TIDMEPIC

RNS Number : 6047J

Ediston Property Inv Comp PLC

14 December 2022

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 2022.

The Company also announces that its 2022 Annual General Meeting will be held on Friday, 24 February 2023 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 2022 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 2022:

Operational

   -     Sold four office assets and two leisure assets for GBP69.5m. 
   -     15 lease transactions completed with a contracted rent of GBP2.5m per annum. 
   -     98.2% of rent due was collected. 

- Portfolio is now 100% in retail warehousing, in line with the new investment strategy, with cash available for further investment at the appropriate time.

Key Performance Indicators and Financial

 
                                    2022       2021 
----------------------------------  ---------  --------- 
NAV total return                    11.5%      9.6% 
Annualised dividend per shares      5.00p      4.42p 
Average premium/discount of share 
 price to NAV                       -17.9%     -22.1% 
Share price total return            -2.3%      54.6% 
EPRA vacancy rate                   6.5%       8.6% 
Ongoing charges                     1.4%       1.4% 
Total assets                        GBP313.7m  GBP303.0m 
Weighted average unexpired lease    4.5 years  5.0 years 
 term 
EPRA NAV per share                  94.9p      89.6p 
Rent collected in the year          98.2%      95.7% 
Dividend Cover                      81.2%      119.0% 
 

Anticipated Financial Calendar 2023

 
 January 2023    Announcement of Net Asset Value as at 31 
                  December 2022 
 24 February     Annual General Meeting 
  2023 
                ------------------------------------------ 
 April 2023      Announcement of Net Asset Value as at 31 
                  March 2023 
                ------------------------------------------ 
 May 2023        Publication of Half Yearly Report for the 
                  six months to 31 March 2023 
                ------------------------------------------ 
 July 2023       Announcement of Net Asset Value as at 30 
                  June 2023 
                ------------------------------------------ 
 October 2023    Announcement of Net Asset Value as at 30 
                  September 2023 
                ------------------------------------------ 
 December 2023   Publication of Annual Report for the year 
                  to 30 September 2023 
                ------------------------------------------ 
 

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

 
 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

The sale of the office and leisure properties has increased the retail warehouse exposure in the property portfolio from 74.1% to 100% of our invested assets. At the year end, the Company held GBP31.0m in the debt disposal account earmarked specifically for reinvestment, as well as GBP50.2m in its operational account.

In my interim statement in May, I commented that, whilst the retail warehouse market had flourished in the first part of the year, the macro-economic position was becoming more challenging due to world events and rising inflation. Behind this caution was the expectation of higher interest rates and a squeeze on business investment and consumer spending to bring inflation under control. This has happened against a background of political chaos in the UK.

The consequent spike in gilt rates has created a wave of fear in real estate markets as investors grapple with the pricing implications of needing higher returns on equity to compensate, and much higher borrowing costs than anticipated. This is reflected in the widened discounts across the closed-ended sector.

For the Company, the most obvious and immediate impact has been the deterioration in the share price, which has moved down from 78.8 pence per share at the half year to 67.6 pence at the year end. Due to a reduction in property values, the Company has seen a fall in Net Asset Value at 30 September, following five quarters of increases.

There are no doubt more real estate bumps in the road to navigate over coming months, with a slowing economy and rising interest rates. A sizeable one in the short term will be the impact of the expected mark down in market valuations at the end of December, based on transactional evidence over the quarter. External geopolitical factors will also remain a significant factor in determining the direction of the economy. The Board will continue to manage risk proactively and where possible ensure the Company is as resilient as it can be to whatever lies ahead. Despite the economic and political difficulties that emerged in 2022, the Company, with its new investment focus and cash to invest, should emerge from this period of disruption in a strong position.

INVESTMENT AND SHARE PRICE PERFORMANCE

The Company's Net Asset Value (NAV) per share increased by 5.9% with an annualised NAV total return as at 30 September 2022 of 11.5%. Like-for-like property values increased by 10.3% over the period.

Despite the increase in NAV, the share price has declined 8.4% over the year from 73.8 pence to 67.6 pence. Allowing for the payment of the dividend, the share price total return was -2.3%.

The increase in NAV for the year was driven by the improvement in valuations in the retail warehouse portfolio due to a combination of yield shift and the gains from asset management initiatives. Some of this value was lost in the last quarter due to markets falling back on economic concerns, the general rise in borrowing costs and the political turmoil. The sale of the office portfolio was completed below the September 2021 valuation, and was a drag on performance for the year. However, the sale was prescient as it is highly likely that, if these assets had not been sold, the current valuation of the offices would be below the sale value, creating a larger offset to the retail warehouse gains.

INVESTMENT STRATEGY

Asset Allocation

The completion of the office sales and the disposal of the two leisure assets during the year has shifted the asset mix from 74.1% to 100% invested in the retail warehouse sector. Uninvested cash resources will be invested into the sector, maintaining a 100% exposure for the foreseeable future and in line with the revised strategy. The Investment Manager had intended for the Company to be fully invested by the half year. However, due to the uncertainty and re-pricing of the market, it was decided that it was prudent to hold cash until the right opportunities were available, and the extent of the correction was more visible.

In considering retail warehouse investments, it is important to note that the sector is not one homogenous group of assets. Investment performance can be influenced by many factors, including planning restrictions on users, tenant focus, tenant mix, size and layout of units, the size of the overall scheme, availability of car parking, accessibility, the nature of the catchment, supply of competing space, property management, sustainability factors, the affordability of the prevailing rent, opportunities to add space and alternative use values. The dispersion of returns can be significant across the sector, accentuating the importance of stock selection and an experienced Investment Manager.

Given the focus on the sector, the Investment Manager has provided more information in its review later on in this report. What does come through from the analysis is the strength of the Company's income stream. The credit rating of 85.0% of the tenant line-up is rated by Dun & Bradstreet as having a lower than average risk of business failure. The average rent passing (including the smaller coffee and kiosk units, which command higher rents but ignoring vacant units) is GBP14.72 per sq. ft. The Company is aware that many of its retailers are making money from this rental base and, with void levels low, it augurs well for rental growth.

What makes the sector especially interesting is that the investment story is much more than the attractive levels of rent and capital value as:

1) click-and-collect continues to grow, with out-of-town parks well placed to provide this function;

2) retailers remain attracted to the better configured space on retail parks;

3) new revenue opportunities exist from creating new spaces such as drive-thru units and electrical vehicle (EV) charging points; and

4) densities can be increased with the potential for introducing other uses.

Sustainability

I am delighted that the Company is embracing its sustainability responsibilities and has made further progress during the year in charting its way to net zero. The Sustainability Working Group, comprising the team from the Investment Manager, Savills, Imogen Moss and myself, is proving effective in maintaining the required momentum. It is satisfying that the Investment Manager has secured another green star to last year's rating following the Company's participation in the 2022 GRESB survey.

The ESG activities are more fully described within the report. This is more detailed disclosure than the previous year and hopefully informative for shareholders.

PORTFOLIO ACTIVITY

It has been an exceptionally busy year, with the Investment Manager's report providing full information. The key highlights are:

1) Sales

The four office assets in Bath, Birmingham, Newcastle and Edinburgh, and the leisure assets at Hartlepool and Telford, were sold. The total capital raised from the six transactions was GBP69.5m. The sales achieved one of the key strategic objectives set last year.

2) Asset Management

The strategic priorities of protecting rent and enhancing NAV were achieved. Fifteen lease transactions involving GBP2.5m of rent were completed during the year, with one further deal concluding post the year end. The void management target was also achieved with the reduction in the EPRA Vacancy Rate from 8.6% to 6.5%. This all contributed to the value of the retail warehouse assets improving during the year.

RENT COLLECTION

In total, 98.2% of rent due was collected at the year end. Contracted rent had fallen at the year end from 12 months ago due to the loss of income from the office and leisure property sales and the deferral of the reinvestment of the sale proceeds. The objective is to replace as much of this income as possible through reinvestment in suitable retail warehouse assets.

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 2022 was 35.41% of total assets, a slight decrease from last year end. Gearing is within investment policy limits and covenants.

As at 30 September 2022, the Company held GBP81.2m of cash. Of this sum, GBP31.0m is contained within the security pool and consent from the lender is required where Loan-to-Value (LTV) levels at the time the funds are utilised is above 35%.

DIVIDS

In my report last year, I stated the Board's commitment to a covered dividend and the prospect of further dividend progress as contracted rental income continued to improve. I also highlighted that the likely mismatch between sales and reinvestment could lead to a period of uncovered dividends and that,if prudent to do so, the shortfall would be made up from reserves.

Delaying the reinvestment of capital from the sales has meant the period of uncovered dividend has become longer than was anticipated. The Board believes the way the Company has responded to the changed market conditions is both responsible and appropriate. The Company is well funded to continue to pay the current monthly dividend. It is the intention of the Board to maintain the dividend at 5.0 pence per share. The expectation remains that when the available capital is invested the dividend will be covered.

