Date:  12 September 2024

From:  Balanced Commercial Property Trust Limited

LEI:  213800A2B1H4ULF3K397

 (Classified Regulated Information, under DTR 6 Annex 1 Section 1.2)

 

Interim Report for the Period ended 30 June 2024

 

Headlines

See below for recommended all-cash acquisition of the Company and dividends update. Earnings per Ordinary Share of -2.0 pence per share for the six-months ended 30 June 2024 (H1 2023: 1.1 pence per share) Net asset value per Ordinary Share was 105.1 pence as at 30 June 2024 (31 December 2023: 109.8 pence) Net asset value total return* of -1.9 per cent for the 6 months ended 30 June 2024 is calculated assuming dividends are re-invested (H1 2023: +0.8 per cent). Share price total return* of +13.0 per cent for the 6 months ended 30 June 2024 (H1 2023: -23.0 per cent). Cash dividend cover for the 6 months ended 30 June 2024 was 107.6 per cent (H1 2023: 117.6 per cent) During the six-months ended 30 June 2024, disposed of two office holdings at an aggregate sales price of £53.8 million, 3.9 per cent below valuation as at 31 December 2023. Further detail can be found in the Managers’ Review below. A further three office disposals were completed post period-end with an aggregate sales price of £60.7 million. These disposals are part of the strategic repositioning of the portfolio and were in line with the 30 June 2024 valuations. Portfolio return of -0.5 per cent over the 6 months to June 2024 (H1 2023: 1.5 per cent) versus the MSCI UK Quarterly Property Index return of 1.8 per cent. (H1 2023: 0.3 per cent).

 

* See Alternative Performance Measures

 

Chairman’s Statement

The real estate sector spent much of the first half of the year awaiting greater clarity on the path of interest rates. This August saw the end of the tightening cycle as the Bank of England delivered a 0.25 per cent cut to the base rate. Prior to this cut, there were some signs of renewed investor appetite, and whilst still modest, there has been an increase in transaction volumes over the first six months of the year compared to the last six months of 2023.

 

Whilst geopolitical challenges persist, this modest increase in activity can perhaps be attributed to the expectation of a more stable market backdrop. The UK economy expanded moderately in the first two quarters of 2024, following a shallow technical recession in the second half of 2023. The inflation rate hit the Bank of England’s 2.0 per cent target rate in May for the first time since July 2021, and political uncertainty reduced with the election of a Labour Party governing with a significant majority.

 

The second quarter of 2024 saw the MSCI UK Quarterly Property Index (‘the Index’) return to capital growth for the first time since June 2022, with the industrial and retail warehousing sectors benefitting most notably. However, it is income that has been the consistent driver of total returns in recent periods, as occupational markets have generally proven to be more resilient than many expected despite the challenges posed to the UK economy and consumers.

 

Company Performance

Against this economic and property market backdrop, the Company has delivered a net asset value (‘NAV’) total return of -1.9 per cent for the six months to 30 June 2024. The NAV per share as at 30 June 2024 was 105.1 pence, down 4.3 per cent from 109.8 pence per share as at 31 December 2023.

The share price performed strongly over the period with a positive total return of 13.0 per cent for the six months and the discount to NAV narrowing to 24.6 per cent at the period end, compared to 34.0 per cent at 31 December 2023.

The following table provides an analysis of the movement in the NAV per share during the period.

 

Pence

NAV per share as at 31 December 2023

109.8

Unrealised decrease in valuation of property portfolio

(3.8)

Losses on sale of investment properties realised

(0.4)

Other net revenue

2.1

Dividends paid

(2.6)

NAV per share as at 30 June 2024 

105.1

       

Portfolio Performance

The Company’s portfolio delivered a negative total return of 0.5 per cent over the first six months of the year, underperforming the Index return of 1.8 per cent.

While the portfolio delivered income outperformance, a capital return of -3.3 per cent against the Index return of -0.6 per cent dragged performance at the portfolio level. This underperformance can primarily be attributed to the portfolio’s exposure to offices, and particularly its regional business parks, a sector with a challenged outlook.

The Company has sought to address the level of its exposure to offices, and a number of disposals have been completed as we seek to align the portfolio towards favoured growth sectors. The portfolio carried a weighting towards the office sector as at 30 June 2024 of 19.9 per cent (31 December 2023: 26.5 per cent.). There were £53.8 million of sales during the period at a 3.9 per cent. discount to the year-end valuation and the office exposure has fallen to 14.3 per cent on completion of recently announced disposals post-period of £60.7 million which were sold in line with their 30 June 2024 valuations. This compares to an Index exposure of 22.7 per cent.

These sales have raised significant cash, underlining the liquidity of the assets.

Performance has been strongest from retail warehousing where yields continue to tighten, given the high level of investment demand and low vacancy rates in the sector. The Company’s two retail parks have therefore witnessed capital growth in the period, with these assets being fully let to a strong tenant base.

