RNS Number:4760M
UK Balanced Property Trust Ltd(The)
21 November 2006
The UK Balanced Property Trust Limited
Interim Report
Preliminary Announcement
Period ended 30 September 2006
The UK Balanced Property Trust Limited
Chairman's Statement
The UK commercial property market enjoyed another strong period of capital
growth over the period with investor demand driving capital values up 6.3%*,
and contributing to a very healthy total return of 9.0%*. Demand for property
continues to come from a number of sources including UK institutions, overseas
investors and private investors. Offices have now become the favoured sector for
many investors as above average rental growth expectations, particularly in the
Central London markets, fuel investor demand, driving yields down and capital
values up.
Against this backdrop of strong underlying property performance and Company net
asset value growth of 6.3%, it is disappointing to report that the Company's
share price fell by 3.9%** over the period with a share price total return of
-1.6%** (dividends taken into account). Putting this into context, however, the
shares have returned 94.2%** in the 4.5 years since launch, against 38.0%** for
the FTSE All Share Index. It is possible that the share price is showing some
reaction to investors increasing appetite for risk as well as capital raising
in the sector.
The successful refinancing of the Company's long term borrowings in February
this year and the recent acquisition of a #24.8m property portfolio will improve
the Company's income position. The full effect of these transactions is yet to
come through but your Board will be reviewing the income position in due course.
The continued contraction in property yields has surprised many commentators,
albeit the rate of contraction has slowed recently. With the All Property
initial yield standing at a record low of 4.8%* in September against the 10 year
gilt yield at 4.5%** (as at 30th September), there is very little risk premium
for investing in real estate. In response to this we expect capital values will
drift marginally outwards over the next 3 years and income return will become
the main driver of total returns in this period.
Following their introduction on 1st January 2007 we expect a reasonable
proportion of the UK quoted real estate sector by market capitalisation to
convert to real estate investment trust (REIT) status over the course of the
year. We consider that the offshore property investment company sector will
continue to remain attractive to income investors in this environment given the
relatively high rate of dividend yield and the flexibility of the Company
structure.
* Investment Property Databank UK Monthly Index
** Datastream
The UK Balanced Property Trust Limited
Investment Manager's Report
Activity
During the period the Company completed the purchase of a #24.8m portfolio.
This was funded using cash generated from the sale of unit shop properties at
the end of the last financial year. The acquired portfolio consisted of 6
properties and was weighted 65% in the office sector, 25% in the industrial
sector and 10% in the retail sector. The acquisition is in keeping with the
strategy of gradually reducing the portfolio weighting in the unit shop
sub-sector. The net income yield on the acquisition, following the expiry of 2
rent free periods in December this year, is 5.9%.
The managers continue to focus on the asset management of each individual
property with the aim of protecting, and enhancing where possible, income and
capital values. Against the equivalent period last year the vacancy rate on the
portfolio has fallen from 3.0%*** to 2.1%***, very low in comparison to the
wider property market vacancy rate of 8.3%*. The ability to asset manage
properties will become increasingly important in an environment of slowing
capital returns.
As at 30 September 2006, the property portfolio was valued at #404.7m with an
annual income of c#24.4m, representing a running yield of 6.0%. The portfolio
held 100 properties diversified across the 3 main sectors of the commercial
property market and let to a broad base of tenants.
Performance
1. Net Asset Value (NAV)
The NAV increased from 146.02p as at 31 March 2006 to 155.27p as at 30
September 2006, an increase of 6.3%.
2. Total Return
During the period the return from the UK Balanced Property Trust Limited was
as follows:
Net Asset Value growth of 6.3%
Declared and proposed dividend distributions of 3.5625p
3. Share Price
The share price total return over the period was -1.6%* (including gross
dividends) with the share price falling by 3.9%* to stand at 150.00p* as at
30 September 2006. The FTSE All Share Index total return over the period was
1.7% and the FTSE Real Estate Index total return was 6.7%*.
Outlook
Survey indicators remain positive, suggesting GDP growth of around 2.7% in 2006,
a pickup from 1.9% in 2005. This reflects robust private consumption growth,
which has been supported by buoyant growth of labour income, and substantial
increases in both equity and house price indices. However, on a forward looking
basis, there are concerns that the increase in house prices has led to a
substantial increase in household indebtedness. In addition, public sector debt
has increased sharply in recent years, and self imposed fiscal rules appear to
limit additional government spending. As such, GDP growth is expected to slow
to around 2.3% in 2007 and 2008.
