TIDMEPIC

RNS Number : 1127W

Ediston Property Inv Comp PLC

20 December 2021

Ediston Property Investment Company plc

(the 'Company')

(LEI: 213800JRL87EGX9TUI28)

FULL YEAR RESULTS AND NOTICE OF AGM

Ediston Property Investment Company plc (LSE: EPIC), a UK-listed Real Estate Investment Trust (REIT) investing in commercial property throughout the UK, announces its full year results for the year ended 30 September 2021.

The Company also announces that its 2021 Annual General Meeting will be held on Tuesday, 2 4 February 202 2 at 2.00 p.m. at the offices of Ediston Investment Services Limited at 1 St Andrew Square, Edinburgh, EH2 2BD .

The Company's Annual Report and Financial Statements for the year ended 30 September 2021 and the formal Notice of the Annual General Meeting will be posted to shareholders and in accordance with Listing Rule 9.6.1 copies of the documents have been submitted to the UK Listing Authority and will shortly be available to view on the Company's corporate website at https://www.epic-reit.com/literature/ and have also been submitted to the UK Listing Authority and will be shortly available for inspection from the National Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

Year to 30 September 2021:

Operational

   -     Dividend was increased by 25% to 5.00 pence per share annualised from May 2021 
   -     Contracted rent increased by 3.0% and was almost back at pre-pandemic levels at the year-end 
   -     Seven lease transactions completed with a contracted rent of GBP1.8m per annum 
   -     Three developments completed delivering GBP1.1m of additional rent per annum 
   -     Two investment transactions and one land sale completed 

Key Performance Indicators and Financial

 
                                   2021       2020       2019 
---------------------------------  ---------  ---------  --------- 
NAV total return                   9.6%       -16.6%     -0.8% 
Annualised dividend per share      4.42p      4.88p      5.75p 
Average discount of share price 
 to NAV                            -22.1%     -33.2%     -11.6% 
Share price total return           54.6%      -35.3%     -17.0% 
EPRA vacancy rate                  8.6%       5.1%       2.9% 
Ongoing charges                    1.4%       1.4%       1.4% 
Total assets                       GBP303m    GBP294.7m  GBP342.2m 
Weighted average unexpired lease   5.0 years  5.7 years  6.1 years 
 term 
EPRA NAV per share                 89.6p      86.01p     108.7p 
 

Anticipated Financial Calendar 2022

 
 January 2022    Announcement of net asset value as at 31 December 
                  2021 
 February 2022   Annual General Meeting (AGM) 
                --------------------------------------------------- 
 April 2022      Announcement of net asset value as at 31 March 
                  2022 
                --------------------------------------------------- 
 May 2022        Publication of Half Yearly Report for the 
                  six months to 31 March 2022 
                --------------------------------------------------- 
 July 2022       Announcement of net asset value as at 30 June 
                  2022 
                --------------------------------------------------- 
 October 2022    Announcement of net asset value as at 30 September 
                  2022 
                --------------------------------------------------- 
 December 2022   Publication of Annual Report for the year 
                  to 30 September 2022 
                --------------------------------------------------- 
 

It is the intention of the Board that dividends will continue to be announced and paid monthly.

William Hill, Chairman of the Company, said:

"With an improving NAV, an increased dividend level and significant progress in realigning the portfolio, the Company is in a better position than last year, with its asset allocation already tilted to a segment of the market that is recovering strongly."

 
 Enquiries 
 Will Barnett      Investec Bank plc           0207 597 5873 
                   Ediston Properties 
 Calum Bruce        Limited                    0131 225 5599 
 Ruth Wright       JTC                         0203 893 1011 
 Ben Robinson      Kaso Legg Communications    0203 995 6672 
 Stephanie Ross    Kaso Legg Communications    0203 995 6676 
 

Chairman's Statement

OVERVIEW

Last year was the most difficult and frustrating Chairman's report I have had to write. A declining NAV, a cut in dividend and a widening discount were indicative of the challenges the Company faced at that time. However, I was able to point to some emerging positives and reported on these in a more confident tone in my interim statement. I am pleased to report further progress in the second half of the year with a rising NAV and an increased dividend level, with good cover.

This progress, which the Board and Investment Manager are under no illusion are only steps in the right direction, has enabled the Company to get back on to the front foot and to start implementing a refreshed investment strategy, with a focus on retail warehousing. The first part of this strategy was the sale of the Tesco Superstore at Prestatyn and the reinvestment of the proceeds into a high yielding retail warehouse park in Stirling. Since the year end the Company has sold its office buildings in Bath, Edinburgh and Newcastle.

One of the turning points in the Company's year was the 25% increase of the monthly dividend from 4.00 pence to 5.00 pence annualised which was announced in April. The support for this increase came from the success in rent collection. This reflects considerable credit on the Investment Manager, as well as underlining the resilience of the portfolio.

The completion of the current development programme, lettings and transactional activity (offset by some lost income) has lifted the contracted income at the year end to just below the pre-pandemic level. Lettings since year-end have taken the Company's contractual income back to the pre-pandemic level. However, this will fluctuate in the coming months as assets are sold and the capital reinvested.

With an improving NAV, an increased dividend level and significant progress in realigning the portfolio, the Company is in a better position than last year, with its asset allocation already tilted to a segment of the market that is recovering strongly.

INVESTMENT AND SHARE PRICE PERFORMANCE

The Company's NAV per share increased by 4.2%, with a NAV total return for the year of 9.6%. At the year end the share price discount had narrowed from 40.8% to 17.6%.

The value gain was driven by the retail warehouse portfolio, offsetting a decline in the value of the office portfolio. Our Investment Manager has argued for some time that "not all retail is the same" and it is encouraging that the market is increasingly recognising this with yields starting to fall.

Closing the share price discount remains a priority for the Board. Since the year end the share price has increased further, narrowing the discount to 13.4% as at 14 December 2021. Implementing the revised investment strategy should help maintain this positive momentum, as should keeping up our net income cover

and   the prospect of future dividend increases. 

INVESTMENT STRATEGY

Asset allocation

In July, the Company announced the result of its strategy review, noted in my report last year. The outcome was that the Company should maintain its scope as a generalist UK commercial property investment company and continue to operate within its current stated return objectives and investment policy. However, for the foreseeable future, given its attractive investment potential, the Company should concentrate on the retail warehouse sector. This sector already accounts for 74.1% of the Company's property portfolio (30 September 2021).

The Company, therefore, announced that it would sell its offices and recycle the proceeds into retail warehouse assets. This process is well underway. However, it is important that shareholders understand that sale of the office assets may involve some impact on asset value and income cover until such time as the cash resources are re-deployed. This process will also involve direct purchase costs such has SDLT, which will also affect asset value.

This is a relatively high 'conviction call' based on the belief that there are compelling investment reasons for the retail warehouse sector to recover further and provide ongoing value opportunities. The expectation is that this shift in emphasis in the portfolio will be accretive to both income and capital growth. However, it is important to note that the concentration of investment in the retail warehouse sector is not necessarily a permanent repositioning and, therefore, not a departure from the overall investment objective and policy of the Company.

The Investment Manager has always made a strong case for the retail warehouse sector. It has proved to have been the most resilient retail sub-sector during the COVID-19 pandemic, with favourable rent collection figures and an active tenant market.

Following the sell down across all retail markets, the Investment Manager considers the retail warehouse sub-sector to have been oversold, and there is now increasing recognition in the market that is the case. Yields look attractive when compared to other property sub-sectors, often with income secured on high quality tenants. The anticipated recovery in consumer spending will likely favour many of the retailers that trade from retail warehouses. The format also works well alongside on-line retailing, supporting retailers' omnichannel strategies.

The Board believes the Investment Manager can capitalise on this opportunity through its extensive sectoral knowledge and access to opportunities as an investor, developer and asset manager of UK retail warehouse assets.

The Board considers that this revision to strategy should ensure that the Company can fulfil its investment objective of providing investors with an attractive level of income and the potential for capital and income growth. At the same time, the Company retains the ability to reposition into other property assets, when appropriate to do so, as part of the generalist investment objective.

Sustainability

The responsibility that managers of capital have in relation to the climate crisis cannot be any clearer. This is particularly so in real estate, as a major contributor to global carbon emissions. Rapid progress must be made in not only reducing carbon in operation but also the level of embedded carbon which will influence how existing buildings are maintained and refurbished, and how new buildings are constructed.

The Company has progressed its sustainability strategy over the year with vigour. The Company retained its Green Star rating from GRESB, improving its score in the process, and maintained the Gold Award under the EPRA sBPR.

The Company has extended its net zero carbon commitment to include both operational and embedded carbon. This brings the Company into line with the framework set out by the Better Buildings Partnership (BBP), a collaboration of many of the industry's real estate owners, which the Board and Investment Manager have decided to adopt.

The responsibility of acting sustainably, making disclosures and complying with regulations come at a short to medium-term cost but with long term gain for us all, if the worst elements of climate change can be avoided. These direct costs include the Company engaging specialist consultants and carrying out assessments of the portfolio to help us develop a manageable pathway to reduce our carbon emissions in our portfolio now and in the future.

PORTFOLIO ACTIVITY

Over the year several asset management initiatives were delivered, and two investment transactions were

completed. They are   summarised below: 
   - sold a low yielding supermarket and   acquired a high yielding retail park; 
   - completed three development projects,   on time and on budget; 

- delivered seven lease transactions across the office and retail warehouse portfolios, securing GBP1.8m of income per annum;

   - sold a site to an owner occupier for GBP1.2m   (140% ahead of valuation); 
   - post year end sold three offices realising   proceeds of GBP36.4m for re-investment; and 
   - post year end completed ten lease   transactions securing GBP1.2m of income   per annum. 
   Portfolio activity is more fully described in the   Investment Manager's report. 

RENT COLLECTION

Apart from a 'plateau' during the second lock down in Q1 2021, rent collection levels improved each quarter as the year progressed. As a result, the Company had collected 95.7% of the rent due at the year end, rising to 98.4% at the date of this report.

Since the onset of the pandemic, the Company has seen some tenants fail and others use insolvency regulations to reduce their rental liabilities, transferring value from the Company's shareholders to their own. Despite this, the contracted rent at the year-end was only marginally below the pre-pandemic level and subsequent lettings have taken it back to this level. This is encouraging and a notable milestone in the Company's recovery.

GEARING AND CASH RESOURCES

The Company's total debt is unchanged at GBP111.1m, at a blended 'all-in' fixed rate of 2.9%. The loans do not mature until 2025 and 2027. Gearing on 30 September 2021 was 36.7% of total assets, a slight decrease from last year end. Gearing is within investment policy limits and covenants.

As of 30 September 2021, the Company had approximately GBP11.6m of cash for follow on investment and operational purposes, and an additional GBP6.6m of cash available for new investment. This has been supplemented by cash realised from disposals from the office portfolio post year end.

DIVIDS

At the height of the uncertainty of the pandemic, the Company reduced its dividend level from 5.75 pence annualised to 4.00 pence annualised as part of prudent cash and net income management. Favourable rent collection levels allowed the Board to pay, from May 2021, a monthly dividend of 5.00 pence per share annualised. The dividend remained well covered at 119% over the year. The annualised dividend paid was 4.42 pence per share for the year just ended.

The Company's policy of having a fully covered dividend and to increase the dividend level whenever possible remains in place. As the Company's contracted income has improved further to reach pre-pandemic levels, the prospect of being in a position to increase the dividend again has improved. However the income will fluctuate in the short term as the disposals are made and new investments are acquired. This may impact both dividend cover and the timing when potential increases in dividend can be made. The Board may consider, when the sales are largely completed, to use reserves for short periods, if prudent to do so, to help smooth the cash flow.

LONG-TERM GROWTH STRATEGY

The Board remains committed to growing the equity base of the Company in order to improve liquidity, lower the cost base per share and enlarge the investment opportunity set. The progress made in the second half of the year and the revised investment strategy are significant steps towards this goal. However, the Board recognises that growth will require support from both existing and new investors, as well as some closing of the share price discount.

During the year we have seen the percentage of retail investors on the register increase, which the Board welcomes. We have also attracted new institutional investment. In July, Stadium and Liontrust sold their holdings in the Company which created the opportunity for Thames River Capital to become a significant new investor on the share register. It also allowed execution only platforms and existing investors to increase their holdings. With the Company now on a firmer footing, we will start to increase the marketing spend to maintain this positive momentum.

As part of its planning for growth, the Board is asking shareholders to renew our non-pre-emptive authority of 10%, so that we are in a better position to use 'tap issuance' if we were able to do so. We will also consider other means of raising capital if there are substantial acquisitions to be financed. In any fund raising, the interests of existing shareholders and the economics of any fund raising will be of paramount importance in how we price and structure any new issuance or take on any new gearing.

CORPORATE AND BOARD MATTERS

It has been another challenging and busy year for the Board, Investment Manager and all the agents that provide services to the Company. I would like to take this opportunity to thank everyone involved for their dedication and hard work under difficult circumstances. We continue to make progress on a number of corporate fronts, including on governance and oversight issues.