Cash and Borrowings

The Company had £67.3 million of available cash as at 30 June 2024. All cash balances were held in interest-bearing deposit accounts with competitive variable interest rates. Following the post period end office sales, the Company currently has c.£120 million of available cash.

The Company has a £260 million term loan in place with L&G which matures in December 2024 (the ‘L&G Loan’). The Company signed up to a new debt facility in September 2023 which has been provided by incumbent lender, Barclays Bank plc, and HSBC UK Bank plc. This facility has been structured with two tranches, being (a) a £60 million revolving credit facility (‘RCF’) and (b) a £260 million term loan, which can only be drawn to refinance the existing L&G Loan. The £60 million RCF is currently undrawn, with proceeds from the office sales used to pay back the £30 million drawn down at the start of the period. The new debt facility is available until 13 September 2025 with the option of two one-year extensions (subject to lender approval and the first of which would have to be requested by 15 November 2024). As at 30 June 2024, the Company’s loan to value, net of cash, was 20.7 per cent.

Strategic Review

Further to the Strategic Review launched in April this year, the Company announced on 4 September 2024 that it had reached agreement on the terms of a recommended all-cash acquisition by Starling Bidco Limited (a newly formed company incorporated owned by funds managed, controlled or advised by Starwood Capital or its affiliates) (‘Bidco’), pursuant to which Bidco will acquire the entire issued and to be issued ordinary share capital of the Company (the “Acquisition”). The Acquisition is conditional on, among other things, the approval of the Company’s shareholders at a Court meeting and an extraordinary general meeting. For full details of the Acquisition, please refer to the Rule 2.7 announcement published by Bidco and the Company on 4 September 2024, available through the Company’s website at https://www.columbiathreadneedle.co.uk/bcpt-strategic-review/. Further details will be set out in the scheme document which will be sent to shareholders within 28 days of the firm offer announcement of 4 September 2024 (although this timing can be extended in certain circumstances).

Dividend

The Company paid six interim dividends of 0.44 pence per share during the period, totalling 2.64 pence per share, an increase of 10 per cent on the equivalent period in 2023. The level of dividend cover for the period was 107.6 per cent on a cash basis.

In the light of the proposed Acquisition, the Board does not intend to declare or pay any further dividends prior to the Acquisition becoming effective (which is expected to occur in the fourth quarter of 2024), save to the extent required to ensure compliance with the REIT regime.

Environmental, Social and Governance (‘ESG’)

The Board remains committed to achieving Net Zero Carbon by 2040 or sooner. Detailed analysis and modelling of emissions reduction trajectories has been undertaken and performance against pathway continues to be regularly reviewed. The Board and Managers believe that the portfolio is well placed to deliver on its net zero carbon ambition within a business-as-usual context. The Managers and Board continue to pay attention to all material ESG matters. Ongoing progress is summarised later in this report whilst more detailed insight is provided in the 2023 ESG Report, published in April 2024.

Outlook

Amid cautious optimism in the capital markets, and a more supportive economic backdrop, there are tentative signs that the outlook for certain real estate sectors may be beginning to turn. While the geopolitical landscape remains volatile, a number of market participants are beginning to look to the next stage of the cycle.

The Managers have made progress in repositioning the portfolio which has increased the Company’s exposure to those sectors which are projected to offer the most favourable performance outlook.

 

Paul Marcuse

Chairman

11 September 2024

 

Forward looking statements

Certain statements in this report are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Accordingly, undue reliance should not be placed on forward looking statements.

 

Performance Summary

 

Half year ended 30 June 2024

Half year ended 30 June 2023

% change

 

 

Total Returns for the period *

 

 

 

 

 

Net asset value per share

-1.9%

+0.8%

-2.8%

 

 

Ordinary Share price

+13.0%

-23.0%

+36.0%

 

 

Portfolio

-0.5%

+1.5%

-2.0%

 

 

MSCI UK Quarterly Property Index

+1.8%

+0.3%

+1.5%

 

 

FTSE All-Share Index

+7.4%

+2.6%

+4.8%

 

 

 

 

Half year ended 30 June 2024

Year ended 31 December 2023

 

 

% change

Capital Values

 

 

 

Total assets less current liabilities (£’000)

740,656

799,590

-7.4%

Net asset value per share

105.1p

109.8p

-4.4%

EPRA Net Tangible Assets per share*

105.1p

109.8p

-4.4%

Ordinary Share price

79.2p

72.5p

+9.2%

FTSE All-Share Index

4,451.9

4,232.0

+5.2%

Ordinary share price discount to net asset value per share*

(24.6)%

(34.0)%

+9.4%

Net Gearing *

20.6%

24.4%

-3.7%

 

 

 

 

Earnings and Dividends

Half year ended 30 June 2024

Half year ended 30 June 2023

 

Earnings per Ordinary Share

(2.0)p

1.1p