In the property market there are signs that rates of return are slowing as the
rate of yield contraction begins to decline. We expect that total returns will
fall over 2007 as yields stabilise and start to drift outwards, with a slight
reduction in capital values over the coming 3 years, with the majority of total
returns coming from income.
Over the course of the next 6 months we will continue our strategy of gradually
reducing portfolio exposure to the unit shop sub sector. In addition we will
look at opportunities to sell out of some assets with short term income and
where capital expenditure is not justified in terms of property fundamentals.
We will look to invest the proceeds in the office sector but will focus at asset
level on opportunities that add value to the portfolio.
The UK Balanced Property Trust Limited
Investment Manager's Report (Continued)
Ideally the Company would look to increase its exposure in the Central London
office markets, where the portfolio exposure is relatively low. Rental growth
in this sector is expected to be stronger than the wider market over the short
to medium term but pricing is currently very aggressive, particularly when a
significant slow down in growth is expected towards the end of the decade
(these markets tend to have higher volatility than other markets). The low
yields and high dealing costs of trading in and out of the large lot sizes
generally associated with this sub-market could also have a negative impact on
cash flow. Currently the portfolio has a relatively high exposure to the South
East office markets and we expect this sub sector to deliver similar performance
to the Central London markets over the medium term.
Although we consider sector weightings to be an important component of
delivering performance, and have been tilting the portfolio accordingly, we
continue to believe that a well diversified and actively managed portfolio will
result in the Company being able to meet its objectives.
* Investment Property Databank Monthly Index
** Scottish Widows Investment Partnership
Objectives - The UK Balanced Property Trust Limited
The Company's investment objective is to provide ordinary shareholders with a
high level of income together with the prospect of income and capital growth,
by investing in a diversified portfolio of UK commercial properties.
Financial Highlights
Period ended 30 Period ended 30 Year ended
September 2006 September 2005 31 March 2006
Net asset value per share
(per accounts) 155.27p 124.85p 146.02p
Net profit for the
financial period #22.8m #22.9m #62.7m
Earnings per ordinary share 11.92p 11.96p 32.80p
Dividend per ordinary share
(paid and proposed) 3.5625p 3.5625p 7.125p
FTSE All-Share Index Total
Return* 1.7% 13.6% 28.0%
Share Price Total Return* -1.6% 3.8% 29.7%
FTSE Real Estate Index
Total Return* 6.7% 15.6% 49.3%
*Source: Datastream
The UK Balanced Property Trust Limited
Unaudited Interim Condensed Consolidated Income Statement
For the six months ended 30 September 2006
Six months Six months
ended 30 ended 30 Year ended
September September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
GBP GBP GBP
#'000 #'000 #'000
Income
Rental income 11,792 12,015 24,810
Gains on investment properties
Unrealised gains on revaluation of
properties 16,771 16,395 47,430
Realised (loss) / gains on disposal of
properties (90) 699 9,226
--------- --------- ---------
16,681 17,094 56,656
--------- --------- ---------
Total income 28,473 29,109 81,466
--------- --------- ---------
Expenditure
Investment management fee (2,078) (1,722) (3,699)
Property manager's fee (159) (252) (434)
Property management expenses (758) (466) (1,348)
Other expenses (398) (442) (711)
--------- --------- ---------
Total expenditure (3,393) (2,882) (6,192)
--------- --------- ---------
Net operating profit for the period
before finance costs 25,080 26,227 75,274
Finance costs
Revenue interest receivable 697 429 860
Finance costs (3,002) (3,789) (13,392)
--------- --------- ---------
(2,305) (3,360) (12,532)
--------- --------- ---------
Net profit from ordinary activities
before taxation 22,775 22,867 62,742
Taxation on profit on ordinary
activities - - (56)
--------- --------- ---------
Net profit on ordinary activities
after taxation 22,775 22,867 62,686
--------- --------- ---------
Pence Pence Pence
Earnings per ordinary share 11.92 11.96 32.80
--------- --------- ---------
All items in the above statement derive from continuing operations.
