positive outcome over the longer-term and negotiations are ongoing. There will be a short-term fall in rental income and there has been a fall in the market values of the properties to reflect this.”
Planned conversion to a REIT
The statement explains the background to the company’s recent decision to become a UK REIT: “Non-UK resident companies that have UK
property income, such as the property holding subsidiaries in the group, will be charged UK corporation tax from 6 April 2020, rather than being subject to UK income tax as they are at present. In addition, the board notes that from 6 April 2019 non-resident landlords who invest in UK properties, such as the group as it is currently structured, will be brought into the UK Capital Gains tax regime.”
Change of name
On 3 June 2019, if shareholders agree at the AGM, the company will become BMO Commercial Property Trust Limited. This brings it into line with many other former F&C trusts.
[It is painful to be owning retail property nowadays unless a significant proportion of your customers are tourists, as is the case with FCPT’s St Christopher’s Place investment. The valuation falls at Newbury and Solihull are fairly large but filling vacancies at acceptable rents will not be easy. This is where the manager’s asset management abilities will be tested.]
FCPT : CVAs hit F&C Commercial Property Trust