LONG-TERM GROWTH STRATEGY

The Board's immediate focus is on NAV per share with the active management of the current assets and ensuring that capital is invested on an accretive basis for the medium term. Longer term, the Board would like to grow the equity base of the Company to improve liquidity, lower the cost base per share and enlarge the investment opportunity set, but this will depend in no small part on the recovery of the Company's share price rating.

Although the issue of new equity is unlikely in the short term, due to the share price being at a discount to NAV, 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 consider other means of raising capital if there are substantial acquisitions to be financed. In any fund raising, the interests of existing shareholders will be of paramount importance in how we price and structure any new issuance or take on any new gearing.

BOARD MATTERS

I would like to thank the Board, Investment Manager and all the agents that provide services to the Company for their hard work.

We have made some Board changes during the year as part of our succession plan. I would like to welcome Karyn Lamont, who joined the Board on 1 September, as our new Audit and Risk Committee Chair. She will stand for election at the AGM in February 2023. Karyn is a chartered accountant, a former audit partner at PwC and an experienced non-executive director on other collective funds, including as audit chair. Imogen Moss became the Senior Independent Director on 1 June this year. These changes result from Robin Archibald stepping down from both these positions to enable a well-managed handover and transition to take place before he retires from the Board at the AGM in 2023.

Robin has been on the Board since the Company floated in October 2014. During his time of service he has made an immense contribution to the management oversight of the Company, and I would like to thank him not only for that but also for all the wise counsel and support he has given me personally. I know Robin will remain active in the Investment Trust sector with his other board appointments and we wish him well with these roles.

The end of my tenure is also in sight, having joined the Board at the same time as Robin. The Board has asked me to continue as Chairman in the coming year and I will, therefore, stand for election at the forthcoming AGM. It is my intention to stand down no later than the AGM in 2024 and between now and then will work with my fellow directors on identifying a new Chair.

The Board has not revised its base remuneration levels in five years. The only modifications to Board remuneration in that period related to changes in roles and the introduction of the arrangements relating to Robin Archibald's remuneration. The Remuneration Committee has concluded that a modest increase is now justified based on its assessment of market rates following the recruitment process undertaken this year. The proposed increases are significantly below the rate of inflation over the last five years. Shareholders are being asked to approve an increase in the remuneration cap to GBP275,000, giving the Board the flexibility it might need over its composition in future years and to manage succession.

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 2023.

Those shareholders who are unable to attend the AGM in person are encouraged to raise any questions in advance with the Administrator 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 2023. Any questions received will be replied to by either the Investment Manager or Board, via the Administrator, before the AGM. A shareholder presentation will be made available on the Company website following the AGM, updating shareholders on the activities of the Company.

OUTLOOK

The decision to delay the reinvestment of the sales proceeds from the office and leisure disposals has undoubtedly put the Company in a better position to take advantage of the current market uncertainty and setback in asset valuations. We can expect some interesting and attractive opportunities to arise over the coming months, given the expected further falls in market valuations. Real estate markets are now much quicker to adjust than in the past so these opportunities could come quickly. However, the Investment Manager has no specific timetable in mind for the reinvestment and will be led by opportunity and to the extent that the market has re-priced. The timing will also be driven by the need to ensure the Company remains financially resilient to the effects of any sustained market downturn.

However, it will mean the payment of an uncovered dividend in the meantime.

The immediate focus is on managing the existing assets to protect the NAV per share and ensure the income is maximised to reduce the extent of the uncovered dividend. The Investment Manager did an excellent job in this regard during the COVID-19 Crisis and is well-positioned to do so during a period of economic difficulty.

The attractiveness of large parts of the retail warehouse sector was recognised by investors in the early part of the year and the consequent increase in buying activity started to drive yields down and prices up. The general correction in the last quarter has brought this to an end for the moment. However, the fundamentals remain attractive with many of the tenants in the sector making money from the rebased rents, void levels are low and the click-and-collect model continues to grow in popularity.

There is good prospect that investor interest will return when confidence improves and pressure on asset sales is reduced as open-ended property fund redemptions normalise. This will not only benefit the Company's NAV but should also flow through to an improved share price and a reduction in the discount. Whether this will be evident in the second half of the new financial year will remain to be seen. Nevertheless, the Board is confident that the Company will be able to emerge from the current turbulence in a strong position to reap the benefits of better times ahead.

William Hill

Chairman

Investment Manager's Review

It has been a busy year for the Company, which has seen improvement across several areas. The NAV has increased, the EPRA Vacancy Rate has fallen, rent collection has improved further and 15 asset management transactions have been completed.

The revised strategy to sell office and leisure assets to focus investment on the retail warehouse sector has been successfully completed. During the period, all six of the office and leisure assets were sold, meaning the Company now only holds retail warehouse assets and has cash available for reinvestment.

The first half of the financial year saw positive momentum build across the portfolio, driven by the continued recovery of the retail warehouse market. Yields hardened as investors recognised the attributes of the retail warehouse sector and tenants continued to lease space.

The Interim Report cautioned that headwinds were building, which they did, and they are now affecting the Company. Rising inflation, interest rates and energy costs, coupled with political instability, have reduced consumer confidence and put a squeeze on household incomes. Reductions in disposable income could affect the retail market, including retail warehousing. Discretionary spending and the purchasing of 'big-ticket' items will be particularly affected. The fact that the Company's portfolio is underpinned by convenience-led tenants, has low average rents and a reduced vacancy rate is important and should help make the portfolio more defensive to these reductions in consumer spending.

If retailers are impacted, there is an increased likelihood of them using Company Voluntary Arrangements (CVAs) and other insolvency processes to reduce costs. The Company is in a better position to deal with these challenges than it was during the COVID-19 Crisis, which it weathered well in terms of sustaining income.

However, the increase in gilt yields has put all property valuations under downward pressure. The Company's property portfolio reduced in value by 2.5%, on a like-for-like basis, at 30 September 2022. Further, larger declines are likely as the property market reprices due to the rise in gilt yields. The expectation is that the property portfolio will fall in value as at 31 December 2022, with the potential for further volatility thereafter.

Despite the more measured short-term outlook, the fundamentals of the retail warehouse sector remain robust. Supply of available space is low, tenant demand is holding up, occupiers are still doing deals and we continue to identify and complete asset management transactions that secure income.

We expect the retail warehouse sector to be the most resilient and flexible part of the retail market, which can adapt to the changing needs of tenants and the integration of their omnichannel strategies. Having sold assets and with cash in the bank, the Company is well placed to capitalise on any investment opportunities that are identified in a re-priced market, but only at the right time and price for the Company.

Property Valuation

The Company's property portfolio is valued by Knight Frank on a quarterly basis throughout the year. As at 30 September 2022 it was valued at GBP231.4m, a like-for-like increase of 10.3% over the reporting period. The increase was driven by falling yields in the retail warehouse portfolio, albeit there was a decrease in the property valuation in the final quarter as some of the yield improvement was reversed.

EPRA Vacancy Rate

During the period the EPRA Vacancy Rate decreased from 8.6% to 6.5%. This was due to the sale of the office at St. Philips Point in Birmingham, which had vacant floors, and the letting of vacant units in the retail warehouse portfolio. Letting the remaining vacant units remains a key focus.

Rent

Over the year, the Company's contracted rent has reduced from GBP20.8m to GBP16.2m. This is principally because of the sale of the office and leisure properties, and the fact that the sales proceeds have not been reinvested. It is anticipated that the income will be replaced when suitable assets are acquired.

Rent collection for the year, as at 30 September 2022, was 98.2%, an improvement from 95.7% in the prior year.

Implementing the revised strategy

Last year the Company announced its strategy to sell its office and leisure assets to focus on the retail warehouse sector. During the period, the Company sold its four office assets in Bath, Birmingham, Edinburgh and Newcastle for a headline price of GBP61.9m. This was 3.3% below the property valuations at the time of the sales. Once deductions for topped up rents and rent-free periods were factored in, the net receipt to the Company was GBP60.0m.

The Company also disposed of its two leisure units, both of which were let to Mecca Bingo. The Lanyard, Hartlepool, was sold for GBP2.6m. This was 16.4% above the valuation. The second leisure property, Southwater Square, Telford, was sold to an owner occupier for GBP5.0m, which was 67% above the property valuation.

The next phase of investment activity will be focused on the retail warehouse sector. Whilst the Company recognises the benefits of being fully invested, the deterioration in the market, coupled with the economic and political challenges, means that it is carefully reviewing opportunities to ensure that the cash is deployed in appropriate assets, at the correct price, at the right time. Despite the recent challenges, we still believe the prospects are attractive for retail warehousing, both in absolute terms and relative to other sectors of the real estate market.

Portfolio activity

The Company has continued to deliver asset management transactions across the portfolio, which have helped reduce the EPRA Vacancy Rate and secure the Company's income stream.

During the period the Company completed 15 transactions across the office, leisure and retail warehouse assets.