The alignment of interest between shareholders and the Investment Manager has been strengthened by the purchase of additional shares by the Manager under its revised fee arrangements announced in last year's report and accounts. Board members have also acquired additional shares during the year.

We appointed a new tax adviser, BDO, as part of our ongoing review of agents. We have worked very closely with both our ESG advisers and our marketing agents, recognising the importance of actions and messaging for the investment community.

We continue to operate as a relatively small and highly engaged board. The nominations committee has concluded from its annual review that the Board is working effectively and has established an outline succession plan to be implemented over the next two to three years. The focus is on ensuring the Board has the necessary depth of experience and skills to fulfil its relatively demanding role.

The Board has not revised its remuneration levels in four years, other than for the senior independent director, as discussed last year in the accounts. The Company did set out last year how it intended to adjust remuneration if the Company's position had changed for the better during the course of the coming year. Although the Company's position is much improved, the Board believes it is still not appropriate, at this stage of the Company's recovery, to add to the cost base. Remuneration will therefore remain unchanged into the fifth year.

ANNUAL GENERAL MEETING (AGM)

Shareholders are invited to attend the Company's AGM to be held at 1 St Andrew Square, Edinburgh EH2 2BD on 24 February 2022.

Those shareholders who are unable to attend the AGM in person are encouraged to raise any questions in advance with the Company Secretary at epic.reit@jtcgroup.com (please include 'EPIC AGM' in the subject heading). Questions must be received by 5.00 p.m. on 10 February 2022. Any questions received will be replied to by either the Investment Manager or Board, via the Company Secretary, as far as practical before the AGM. A shareholder presentation will be made available on the Company website updating shareholders on the activities of the Company.

In light of the continued relative uncertainty in relation to the COVID-19 pandemic, the Board will continue to monitor Government guidance and will update shareholders on any changes to the above arrangements through the Company's website (https://www.epic-reit.com/) and by announcement through a regulatory information service.

OUTLOOK

Trying to write an outlook against the turmoil of recent events might 'make astrology look respectable'. John Kenneth Galbraith used this type of illustration in describing economic forecasting. I think it illustrates quite well the difficulties of being too confident about what lies ahead. I am, therefore, going to focus on just two points set out in our investment strategy - asset allocation and sustainability.

Our shift to a concentrated retail warehouse portfolio, where we believe the best investment prospects lie, is important. Significant steps have already been made in repositioning the portfolio with the sale of three of our four offices to release capital for reinvestment. The Company will be active in the investment market over the coming months. It will aim to build a resilient portfolio that can contribute to dividend growth, as well as providing opportunities for capital growth driven by the asset management activity of the Investment Manager. This is an exciting and critical phase in the Company's development.

The pressure on owners and managers of capital to reduce carbon emissions is going to increase. The industry is responding to this agenda and those behind the Better Buildings Partnership and the Green Building Council deserve considerable credit. We can expect further regulation from Government and more demands from the planning system. Progress on measuring investment returns beyond purely financial ones is also likely. The Company will be on top of these developments and will respond positively to them, as it is in accelerating progress on our journey to net zero carbon.

Much work lies ahead. We have in place a distinctive and clear investment strategy that is well on the way to being executed, a NAV which has been on an upward trajectory and increasing income. There is justification for the share price discount to close. Assuming other events do not work against us, there is a reasonable prospect that the Company will not only deliver attractive returns for shareholders over the short to medium term but also to put itself in a position to grow its equity base and the returns from it.

William Hill

Chairman

Investment Manager's Review

During the first quarter of the financial year the restrictions intended to stop the spread of COVID-19 were tightened. This included the reintroduction of short-term lockdown measures in various parts of the country that prevented certain businesses from opening. Whilst the approval for use of various COVID-19 vaccines and the rolling out of the vaccination programme offered some hope of light at the end of the tunnel, rising cases and hospitalisations resulted in strict lockdown conditions being enforced in December 2020, which lasted until April 2021.

Encouragingly, during this period, rent collection held up as businesses adapted to these conditions. Out of town retailers were better prepared than they had been for previous lockdowns, and many stayed open for trade. Several retailers who were not classed as 'essential' by the Government offered click and collect, appointment only or delivery services to enable sales to be fulfilled. In January 2021, during the national lockdown, 73% (by income) of the Company's retail warehouse portfolio was either open or offering a click and collect service. This compared favourably to the first lockdown in early 2020 when 56% of the Company's income was from tenants who were allowed to open for trade. By comparison, at the time of writing the Company's retail warehouse portfolio can open for trade but the office portfolio is largely unoccupied (although tenants do continue to pay rent) as office workers have not yet returned in great numbers to their work premises following lockdown. The Company's two leisure assets are also open for trade.

During this period, investment volumes did suffer, but not as badly as was predicted by many commentators. As the economy reopened from April, liquidity improved across the different sub-sectors of the commercial property market.

During the second half of the reporting period investor sentiment towards the retail warehouse sector improved and there was increased investor demand. It is anticipated that this positive momentum will continue, as the yields on offer remain attractive and they are secured against robust income streams. In many ways it has taken a pandemic for the market to fully appreciate the qualities of the retail warehouse sector.

There are reasons to be optimistic, but a degree of caution still needs to be exercised as we learn to live and work with COVID-19 in circulation. In addition to COVID-19 related risks, the disruption to the UK's supply chain will present logistical challenges to some of the Company's tenants as they face difficulties importing goods into the UK and then moving them into their stores.

The UK has also entered a period of increased inflation, which can be good for the real estate market. As the economy expands and the demand for goods and services increases, rents tend to grow, making property investments a relatively good hedge against inflation. However, increased inflation will also drive up the costs of goods and materials used in construction, which when coupled with supply chain issues, will make development and refurbishment works more expensive.

RENT COLLECTION AND DIVID

The Company continued to work closely with its tenants to optimise rent collection and offered assistance to those who were in some financial distress. The number of tenants who required help was significantly lower than in the prior year.

Inevitably, some companies continued to struggle, with their problems compounded by the additional lockdown measures implemented in Q4 2020 and Q1 2021. Once again, some tenants used insolvency measures, such as CVAs and administrations, to reduce their liabilities and restructure their businesses.

As in prior years, the Company was not immune to this and was negatively affected by insolvency events. During the year the loss of rent because of these measures equated to 4.6% of the contracted rent roll.

However, overall rent collection was good, with 95.7% of the rent due collected for the year at the period end. Post period end, this figure has risen to 98.4%, which is a significant improvement from 89.3% in the prior year.

As a result of this robust rent collection, in April, the Company announced it would be increasing its dividend by 25% from 4.00 pence to 5.00 pence per share annualised. The dividend has been paid at this new level since May 2021. The dividend remains well-covered and at the yearend this was 119%.

Due to the completion of asset management initiatives and development projects, and the acquisition of a new retail park asset, the

Company's contracted rent has increased in the period, is greater than in the prior year and is almost back to pre-pandemic levels.

PROPERTY VALUATION

The Company's property portfolio is valued by Knight Frank on a quarterly basis throughout the year. As at 30 September 2021 it was valued at GBP283.3m, a like-for-like increase of 5.3% over the reporting period.

The increase was driven by a rise in value of the retail warehouse portfolio, although the gains were partially offset by a reduction in the value of the office portfolio.

EPRA VACANCY RATE

During the period the EPRA Vacancy Rate increased from 5.1% to 8.6%. This was due to lease expiries, tenant administrations, lease surrenders negotiated by the Company to facilitate wider asset management plans, and

  the fact that two vacant units were acquired   with Springkerse Retail Park. 

If the two acquired units are removed from the calculation, the vacancy rate, on a like for-like basis,

would be 7.7%. As a result of   post period end activity, the vacancy rate is   expected to reduce. 

PORTFOLIO UPDATE

Despite the ongoing challenges of COVID-19, the Company has continued to deliver asset management transactions. Over the period seven lease transactions, three developments, two investment deals and one land sale were completed.

LEASE TRANSACTIONS

In the office portfolio two lease restructures were completed, in Birmingham and Newcastle, securing GBP973,000 of income per annum. Existing tenants AXA Insurance UK plc and N&D (London) Limited ('N&D') regeared their leases and committed to the properties. At St Philips Point, Birmingham, AXA leased 27,990 sq. ft. across three floors, reducing its occupancy by 5,005 sq. ft. As part of the deal, it leased the vacant refurbished first floor suite which extends to 14,208 sq. ft., on a lease which gives a term certain of five years. The rents are in line with passing rents and the independent valuer's ERV.

At Citygate II in Newcastle a lease restructure was completed with N&D. N&D occupies c. 11,000 sq. ft. on the first floor and signed a ten-year reversionary lease, with a tenant break option after five years. The new rent agreed is 9.0% ahead of the passing rent and 6.5% ahead of the independent valuer's ERV.

Five transactions completed in the retail warehouse portfolio at Rhyl, Sunderland, Hull, Wrexham and Widnes. The deals with Halfords, B&M, Jack's, SDI Fitness and Superdrug secured GBP855,000 of income per annum.

At Rhyl, Halfords signed a five-year lease extension on its 7,500 sq. ft. unit. At Sunderland, B&M upsized from a unit of 20,000 sq. ft. into a vacant unit of 30,000 sq. ft. The lease will expire in 2032. At Widnes, Superdrug signed a five-year lease on a vacant unit of 6,280 sq. ft. The letting means the retail park is now 100% let. Following the administration of DW Sports, SDI Fitness leased the 23,500 sq. ft. gym unit at Plas Coch Retail Park in Wrexham. The deal agreed contains break options which allow the Company to break the lease should a more suitable tenant for the park be identified. Finally, at Hull, Jack's has signed a new 10-year lease, with a five-year break on a vacant unit of 15,000 sq. ft.

DEVELOPMENT UPDATE

Three developments completed during the period. Haddington Retail Park achieved practical completion on 24 June 2021 and was on time and budget. The leases have now been completed, and the tenants have fitted out their units and are open for trade. The Retail Park is 97% pre-let to Aldi, Home Bargains, Food Warehouse, Costa Coffee and Euro Garages, with one unit of 1,500 sq. ft. available to let. Once fully occupied, the retail park will provide the Company with new contracted rental income of GBP875,000 per annum. The cost of the development was funded by a combination of drawn but uninvested debt from Aviva (60%) and the Company's own cash reserves (40%).

At Barnsley, the development of a drive-thru pod for Costa Coffee was completed. Practical completion was achieved in October 2020, meaning the lease to Costa could complete. Costa has signed a 15-year lease (no

break) on   a 1,800 sq. ft. unit and pays a rent of GBP72,500   per annum. 

At Coatbridge, two drive-thru pods were developed for Costa Coffee and Burger King. Costa has signed a 15-year lease with a 10- year break option on a 1,800 sq. ft. unit and Burger King has signed a 20-year lease with a 15-year break on a unit which extends to 2,750 sq. ft. The two units provide a combined rental income of GBP160,000 per annum.

LAND SALE

In June, at Clwyd Retail Park in Rhyl, the Company sold a 1.6-acre site to an owner occupier, having been granted planning permission for a food use. The net price of GBP1.2m was 140% ahead of the prevailing valuation. The sale delivered a greater profit to the Company than would have been the case if it had completed the development of the site by itself.

INVESTMENT TRANSACTIONS AND REFRESHING THE PORTFOLIO

The Company is always looking for ways to make its capital work harder. One way to do this is to sell lower yielding assets and reinvest in higher yielding ones. With this in mind, the Company sold the Tesco Superstore, which forms part of Prestatyn Shopping Park, for GBP26.5m, a yield of 5.2%. The price was in line with the prevailing valuation and ahead of the 2017 purchase price.

The Company has retained the remainder of the retail park, which extends to c. 91,500 sq. ft. across 14 units. The retail park is let to 13 tenants, with M&S as an anchor, and has further asset management angles to exploit.

Part of the Prestatyn sale proceeds were reinvested in August, with the acquisition of Springkerse Retail Park in Stirling. The Company paid GBP21.85m, in an 'off market' transaction for the asset. The price reflects an initial yield of 9.54%.

Stirling is in central Scotland, 26 miles from Glasgow and 35 miles from Edinburgh. The Stirling Council area has a population of just under 100,000, which is forecast to grow at an above average rate and draws on a primary retail catchment of 228,000 people. The asset is the dominant retail park in Stirling and extends to 162,593 sq. ft. across 12 units. It is let to 10 tenants and produces a passing rent of GBP2.23m per annum.

The Park is anchored by B&Q, with other tenants including Wren Kitchens, DFS, Pets at Home and Halfords represented on the site. The asset will benefit from the intensive asset management style of the Investment Manager. The planned upgrades should improve the letting potential of the two vacant units (13% by ERV), providing an opportunity to increase the income stream and drive capital value upwards. On completion of the letting of these two vacant units, the yield is expected to rise to 10.8%.