The UK Balanced Property Trust Limited
Unaudited Interim Condensed Consolidated Balance Sheet
At 30 September 2006
30 September 30 September 31 March
2006 2005 2006
(unaudited) (unaudited) (audited)
GBP GBP GBP
#'000 #'000 #'000
Assets
Non-current assets
Investment properties 404,705 346,390 362,945
Interest rate swap asset 2,996 - 1,296
--------- --------- --------
407,701 346,390 364,241
Current assets
Trade and other receivables 5,484 5,898 3,999
Cash and cash equivalents 11,277 17,359 38,311
--------- --------- --------
16,761 23,257 42,310
--------- --------- --------
Total assets 424,462 369,647 406,551
Equity and liabilities
Non-current liabilities
Interest-bearing bank loan - (114,985) -
Interest-bearing notes issue (119,526) - (118,857)
Interest rate swap liability - (6,155) -
Deferred income tax liability (476) (419) (476)
--------- --------- --------
(120,002) (121,559) (119,333)
Current liabilities
Trade and other payables (7,715) (9,471) (8,139)
--------- --------- --------
Total liabilities (127,717) (131,030) (127,472)
--------- --------- --------
Net assets 296,745 238,617 279,079
--------- --------- --------
Represented by:
Share capital 47,780 47,780 47,780
Share premium 142,403 142,403 142,403
Revenue reserve (8,041) (6,492) (7,326)
Capital reserve 111,607 61,081 94,926
Other reserve 2,996 (6,155) 1,296
--------- --------- --------
Equity shareholders' funds 296,745 238,617 279,079
--------- --------- --------
Pence Pence Pence
Net asset value per ordinary share 155.27 124.85 146.02
--------- --------- --------
The UK Balanced Property Trust Limited
Unaudited Interim Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 September 2006
Issued Share Capital Other Retained Revenue Total
capital premium reserves reserves earnings reserve
GBP GBP GBP GBP GBP GBP GBP
For the six months #'000 #'000 #'000 #'000 #'000 #'000 #'000
ended 30 September
2006
At 1 April 2006 47,780 142,403 94,926 1,296 - (7,326) 279,079
Net profit on ordinary
activities after
taxation - - - - 22,775 - 22,775
Dividends paid - - - - (6,809) - (6,809)
Gains from investments - - 16,681 - (16,681) - -
Transfer of retained
earnings - - - - 715 (715) -
Cash flow hedge (notes
interest rate swap) - - - 1,700 - - 1,700
------ ------- ------- ------- -------- -------- ------
At 30 September 2006 47,780 142,403 111,607 2,996 - (8,041) 296,745
------ ------- ------- ------- -------- -------- ------
Issued Share Capital Other Retained Revenue Total
capital premium reserves reserves earnings reserve
GBP GBP GBP GBP GBP GBP GBP
For the six months #'000 #'000 #'000 #'000 #'000 #'000 #'000
ended 30 September
2005
At 1 April 2005 47,780 142,403 43,987 (3,879) - (5,456) 224,835
Net profit on ordinary
activities after
taxation - - - - 22,867 - 22,867
Dividends paid - - - - (6,809) - (6,809)
Gains from investments - - 17,094 - (17,094) - -
Transfer of retained
earnings - - - - 1,036 (1,036) -
Cash flow hedge (loan
interest rate swap) - - - (2,276) - - (2,276)
------ ------- ------- ------- -------- -------- ------
At 30 September 2005 47,780 142,403 61,081 (6,155) - (6,492) 238,617
------ ------- ------- ------- -------- -------- ------
Issued Share Capital Other Retained Revenue Total
capital premium reserves reserves earnings reserve
GBP GBP GBP GBP GBP GBP GBP
For the year ended #'000 #'000 #'000 #'000 #'000 #'000 #'000
31 March 2006
At 1 April 2005 47,780 142,403 43,987 (3,879) - (5,456) 224,835
Net profit on ordinary
activities after
taxation - - - - 62,686 - 62,686
Dividends paid - - - - (13,617) - (13,617)
Gains from investments - - 56,656 - (56,656) - -
Transfer of retained
earnings - - - - 1,870 (1,870) -
Cash flow hedge (loan
interest rate swap) - - - (1,838) - - (1,838)
Termination of loan
interest rate swap - - (5,717) 5,717 5,717 - 5,717
Cash flow hedge (notes
interest rate swap) - - - 1,296 - - 1,296
------ ------- ------- ------- -------- -------- ------
At 31 March 2006 47,780 142,403 94,926 1,296 - (7,326) 279,079
------ ------- ------- ------- -------- -------- ------
The UK Balanced Property Trust Limited
Unaudited Interim Condensed Consolidated Cash Flow Statement
For the six months ended 30 September
2006
Six months Six months Year ended
ended 30 ended 30 31 March
September 2006 September 2005 2006