Thirteen of the 15 deals were completed in the retail warehouse assets, securing GBP1.8m of rent per annum, of which GBP0.6m was additional rent. These are summarised as follows:

   -   at Kingston Retail Park in Hull, The Range signed a 15-year lease on a 14,500 sq. ft. unit; 

- also at Hull, Greggs signed a 10-year lease with a five-year tenant break option on a 2,000 sq. ft. unit;

- at Prestatyn Shopping Park, The Tech Edge leased a vacant unit of 1,300 sq. ft. on a five-year lease;

   -   at Clwyd Retail Park, Rhyl, Now to Bed leased 8,017 sq. ft. on a three-year lease; 

- at Barnsley, Bensons downsized from a unit of 10,000 sq. ft. into one of 5,036 sq. ft. and signed a five-year lease;

   -   Jysk then signed a 10-year lease with a five-year break option on the unit vacated by Bensons; 

- in one other deal at Barnsley, One Below, occupying a 4,996 sq. ft. unit on a short-term lease, committed to the park for five years;

- at Widnes Shopping Park, Card Factory signed a five-year lease, without break, on a 1,590 sq. ft. unit;

- at Stirling, Harry Corry signed a five-year lease extension on its 9,968 sq. ft. unit, meaning its lease will now expire in February 2027;

- also at Stirling, Pets at Home agreed to remove its break option, due in 2024, meaning the lease now expires in June 2029; and

- in a third deal at Stirling, existing tenant Bensons signed an agreement for lease on a 9,977 sq. ft. unit. On completion of landlord works it will sign a 10-year lease.

At Prestatyn Shopping Park, JD Sports signed a 10-year lease with breaks at years four and seven on a 7,623 sq. ft. unit, which was previously occupied by New Look. New Look was occupying the unit on a turnover rent basis following the approval of its CVA. Under the terms of the CVA landlords were entitled to break the leases.

We considered that the terms of the CVA were below market, so we took the opportunity to exercise the break clause and identified JD Sports as a more suitable tenant for the space. The rent received from JD Sports is 44.0% higher than the rent being paid by New Look.

At Coatbridge, Glasgow, we completed an AFL with existing tenant B&Q, to secure them on the park for a further 10 years. B&Q had a lease expiry in December 2022. As part of the transaction, B&Q will downsize from 102,000 sq. ft. to 79,960 sq. ft. Aldi has signed an AFL for a 20,000 sq. ft. unit which will be created in the space vacated by B&Q. Planning permission has been obtained for the change to food use. On completion of the landlord works, Aldi will enter into a 20-year lease without break, subject to five-yearly rent reviews linked to RPI.

One asset management transaction completed in each of the office and leisure portfolio. Both properties were then sold during the period.

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

At Hartlepool, Mecca Bingo signed a 10-year reversionary lease with a seven-year tenant break option on its 31,284 sq. ft unit. The lease expiry date was extended to September 2032, with a break option in September 2029.

Post period end activity

Post period end, at Wombwell Lane Retail Park, Barnsley, B&M agreed to extend its occupation at the park by 10 years.

The lease now expires in September 2037 and the passing rent increased by 6.0%. To facilitate the deal, B&M was granted a 15-month rent-free period. This underscores B&M's commitment to the location.

Outlook

Despite the growing economic and property market headwinds, there is still occupational demand for the Company's properties. There is interest in not only the Company's vacant units, but also in let units where we are trying to accommodate the demand by right sizing tenants to secure their ongoing occupation. The fact that we can modify units to match tenant requirements demonstrates the flexibility offered by retail warehouse parks.

Protecting income and growing it where possible remains a key focus. There will be challenges to contend with, but with a reshaped portfolio (with no office or leisure exposure), a good tenant line up, a low vacancy rate (6.5%) an attractive WAULT (4.5 years) and ongoing asset management opportunities, the Company has a robust platform on which to build. Further, the Company has cash available for investment into a re-priced market, at the appropriate time.

Calum Bruce

Investment Manager

Property Portfolio as at 30 September 2022

 
                                                  Market 
                                                   value 
                                                   range 
Location    Name                Sub-sector         (GBPm)  Tenure 
==========  ==================  ================  =======  ========= 
Widnes      Widnes Shopping     Retail Warehouse  35-40    Leasehold 
             Park 
==========  ==================  ================  =======  ========= 
Prestatyn   Prestatyn Shopping  Retail Warehouse  25-30    Freehold 
             Park 
==========  ==================  ================  =======  ========= 
Stirling    Springkerse         Retail Warehouse  25-30    Heritable 
             Retail Park 
==========  ==================  ================  =======  ========= 
Hull        Kingston Retail     Retail Warehouse  20-25    Freehold 
             Park 
==========  ==================  ================  =======  ========= 
Rhyl        Clwyd Retail        Retail Warehouse  15-20    Freehold 
             Park 
==========  ==================  ================  =======  ========= 
Sunderland  Pallion Retail      Retail Warehouse  15-20    Freehold 
             Park 
==========  ==================  ================  =======  ========= 
Wrexham     Plas Coch Retail    Retail Warehouse  15-20    Freehold 
             Park 
==========  ==================  ================  =======  ========= 
Coatbridge  B&Q                 Retail Warehouse  15-20    Heritable 
==========  ==================  ================  =======  ========= 
Haddington  Haddington Retail   Retail Warehouse  15-20    Heritable 
             Park 
==========  ==================  ================  =======  ========= 
Daventry    Abbey Retail        Retail Warehouse  10-15    Leasehold 
             Park 
==========  ==================  ================  =======  ========= 
Barnsley    Wombwell Lane       Retail Warehouse  10-15    Freehold 
             Retail Park 
==========  ==================  ================  =======  ========= 
 

Finance Report

The positive net asset value performance this year has been driven by general yield improvement in the retail warehouse portfolio, combined with the effect of the 15 asset management transactions completed. The strategic decision to sell the remaining office and leisure properties has provided significant cash reserves. This gives the Company funds to deploy at the right time and at the right level, as well as retaining sufficient cash to manage operationally through current economic uncertainty.

Rental Income

During the year, 98.2% of contracted income was collected (2021: 95.7%), of which 86.9% was collected within seven days. The remaining 1.8% is expected to be collected. This is an improvement on prior years and is also better than the collection rates pre-pandemic. The focus on rent collection continues to contribute to the improvement in payment rates.

The Company's contracted rent at the year end was GBP16.2m (2021: GBP20.8m).

The decrease in the year can be largely explained by the sale of the office and leisure properties which contributed GBP5.1m to the contracted rent, offset by the asset management initiatives completed in the year.

Rent free periods as a percentage of contracted rent at the year end was 3.1% (2021: 9.3%) which equates to GBP0.5m (2021: GBP1.9m). This has fallen due to tenants coming out of their rent-free periods and the effect of the office disposals where there were a number of rent-free periods in place.

The portfolio continues to provide long-term stability to the Company's income. This is demonstrated by 85.0% of our tenants having a lower than average risk of business failure, according to Dun & Bradstreet. The EPRA Vacancy Rate has fallen from 8.6% to 6.5% due to the letting of vacant units in the period and the sale of the office in Birmingham which had some vacant space. The WAULT at year end was 4.5 years (2021: 5.0 years). The decrease was due to the passing of another year offset by the 15 asset management transactions completed in the year. The disposals also impacted on the ability to show a like-for-like comparison.

Income Statement

Rental income for the year was GBP16.4m (2021: GBP17.4m). This decrease of GBP1.0m was due to the disposal of several assets in the year, which have yet to be replaced, offset partially by asset management transactions.

Revenue expenditure in the year was GBP4.8m (2021: GBP3.0m), including GBP2.1m property specific expenditure and GBP1.7m relating to the Investment Manager's fee. Net financing costs were GBP3.0m (2021: GBP3.1m), a decrease on the prior year due to the sale proceeds earning some interest in the year. Revenue profit decreased to GBP8.6m (2021: GBP11.3m). This decrease of 23.9% is largely due to the fall in rental income following the sale of all the office and leisure assets, plus the increase in property expenditure which relates to GBP1.1m of voids paid in the year and for costs relating to transactions which have not concluded. Administration expenses are GBP0.6m higher due to the increases in investment manager fees and other operational costs in the year, such as auditors' fees.

The positive movement in the value of our investment properties of GBP15.9m, combined with a loss of GBP3.0m on the properties sold, has enabled the Company to report a total profit of GBP21.5m. The sale proceeds received for the office and leisure assets sold during the year was GBP3.1m higher than their acquisition costs.

 
                                               2022 (GBPm)  2021 (GBPm) 
=============================================  ===========  =========== 
Rental and other income                               16.4         17.4 
Property expenditure                                 (2.1)        (1.0) 
=============================================  ===========  =========== 
Net rental income                                     14.3         16.4 
Administration expenses                              (2.7)        (2.0) 
Net financing costs                                  (3.0)        (3.1) 
=============================================  ===========  =========== 
Revenue profit                                         8.6         11.3 
Gain on revaluation of investment properties          15.9          4.6 
Loss on sale of investment properties                (3.0)          1.2 
=============================================  ===========  =========== 
Accounting profit after tax                           21.5         17.1 
=============================================  ===========  =========== 
 
EPRA and diluted EPRA earnings per share             4.06p        5.34p 
Dividend per share                                   5.00p        4.42p 
Basic and diluted earnings per share                10.17p        8.10p 
=============================================  ===========  =========== 
 

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 property company reports. We therefore continue to include performance measures, which are based on EPRA methodology.