The purchase of this asset is consistent with our recently updated investment strategy of acquiring retail warehouse parks. It is our objective to recycle capital from lower yielding assets into properties which are more suited to our intensive style of asset management, and this acquisition achieves this aim.

STRATEGY UPDATE

As the Chairman notes in his statement, the investment strategy has been revised. The decision was taken to sell the Company's office assets with the next phase of investment being focused on the retail warehouse sector. The Investment Manager believes it can capitalise on this opportunity through its extensive knowledge and expertise as an investor, developer, and asset manager of UK retail warehouse assets, along with its access to investment opportunities.

In line with this strategy, post period end the Company has sold its office properties in Bath, Edinburgh and Newcastle. Whilst there has been some loss on the current holding value in making these disposals (although not when measured against cost), both the Investment Manager and Board are convinced that this is the correct thing to do given the continuing uncertainty over office usage (as a result of the COVID-19 pandemic) and the increasing environmental and social demands on office properties. The proceeds of these sales and existing cash resources will be deployed into higher yielding retail warehouse opportunities.

POST PERIOD ACTIVITY

Post period end the Company has completed another ten lease transactions securing GBP1.2m of income per annum.

At Kingston Retail Park in Hull, the letting to the Range has completed. The Range has signed a 15-year lease on a 14,500 sq. ft. unit which was vacated by Outfit (Arcadia) earlier this year. Also at Hull, Greggs has exchanged an Agreement for Lease on a 2,000 sq. ft. unit which is leased to, but not occupied by, Carphone Warehouse. A lease surrender has been agreed with Carphone Warehouse.

At Prestatyn Shopping Park, The Tech Edge has leased a vacant unit of 1,300 sq. ft. on a five-year lease and JD Sports Fashion has signed an agreement for lease on a 7,623 sq. ft. unit. At Rhyl, Now to Bed has leased 8,017 sq. ft. on a three-year lease.

At Barnsley, three deals have completed across 20,000 sq. ft. of space. Bensons has downsized from a unit of 10,000 sq. ft. into one of 5,036 sq. ft., and has signed a five-year lease. Jysk has signed an agreement for lease on the unit vacated by Bensons. On completion of some landlord works, Jysk will enter into a new ten-year lease with a five-year tenant break option. One Below, who was occupying a 4,996 sq. ft. unit on a short-term lease, has now committed to the park for five years.

In the office portfolio, at Citygate II in Newcastle, UNW LLP signed an extension to its leases meaning they expire in March 2032, with a tenant break option in March 2027.

Finally, in the leisure portfolio, at Hartlepool, Mecca Bingo has signed a 10-year reversionary lease with a seven-year tenant break option. The lease will expire in September 2032, with the break option in September 2029.

This is the second year in which the Company's activities have been affected by COVID-19, but this year we have been able to be on the front foot and there has been positive progression on a number of the key metrics. Continued asset management has helped protect, secure and grow the contracted rent, further improvement in rent collection allowed the dividend to be increased, and the improving sentiment towards retail warehousing contributed to an increase in the NAV. It is expected that this positive momentum will continue.

Calum Bruce

Investment Manager

Finance Review

Whilst COVID-19 restrictions have eased in the second half of the reporting period, the past financial year was still impacted by the pandemic and the enforced countrywide lockdowns. However, during the lockdown, the Company benefitted from 73% of its retail tenants being able to trade as they were either classed as essential, had a click and collect platform, were open by appointment only or offered a delivery service.

During the year the Company continued to focus on cash flow management with intensive monitoring of rent collection, whilst aligning this with asset management initiatives, to minimise the effect of the pandemic on the portfolio. The outcome of this is illustrated by the rent collection statistics for the year and the number of asset management transactions completed which has almost returned the contracted rental income to pre-pandemic levels.

This report summarises the financial performance for the year and provides statistics which demonstrate the Company's performance.

CONTRACTED RENT

The Company's contracted rental income at the year end was GBP20.8m (2020: GBP20.2m). The increase in the year of GBP0.6m to GBP20.8m can be principally explained by the completion of the development of Haddington Retail Park in June 2021, and the acquisition of Springkerse Retail Park in Stirling in August 2021. The acquisition used most of the sale proceeds from the sale of Tesco at Prestatyn which completed in March 2021. These initiatives contributed a net GBP1.5m to the rent roll of the portfolio. However, these gains were partially offset by insolvency events, such as CVAs and administrations. During the year the loss of rent, because of these measures, equated to 4.6% of the contracted rent roll. Against this backdrop, it is noteworthy that 76% of our tenants received Dun and Bradstreet 4A1 ratings or above, highlighting further the strength of the portfolio's income.

The primary focus this year has been on the intensive management of the portfolio, rent collection and providing assistance to tenants if required. During the year, 95.7% (2020: 89.3%) of rent billed in the year was collected, with an additional 3.9% expected. Of the sum collected to date, 75.5% was collected within seven days of the due date.

Rent-free periods as a percentage of contracted rent at the year end was 9.3% (2020: 1.9%). This has risen due to new lettings and the completion of the Haddington development.

The portfolio continues to provide long-term stability to the Company's income. This is demonstrated by income secured from the completed development at Haddington of GBP0.8m per annum plus the new acquisition at Stirling contributing GBP2.3m annually. The EPRA vacancy rate has increased to 8.6% from 5.1% in the year due to the expiry of leases and the fact that two vacant units were acquired with the acquisition of Springkerse Retail Park. The WAULT at the year-end was 5.0 years (2020: 5.7 years) and the decrease can be explained by the passing of another year offset by the asset management activity on the portfolio.

COVID-19 has, for a second year, challenged rent collection. However, the diversification of tenants, the number of retailers and office tenants who managed to trade throughout lockdown measures and rigorous cash collection all highlight the strength and resilience of the Company's income.

INCOME STATEMENT

Rental income for the year was GBP17.4m (2020: GBP19.8m). This decrease of GBP2.4m resulted from tenants going into administration or completing CVAs, COVID-19 variations to leases, and the sale of the Tesco supermarket at Prestatyn in March 2021. This decrease was offset by the acquisition of the retail park in Stirling in August 2021 and the completion of the development at Haddington in June 2021 which have a combined annual rent roll of GBP3.0m.

Revenue expenditure in the period was GBP3.1m (2020: GBP4.0m), including GBP0.9m of property-specific expenditure and GBP1.7m relating to the Investment Manager's fee. Net interest costs were GBP3.1m, all similar to the prior year's expenditure. As a result, revenue profit decreased to GBP11.3m (2020: GBP12.6m), a fall of 10.3%.

The value of the investment properties increased by GBP4.7m in the year, plus there was a further GBP1.2m gain from the sales of the Tesco at Prestatyn and the site at Rhyl. This resulted in the Company reporting a total profit of GBP17.1m.

 
                                                      2021 (GBPm)  2020 (GBPm) 
====================================================  ===========  =========== 
Rental income                                                17.4         19.8 
Property expenditure                                        (1.0)        (1.2) 
====================================================  ===========  =========== 
Net rental income                                            16.4         18.6 
Administration expenses                                     (2.0)        (2.8) 
Net financing costs                                         (3.1)        (3.2) 
====================================================  ===========  =========== 
Revenue profit                                               11.3         12.6 
Gain/(loss) on revaluation of investment properties           4.7       (50.0) 
Profit/(loss) on sale of investment properties                1.2          0.0 
====================================================  ===========  =========== 
Accounting (loss)/profit after tax                           17.1       (37.4) 
====================================================  ===========  =========== 
 
EPRA and diluted EPRA earnings per share                    5.34p        5.90p 
Dividend per share                                          4.42p        4.88p 
Basic and diluted earnings per share                        8.10p     (17.70p) 
====================================================  ===========  =========== 
 

EPRA PERFORMANCE MEASURES

As a member of EPRA, we support EPRA's drive to bring consistency to the comparability and quality of information provided to investors and other key stakeholders of this report. We therefore continue to include a number of performance measures which are based on EPRA methodology.

It should be noted that there is no difference between the Company's IFRS and EPRA net asset value (NAV) in this year's accounts, or in any of our accounts to date.

 
                                                       2021      2020 
=================================================  ========  ======== 
EPRA earnings                                      GBP11.3m  GBP12.5m 
EPRA earnings per share                               5.34p     5.90p 
Diluted EPRA earnings per share                       5.34p     5.90p 
EPRA NAV per share                                   89.69p    86.01p 
EPRA cost ratio (including direct vacancy costs)      18.4%     20.8% 
EPRA cost ratio (excluding direct vacancy costs)      18.0%     20.4% 
EPRA net initial yield                                 6.2%      6.9% 
EPRA topped up net initial yield                       6.9%      7.0% 
EPRA vacancy rate                                      8.6%      5.1% 
=================================================  ========  ======== 
 

NET ASSET VALUE (NAV)

At 30 September 2021 our net assets were GBP189.5m, equating to net assets per share of 89.61 pence (2020: 86.01 pence) an increase of 4.3%. This is primarily due to an increase in the valuation of the investment properties in the year.

The NAV of GBP189.5m is summarised in the table below:

 
                                                                          Pence per 
                                                             GBP million      share 
===========================================================  ===========  ========= 
NAV at 30 September 2020                                          181.77      86.01 
Increase in value of investment properties (net of capital 
 expenditure, gain on sale and transaction costs)                   5.83       2.76 
Net earnings in the year                                           11.28       5.34 
Less: dividends paid in the year                                  (9.33)     (4.42) 
NAV at 30 September 2021                                          189.55      89.69 
===========================================================  ===========  ========= 
 

The NAV is predominantly represented by our investment properties, which have a fair value of GBP283.3m at the year end. This is included in the Financial Statements as 'Investment properties' at GBP278.0m with the difference relating to lease incentives. The remaining GBP88.5m of net liabilities is made up of: i) GBP(110.3)m of ammortised debt; ii) GBP11.6m of cash and cash equivalents; and iii) GBP10.2m of net current assets.

DEBT

The Company has two debt facilities with Aviva Commercial Finance Limited principally totalling GBP111.1m. One facility of GBP56.9m will mature in 2025 and the other of GBP54.2m will mature in 2027. The facilities have an all-in blended interest rate of 2.86%. The Company is fully compliant with all debt covenants and has significant headroom against income and asset cover breach covenants. Property values in the two facilities would need to drop by more than 26% and 30% respectively, from the 30 September 2021 valuations, for the loan-to-value covenant to be breached.

Gearing (debt to total assets) was 36.7% at the year end (2020: 37.6%). Whilst this is higher than the Board's target range of 30-35%, it does not breach the Company's investment policy, as no new gearing has been taken on. As noted above, there is headroom against the loan-to-value breach covenants of the debt facilities.

Further details are included in Note 13 to the Consolidated Financial Statements.

CASH

As at 30 September 2021 the Company had cash and cash equivalents of GBP11.6m with a further GBP6.6m drawn and held in a disposals account under the debt facility which will be used to assist with future asset management or investment opportunities.

DIVIDS

At the start of the financial year, the Company was paying monthly dividends at the annual rate of 4.00 pence. The dividend rate was increased to an annual rate of 5.00 pence per share, with the first payment at this new rate being made in May 2021 for the month of April. The average dividend paid in the year was, therefore, 4.42 pence per share and was fully covered for the financial year at 119.0%. The dividend yield at the year end was 6.8%, based on an annual dividend rate of 5.00 pence per share and a share price of 73.80 pence as at 30 September 2021.

The Board declared a dividend of 0.4167 pence per share for the month of September which was paid in October 2021.

The Company continues to monitor passing rent and cash collection in reviewing the dividend level and also reviews the aggregate distributions made to ensure compliance with REIT regulations, which, with some flexibility on timing, requires a REIT to distribute 90% of tax-exempt rental income as Property Income Distributions (PIDs): a condition that the Company has met since inception.

TAX

Owing to the Company's REIT status, income and capital gains from our property rental business are exempt from corporation tax and the tax charge for the year is therefore nil. The Company recovers all of its VAT cost.

The Company continues to meet all the REIT requirements ensuring that its REIT status is maintained.

STRATEGY REVIEW AND IMPLEMENTATION

The Company announced on 22 July 2021 that, following an internal review, it would retain its scope as a generalist UK commercial property company with a focus on income but would, for the foreseeable future, given its attractive investment potential, focus on the retail warehousing sector, which already accounted for over 70% of the Group's portfolio by value.

This will require an orderly disposal of the office part of the portfolio and redeployment of the assets into retail warehousing. Progress has already been made in this direction with the purchase, in August, of Springkerse Retail Park in Stirling, and post period end, the sale of three of the four of the Company's offices. The Company has sold Midland Bridge House, Bath; 145 Morrison Street, Edinburgh; and Citygate II, Newcastle for a combined headline price of GBP37.36m. Once deductions for topped up rents and rent-free periods are factored in, the Company will have GBP36.42m to reinvest. It is the Company's intention to sell the remaining office when it is appropriate to do so. The sale of the office assets may involve some impact on asset values and income cover until such time as the cash resources can be re-deployed into the new strategic direction. This process will also involve direct purchase costs such as SDLT, which will also affect asset value. The Company will continue to provide an update on progress through its quarterly announcement of net asset value, which will include reference to net income cover, and is expected to show the positive direction of the existing and future retail assets held.