(unaudited) (unaudited) (audited)
GBP GBP GBP
#'000 #'000 #'000
Cash flows from operating activities
Net operating profit for the period
before finance costs 25,080 26,227 75,274
Adjustment for:
Unrealised gain on revaluation of
properties (16,771) (16,395) (47,430)
Realised loss / (gains) on disposal of
properties 90 (699) (9,226)
(Increase) / decrease in operating
debtors (1,569) 1,860 5,025
(Decrease) / increase in operating
creditors (493) 722 (586)
--------- --------- ---------
(18,743) (14,512) (52,217)
Tax received - - 100
Interest received 781 429 745
Interest paid (2,249) (3,755) (6,516)
--------- --------- ---------
(1,468) (3,326) (5,771)
--------- --------- ---------
Net cash inflow from operating
activities 4,869 8,389 17,386
--------- --------- ---------
Cash flows from investing activities
Capital improvements - (332) (351)
Purchases of properties (26,201) (22) (7,150)
Disposals of properties 1,122 18,484 47,337
--------- --------- ---------
Net cash (outflow) / inflow from
investing activities (25,079) 18,130 39,836
--------- --------- ---------
Cash flows from financing activities
Dividends paid (6,809) (6,809) (13,617)
Repayment of bank loan - (8,000) (123,400)
Termination of loan interest rate
swap - - (5,717)
Note issue proceeds - - 120,000
Issue costs of notes (15) - (1,826)
--------- --------- ---------
Net cash outflow from financing
activities (6,824) (14,809) (24,560)
--------- --------- ---------
(Decrease) / increase in cash during
the period (27,034) 11,710 32,662
--------- --------- ---------
(Decrease) / increase in cash during
the period (27,034) 11,710 32,662
Opening cash and cash equivalents 38,311 5,649 5,649
--------- --------- ---------
Closing cash and cash equivalents 11,277 17,359 38,311
--------- --------- ---------
The UK Balanced Property Trust Limited
Notes to the Unaudited Interim Condensed Consolidated Financial Statements
1 Accounting policies
The financial statements for the six-month period ended 30 September
2006 have been prepared on the basis of the accounting policies set out
in the consolidated financial statements for the year ended 31 March 2006.
2 Interim Financial Reporting
The condensed consolidated interim financial statements have been prepared
in accordance with International Accounting Standard (IAS) 34 -
'Interim Financial Reporting'.
3 Dividends on ordinary shares
30 September 30 September
2006 2005 31 March 2006
(unaudited) (unaudited) (audited)
GBP GBP GBP GBP GBP GBP
pence #'000 pence #'000 pence #'000
Final interim paid 26 April 2006
(2005: 27 April 2005) 1.78125 3,404 1.78125 3,404 1.78125 3,404
First interim paid
on 26 July 2006
(2005: 27 July 2005) 1.78125 3,405 1.78125 3,405 1.78125 3,404
Second interim paid on
26 October 2005 - - - - 1.78125 3,404
Third interim paid on
25 January 2006 - - - - 1.78125 3,405
------- ------ ------- ------ ------- --------
3.56250 6,809 3.56250 6,809 7.12500 13,617
------- ------ ------- ------ ------- --------
A second interim dividend of 1.78125p was declared on 4 October 2006. The
ex-dividend date was 11 October 2006 and the pay date was 25 October 2006.
4 Earnings per share
The earnings per share is based on the net profit for the period of
#22,775,000 (30 September 2005: #22,867,000 and 31 March 2006:
#62,686,000) and on 191,121,000 (30 September 2005 and 31 March 2006:
191,121,000) ordinary shares, being the weighted average number of
ordinary shares in issue throughout the period.
5 Net asset value (NAV) per share
The net asset value per share is based on the net assets at the period
end of #296,745,000 (30 September 2005: #238,617,000 and 31 March 2006:
#279,079,000) and on 191,121,000 (30 September 2005 and 31 March 2006:
191,121,000) ordinary shares, being the closing number of ordinary
shares in issue at the period end.
6 Valuation of property
The Groups investment properties were valued at 12 September 2006 on an
open market basis in accordance with the Appraisal and Valuation Manual
published by the Royal Institute of Chartered Surveyors by Property
Valuers who are independent of, and external to the Group. The
directors agree that there is no significant change in the valuation at
30 September 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
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