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

 
                                                      2022      2021 
=================================================  =======  ======== 
EPRA earnings                                      GBP8.6m  GBP11.3m 
EPRA earnings per share                              4.06p     5.34p 
Diluted EPRA earnings per share                      4.06p     5.34p 
EPRA NAV per share                                  94.86p    89.69p 
EPRA cost ratio (including direct vacancy costs)     29.6%     18.4% 
EPRA cost ratio (excluding direct vacancy costs)     23.6%     18.0% 
EPRA net initial yield                                5.9%      6.2% 
EPRA topped up net initial yield                      6.1%      6.9% 
EPRA Vacancy Rate                                     6.5%      8.6% 
=================================================  =======  ======== 
 

Net Asset Value (NAV)

At 30 September 2022 our net assets were GBP200.5m, equating to net assets per share of 94.86 pence (2021: 89.69 pence). This is summarised in the table below:

 
                                                                          Pence per 
                                                             GBP million      share 
===========================================================  ===========  ========= 
NAV at 30 September 2021                                           189.6      89.69 
Increase in value of investment properties (net of capital 
 expenditure plus gain on sale and transaction costs)               12.9       6.11 
Net earnings in the year                                             8.6       4.06 
Less: dividends paid in the year                                  (10.6)     (5.00) 
NAV at 30 September 2022                                           200.5      94.86 
===========================================================  ===========  ========= 
 

The NAV is predominantly represented by our investment properties, which have a fair value of GBP231.4m at the year end. This is included in the financial statements as Investment Properties at GBP227.5m with the difference relating to lease incentives. The remaining GBP27.0m of net liabilities is made up of: i) (GBP110.4m) of debt; ii) GBP50.2m of cash and cash equivalents; and iii) GBP33.2m of net current assets.

Debt

The Company has two debt facilities with Aviva Commercial Finance Limited, totalling GBP111.1m, less amortised costs of GBP0.7m. 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, fixed 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 covering the two facilities would need to drop by more than 23% and 35% respectively, from the 30 September 2022 valuations, for the LTV covenant to be breached.

Gearing (debt to total assets) was 35.4% at the year end (2021: 36.7%). Whilst this is higher than the Board's target range of 30-35%, it is in conformity with the Company's Investment Policy as it lay within these boundaries when drawn down.

Further details are included in Note 13 of the financial statements.

Cash

As at 30 September 2022, the Company had cash and cash equivalents of GBP50.2m with a further GBP31.0m drawn and held in a disposals account under the debt facility. Cash held is significantly higher than usual due to the sales proceeds collected in the year, from the sale of the office and leisure assets, which will be used to assist with future asset management and investment opportunities.

Dividends

The Company has paid monthly dividends at an annual rate of 5.00p per share. Historically, the Company has had covered dividends but at year ended 30 September 2022, dividend cover was 81.2% (2021: 119.0%). Using the annual dividend of 5.00p per share and the share price of 67.15p as at 30 September 2022, the Company's dividend yield is 7.4%.

The Board declared a dividend of 0.4167 pence per share for the month of September which was paid in October 2022 and expects to continue with this consistent monthly rate in the near term.

The Company continues to monitor the aggregate distributions made to ensure compliance with REIT regulations, which, with some flexibility on timing, require 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

As a REIT, income and capital gains from the 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 REIT status is maintained.

Neelum Yousaf

Director of Finance, Ediston Investment Services Limited

Principal and Emerging Risks

The principal risks and emerging risks have all been reviewed in detail, including the significant economic risks that might impact the Company and the attainment of its investment objectives. The Board recognises that there are risks and uncertainties that could have a material effect on the Company's financial 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 Group's risk register is the core element of the risk management process. The register is prepared, in conjunction with the Board, by the Investment Manager and Administrator, is updated regularly and is the assessment of all the detailed operational, performance and other risks that might impact on the Company, and how these risks are potentially mitigated by Board or third-party service provider controls.

The Directors review and challenge the risk register on a regular basis, assessing the likelihood of each risk, including identifying emerging risks and significant changes to recognised risks, the potential impact on the Group and the strength of controls operating over each risk.

The Board tries to identify 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 - the COVID-19 pandemic, ESG and events in Ukraine, with their economic impact being examples. Once emerging risks become sufficiently clear, they may be treated as specific risks and added to the Company's matrix of significant risks.

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 it can. The central aims remain to preserve net income for the Company, maintain resilience in the Company's day-to-day operations (including the Company meeting its regulatory obligations and obligations to its stakeholders), preservation of capital values 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, 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. In particular, the change in strategic direction has resulted in the disposal of the office and leisure parts of the portfolio, meaning that the Company is now focused on retail warehousing which proved more resilient during the COVID-19 Crisis than other UK commercial property categories.

Recent events in Ukraine and their impact on European economies, coinciding with inflation and cost of living issues in most developed economies, are presenting new challenges post the pandemic lock downs, as is the prospect of increasing interest rates to how returns might be earned.

For the purposes of reporting, the concentration is on the medium to longer term for the significant changes that are impacting on the UK commercial property sector. The eventual outcomes are difficult to assess or predict with any accuracy but are as challenging as most commercial property companies in UK will have faced in recent decades and are likely to transform the way in which office, retail and industrial property is used.

The Board, identifies risk under the following categories:

   -   investment strategy (including sustainability considerations) and performance; 
   -   premium/discount level and share price volatility; 
   -   financial, which includes the impact of gearing; 
   -   regulatory; 
   -   operational; and 
   -   economic, governmental and exogenous risks outside the Company's control. 

These 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 and any other comments on the risk. 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 compared to a widely diversified listed equity portfolio, health and safety being an example.

Details of the principal and emerging risks facing the Company are set out in the following table .

 
 Investment strategy and performance 
 Risk 
  Strategic direction of the Company and how and where it invests. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 Deployment of the Company's          The Board formally reviews          Increased 
  capital in areas of the              the Company's investment            Following a strategic 
  market that are poorer               objectives, policy and              review, the Company has 
  in their return prospects            strategies for achieving            changed the focus of 
  or more affected by structural       them on an annual basis,            its investment to retail 
  changes and exogenous                or more regularly, if               warehouse assets, which 
  risks than other investment          appropriate. This includes          included the disposal 
  areas, with an adverse               an examination of the               of office and other assets 
  impact on income and                 Company's current situation,        and re-deployment of 
  capital values, as well              strengths and weaknesses,           resultant cash. 
  as opportunity cost.                 and how this compares               Exogenous risk has increased 
  Sustainability is a key              with a wider UK commercial          with inflation at highest 
  part of the investment               property peer group.                level for decades, rising 
  review process in making             During its strategy sessions        interest rates and the 
  and retaining investments            the Board considers how             geopolitical events in 
  and how they are developed.          the assets are positioned           Eastern Europe impacting 
                                       and might be better positioned      on supply, including 
                                       for the longer term.                energy and political 
                                       There has been increased            security. 
                                       focus on sustainability 
                                       as evidenced by the reports 
                                       on this subject and the 
                                       establishment of a specific 
                                       working group as part 
                                       of the investment committee. 
                                       Each quarterly Board 
                                       meeting includes a detailed 
                                       discussion on asset and 
                                       income performance and 
                                       changes in the portfolio 
                                       as well as an assessment 
                                       of property market trends, 
                                       which is reported on 
                                       by the Investment Manager, 
                                       the Company's broker 
                                       and with input from the 
                                       valuer. 
===================================  ==================================  ================================= 
 
 Risk 
  Significant exposure to a specific property sector, tenant, and geographic 
  location or to lease expiries. 
  Poor asset allocation. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 Downturn in an area to               The investment policy 
  which the Company has                and its restrictions/limits         Increased (by focusing 
  significant exposure                 are set by the Board                on particular property 
  resulting in a reduction             and are reviewed quarterly.         sub-sector) 
  inthe capital value of               The limits are monitored            Heightened by recent 
  investment properties                by the Investment Manager.          exogenous events that 
  and a reduction in NAV.              The Board and Investment            have accelerated the 
  Significant tenant failure           Manager also review,                impact on certain property 
  causing a material reduction         at least quarterly, other           sectors - some more than 
  in revenue profits, impacting        key metrics, such as                others - but with an 
  on cash flow and dividends.          principal property sector           impact on all UK commercial 
                                       weightings, to ensure               property. 
                                       these remain appropriate            The Company's portfolio 
                                       even where there may                has moved to a position 
                                       be no formal limits on              where it is now 100% 
                                       exposure.                           invested in retail warehouse 
                                       Board approval memorandums          assets. The retail warehouse 
                                       state whether there are             assets are in good locations, 
                                       any concentration issues,           with strong covenants, 
                                       which links in with overall         at affordable rent levels 
                                       strategic imperatives.              and have low voids. The 
                                       The AIFM and Depositary             portfolio WAULT (30 September 
                                       monitor compliance with             2022) is 4.5 years. 
                                       the investment policy               In adopting changes in 
                                       and will highlight any              strategic direction, 
                                       breaches of concentration           there is exposure to 
                                       limits.                             more retail tenants than 
                                       The Investment Manager              was previously the case, 
                                       is proactive in monitoring          as the office and leisure 
                                       developments in the retail          assets have been sold. 
                                       industry, anticipating              The Company is now focused, 
                                       issues, and where appropriate       for the foreseeable future, 
                                       replacing struggling                in a specific property 
                                       tenants with those with             sector, whilst retaining 
                                       stronger covenants. Retail          some capacity to apply 
                                       warehousing proved to               more generalist exposure 
                                       be the most resilient               at a future date. 
                                       of the retail sub-sectors, 
                                       and has seen increased 
                                       investment demand, which 
                                       has led to an increase 
                                       in property valuations 
                                       during the year. 
===================================  ==================================  ================================= 
 