SUMMARY AND OUTLOOK

COVID-19 continued to present the Company with challenges during the year. However, positive progress was made with rent collection, which returned to pre-pandemic levels. The contracted rent has also increased and has almost reached pre-pandemic levels too.

The portfolio was refreshed by the sale of the Tesco supermarket at Prestatyn and the purchase of Springkerse Retail Park. The development of Haddington Retail Park was finished, and several asset management initiatives were completed. All of these initiatives generated additional income for the Company.

Neelum Yousaf

Director of Finance

Principal and Emerging Risks

The principal risks and emerging risks have all been reviewed in detail, taking into account the challenging health and economic environment globally and how this impacts or might impact the Company. The Audit and Risk Committee recognises that there are risks and uncertainties that could have a material effect on the Company's results. Under the 2019 AIC Code of Corporate Governance (the 'AIC Code'), directors of listed companies are required to confirm in the annual report that they have performed a robust assessment of the Company's emerging and principal risks, including those that would threaten its business model, future income and asset value performance, solvency or liquidity and pricing of the Company's shares.

The Board is also cognisant of emerging risks defined as potential trends, sudden events or changing risks which are characterised by a high degree of uncertainty in terms of probability of occurrence and possible effects on the Company. Once emerging risks become sufficiently clear, they may be treated as specific risks and added to the Company's matrix of significant risks, which was the case in 2020 for the impact of the pandemic and in this year includes emerging inflationary pressures, supply lines and continuing changes in the uses of commercial property in the UK.

The Board works closely with the Investment Manager and advisers to the Company to try and manage the risks, including emerging risks, as best as they can. The central aims remain to preserve net income for the Company, resilience in its day-to-day operations (including meeting its regulatory obligations and obligations to its stakeholders), capital value and the price at which shares are traded where it can, whilst looking to the longer term to try and find strategic direction for positive rather than simply protective returns.

The impact of exposure to a particular sector, for example retail and offices, the impact of share price volatility on shareholder returns, the effects of gearing (when returns are negative) and the continuing risks of an uncertain economic and political environment in the UK have all resulted in challenges, and emerging opportunities, during the financial year.

While the effects of the COVID-19 pandemic are ongoing, the immediate restrictions and perceived health risks have significantly reduced during the second part of the current year and this is reflected in the Company's risk matrix. However, the economic impact is likely to have much longer-term impacts which are difficult to evaluate as to their effects on the Company.

For the purposes of this year's report the concentration has been on looking to the longer term for the significant changes that are impacting on the UK commercial property sector, the eventual outcomes of which are difficult to assess or predict with any accuracy.

The Board and its advisers have identified the following categories of risk:

-- Investment strategy and performance

   -     Strategic direction of the Company and how and where it invests 

- Significant exposure to a specific property, tenant, geographic location or to lease expiries in a given year

- Lack of investment opportunities reducing the ability to acquire properties at the required return

   -     Poor investment decisions, incomplete due diligence and mistimed investment of capital 
   -     Ineffective active asset management of properties 
   -     Poor execution of development and other construction projects 

-- Premium/discount level and share price volatility

   -     Share price volatility 

-- Financial, which includes the impact of gearing

   -     Gearing 
   -     Non-compliance with debt facilities 
   -     Insufficient Working Capital 
   -     Protection of income and asset value in light of the COVID-19 crisis 

-- Regulatory

   -     Non-compliance with laws and regulations 

-- Operational

   -     Health and safety 
   -     Lack or failure of internal controls of the Investment Manager or Administrator 
   -     Failure to manage Environmental, Social and Governance (ESG) issues 
   -     Resilience of sub-agents 

-- Economic, governmental and exogenous risks outside the Company's control

   -     Weak economic and/or political environment, including the potential impacts of Brexit 

- Exogenous factors outside the Company's control, including the impact of the COVID-19 pandemic

   -     Supply chain risks 
   -     Inflation 

The categories of risk are broken into individual key risks with an assessment of potential impact controls and mitigation in place and changes in that environment since the previous year end. The risks include those that may be more remote but, should they arise, would have an impact, given the nature of a property investment company with tangible assets and these risks, as set out in detail in the annual accounts, are also aligned with the strategy of the Company which is also set out in the accounts.

Directors' Responsibilities Statement

The Directors are responsible for preparing the Strategic Report, the Directors' Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

These Consolidated Financial Statements have been prepared in accordance with international accounting standards (IAS) in conformity with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the Consolidated Financial Statements in accordance with IFRS and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 101 'Reduced Disclosure Framework' (UK Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these Financial Statements, the Directors are required to:

   -   select suitable accounting policies and then apply them consistently; 
   -   make judgements and accounting estimates that are reasonable and prudent; 

- state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

- prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

DIRECTORS' RESPONSIBILITY STATEMENT IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. The Directors consider the Annual Report and the Financial Statements, taken as a whole, provide the information necessary to assess the Company's performance, business model and strategy and are fair, balanced and understandable.

DIRECTORS' RESPONSIBILITY STATEMENT UNDER THE DISCLOSURE GUIDANCE AND TRANSPARENCY RULES

To the best of our knowledge:

- the Group Financial Statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

- the Annual Report, including the Strategic Report and the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

DISCLOSURE OF INFORMATION TO THE AUDITOR

The Directors confirm that:

- so far as each Director is aware, there is no relevant audit information of which the Company's Auditor is unaware; and

- the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

William Hill

Chairman

17 December 2021

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2021

 
                                                 Year ended 30 September       Year ended 30 September 
                                                           2021                          2020 
                                               ============================  ============================ 
                                                Revenue   Capital     Total   Revenue   Capital     Total 
                                        Notes   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Revenue 
Rental income                                    17,371         -    17,371    19,857         -    19,857 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Total revenue                                    17,371         -    17,371    19,857         -    19,857 
Unrealised gain/(loss) on revaluation 
 of investment properties                   9         -     4,655     4,655         -  (49,991)  (49,991) 
Realised gain on sale of investment 
 properties realised                        9         -     1,179     1,179         -         -         - 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Total income                                     17,371     5,834    23,205    19,857  (49,991)  (30,134) 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Expenditure 
Investment management fee                   2   (1,687)         -   (1,687)   (1,882)         -   (1,882) 
Other expenses                              3   (1,914)         -   (1,914)   (1,460)         -   (1,460) 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Total expenditure                               (3,601)         -   (3,601)   (3,342)         -   (3,342) 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Movement in expected credit 
 losses                                    11       615         -       615     (700)         -     (700) 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Profit/(loss) before finance 
 costs and taxation                              14,385     5,834    20,219    15,815  (49,991)  (34,176) 
Net finance costs 
Interest receivable                         4         -         -         -        58         -        58 
Interest payable                            5   (3,109)         -   (3,109)   (3,258)         -   (3,258) 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Profit/(loss) before taxation                    11,276     5,834    17,110    12,615  (49,991)  (37,376) 
Taxation                                    6         -         -         -         -         -         - 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Profit/(loss) and total comprehensive 
 income for the year                             11,276     5,834    17,110    12,615  (49,991)  (37,376) 
======================================  =====  ========  ========  ========  ========  ========  ======== 
Basic and diluted earnings per 
 share (pence)                              8     5.34p     2.76p     8.10p     5.97p  (23.66)p  (17.69)p 
======================================  =====  ========  ========  ========  ========  ========  ======== 
 

The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS.

The supplementary revenue return and capital return columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement are derived from continuing operations.

No operations were acquired or discontinued in the year.

The accompanying notes are an integral part of these Financial Statements.

Consolidated Statement of Financial Position

As at 30 September 2021

 
                                                      As at 30    As at 30 
                                                     September   September 
                                                          2021        2020 
                                             Notes     GBP'000     GBP'000 
===========================================  =====  ==========  ========== 
Non-current assets 
Investment properties                            9     277,984     268,246 
===========================================  =====  ==========  ========== 
                                                       277,984     268,246 
===========================================  =====  ==========  ========== 
Current assets 
Trade and other receivables                     11      13,390      14,164 
Cash and cash equivalents                       12      11,642      12,308 
===========================================  =====  ==========  ========== 
                                                        25,032      26,472 
===========================================  =====  ==========  ========== 
Total assets                                           303,016     294,718 
===========================================  =====  ==========  ========== 
Non-current liabilities 
Loans                                           13   (110,277)   (110,112) 
===========================================  =====  ==========  ========== 
                                                     (110,277)   (110,112) 
===========================================  =====  ==========  ========== 
Current liabilities 
Trade and other payables                        14     (3,190)     (2,833) 
===========================================  =====  ==========  ========== 
Total liabilities                                    (113,467)   (112,945) 
===========================================  =====  ==========  ========== 
Net assets                                             189,549     181,773 
===========================================  =====  ==========  ========== 
 
Equity and reserves 
Called-up equity share capital                  16       2,113       2,113 
Share premium                                          125,559     125,559 
Capital reserve - investments held                    (42,710)    (47,365) 
Capital reserve - investments sold                       3,561       2,382 
Special distributable reserve                           82,711      83,162 
Revenue reserve                                         18,315      15,922 
===========================================  =====  ==========  ========== 
Equity shareholders' funds                             189,549     181,773 
===========================================  =====  ==========  ========== 
Net asset value per Ordinary Share (pence)      15      89.69p      86.01p 
===========================================  =====  ==========  ========== 
 

The accompanying notes are an integral part of these Financial Statements.

Company number: 09090446.

The Financial Statements were approved by the Board of Directors on 17 December 2021 and signed on its behalf by:

William Hill

Chairman

Consolidated Statement of Changes in Equity

For the year ended 30 September 2021

 
                                                             Capital       Capital 
                                                             reserve       reserve 
                                       Share                       -             -         Special 
                                     capital     Share   investments   investments   distributable   Revenue     Total 
                                     account   premium          held          sold         reserve   reserve    equity 
                             Notes   GBP'000   GBP'000       GBP'000       GBP'000         GBP'000   GBP'000   GBP'000 
===========================  =====  ========  ========  ============  ============  ==============  ========  ======== 
As at 30 September 2020                2,113   125,559      (47,365)         2,382          83,162    15,922   181,773 
 
Profit and total 
 comprehensive 
 income for the year                       -         -         4,655         1,179               -    11,276    17,110 
 
Transactions with owners 
 recognised in equity: 
Dividends paid                   7         -         -             -             -               -   (9,334)   (9,334) 
Transfer from special 
 reserve                                   -         -             -             -           (451)       451         - 
===========================  =====  ========  ========  ============  ============  ==============  ========  ======== 
As at 30 September 2021                2,113   125,559      (42,710)         3,561          82,711    18,315   189,549 
===========================  =====  ========  ========  ============  ============  ==============  ========  ======== 
 

For the year ended 30 September 2020

 
                                                             Capital       Capital 
                                                             reserve       reserve 
                                       Share                       -             -         Special 
                                     capital     Share   investments   investments   distributable   Revenue     Total 
                                     account   premium          held          sold         reserve   reserve    equity 
                             Notes   GBP'000   GBP'000       GBP'000       GBP'000         GBP'000   GBP'000   GBP'000 
===========================  =====  ========  ========  ============  ============  ==============  ========  ======== 
As at 30 September 2019             2,113     125,559   2,626         2,382         83,639          13,441    229,760 
 
Loss and total 
 comprehensive 
 income for the year                       -         -      (49,991)             -               -    12,615  (37,376) 
 
Transactions with owners 
 recognised in equity: 
Dividends paid                   7         -         -             -             -               -  (10,611)  (10,611) 
Transfer from special 
 reserve                                   -         -             -             -           (477)       477         - 
===========================  =====  ========  ========  ============  ============  ==============  ========  ======== 
As at 30 September 2020                2,113   125,559      (47,365)         2,382          83,162    15,922   181,773 
===========================  =====  ========  ========  ============  ============  ==============  ========  ======== 
 

The accompanying notes are an integral part of these Financial Statements.