 
 Risk 
  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. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 Inappropriate use of                 Regular review of property 
  capital that hinders                 performance against acquisition     Increased (by focusing 
  investors' long-term                 and disposal plans.                 on single sector) 
  returns.                             Experienced Investment              Following changes in 
  Reduction in revenue                 Manager who sources assets          strategic direction, 
  profits, impacting on                that meet agreed investment         the Investment Manager 
  cash flow and dividends.             criteria. Linkage with              is tasked with investing 
  Cash drag from uninvested            overall strategic objectives        the available cash from 
  cash and interest cost               for the Company.                    asset sales to achieve 
  on drawn down debt.                  The Investment Committee            the Company's investment 
                                       scrutinises and approves            objective. Re-deployment 
                                       all proposed acquisitions.          of capital is made more 
                                       The Board reviews the               difficult by the significant 
                                       portfolio performance               economic risks affecting 
                                       at each quarterly meeting           property and markets 
                                       and, through the Management         generally. 
                                       Engagement Committee, 
                                       conducts a formal annual 
                                       review of the performance 
                                       of the Investment Manager. 
                                       Comprehensive profit 
                                       and cash flow forecasting 
                                       is undertaken, which 
                                       models the impact of 
                                       property transactions 
                                       at Group level and over 
                                       the medium to longer 
                                       term. 
                                       The Investment Manager 
                                       has recognised expertise 
                                       in the retail warehouse 
                                       sector and good connections 
                                       to assist investment 
                                       in that sub-sector. 
                                       There is a reduced fee 
                                       paid to the Investment 
                                       Manager for cash held 
                                       available for investment. 
===================================  ==================================  ================================= 
 
 Risk 
  Sustainability of dividend payments. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 The Company should, as               Dividend level (and any             Increased 
  far as practical, maintain           prospective adjustments)            The holding of cash post 
  dividend payments at                 is reviewed regularly               asset sales has created 
  a sustainable level,                 by the Board.                       an uncovered dividend. 
  with adjustments upwards             The Board aims to have              There are sufficient 
  when it is financially               a sustainable dividend              reserves and cash to 
  appropriate to do so.                and tries to only make              maintain the dividend 
  Dividend cuts have a                 changes if they can be              until the cash is reinvested. 
  dramatic impact on the               sustained for the long              There is a risk that 
  Company where sustainable            term.                               this position could change 
  dividend is a substantial            In times of market volatility,      if there was a long delay 
  proportion of the total              dividend level is reviewed          or replacement assets 
  return package to shareholders.      at least monthly, as                provided insufficient 
                                       was the case during the             income. Consistent monthly 
                                       COVID-19 Crisis when                dividend at 5.00p annualised 
                                       income receipts appeared            (increased in the previous 
                                       under pressure for the              year from 4.00p annualised 
                                       commercial property sector          but still down from a 
                                       as a whole.                         peak of 5.75p annualised 
                                                                           in 2019). 
===================================  ==================================  ================================= 
 
 Premium/Discount level and share price volatility 
 Risk 
  Secondary market share price volatility and insufficient secondary 
  market liquidity to cope with secondary market selling. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 The Company's share price            The Board monitors closely          Increased 
  could be impacted by                 the market in the Company's         The Board and Investment 
  a range of factors, causing          shares, including significant       Manager continue to communicate 
  it to be higher than                 purchases and sales.                with shareholders to 
  (at a premium) or lower              Through the Investment              reinforce the value approach 
  than (at a discount)                 Manager and the Company's           taken to investing in 
  the underlying net asset             broker, institutional               UK commercial properties 
  value per share. Fluctuations        investors are kept in               and not least the resilience 
  in the share price may               regular touch directly              of the income from the 
  not be reflective of                 with developments in                portfolio. 
  the underlying investment            the Company, positive               Having recovered following 
  portfolio and depend                 and negative. The broker            the COVID-19 pandemic, 
  on supply and demand                 and Investment Manager              recent market uncertainty 
  for the shares, market               are in regular contact              has caused the discount 
  conditions, general investor         with existing shareholders          to widen materially, 
  sentiment and other factors,         and prospective shareholders        in common with many other 
  including political and              to try and maintain an              closed-ended property 
  economic uncertainties.              active market in the                investment funds. 
  The Company does not                 Company's shares. 
  have a significant free              The Company announces 
  float of shares and as               portfolio and any other 
  has been apparent in                 significant activity 
  the past, relatively                 between its quarterly 
  small sales or purchases             net asset value announcements 
  of shares can produce                and publication of its 
  volatile pricing. In                 interim and final accounts. 
  common with many generalist          The Company can allot 
  UK property vehicles,                shares, and has done 
  the rating of the Company's          so, where there has been 
  shares has been dramatically         demand in the secondary 
  impacted since the advent            market and issuance has 
  of the COVID-19 Crisis               not been dilutive to 
  in the second quarter                existing shareholders' 
  of 2020 and more recently            interests. 
  by the geopolitical and              The Company also takes 
  economic crisis.                     the annual authority 
                                       to buy back shares. However, 
                                       the Company's intention 
                                       is to be fully invested 
                                       and geared, so the use 
                                       of share buybacks would 
                                       require a change in the 
                                       strategic direction of 
                                       the Company, not least 
                                       in having liquidity in 
                                       the portfolio that could 
                                       only be found through 
                                       realising longer-term 
                                       assets. 
                                       The Board reviews the 
                                       strategic direction of 
                                       the Company regularly 
                                       to ensure that application 
                                       of the investment policy, 
                                       the returns generated 
                                       from it and the objectives 
                                       of the shareholders are 
                                       being met. The Company 
                                       has a Marketing Committee 
                                       that focuses on trade 
                                       in the Company's shares 
                                       and how the corporate 
                                       message is being communicated 
                                       to existing and prospective 
                                       new investors. 
                                       The Marketing Committee, 
                                       in consultation with 
                                       the PR consultant, undertakes 
                                       advertising (if appropriate) 
                                       and engages media (print 
                                       and online) where it 
                                       can, to try and raise 
                                       awareness of the Company 
                                       to retail investors who 
                                       could buy the Company's 
                                       shares via the platforms. 
===================================  ==================================  ================================= 
 
 Financial 
 Risk 
  Gearing and non-compliance with debt facility terms. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 Gearing will accentuate              The Board reviews the               Increased 
  returns if the cost of               level of gearing on a               Higher levels of cash 
  debt is less than the                regular basis.                      reduce the impact of 
  equity returns or have               The borrowing facilities            falling values. However, 
  the reverse effect if                have prescribed covenants           it weakens the income 
  equity returns are less              and the Board signs off             cover until investment 
  than the cost of debt.               quarterly returns to                is made in income returning 
  A substantial fall in                the debt provider on                assets. 
  the property asset values            asset and income cover.             The Board will continue 
  or rental income levels              The Investment Manager              to monitor the level 
  could lead to a breach               presents for Board review           of gearing closely. 
  of financial covenants               quarterly cash flow forecasts       The Board is closely 
  within the Group's debt              prepared from the level             appraised of the level 
  funding arrangements.                of detail of individual             of cover over debt covenants 
  This could lead to a                 properties, tenants and             on net income and asset 
  modification in the costs            future rental projections.          levels. 
  of funding or in extremis            The Company has its portfolio       There is no immediate 
  cancellation of debt                 reviewed and reported               need to re-finance debt, 
  funding, if the Company              on by an external valuer            with the first tranche 
  is unable to service                 each quarter.                       not repayable until 2025. 
  the debt.                            The Board intends to                However, the Board is 
                                       maintain gearing at 30%             monitoring the debt market 
                                       of Company gross assets             closely as it will need 
                                       at drawdown but will                to plan appropriately 
                                       not exceed 35%, at the              if re-financing terms 
                                       time of drawdown.                   are likely to be materially 
                                       In the current circumstances,       adverse to those in place. 
                                       the level of gearing 
                                       has exceeded 35% but 
                                       the covenants, which 
                                       are based on Loan-to-Value 
                                       and income cover, remain 
                                       well covered. 
                                       Covenants are reviewed 
                                       on a regular basis. Compliance 
                                       certificates and reports 
                                       for the lender are prepared 
                                       on a quarterly basis 
                                       by the Investment Manager 
                                       then reviewed and signed 
                                       by a Director. 
===================================  ==================================  ================================= 
 
 Regulatory 
 Risk 
  Non-compliance with laws, regulations and governance codes. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 The Company is required              The Company uses an experienced     No change 
  to comply with REIT rules,           tax adviser, auditor,               Changes in the regulatory 
  the Listing Rules, Disclosure        investment manager, broker,         environment over the 
  Guidance and Transparency            property managing agent,            year have not had a significant 
  Rules, the UK and AIC                property valuation agent,           impact on the risk profile 
  Corporate Governance                 depositary, administrator           of the Company. 
  Code, IFRS accounting                and firm of solicitors 
  standards and UK legislation         to provide advice and 
  (including the UK Bribery            support throughout the 
  Act, Modern Slavery Act,             year. 
  The Criminal Finances                The Company and its agents 
  Act 2017, Market Abuse               have a strong compliance 
  Regulations, GDPR and                culture, with regular 
  Health & Safety regulations).        risk reviews undertaken 
                                       by the Audit and Risk 
                                       Committee. 
                                       The resilience of the 
                                       key Company agents was 
                                       reviewed during the year. 
                                       No failings have arisen, 
                                       despite the more difficult 
                                       operating conditions 
                                       for many businesses. 
===================================  ==================================  ================================= 
 
 
 Risk 
  REIT status and structure of the Company. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 The Company and its two              A REIT compliance schedule          No change 
  operating subsidiaries               is produced quarterly 
  must be managed in the               by the Administrator 
  context of both REIT                 to ensure compliance. 
  regulations in relation              REIT compliance is covered 
  to the property assets               by external tax advisers, 
  held and income distributed          including when major 
  and the structure of                 acquisitions are being 
  the Group, with income               considered. 
  and costs allocated between 
  the subsidiaries and 
  the Company. 
===================================  ==================================  ================================= 
 
 Operational 
 Risk 
  The Company is reliant on third-party service providers, including 
  Ediston as Investment Manager and AIFM and JTC (UK) Ltd as Administrator, 
  and key teams and individuals at these service providers. Failure 
  of the operational activities or internal controls at these service 
  providers, or exposure to cyber risk through them, could result in 
  adverse consequences for the Company. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 Risk of failure in third-party       The Board is ultimately             No change 
  providers of services                responsible for any actions 
  resulting in a material              taken by the Company 
  adverse effect to the                but relies on external 
  Company's financial position,        agents to perform their 
  through operational inefficiency,    duties competently. The 
  compliance breach or                 Audit and Risk Committee 
  reporting inadequacies,              reviews the services 
  with reputational or                 provided for purposes 
  governance impacts as                of accurate and timely 
  potential consequences               financial and risk reporting; 
  to the Company as well.              the Board for any compliance 
                                       or operational breaches; 
                                       and there is an annual 
                                       review by the Management 
                                       Engagement Committee 
                                       of all service providers. 
                                       Any significant failings 
                                       or breaches are brought 
                                       to the attention of the 
                                       Board when they occur 
                                       and are followed up for 
                                       rectification accordingly, 
                                       rather than having to 
                                       wait for the periodic 
                                       Board meeting cycle. 
===================================  ==================================  ================================= 
 
 Economic, governmental & exogenous 
 Risk 
  Weak economic and/or political environment, including the impacts 
  of geo-political events, rising inflation and interest rates. 
                                      Controls and mitigation 
 Impact                                in place                           Change in the year 
===================================  ==================================  ================================= 
 Lower occupational demand            Out of the Company's                Increased 
  impacting on income,                 control to a large extent.          Whilst the impacts of 
  cash flow, rental growth,            Executing asset management          the COVID-19 Crisis and 
  property valuations and              initiatives remains a               economic consequences 
  capital performance.                 high priority, and cash             of it are better understood, 
  Reduced consumer spending,           control continues to                there are new headwinds 
  particularly on discretionary        be a strong focus. This             that means the economic 
  items and/ or 'big-ticket'           ensures that the income             and political environment 
  items, could impact tenants          is maximised, and voids             in the UK and beyond 
  and their ability to                 are minimised across                remains uncertain. 
  pay rent.                            the property portfolio.             War in Ukraine, rising 
  Rising inflation is causing          Sensitivity analysis                inflation, increasing 
  the price of goods and               of the portfolio is undertaken      interest rates, and the 
  materials used in construction       regularly via a comprehensive       cost of living crisis 
  to increase. Costs to                cash flow model, which              are all risks that have 
  refurbish or develop                 includes stress testing             emerged during the period, 
  are increasing and many              of cash flows and capital           and which could have 
  contractors will only                values against loan covenants       a negative effect on 
  hold tender prices for               and the operational requirements    the property portfolio. 
  two weeks, as opposed                of the business, including          This may result in lower 
  to the usual four.                   the payment of monthly              occupational demand and 
  The economic landscape               dividends.                          lower rent collection 
  in most developed markets            The Company carefully               levels. It could also 
  is looking increasingly              considers the budgets               affect the terms on which 
  challenged despite relaxation        and timing of developments/         debt is obtained. Although 
  of many of the COVID-19              refurbishment projects              partially mitigated by 
  restrictions, causing                to ensure that there                the Company's good-quality 
  heightened uncertainty               is enough contingency               assets, low vacancy rate, 
  in listed and unlisted               to allow for unexpected             long WAULT and strong 
  markets and for UK commercial        cost increases and/or               covenants, the continuing 
  property.                            delays.                             uncertainty increases 
                                       The Board and Investment            the risk to returns from 
                                       Manager regularly review            the UK commercial property 
                                       the economic backdrop               market as a whole. 
                                       and strategic implications 
                                       on the portfolio as regards 
                                       investment and disinvestment, 
                                       holding of cash, gearing 
                                       levels and operational 
                                       costs to try and protect 
                                       the Company, its net 
                                       income and its asset 
                                       value against external 
                                       challenges. 
===================================  ==================================  ================================= 
 

Directors' Responsibilities Statement

The Directors are responsible for preparing the Annual Report, including the Director's Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the Group Financial Statements in accordance with UK-adopted international accounting standards 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 Group and Company 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 Group and the Company 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 UK-adopted international accounting standards have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101 have been followed for the Company financial statements,, 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 Group and Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and 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 Group and 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.

The Directors consider the Annual Report and the Financial Statements, taken as a whole, provide the information necessary to assess the Group and 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 UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole;

- the Company Financial Statements, prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities and financial position of the Company; 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 Group and Company, 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 Group and 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 Group and Company's Auditor is aware of that information.

William Hill

Chairman

13 December 2022

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2022

 
                                      Year ended 30 September       Year ended 30 September 
                                                2022                          2021 
                                    ============================  ============================ 
                                     Revenue   Capital     Total   Revenue   Capital     Total 
                             Notes   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Revenue 
Rental income                         16,426         -    16,426    17,371         -    17,371 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Total revenue                         16,426         -    16,426    17,371         -    17,371 
Unrealised gain on 
 revaluation of investment 
 properties                      9         -    15,920    15,920         -     4,655     4,655 
(Loss)/gain on sale 
 of investment properties 
 realised during the 
 year                            9         -   (3,014)   (3,014)         -     1,179     1,179 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Total income                          16,426    12,906    29,332    17,371     5,834    23,205 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Expenditure 
Investment management 
 fee                             2   (1,703)         -   (1,703)   (1,687)         -   (1,687) 
Other expenses                   3   (3,212)         -   (3,212)   (1,914)         -   (1,914) 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Total expenditure                    (4,915)         -   (4,915)   (3,601)         -   (3,601) 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Movement in expected 
 credit losses                  11        51         -        51       615         -       615 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Profit before finance 
 costs and taxation                   11,562    12,906    24,468    14,385     5,834    20,219 
Net finance costs 
Interest receivable              4        22         -        22         -         -         - 
Interest payable                 5   (3,003)         -   (3,003)   (3,109)         -   (3,109) 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Profit before taxation                 8,581    12,906    21,487    11,276     5,834    17,110 
Taxation                         6         -         -         -         -         -         - 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Profit and total 
 comprehensive income 
 for the year                          8,581    12,906    21,487    11,276     5,834    17,110 
===========================  =====  ========  ========  ========  ========  ========  ======== 
Basic and diluted 
 earnings per share              8     4.06p     6.11p    10.17p     5.34p     2.76p     8.10p 
===========================  =====  ========  ========  ========  ========  ========  ======== 
 

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 2022

 
                                                    As at    As at 30 
                                             30 September   September 
                                                     2022        2021 
                                     Notes        GBP'000     GBP'000 
===================================  =====  =============  ========== 
Non-current assets 
Investment properties                    9        227,465     277,984 
===================================  =====  =============  ========== 
                                                  227,465     277,984 
===================================  =====  =============  ========== 
Current assets 
Trade and other receivables             11         35,978      13,390 
Cash and cash equivalents               12         50,235      11,642 
===================================  =====  =============  ========== 
                                                   86,213      25,032 
===================================  =====  =============  ========== 
Total assets                                      313,678     303,016 
===================================  =====  =============  ========== 
Non-current liabilities 
Loans                                   13      (110,443)   (110,277) 
===================================  =====  =============  ========== 
                                                (110,443)   (110,277) 
===================================  =====  =============  ========== 
Current liabilities 
Trade and other payables                14        (2,767)     (3,190) 
===================================  =====  =============  ========== 
Total liabilities                               (113,210)   (113,467) 
===================================  =====  =============  ========== 
Net assets                                        200,468     189,549 
===================================  =====  =============  ========== 
 