Consolidated Statement of Cash Flow

For the year ended 30 September 2021

 
                                                                 Year ended     Year ended 
                                                               30 September   30 September 
                                                       Notes   2021 GBP'000   2020 GBP'000 
=====================================================  =====  =============  ============= 
Cash flows from operating activities 
Profit/(loss) before tax                                             17,110       (37,376) 
Adjustments for: 
Interest receivable                                                       -           (58) 
Interest payable                                                      3,109          3,258 
Unrealised revaluation (gain)/loss on property 
 portfolio                                                          (4,655)         49,991 
Realised gain on sale of investment property 
 realised                                                           (1,179)              - 
=====================================================  =====  =============  ============= 
Operating cash flows before working capital 
 changes                                                             14,385         15,815 
Decrease in trade and other receivables                               1,823            620 
(Decrease)/increase in trade and other payables                       (492)          1,169 
=====================================================  =====  =============  ============= 
Net cash inflow from operating activities                            15,716         17,604 
=====================================================  =====  =============  ============= 
 
Cash flows from investing activities 
Capital expenditure                                                (10,345)        (3,355) 
Acquisition of investment properties                               (21,640)              - 
Sale of investment properties                                        27,953              - 
=====================================================  =====  =============  ============= 
Net cash outflow from investing activities                          (4,032)        (3,355) 
=====================================================  =====  =============  ============= 
 
Cash flows from financing activities 
Dividends paid                                                      (9,334)       (10,803) 
Interest received                                                         -             58 
Interest paid                                                       (3,016)        (3,172) 
=====================================================  =====  =============  ============= 
Net cash outflow from financing activities                         (12,350)       (13,917) 
=====================================================  =====  =============  ============= 
 
Net (decrease)/increase in cash and cash equivalents                  (666)            332 
Opening cash and cash equivalents                                    12,308         11,976 
=====================================================  =====  =============  ============= 
Closing cash and cash equivalents                         12         11,642         12,308 
=====================================================  =====  =============  ============= 
 

The accompanying notes are an integral part of these Financial Statements.

Notes to the Consolidated Financial Statements

1. ACCOUNTING POLICIES

(A) BASIS OF PREPARATION

BASIS OF ACCOUNTING

These Consolidated Financial Statements have been prepared in accordance with international accounting standards (IAS) in conformity with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The accounts have been prepared on a historical cost basis, except for investment property valuations that have been measured at fair value.

The Notes and Financial Statements are presented in pounds sterling (being the functional currency and presentational currency for the Company) and are rounded to the nearest thousand except where otherwise indicated.

GOING CONCERN

Under the AIC Code of Corporate Governance (the 'AIC Code'), the Board needs to report whether the business is a going concern. In considering this requirement, the Directors have taken the following into account:

- the Group's projections for the next three years, in particular the cash flows, borrowings and occupancy rate;

- the ongoing ability to comply comfortably with the Group's financial covenants (details of the loan covenants are included in Note 13);

- the risks included on the Group's risk register that could impact on the Group's liquidity and solvency over the next 12 months; and

- the risks on the Group's risk register that could be a potential threat to the Group's business model.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The Strategic Report also includes the Group's risks and risk management processes.

The Directors made an assessment of Going Concern, under the guidelines of the AIC. Details of this assessment is included in the Directors' Report in the annual accounts.

SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of Financial Statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the year-end date and the amounts reported for revenue and expenses during the period. The nature of the estimation means that actual outcomes could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.

KEY ESTIMATES

The only significant source of estimation uncertainty relates to the investment property valuations. The fair value of investment properties is determined by independent real estate valuation experts using recognised valuation techniques. The properties have been valued on the basis of 'Fair Value' in accordance with the current editions of RICS Valuation - Global Standards, which incorporate the International Valuation Standards, and the RICS UK National Supplement. Investment property under construction is subject to a higher estimation uncertainty than that of investment property due to the estimation required for future expenditure, which is factored into the valuation models for these properties. In line with the recommendation of the European Public Real Estate Association (EPRA), all properties have been deemed to be Level 3 under the fair value hierarchy classification set out below. This is described in more detail in Note 9. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

The fair value measurement for the assets and liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: unobservable inputs for the asset or liability. Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or a similar instrument. As explained in more detail in Note 9, all investment properties are included in Level 3.

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred.

KEY JUDGEMENTS

Key judgements relate to property acquisitions where different accounting policies could be applied and operating lease contracts. These are described in more detail below, or in the relevant notes to the financial statements.

PROPERTY ACQUISITIONS AND BUSINESS COMBINATIONS

The Group acquires real estate either as individual properties or as the acquisition of a portfolio of properties either directly or through the acquisition of a corporate entity. During the year, judgement was applied in determining whether the acquisition of the Springkerse Retail Park represented the acquisition of a business or a property. Management considered that an integrated set of activities, capable of being independently conducted and managed for the purpose of generating a return, was not acquired in addition to the property, and as such, accounted for the acquisition as an addition to the property portfolio, rather than a business combination.

OPERATING LEASE CONTRACTS - THE GROUP AS LESSOR

The Group has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the duration of the lease terms and minimum lease payments, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases. Management has applied judgement by considering key new leases this year and have assessed that no lease exceeds a term of 40 years and as such determined that the terms and conditions of the arrangements do not result in a transfer of significant risks and rewards of ownership of these properties and that these should therefore be accounted for as operating leases.

The leases when signed, are for between five and 35 years. At the inception of the lease, management do not consider any extension of the leases to be reasonably certain and, as such do not factor any lease extensions into their considerations of lease incentives and the treatment of rental income.

BASIS OF CONSOLIDATION

The Consolidated Financial Statements comprise the financial statements of the Company and its two subsidiaries drawn up to 30 September 2021. Subsidiaries are those entities, including special purpose entities, controlled by the Company and are detailed in Note 10. Control exists when the Company is exposed, or has rights, to variable returns from its investment with the investee and has the ability to affect those returns through its power over the investee. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases.

In preparing the Consolidated Financial Statements, intra-Group balances, transactions and unrealised gains or losses have been eliminated in full. Uniform accounting policies are adopted for all companies within the Group.

(B) REVENUE RECOGNITION

RENTAL INCOME

Rental income, excluding VAT, arising on investment properties is accounted for in the Statement of Comprehensive Income on a straight-line basis over the terms of the individual leases.

Lease incentives including rent-free periods and payments to tenants, are allocated to the Statement of Comprehensive Income on a straight-line basis over the lease term or on another systematic basis, if applicable. Where income is recognised in advance of the related cash flows, an adjustment is made to ensure that the carrying value of the relevant property, including accrued rent disclosed separately within 'trade and other receivables', does not exceed the external valuation.

The Group may from time to time receive surrender premiums from tenants who break their leases early. To the extent they are deemed capital receipts to compensate the Group for loss in value of property to which they relate, they are credited through the capital column of the Statement of Comprehensive Income to capital reserves. All other surrender premiums are recognised within rental income in the Statement of Comprehensive Income.

INTEREST INCOME

Interest income is accounted for on an accruals basis.

SERVICE CHARGES AND EXPENSES RECOVERABLE FROM TENANTS

Where service charges and other expenses are recharged to tenants, the expense and the income received in reimbursement are offset within the Statement of Comprehensive Income and are not separately disclosed, as the Directors consider that the Group acts as agent in this respect. Service charges and other property-related expenses that are not recoverable from tenants are recognised in expenses on an accruals' basis.

(C) OTHER EXPENSES

Expenses are accounted for on an accruals' basis. The Group's investment management and administration fees, finance costs and all other expenses are charged to revenue through the Statement of Comprehensive Income.

(D) DIVIDS PAYABLE

Dividends are accounted for in the period in which they are paid. All of the dividends are paid as interim dividends and the dividend policy is put to shareholders for approval.

(E) TAXATION

The Group is a Real Estate Investment Trust (REIT) and is thereby exempt from tax on both rental profits and chargeable gains. In order to retain REIT status, certain ongoing criteria must be maintained. The main criteria are as follows:

- at the start of each accounting period, the assets of the tax-exempt business must be at least 75% of the total value of the Group's assets;

   -   at least 75% of the Group's total profits must arise from the tax-exempt business; 

- at least 90% of the tax-exempt rental business profits must be distributed in the form of a Property Income Distribution (PID); and

- the Group must hold a minimum of three properties with no single property exceeding 40% of the portfolio value.

The Directors intend that the Group should continue as a REIT for the foreseeable future, with the result that deferred tax is not recognised on temporary differences relating to the property rental business which is within the REIT structure.

Taxation on any profit or loss for the period not exempt under UK-REIT regulations comprises current and deferred tax. Taxation is recognised in the Statement of Comprehensive Income except to the extent that it relates to items recognised as direct movements in equity, in which case it is also recognised as a direct movement in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates and laws enacted or substantively enacted at the year-end date.

Deferred tax is provided using the liability method on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes calculated using rates and laws enacted or substantively enacted by the end of the period expected to apply. Deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. In determining the expected manner of realisation of an asset the Directors consider that the Group will recover the value of investment property through sale. Deferred tax relating to items recognised directly in equity is recognised in equity and not in profit or loss.

(F) INVESTMENT PROPERTIES

Investment properties consist of land and buildings which are not occupied for use by or in the operations of the Group or for sale in the ordinary course of business but are held to earn rental income together with the potential for capital and income growth.

Investment properties are initially recognised at the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period incurred and included within the book cost of the property.

After initial recognition, investment properties are measured at fair value, with gains and losses recognised in the Statement of Comprehensive Income. Fair value is based on an open market valuation provided by Knight Frank LLP, Chartered Surveyors at the year-end date using recognised valuation techniques appropriately adjusted for unamortised lease incentives, lease surrender premiums and rental adjustments.

The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (including lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. These estimates are based on local market conditions existing at the reporting date.

In terms of IAS 40, investments property under construction is measured at fair value, with gains and losses recognised in the Statement of Comprehensive Income. Fair value is based on an open market valuation provided by Knight Frank LLP, Chartered Surveyors at the year-end date. The determination of the fair value of investment property under construction requires the use of estimates such as future cash flows from assets (including lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. These estimates are based on local market conditions existing at the reporting date.

Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected from its disposal. On derecognition, gains and losses on disposals of investment properties are recognised in the Statement of Comprehensive Income and transferred to the capital reserve - investments sold. Recognition and derecognition occurs on the completion of a sale.

(G) CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity of three months or less.

(H) TRADE AND OTHER RECEIVABLES

Rents receivable, which are generally due for settlement at the relevant quarter end, are recognised and carried at the original invoice amount less an allowance for any uncollectable amounts. An expected credit loss (ECL) methodology is applied to applicable trade and other receivables. Expected credit losses are recognised in the Statement of Comprehensive Income as part of the ongoing assessment. Any incurred losses are written off when identified.

The Group applies the IFRS 9 simplified approach to measuring the expected credit losses for trade receivables whereby the allowance or provision for all trade receivables are based on the lifetime expected credit losses. The Group considers historical defaults over the expected life of the trade receivables and any information related to the debtors available at year end to determine forward-looking estimates of possible defaulting. This is consistent with the approach followed in prior periods.

(I) INTEREST-BEARING LOANS AND BORROWINGS

All loans and borrowings are initially recognised at the fair value of the consideration received net of arrangement costs associated with the borrowing. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost; any difference is recognised in the Statement of Comprehensive Income over the period of the borrowing using the effective interest method. Amortised cost is calculated by taking into account any loan arrangement costs and any discount or premium on settlement.

The Company discloses the bases and impact of early repayment of debt and also the fair value of the loans but includes the creditor amounts on the accounting policy above.

(J) PROPERTY ACQUISITIONS

Where property is acquired, via corporate acquisitions or otherwise, management considers the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business or the acquisition of an asset.

Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based on their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred taxation arises. Otherwise, acquisitions are accounted for as business combinations.

(K) RESERVES

SHARE PREMIUM

The surplus of net proceeds received from the issuance of new shares over their par value is credited to this account and the related issue costs are deducted from this account. The reserve is non-distributable. The initial share premium account, on the launch of the Company in 2014, was transferred to the special distributable reserve, following shareholder approval and successful application to court.

CAPITAL RESERVES

The following are accounted for in the capital reserve - investments sold:

   -   realised gains and losses arising on the disposal of investment properties. 

The following are accounted for in the capital reserve - investments held:

   -   increases and decreases in the fair value of investment properties held at the period end. 

REVENUE RESERVE

The net profit arising in the revenue column of the Statement of Comprehensive Income is added to or deducted from this reserve which is available for paying dividends. Where the Company's revenue reserve is insufficient to fund the dividends paid, a transfer can be made to this reserve from the special distributable reserve.

SPECIAL DISTRIBUTABLE RESERVE

Shortly after the launch of the Company, an application to Court was successfully made for the cancellation of the initial share premium account which allowed the balance of the share premium account at that date to be transferred to the special distributable reserve. This reserve is available for paying dividends and buying back the Company's shares.

CAPITAL MANAGEMENT

The Group's capital is represented by the Ordinary Shares, share premium, capital reserves, revenue reserve and special distributable reserve. The Group is not subject to any externally-imposed capital requirements.

The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objective. Capital management activities may include the allotment of new shares, the buyback or re-issuance of shares from treasury, the management of the Group's discount to net asset value and consideration of the Group's net gearing level.

There have been no changes in the capital management objectives and policies or the nature of the capital managed during the year.

(L) CHANGES IN ACCOUNTING POLICIES

The accounting policies adopted are consistent with those of the previous financial year, except that the following new standards have become effective in the current year:

- IFRS 16 'Leases' COVID-19-Related Rent Concessions - As a result of the coronavirus (COVID-19) pandemic, rent concessions have been granted to lessees. Such concessions might take a variety of forms, including payment holidays and deferral of lease payments. Lessees can elect to account for such rent concessions in the same way as they would if they were not lease modifications. In many cases, this will result in accounting for the concession as variable lease payments in the period(s) in which the event or condition that triggers the reduced payment occurs.