Equity and reserves 
Called-up equity share capital          16          2,113       2,113 
Share premium                                     125,559     125,559 
Capital reserve - investments held               (32,957)    (42,710) 
Capital reserve - investments sold                  6,714       3,561 
Special distributable reserve                      82,075      82,711 
Revenue reserve                                    16,964      18,315 
===================================  =====  =============  ========== 
Equity shareholders' funds                        200,468     189,549 
===================================  =====  =============  ========== 
Net asset value per Ordinary Share      15         94.86p      89.69p 
===================================  =====  =============  ========== 
 

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 13 December 2022 and signed on its behalf by:

William Hill

Chairman

Consolidated Statement of Changes in Equity

For the year ended 30 September 2022

 
                                                          Capital       Capital 
                                                          reserve       reserve 
                                                                -             -        Special 
                       Share capital                  investments   investments  distributable   Revenue 
                             account  Share premium          held          sold        reserve   reserve  Total equity 
                Notes        GBP'000        GBP'000       GBP'000       GBP'000        GBP'000   GBP'000       GBP'000 
==============  =====  =============  =============  ============  ============  =============  ========  ============ 
As at 30 
 September 
 2021                          2,113        125,559      (42,710)         3,561         82,711    18,315       189,549 
 
Profit and 
 total 
 comprehensive 
 income for 
 the year                          -              -        15,920       (3,014)              -     8,581        21,487 
 
Transfer 
 between 
 unrealised 
 and realised 
 reserves                          -              -       (6,167)         6,167              -         -             - 
 
Transactions 
 with owners 
 recognised 
 in equity: 
Dividends paid      7              -              -             -             -              -  (10,568)      (10,568) 
Transfer from 
 special 
 reserve                           -              -             -             -          (636)       636             - 
==============  =====  =============  =============  ============  ============  =============  ========  ============ 
As at 30 
 September 
 2022                          2,113        125,559      (32,957)         6,714         82,075    16,964       200,468 
==============  =====  =============  =============  ============  ============  =============  ========  ============ 
 

For the year ended 30 September 2021

 
                                                          Capital       Capital 
                                                          reserve       reserve 
                                                                -             -        Special 
                       Share capital                  investments   investments  distributable   Revenue 
                             account  Share premium          held          sold        reserve   reserve  Total 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 
 
Loss 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 
==============  =====  =============  =============  ============  ============  =============  ========  ============ 
 

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

Consolidated Statement of Cash Flow

For the year ended 30 September 2022

 
                                                                 Year ended     Year ended 
                                                               30 September   30 September 
                                                                       2022           2021 
                                                       Notes        GBP'000        GBP'000 
=====================================================  =====  =============  ============= 
Cash flows from operating activities 
Profit before tax                                                    21,487         17,110 
Adjustments for: 
Interest payable                                                      3,003          3,109 
Unrealised revaluation gain on property portfolio                  (15,920)        (4,655) 
Loss/(gain) on sale of investment property realised                   3,014        (1,179) 
=====================================================  =====  =============  ============= 
Operating cash flows before working capital 
 changes                                                             11,584         14,385 
Decrease in trade and other receivables                                 547          1,823 
Decrease in trade and other payables                                  (420)          (492) 
=====================================================  =====  =============  ============= 
Net cash inflow from operating activities                            11,711         15,716 
=====================================================  =====  =============  ============= 
 
Cash flows from investing activities 
Capital expenditure                                                 (3,207)       (10,345) 
Acquisition of investment properties                                      -       (21,640) 
Sale of investment properties                                        67,704         27,953 
Deposits with Aviva                                                (24,210)              - 
=====================================================  =====  =============  ============= 
Net cash inflow/(outflow) from investing activities                  40,287        (4,032) 
=====================================================  =====  =============  ============= 
 
Cash flows from financing activities 
Dividends paid                                                     (10,568)        (9,334) 
Interest paid                                                       (2,837)        (3,016) 
=====================================================  =====  =============  ============= 
Net cash outflow from financing activities                         (13,405)       (12,350) 
=====================================================  =====  =============  ============= 
 
Net increase/(decrease) in cash and cash equivalents                 38,593          (666) 
Opening cash and cash equivalents                                    11,642         12,308 
=====================================================  =====  =============  ============= 
Closing cash and cash equivalents                         12         50,235         11,642 
=====================================================  =====  =============  ============= 
 

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 in conformity with the requirements of the Companies Act 2006 and in accordance with IFRS adopted pursuant to UK adopted international accounting standards. 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, 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 (details of risks are included in the Strategic Report); and

- the risks on the Group's risk register that could be a potential threat to the Group's business model (details of risks are included in the Strategic Report).

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.

Furthermore, the Company and Investment Manager have assessed that values would need to drop by 23% in EPIC No.1 and 35% in EPIC No.2 respectively, based on the 30 September 2022 valuations, for the Loan-to-Value covenant to be breached. This would be a dramatic decline and considered to be remote. Beyond these drops, cure rights are available under the facility agreement to rectify any breach.

With this information and bearing in mind the nature of the Group's business and assets, the Directors consider that the Group has adequate resources to continue in operational existence over the medium term and believe that the Company has the ability to meet its financial commitments for a period of at least twelve months from the date of approval of the accounts. For these reasons, the Directors continue to adopt the going concern basis in preparing the 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 Royal Institution of Chartered Surveyors (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 any such properties. In line with the recommendation of the European Public Real Estate Association, 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.

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 5 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 2022. 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 the dividends are paid as interim dividends and the dividend policy is put to shareholders for approval.

(E) TAXATION

The Group is a UK REIT and is thereby exempt from corporation tax on both net rental profits and chargeable gains arising on properties using within its exempt property business. In order to retain UK 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 within 12 months of the end of the period; and

- the Group must hold a minimum of three properties with no single property exceeding 40% of the total values of the properties used within the Tax-exempt Business.

The Directors intend that the Group should continue as a UK 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 UK 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 are properties held to earn rentals or for capital appreciation, or both, and are accounted for using the fair value model.

Investment properties are revalued quarterly with resulting gains and losses recognised in profit or loss. These are included in the Consolidated Statement of Financial Position at their fair values.

Investment properties consist of land and buildings that 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, investment 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 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 (ECLs) for trade receivables whereby the allowance or provision for all trade receivables are based on the lifetime ECLs. 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 buy back 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.

STANDARDS ISSUED BUT NOT YET EFFECTIVE

The following standards have been issued but is not effective for this accounting period and has 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.

- IFRS 17 - Amendments to IFRS 17 'Insurance Contracts' (Amendments to IFRS 17 and IFRS 4) - 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 
                                     2022           2021 
                                  GBP'000        GBP'000 
==========================  =============  ============= 
Investment management fee           1,703          1,687 
==========================  =============  ============= 
Total                               1,703          1,687 
==========================  =============  ============= 
 

Ediston Investment Services Limited has been appointed as the Company's Alternative Investment Fund Manager (AIFM) and Investment Manager, with the property management services 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 GBP40,000 per annum pursuant to the side letter agreement entered into in December 2020.

Ediston Investment Services Limited has committed to investing 20.0% of the quarterly management fee in the Company's shares each quarter commencing from 1 October 2020 to 21 December 2023. Refer to Note 17 for further information.

3. OTHER EXPENSES

 
                                                                 Year ended     Year ended 
                                                               30 September   30 September 
                                                                       2022           2021 
                                                                    GBP'000        GBP'000 
============================================================  =============  ============= 
Direct operating expenses for investment properties: 
 
  *    from which income is received                                 2,077*          1,016 
 
  *    from which income is not received                                  -              - 
Administration fee                                                      190            179 
Valuation and other professional fees                                   174            157 
Directors' fees                                                         216            212 
Public relations and marketing                                           83             73 
Auditor's remuneration for: 
Audit services: 
 
  *    fees payable for the audit of the consolidation and 
       the parent company accounts                                       80             42 
 
  *    fees payable for the audit of subsidiaries, pursuant 
       to legislation                                                    45             36 
Listing and registrar fees                                               73             46 
Other                                                                   274            153 
============================================================  =============  ============= 
Total                                                                 3,212          1,914 
============================================================  =============  ============= 
 
   *    Direct property expenses includes transaction costs for potential acquisitions not concluded. 