This standard has not had any impact on the Group's Financial Statements as presented for the current year as there has been no change in the accounting principles applicable to the lessor.

STANDARDS ISSUED BUT NOT YET EFFECTIVE

The following standards have been issued but are not effective for this accounting period and have not been adopted early:

- IAS 1 (amended) - Amendments regarding classifications of liabilities, and disclosure of accounting policies - effective from 1 January 2023.

- IAS 8 (amended) - Amendments regarding the definition of accounting estimates - effective from 1 January 2023.

- IAS 12 (amended) - Amendments regarding deferred tax on leases and decommissioning obligations - effective from 1 January 2023.

Adoption of the new or amended standards and relevant interpretations in future periods is not expected to have a material impact on the Financial Statements of the Group.

The Group does not consider the adoption of any new standards or amendments, other than those noted above, to be applicable to the Group.

2. INVESTMENT MANAGEMENT FEE

 
                               Year ended     Year ended 
                             30 September   30 September 
                             2021 GBP'000   2020 GBP'000 
==========================  =============  ============= 
Investment management fee           1,687          1,882 
==========================  =============  ============= 
Total                               1,687          1,882 
==========================  =============  ============= 
 

Ediston Investment Services Limited has been appointed as the Company's Alternative Investment Fund Manager (AIFM) and Investment Manager, with the property management service of the Group being delegated to Ediston Properties Limited. Ediston Investment Services Limited is entitled to a fee calculated as 0.95% per annum of the net assets of the Group up to GBP250m, 0.75% per annum of the net assets of the Group over GBP250m and up to GBP500m and 0.65% per annum of the net assets of the Group over GBP500m. The management fee on any cash available for investment (being all cash held by the Group except cash required for working capital and capital expenditure) is reduced to 0.475% per annum while such cash remains uninvested. The management fee is reduced by a quarterly contribution of GBP10,000 (GBP40,000 per annum) towards the overall management costs of the Company.

Ediston Investment Services Limited has committed to investing 20.0% of the quarterly management fee in the Company's shares each quarter for a period of three years commencing 1 October 2020. Refer to Note 17 for further information.

3. OTHER EXPENSES

 
                                                                 Year ended     Year ended 
                                                               30 September   30 September 
                                                               2021 GBP'000   2020 GBP'000 
============================================================  =============  ============= 
Direct operating expenses for investment properties: 
 
  *    from which income is received                                  1,016            512 
 
  *    from which income is not received                                  -              - 
Administration fee                                                      179            231 
Valuation and other professional fees                                   157            235 
Directors' fees                                                         212            175 
Public relations and marketing                                           73            111 
Auditor's remuneration for: 
Audit services: 
 
  *    fees payable for the audit of the consolidation and 
       the parent company accounts                                       42             39 
 
  *    fees payable for the audit of subsidiaries, pursuant 
       to legislation                                                    36             38 
Listing and registrar fees                                               46             47 
Other                                                                   153             72 
============================================================  =============  ============= 
Total                                                                 1,914          1,460 
============================================================  =============  ============= 
 

The movement in expected credited losses, which was previously grouped with other expenses, has been reconsidered and whilst this is immaterial, it has been presented separately on the face of the Consolidated Statement of Comprehensive Income, in line with the requirements of IAS 1.

4. INTEREST RECEIVABLE

 
                      Year ended     Year ended 
                    30 September   30 September 
                    2021 GBP'000   2020 GBP'000 
=================  =============  ============= 
Deposit interest               -             58 
=================  =============  ============= 
Total                          -             58 
=================  =============  ============= 
 

5. INTEREST PAYABLE

 
                                       Year ended     Year ended 
                                     30 September   30 September 
                                     2021 GBP'000   2020 GBP'000 
==================================  =============  ============= 
Loan interest                               2,938          3,092 
Amortisation of loan set-up costs             165            166 
Bank interest                                   6              - 
==================================  =============  ============= 
Total                                       3,109          3,258 
==================================  =============  ============= 
 

6. TAXATION

 
                     Year ended     Year ended 
                   30 September   30 September 
                   2021 GBP'000   2020 GBP'000 
================  =============  ============= 
Total tax charge              -              - 
================  =============  ============= 
 

A reconciliation of the corporation tax charge applicable to the results at the statutory corporation tax rate to the charge for the year is as follows:

 
                                                     Year ended     Year ended 
                                                   30 September   30 September 
                                                   2021 GBP'000   2020 GBP'000 
================================================  =============  ============= 
Profit/(loss) before taxation                            17,110       (37,376) 
================================================  =============  ============= 
UK tax at a rate of 19.0% (2020: 19.0%)                   3,251        (7,101) 
Effects of: 
REIT exempt profits                                     (2,228)        (2,488) 
REIT exempt (gains)/losses                              (1,109)          9,498 
Excess management expenses of residual business              86             91 
================================================  =============  ============= 
Total tax charge                                              -              - 
================================================  =============  ============= 
 

The Company served notice to HM Revenue & Customs that the Company, and its subsidiaries, qualified as a REIT with effect from 31 October 2014. Subject to continuing relevant UK-REIT criteria being met, the profits from the Group's property rental business, arising from both income and capital gains, are exempt from corporation tax.

The Group has unutilised tax losses carried forward in its residual business of GBP2,566,000 at 30 September 2021 (2020: GBP2,044,000). No deferred tax asset has been recognised on this amount as the Group cannot be certain that there will be taxable revenue profits arising within its residual business from which the future reversal of the deferred tax asset could be deducted. Although the Group anticipates sufficient capital profits, these cannot be offset against losses which are revenue in nature.

7. DIVIDS

Seven monthly dividends of 0.3333 pence per share and five monthly dividends of 0.4167 pence per share, at a total cost of GBP9,334,000 (2020: seven monthly dividends at a rate of 0.4792 pence per share and five monthly dividends at a rate of 0.3333 pence per share, at a cost of GBP10,611,000) were paid during the year. This equates to an annualised dividend of 4.42 pence (2020: 5.02 pence) per share. The rate was increased from 0.3333 pence per share to 0.4167 pence per share in May 2021.

Since the year end, interim dividends, each of 0.4167 pence per share, have been paid on 29 October 2021 and 30 November 2021. A further

interim dividend, of 0.4167 pence per share, will be paid on 31 December 2021. This monthly dividend of 0.4167 pence per share equates to an annualised dividend level of 5.00 pence per share. All of the distributions made by the Company have been PIDs.

8. EARNINGS PER SHARE

Basic and diluted earnings per share.

 
                                     Year ended 30 September    Year ended 30 September 
                                               2021                       2020 
                                    =========================  ========================= 
                                                    Pence per                  Pence per 
                                      GBP'000           share     GBP'000          share 
==================================  =========  ==============  ==========  ============= 
Revenue earnings                       11,276            5.34      12,615           5.97 
Capital earnings                        5,834            2.76    (49,991)        (23.66) 
Total earnings                         17,110            8.10    (37,376)        (17.69) 
==================================  =========  ==============  ==========  ============= 
Average number of shares in issue                 211,333,737                211,333,737 
==================================  =========  ==============  ==========  ============= 
 

9. INVESTMENT PROPERTIES

 
                                                      As at 30       As at 30 
                                                     September      September 
Freehold and leasehold properties                 2021 GBP'000   2020 GBP'000 
===============================================  =============  ============= 
Opening book cost                                      315,611        312,517 
Opening unrealised (depreciation)/appreciation        (47,365)          2,626 
===============================================  =============  ============= 
Opening fair value                                     268,246        315,143 
===============================================  =============  ============= 
 
Movements for the period 
Acquisitions                                            21,850              - 
Sales - proceeds                                      (27,953)              - 
               - gain on sales                           1,179              - 
Capital expenditure                                     10,007          3,094 
===============================================  =============  ============= 
Movement in book cost                                    5,083          3,094 
===============================================  =============  ============= 
Unrealised gains on investment properties               10,798              - 
Unrealised losses on investment properties             (6,143)       (49,991) 
===============================================  =============  ============= 
Movement in fair value                                   4,655       (49,991) 
===============================================  =============  ============= 
 
Closing book cost                                      320,694        315,611 
Closing unrealised depreciation                       (42,710)       (47,365) 
===============================================  =============  ============= 
Closing fair value                                     277,984        268,246 
===============================================  =============  ============= 
 

During the year ended 30 September 2021 the Group sold the Tesco Superstore, which forms part of Prestatyn Shopping Park, a strip of undeveloped land at Hull (which was acquired from us by way of a compulsory purchase order) and land at Rhyl. The Group received a net amount of GBP27,953,000 (2020: GBPnil) from investments sold during the year. The total book cost of the investments when it was purchased was GBP26,774,000. These investments have been revalued over time and, until it was sold, any unrealised gains/losses were included in the fair value of the investments.

In August 2021 the Group acquired Springkerse Retail Park in Stirling, Scotland at a cost of GBP21,850,000.

During the year, expenditure totalling GBP10,007,000 (2020: GBP3,094,000), incurred in improving investment properties, has been capitalised to the book cost of the property.

The fair value of the investment properties reconciled to the appraised value as follows:

 
                                                  As at 30       As at 30 
                                                 September      September 
                                              2021 GBP'000   2020 GBP'000 
===========================================  =============  ============= 
Closing fair value                                 277,984        268,246 
Lease incentives held as debtors (Note 11)           5,361          4,729 
===========================================  =============  ============= 
Appraised market value per Knight Frank            283,345        272,975 
===========================================  =============  ============= 
 

Changes in the valuation of investment properties:

 
                                                               Year ended     Year ended 
                                                             30 September   30 September 
                                                             2021 GBP'000   2020 GBP'000 
==========================================================  =============  ============= 
Gain on sale of investment properties                               1,179              - 
Unrealised profit realised during the year                              -              - 
==========================================================  =============  ============= 
Gain on sale of investment properties realised*                     1,179              - 
Unrealised gains on investment properties                               -              - 
Unrealised gains/(losses) on investment properties                  4,655       (49,991) 
==========================================================  =============  ============= 
Total gain/(loss) on revaluation of investment properties           5,834       (49,991) 
==========================================================  =============  ============= 
 

* Represents the difference between the sales proceeds, net of costs, and the property valuation at the end of the prior year.

The gain/(loss) on revaluation of investment properties reconciles to the movement in appraised market value as follows:

 
                                                               Year ended     Year ended 
                                                             30 September   30 September 
                                                             2021 GBP'000   2020 GBP'000 
==========================================================  =============  ============= 
Total gain/(loss) on revaluation of investment properties           4,655       (49,991) 
Purchases                                                          21,850              - 
Capital expenditure                                                10,007          3,094 
Sales - net proceeds                                             (26,774)              - 
==========================================================  =============  ============= 
Movement in fair value                                              9,738       (46,897) 
==========================================================  =============  ============= 
Movement in lease incentives held as debtors                          632            697 
==========================================================  =============  ============= 
Movement in appraised market value                                 10,370       (46,200) 
==========================================================  =============  ============= 
 

At 30 September 2021, the investment properties were valued at GBP283,345,000 (2020: GBP272,975,000) by Knight Frank LLP (Knight Frank), in their capacity as external valuers. This includes no investment property under construction (2020: GBP3,150,000). The valuation was undertaken in accordance with the current editions of RICS Valuation - Global Standards, which incorporate the International Valuation Standards, and the RICS UK National Supplement. Fair value is based on an open market valuation (the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date), provided by Knight Frank on a quarterly basis, using recognised valuation techniques as set out in the Group's accounting policies.

The Group is required to classify fair value measurements of its investment properties using a fair value hierarchy, in accordance with IFRS 13 'Fair Value Measurement'. In determining what level of the fair value hierarchy to classify the Group's investments within, the Directors have considered the content and conclusion of the position paper on IFRS 13 prepared by the EPRA, the representative body of the publicly listed real estate industry in Europe. This paper concludes that, even in the most transparent and liquid markets, it is likely that valuers of investment property will use one or more significant unobservable inputs or make at least one significant adjustment to an observable input, resulting in the vast majority of investment properties being classified as Level 3.

Observable market data is considered to be that which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market. In arriving at the valuation Knight Frank will have to make adjustments to observable data of similar properties and transactions to determine the fair value of a property and this will involve the use of considerable judgement.

Considering the Group's specific valuation process, industry guidance, and the level of judgement required in the valuation process, the Directors believe it appropriate to classify the Group's assets within Level 3 of the fair value hierarchy.

All leasehold properties are carried at fair value rather than amortised over the term of the lease. The same valuation criteria are applied to leasehold and freehold properties. All leasehold properties have more than 100 years remaining on the lease term.

The Group's investment properties, which are all commercial properties, are considered to be a single class of assets. There have been no changes to the valuation technique used through the period, nor have there been any transfers between levels.

The key unobservable inputs made in determining the fair values are:

- estimated rental value (ERV): the rent at which space could be let in the market conditions prevailing at the date of valuation; and

- net equivalent yield: the equivalent yield is defined as the internal rate of return of the cash flow from the property, assuming a rise to ERV at the next review, but with no further rental growth.

Information on these significant unobservable inputs is disclosed below:

 
                                    30 September 2021       30 September 2020 
                                 =======================  ====================== 
                                                Weighted                Weighted 
Significant unobservable input           Range   average         Range   average 
===============================  =============  ========  ============  ======== 
ERV per sq. ft. per annum         GBP5 - GBP43  GBP13.80  GBP5 - GBP43     GBP13 
Net equivalent yield               6.0% - 9.8%      7.0%   5.1% - 9.5%      6.8% 
===============================  =============  ========  ============  ======== 
 

The ERV for the total portfolio is not materially different from the contracted rent.

A decrease in the net equivalent yield applied to the portfolio by 0.25% will increase the fair value of the portfolio by GBP10,500,000 (2020: GBP10,400,000), and consequently increase the Group's reported income from unrealised gains on investments. An increase in yield by 0.25% will decrease the fair value of the portfolio by GBP9,800,000 (2020: GBP9,700,000) and reduce the Group's income.

The management of market price risk is part of the investment management process and is typical of a property investment company. 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. The basis of valuation of the property portfolio is set out in detail in the accounting policies.

Any changes in market conditions will directly affect the profit and loss reported through the Statement of Comprehensive Income. Details of the Group's investment property portfolio held at the balance sheet date are disclosed in Note 9. A 10% increase in the value of the investment properties held as at 30 September 2021 would have increased net assets available to shareholders and increased the net income for the year by GBP28,000,000 (2020: GBP27,000,000); an equal and opposite movement would have decreased net assets and decreased the net income by an equivalent amount.

The calculations are based on the investment property valuations at the respective balance sheet date and are not representative of the year as a whole, nor reflective of future market conditions.

10. INVESTMENT IN SUBSIDIARIES

EPIC (No.1) Limited is a wholly-owned subsidiary of Ediston Property Investment Company plc and is incorporated in England and Wales (Company number: 09106328) with registered address The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF. EPIC (No.1) Limited was incorporated on 27 June 2014 and began trading on 5 May 2015. On 5 May 2015, the ownership of the property portfolio held by the Company at that date was transferred to EPIC (No.1) Limited. The net asset value of EPIC (No.1) Limited as at 30 September 2021 was GBP102,605,000 (2020: GBP103,379,000). The profit of EPIC (No.1) Limited for the year to 30 September 2021 was GBP4,716,000 (2020: GBP17,852,000 loss).

EPIC (No.2) Limited is a wholly-owned subsidiary of Ediston Property Investment Company plc and is incorporated in England and Wales (Company number: 10978359) with registered address The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF. EPIC (No.2) Limited was incorporated on 23 September 2017, having been established to hold the five properties acquired by the Group and to enter into the Group's additional loan facility. The net asset value of EPIC (No.2) Limited as at 30 September 2021 was GBP81,576,000 (2020: GBP72,576,000). The profit of EPIC (No.2) Limited for the period to 30 September 2021 was GBP12,680,000 (2020: GBP19,046,000 loss).

11. TRADE AND OTHER RECEIVABLES

 
                                                             As at 30       As at 30 
                                                            September      September 
                                                         2021 GBP'000   2020 GBP'000 
======================================================  =============  ============= 
Secured balance held with loan provider                         6,837          8,297 
Capital and rental lease incentives                             5,361          4,729 
Rent receivable (net of allowance for expected credit 
 losses)                                                        1,175          1,121 
Other debtors and prepayments                                      17             17 
======================================================  =============  ============= 
Total                                                          13,390         14,164 
======================================================  =============  ============= 
 

The secured balance held with the loan provider represents monies that have been drawn under the Group's loan facilities, which are not currently invested in properties and which have been placed in a secured account with Aviva until required. The balance includes interest receivable of GBP186,000 (2020: GBPnil). These monies are available for reinvestment in the Group's investment property portfolio or, if necessary, could be used to partially repay the Group's borrowings. During the year ended 30 September 2021, the Company utilised a net amount of GBP1,646,000 (2020: GBP2,500,000) from the secured account.

Capital and rental lease incentives consist of GBP3,717,000 (2020: GBP3,434,000) being the prepayments for rent-free periods recognised over the life of the lease and GBP1,644,000 (2020: GBP1,295,000) relating to capital incentives paid to tenants. As set out in the accounting policy for rental income, an adjustment is made for these amounts to the fair value of the investment properties (see Note 9) to prevent double counting.

Rent receivable is shown net of an allowance for expected credit losses balance of GBP85,000 (2020: GBP700,000). The movement in the allowance is shown below and reflected in the Statement of Comprehensive Income.

 
Allowance for expected credit losses               GBP'000 
=================================================  ======= 
Opening balance as at 30 September 2020                700 
Reversal of allowance for expected credit losses     (615) 
=================================================  ======= 
Closing balance as at 30 September 2021                 85 
=================================================  ======= 
 

12. CASH AND CASH EQUIVALENTS

All cash balances at the year end were held in cash, current accounts or deposit accounts.

 
                                 As at 30       As at 30 
                                September      September 
                             2021 GBP'000   2020 GBP'000 
==========================  =============  ============= 
Cash and cash equivalents          11,642         12,308 
==========================  =============  ============= 
Total                              11,642         12,308 
==========================  =============  ============= 
 

13. LOANS

 
                                         As at 30       As at 30 
                                        September      September 
                                     2021 GBP'000   2020 GBP'000 
==================================  =============  ============= 
Principal amount outstanding              111,076        111,076 
Set-up costs                              (1,612)        (1,612) 
Amortisation of loan set-up costs             813            648 
==================================  =============  ============= 
Total                                     110,277        110,112 
==================================  =============  ============= 
 

The Group's loan arrangements are with Aviva Commercial Finance Limited.

The Group has loans totalling GBP56,920,000 which carry a blended fixed interest rate of 2.99% and mature in May 2025. This rate is fixed for the period of the loan as long as the loan-to-value (LTV) is maintained below 40%, increasing by ten basis points if the LTV is 40% or higher. These loans are secured over EPIC (No.1) Limited's property portfolio.

The Group also has a loan totalling GBP54,156,000 which carries a fixed interest rate of 2.73% and matures in December 2027. This rate is fixed for the period of the loan as long as the LTV is maintained below 40%, increasing by ten basis points if the LTV is 40% or higher. This loan is secured over EPIC (No.2) Limited's property portfolio. At year end the covenants were both below 40% LTV.

The Group's weighted average cost of borrowings remained 2.86% at 30 September 2021.

Under the financial covenants relating to the loans the Group has to ensure that for each of EPIC (No.1) Limited and EPIC (No.2) Limited:

- the Historic Interest Cover and Projected Interest Cover, each being the passing rental income as a percentage of finance costs and generally calculated over a period of 12 months to/from the calculation date, is at least 300%; and

- the LTV ratio, being the adjusted value of the loan as a percentage of the aggregate market value of the relevant properties, must not exceed 50%.

Breach of the financial covenants, subject to various cure rights, may lead to the loans falling due for repayment earlier than the final maturity dates stated above. The Group has complied with all the loan covenants during the year. Under the terms of early repayment relating to the loans, the cost of repaying the loans on 30 September 2021, based on the yield on the Treasury 5% 2025 and Treasury 4.25% 2027 plus a margin of 0.5%, would have been approximately GBP120,268,000 (2020: GBP126,362,000), including repayment of the principal of GBP111,076,000 (2020: GBP111,076,000).

The fair value of the loans based on a marked-to-market basis, being the yield on the relevant Treasury plus the appropriate margin, was GBP114,918,000 as at 30 September 2021 (2020: GBP119,668,000). This includes the principal amount borrowed. Analysis of net debt:

 
                           Cash and                                         Cash and 
                   cash equivalents      Borrowing       Net debt   cash equivalents      Borrowing       Net debt 
                       2021 GBP'000   2021 GBP'000   2021 GBP'000       2020 GBP'000   2020 GBP'000   2020 GBP'000 
================  =================  =============  =============  =================  =============  ============= 
Opening balance              12,308      (110,112)       (97,804)             11,976      (109,946)       (97,970) 
Cash flows                    (666)              -          (666)                332              -            332 
Non-cash flows                    -          (165)          (165)                  -          (166)          (166) 
================  =================  =============  =============  =================  =============  ============= 
Closing balance              11,642      (110,277)       (98,635)             12,308      (110,112)       (97,804) 
================  =================  =============  =============  =================  =============  ============= 
 

14. TRADE AND OTHER PAYABLES

 
                                         As at 30       As at 30 
                                        September      September 
                                     2021 GBP'000   2020 GBP'000 
==================================  =============  ============= 
Rental income received in advance           1,320          1,441 
VAT payable to HMRC                           549            224 
Investment management fee payable             437            430 
Loan interest payable                         444            444 
Capital expenditure payable                     2             59 
Other payables                                438            235 
==================================  =============  ============= 
Total                                       3,190          2,833 
==================================  =============  ============= 
 

The Group's payment policy is to ensure settlement of supplier invoices in accordance with stated terms.

15. NET ASSET VALUE

The Group's net asset value per Ordinary Share of 89.69 pence (2020: 86.01 pence) is based on equity shareholders' funds of GBP189,549,000 (2020: GBP181,773,000) and on 211,333,737 (2020: 211,333,737) Ordinary Shares, being the number of shares in issue at the year end.

The net asset value calculated under IFRS above is the same as the EPRA net asset value at 30 September 2021 and 30 September 2020.

16. CALLED-UP EQUITY SHARE CAPITAL

 
Allotted, called-up and fully paid Ordinary Shares     Number of 
 of 1 pence par value                                     shares  GBP'000 
===================================================  ===========  ======= 
Opening balance as at 30 September 2020              211,333,737    2,113 
Issue of Ordinary Shares                                       -        - 
===================================================  ===========  ======= 
Closing balance as at 30 September 2021              211,333,737    2,113 
===================================================  ===========  ======= 
 

The Company did not issue any Ordinary Shares in the last two financial years. The Company did not hold any shares in treasury during the previous two years. Under the Company's Articles of Association, the Company may issue an unlimited number of Ordinary Shares but issuance is subject to shareholder approval.

Ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the Company. All Ordinary Shares carry equal voting rights.

17. RELATED PARTIES

There have been no material transactions between the Company and its Directors during the year other than amounts paid to them in respect of expenses and remuneration for which there were no outstanding amounts payable at the year end.

Ediston Investment Services Limited has received investment management fees of GBP1,687,000 in relation to the year ended 30 September 2021 (2020: GBP1,882,000) of which GBP437,000 (2020: GBP430,000) remained payable at the year end. Ediston Investment Services Limited received development management fees of GBP257,000 in relation to the year ended 30 September 2021 (2020: GBPnil) of which GBPnil (2020: GBPnil) remained payable at the year end.

Ediston Investment Services Limited acquired 121,944 shares in the Company during the year ended 30 September 2021 (2020: 276,971l) as part of its commitment to reinvest 20 per cent of its quarterly management fee.

The aggregate shareholding of the Manager and its senior personnel as at 30 September 2021 is 1,984,667 (2020: 1,532,593) shares, 0.9% (2020: 0.7%) of the issued share capital as at that date.

18. OPERATING SEGMENTS

The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single unified business, being property investment, and in one geographical area, the United Kingdom, and that, therefore, the Group has no segments. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group's performance is the total return on the Group's net asset value. As the total return on the Group's net asset value is calculated based on the net asset value per share calculated under IFRSs as shown at the foot of the Consolidated Statement of Financial Position, the key performance measure is that prepared under IFRSs. Therefore, no reconciliation is required between the measure of profit or loss used by the Board and that contained in the Financial Statements.

The view that the Group is engaged in a single unified business is based on the following considerations:

- one of the key financial indicators received and reviewed by the Board is the total return from the property portfolio taken as a whole;

- there is no active allocation of resources to particular types or groups of properties in order to try to match the asset allocation of an index or benchmark; and

- the management of the portfolio is ultimately delegated to a single property manager, Ediston Properties Limited.

19. FINANCIAL INSTRUMENTS

Consistent with its objective, the Group holds UK commercial property investments. In addition, the Group's financial instruments comprise cash, and receivables and payables that arise directly from its operations. The Group does not have exposure to any derivative instruments.

The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk and interest rate risk. There is no foreign currency risk as all assets and liabilities of the Group are maintained in pounds sterling. The Group has insignificant exposure to market price risk related to financial instruments.

The Board reviews and agrees policies for managing the Group's risk exposure. These policies are summarised below and have remained unchanged for the period under review. These disclosures include, where appropriate, consideration of the Group's investment properties which, whilst not constituting financial instruments as de ned by IFRSs, are considered by the Board to be integral to the Group's overall risk exposure.

SECURITIES FINANCING TRANSACTIONS (SFT)

The Company has not, during the year to 30 September 2021 (2020: same), participated in any: repurchase transactions; securities lending or borrowing; buy-sell back transactions; margin lending transactions; or total return swap transactions (collectively called SFT). As such, it has no disclosure to make in satisfaction of the EU regulations on transparency of SFT.

The following table summarises the Group's financial assets and liabilities into the categories required by IFRS 7 'Financial Instruments: Disclosures':

 
                                 As at 30 September 2021        As at 30 September 2020 
                              =============================  ============================= 
                                                  Financial                      Financial 
                                Held at fair     assets and    Held at fair     assets and 
                               value through    liabilities   value through    liabilities 
                                   profit or   at amortised       profit or   at amortised 
                                loss GBP'000   cost GBP'000    loss GBP'000   cost GBP'000 
============================  ==============  =============  ==============  ============= 
Financial assets 
Trade and other receivables                -          8,012               -          9,418 
Cash and cash equivalents                  -         11,642               -         12,308 
============================  ==============  =============  ==============  ============= 
                                           -         19,654               -         21,726 
============================  ==============  =============  ==============  ============= 
Financial liabilities 
Loan                                       -      (110,277)               -      (110,112) 
Trade and other payables                   -        (1,321)               -        (1,168) 
============================  ==============  =============  ==============  ============= 
                                           -      (111,598)               -      (111,280) 
============================  ==============  =============  ==============  ============= 
 

Apart from the Aviva loans, as disclosed in Note 13, the fair value of financial assets and liabilities is not materially different from their carrying value in the Financial Statements.

CREDIT RISK

Credit risk is the risk that a counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. At the reporting date, the Group's financial assets exposed to credit risk amounted to GBP19,654,000 (2020: GBP21,726,000), consisting of cash of GBP11,642,000 (2020: GBP12,308,000), the secured balance held with the loan provider of GBP6,837,000 (2020: GBP8,297,000) and rent receivable of GBP1,175,000 (2020: GBP1,121,000).

In the event of default by a tenant, if it is in financial difficulty or otherwise unable to meet its obligations under the lease, the Group will suffer a rental shortfall and incur additional expenses until the property is re-let. These expenses could include legal and surveyor's costs in re-letting, maintenance costs, insurances, rates and marketing costs and may have an adverse impact on the financial condition and performance of the Group. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Investment Manager monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants. In assessing the probability of default of the individual debtor. The Directors have considered a number of factors including history of default, past experience, future expectations as well as the support the debtor receives from its parent company and the ability to settle the amount receivable when due.

Where there are concerns over the recoverability of rental income, the Group monitors creditworthiness of the tenants and makes provision for potential bad debts based on the expected credit loss model. The Group considers historical defaults over the expected life of the trade receivables and any information related to the debtors available at year end to determine forward-looking estimates of possible defaulting. This is consistent with the approach followed in prior periods. Given an improved rent profile of tenants and having considered their ability to pay, the wider expected credit losses considered by the Group has reduced to GBP85,000 at 30 September 2021 from GBP700,000 at 30 September 2020. Having given consideration to these criteria, the Group has determined that there are no additional expected credit losses other than those already recognised. As at 30 September 2021, collection plans are in place to recover any outstanding amounts. There were no other financial assets which were either past due or considered impaired at 30 September 2021 or at 30 September 2020.

At 30 September 2021, the Group held GBP8,789,000 (2020: GBP8,239,000) with RBS and GBP2,853,000 (2020: GBP4,069,000) with Bank of Scotland plc. Bankruptcy or insolvency of the bank holding cash balances may cause the Group's ability to access cash placed with them to be delayed, limited or lost. Both RBS and Bank of Scotland plc are rated by all the main rating agencies. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, cash holdings would be moved to another bank. As at 30 September 2021, Standard & Poor's credit rating for RBS was A-1 and Moody's was P-1. The equivalent credit ratings for Bank of Scotland plc were A-1 and P-1, respectively. There has been no change in the fair values of cash or receivables as a result of changes in credit risk in the current or prior periods.

LIQUIDITY RISK

Liquidity risk is the risk that the Group will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise commercial properties.

Property and property-related assets in which the Group invests are not traded in an organised public market and are relatively illiquid assets, requiring individual attention to sell in an orderly way. 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 Investment Manager and monitored on a quarterly basis by the Board. In order to mitigate liquidity risk the Group has a comprehensive ten-year cash flow forecast that aims to have sufficient cash balances, taking into account projected receipts for rental income and property sales, to meet its obligations for a period of at least 12 months. At the reporting date, the maturity of the financial assets was:

FINANCIAL ASSETS AS AT 30 SEPTEMBER 2021

 
                                                  More than       More than 
                                               three months        one year 
                                                   but less        but less     More than 
                                Three months       than one      than three   three years 
                             or less GBP'000   year GBP'000   years GBP'000       GBP'000  Total GBP'000 
==========================  ================  =============  ==============  ============  ============= 
Cash and cash equivalents             11,642              -               -             -         11,642 
Secured balance held 
 with loan provider                    6,837              -               -             -          6,837 
Rent receivable                        1,175              -               -             -          1,175 
==========================  ================  =============  ==============  ============  ============= 
Total                                 19,654              -               -             -         19,654 
==========================  ================  =============  ==============  ============  ============= 
 

FINANCIAL ASSETS AS AT 30 SEPTEMBER 2020

 
                                                  More than       More than 
                                               three months        one year 
                                                   but less        but less     More than 
                                Three months       than one      than three   three years 
                             or less GBP'000   year GBP'000   years GBP'000       GBP'000  Total GBP'000 
==========================  ================  =============  ==============  ============  ============= 
Cash and cash equivalents             12,308              -               -             -         12,308 
Secured balance held 
 with loan provider                    8,297              -               -             -          8,297 
Rent receivable                        1,121              -               -             -          1,121 
==========================  ================  =============  ==============  ============  ============= 
Total                                 21,726              -               -             -         21,726 
==========================  ================  =============  ==============  ============  ============= 
 

At the reporting date, the financial liabilities on a contractual maturity basis were:

FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2021

 
                                            More than       More than 
                                         three months        one year 
                                             but less        but less     More than 
                          Three months       than one      than three   three years 
                       or less GBP'000   year GBP'000   years GBP'000       GBP'000  Total GBP'000 
====================  ================  =============  ==============  ============  ============= 
Loan                                 -              -               -       111,076        111,076 
Interest payable on 
 loan                              802          2,378           6,389         6,162         15,731 
Other payables                     877              -               -             -            877 
====================  ================  =============  ==============  ============  ============= 
Total                            1,679          2,378           6,389       117,238        127,684 
====================  ================  =============  ==============  ============  ============= 
 

FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2020

 
                                            More than       More than 
                                         three months        one year 
                                             but less        but less     More than 
                          Three months       than one      than three   three years 
                       or less GBP'000   year GBP'000   years GBP'000       GBP'000  Total GBP'000 
====================  ================  =============  ==============  ============  ============= 
Loan                                 -              -               -       111,076        111,076 
Interest payable on 
 loan                              802          2,379           6,361         9,367         18,909 
Other payables                     724              -               -             -            724 
====================  ================  =============  ==============  ============  ============= 
Total                            1,526          2,379           6,361       120,443        130,709 
====================  ================  =============  ==============  ============  ============= 
 

Included in the tables above are payments due to Aviva, including interest payable, in connection with the loans as detailed in Note 13.

As at 30 September 2021 the Group remain in compliance with the loan covenants.

As at 30 September 2021, EPIC 1 reported a LTV of 36.99% (LTV of 50% required), the historical interest cover was reported at 605.09% (historical interest cover of at least 300% required) and the projected interest cover was reported at 532.97% (projected interest cover of at least 300% required).

As at 30 September 2021, EPIC 2 reported a LTV of 36.68% (LTV of 50% required), the historical interest cover was reported at 437.38% (historical interest cover of at least 300% required) and the projected interest cover was reported at 614.39% (projected interest cover of at least 300% required).

INTEREST RATE RISK

Some of the Group's financial instruments will be 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 floating interest rates gives cash flow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk.

The following table sets out the carrying amount of the Group's financial instruments that are exposed to interest rate risk:

 
                                  As at 30 September 2021    As at 30 September 2020 
                                 =========================  ========================= 
                                                  Variable                   Variable 
                                    Fixed rate        rate     Fixed rate        rate 
                                       GBP'000     GBP'000        GBP'000     GBP'000 
===============================  =============  ==========  =============  ========== 
Cash and cash equivalents                    -      11,642              -      12,038 
Secured balance held with loan 
 provider                                    -       6,837              -       8,297 
Loan                                 (110,277)           -      (110,112)           - 
===============================  =============  ==========  =============  ========== 
 

VARIABLE RATE

An increase of 0.50% in interest rates would have increased the reported profit for the year and increased the net assets at 30 September 2021 by GBP92,000 (2020: GBP102,000), a decrease of 0.50% in interest rates would have had an equal and opposite effect. These calculations are based on the variable rate balances at the respective balance sheet date and are not representative of the year as a whole, nor reflective of actual future conditions.

FIXED RATE

Considering the effect on the loan balance, it is estimated that an increase of 0.50% in interest rates as at the balance sheet date would have decreased its fair value by approximately GBP2,500,000 (2020: GBP3,200,000) and a decrease of 0.50% would have increased its fair value by approximately GBP2,600,000 (2020: GBP3,300,000). As the loan balance is recognised in the Consolidated Financial Statements at amortised cost, this change in fair value would not have resulted in a change in the reported loss for the year, nor the net assets of the Group at the year end.

20. CAPITAL COMMITMENTS

The Group had contractual commitments totalling GBP405,000 in relation to capital works at Coatbridge Pods, Barnsley, Rhyl, Hull, Birmingham, Widnes and Haddington, as at 30 September 2021 (30 September 2020: GBP4,666,000).

21. OPERATING LEASES

The Group leases out its investment properties under operating leases. These properties are measured under the fair value model as the properties are held to earn rentals. All leases are non-cancellable with a weighted average unexpired lease term of 5.0 years (2020: 5.7 years).

The Group's investment properties are leased to tenants under the terms of property leases that include rent reviews as determined at the inception of the lease. These reviews can be linked to Retail Price Index, fixed rate or stepped rent increases.

The following table sets out the maturity analysis of leases receivables, showing the undiscounted lease payments under non-cancellable operating leases receivable by the Group:

 
                             As at          As at 
                      30 September   30 September 
                      2021 GBP'000   2020 GBP'000 
===================  =============  ============= 
Year 1                      19,448         18,646 
Year 2                      16,136         17,210 
Year 3                      14,267         13,727 
Year 4                      12,887         12,111 
Year 5                      10,643         11,033 
Year 6 and onwards          27,507         39,881 
===================  =============  ============= 
Total                      100,888        112,608 
===================  =============  ============= 
 

The largest single tenant at the year end accounted for 6.4% (2020: 6.6%) of the contracted rent.

22. ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)

Ediston Investment Services Limited has been authorised as an AIFM by the Financial Conduct Authority under the AIFMD regulations and became the Group's AIFM with effect from 24 February 2016. In accordance with the AIFMD, information in relation to the Group's leverage and the remuneration of the Company's AIFM is required to be made available to investors. Ediston Investment Services Limited has provided disclosures on its website, https://www.ediston.com/about-us-ediston-investment-services-limited/ incorporating the requirements of the AIFMD regulations regarding remuneration.

The Group's maximum and actual leverage levels at 30 September 2021 are shown below:

 
                                  Commitment 
Leverage exposure   Gross method      method 
==================  ============  ========== 
Maximum limit               3.00        3.00 
==================  ============  ========== 
Actual                      1.55        1.56 
==================  ============  ========== 
 

For the purposes of the AIFMD, leverage is any method which increases the Group's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a percentage of the Group's exposure to its net asset value and is calculated on both a gross and commitment method.

Under the gross method, exposure represents the sum of the Group's positions after deduction of cash balances, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other.

The leverage limits are set by the AIFM and approved by the Board, and are in line with the maximum leverage levels permitted in the Company's Articles of Association. The AIFM is also required to comply with the gearing parameters set by the Board in relation to borrowings.

Detailed regulatory disclosures to investors in accordance with the AIFMD are contained on the Company's website.

23. SUBSEQUENT EVENTS

On 24 November 2021, the Company sold its office building, Midland Bridge House, Bath, for GBP5.925m. The net initial yield is 5.7%, which is in line with the 30 September 2021 valuation.

On 13 December 2021 the Company sold its office buildings in Edinburgh (145 Morrison Street) and Newcastle (Citygate II). The headline price of GBP31,435,000 is 3.4% below the 30 September 2021 valuation. Once deductions for topped up rents and rent-free periods are factored in, the net receipt to the Company is GBP30,496,770. These sales are in line with the Company's new strategy to sell its office portfolio and to reinvest the proceeds in retail warehouses, a sector in which the Investment Manager has considerable experience as an investor, developer and asset manager.

No further significant events have occurred between the Statement of Financial Position date and the date when the Financial Statements have been approved, which would require adjustments to, or disclosure in the Financial Statements.

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