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 
                            2022           2021 
                         GBP'000        GBP'000 
=================  =============  ============= 
Deposit interest              22              - 
=================  =============  ============= 
Total                         22              - 
=================  =============  ============= 
 

5. INTEREST PAYABLE

 
                                       Year ended     Year ended 
                                     30 September   30 September 
                                             2022           2021 
                                          GBP'000        GBP'000 
==================================  =============  ============= 
Loan interest                               2,837          2,938 
Amortisation of loan set-up costs             166            165 
Bank interest                                   -              6 
==================================  =============  ============= 
Total                                       3,003          3,109 
==================================  =============  ============= 
 

6. TAXATION

 
                     Year ended     Year ended 
                   30 September   30 September 
                           2022           2021 
                        GBP'000        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 
                                                           2022           2021 
                                                        GBP'000        GBP'000 
================================================  =============  ============= 
Profit/(loss) before taxation                            21,487         17,110 
================================================  =============  ============= 
UK tax at a rate of 19.0% (2021: 19.0%)                   4,082          3,251 
Effects of: 
REIT exempt profits                                     (1,751)        (2,228) 
REIT exempt gains/losses                                (2,452)        (1,109) 
Excess management expenses of residual business             121             86 
================================================  =============  ============= 
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 GBP3,202,000 at 30 September 2022 (2021: GBP2,566,000). 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

Twelve monthly dividends of 0.4167 pence per share, at a total cost of GBP10,568,000 (2021: 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) were paid during the year. This equates to an annualised dividend of 5.00 pence (2021: 4.42 pence) per share.

Since the year end, interim dividends, each of 0.4167 pence per share, have been paid on 31 October 2022 and 30 November 2022. A further

interim dividend, of 0.4167 pence per share, will be paid on 30 December 2022. 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 Property Income Distributions (PIDs).

8. EARNINGS PER SHARE

Basic and diluted earnings per share.*

 
                                       Year ended 30       Year ended 30 September 
                                       September 2022                2021 
                                    ====================  ========================= 
                                                   Pence                  Pence per 
                                    GBP'000    per share    GBP'000           share 
==================================  =======  ===========  =========  ============== 
Revenue earnings                      8,581         4.06     11,276            5.34 
Capital earnings                     12,906         6.11      5,834            2.76 
Total earnings                       21,487        10.17     17,110            8.10 
==================================  =======  ===========  =========  ============== 
Average number of shares in issue            211,333,737                211,333,737 
==================================  =======  ===========  =========  ============== 
 

* There is no difference between basic and diluted earnings per share (2021: no difference).

9. INVESTMENT PROPERTIES

 
                                                                As at    As at 30 
                                                         30 September   September 
                                                                 2022        2021 
Freehold and leasehold properties                             GBP'000     GBP'000 
======================================================  =============  ========== 
Opening book cost                                             320,694     315,611 
Opening unrealised depreciation                              (42,710)    (47,365) 
======================================================  =============  ========== 
Opening fair value                                            277,984     268,246 
======================================================  =============  ========== 
 
Movements for the period 
Acquisitions                                                        -      21,850 
Sales - proceeds                                             (67,704)    (27,953) 
      - (Loss)/gain on sales                                  (3,014)       1,179 
Transfer to unrealised reserves on properties sold              6,167           - 
Capital expenditure                                             4,279      10,007 
======================================================  =============  ========== 
Movement in book cost                                        (60,272)       5,083 
======================================================  =============  ========== 
Unrealised gains on investment properties                      29,772      10,798 
Unrealised losses on investment properties                   (13,852)     (6,143) 
======================================================  =============  ========== 
Unrealised movement during the year                            15,920       4,655 
Transfer between unrealised and realised reserves for 
 properties sold                                              (6,167)           - 
======================================================  =============  ========== 
Movement in fair value                                          9,753       4,655 
======================================================  =============  ========== 
 
Closing book cost                                             260,422     320,694 
Closing unrealised depreciation                              (32,957)    (42,710) 
======================================================  =============  ========== 
Closing fair value                                            227,465     277,984 
======================================================  =============  ========== 
 

During the year ended 30 September 2022, the Group sold the properties at Bath, Newcastle, Edinburgh, Birmingham, Hartlepool and Telford. The Group received a net amount of GBP67,704,000 (2021: GBP27,953,000) from investments sold during the year. The total book cost of the investments when it was purchased was GBP64,551,000 (2021: 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.

During the year, expenditure totalling GBP4,279,000 (2021: GBP10,007,000), including capitalised lease incentives, 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          As at 
                                                      30 September   30 September 
                                                              2022           2021 
                                                           GBP'000        GBP'000 
===================================================  =============  ============= 
Closing fair value                                         227,465        277,984 
Lease incentives held as debtors (Note 11)                   3,970          5,361 
===================================================  =============  ============= 
Appraised market value per Knight Frank                    231,435        283,345 
===================================================  =============  ============= 
 
Changes in the valuation of investment properties: 
                                                        Year ended     Year ended 
                                                      30 September   30 September 
                                                              2022           2021 
                                                           GBP'000        GBP'000 
===================================================  =============  ============= 
(Loss)/gain on sale of investment properties               (3,014)          1,179 
Unrealised profit realised during the year                   6,167              - 
===================================================  =============  ============= 
Gain on sale of investment properties realised*              3,153          1,179 
Unrealised gains on investment properties                    9,753          4,655 
===================================================  =============  ============= 
Total gain on revaluation of investment properties          12,906          5,834 
===================================================  =============  ============= 
 

* Represents the difference between the sales proceeds, net of costs, and the property valuation at the time of sale.

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 
                                                                   2022           2021 
                                                                GBP'000        GBP'000 
========================================================  =============  ============= 
Total gain on revaluation of investment properties held 
 at year end                                                      9,753          4,655 
Purchases                                                             -         21,850 
Capital expenditure                                               4,279         10,007 
Sales - net proceeds                                           (64,551)       (26,774) 
========================================================  =============  ============= 
Movement in fair value                                         (50,519)          9,738 
========================================================  =============  ============= 
Movement in lease incentives held as debtors                    (1,391)            632 
========================================================  =============  ============= 
Movement in appraised market value                             (51,910)         10,370 
========================================================  =============  ============= 
 

At 30 September 2022, the investment properties were valued at GBP231,435,000 (2021: GBP283,345,000) by Knight Frank LLP (Knight Frank), in their capacity as external valuers. This includes no investment property under construction (2021: GBPNil). 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 European Public Real Estate Association (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 inputs is disclosed below:

 
                                          30 September 2022     30 September 2021 
                                         ====================  =================== 
                                                     Weighted             Weighted 
                                              Range   average     Range    average 
=======================================  ==========  ========  ========  ========= 
Estimated rental value per sq. ft. per       GBP5 -              GBP5 - 
 annum                                     GBP42.82  GBP12.90     GBP43   GBP13.80 
                                             5.5% -              6.0% - 
Net equivalent yield                           8.0%     6.96%      9.8%       7.0% 
=======================================  ==========  ========  ========  ========= 
 

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 GBP11,087,000 (2021: GBP10,500,000), 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 GBP9,243,699 (2021: GBP9,800,000) 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 2022 would have increased net assets available to shareholders and increased the net income for the year by GBP23,000,000 (2021: GBP28,000,000); 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 2022 was GBP96,727,000 (2021: GBP102,605,000). The loss of EPIC (No.1) Limited for the year to 30 September 2022 was GBP1,026,000 (2021: GBP4,716,000 profit).

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 2022 was GBP99,011,000 (2021: GBP81,412,000). The profit of EPIC (No.2) Limited for the period to 30 September 2022 was GBP23,149,000 (2021: GBP12,680,000).

11. TRADE AND OTHER RECEIVABLES

 
                                                                As at          As at 
                                                         30 September   30 September 
                                                                 2022           2021 
                                                              GBP'000        GBP'000 
======================================================  =============  ============= 
Secured balance held with loan provider                        31,047          6,837 
Capital and rental lease incentives                             3,970          5,361 
Rent receivable (net of allowance for expected credit 
 losses)                                                          865          1,175 
Other debtors and prepayments                                      96             17 
======================================================  =============  ============= 
Total                                                          35,978         13,390 
======================================================  =============  ============= 
 

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 GBP90,000 (2021: GBP186,000). 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 2022, the Company deposited an additional sum of GBP24,209,000 to the secured account (2021: utilised GBP1,646,000 from the secured amount).

Capital and rental lease incentives consist of GBP3,435,000 (2021: GBP3,717,000) being the prepayments for rent-free periods recognised over the life of the lease, GBP570,000 (2021: GBP1,644,000) relating to capital incentives paid to tenants, and GBP33,000 (2021: GBPNil) of lease premium being the premium paid by the tenant. 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 GBP34,000 (2021: GBP85,000). The movement in the allowance is shown below and reflected in the Statement of Comprehensive Income.

 
                                                           As at          As at 
                                                    30 September   30 September 
                                                            2022           2021 
Allowance for expected credit losses                     GBP'000        GBP'000 
=================================================  =============  ============= 
Opening balance as at 30 September                            85            700 
Reversal of allowance for expected credit losses            (51)          (615) 
=================================================  =============  ============= 
Closing balance as at 30 September                            34             85 
=================================================  =============  ============= 
 

12. CASH AND CASH EQUIVALENTS

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

 
                                    As at    As at 30 
                             30 September   September 
                                     2022        2021 
                                  GBP'000     GBP'000 
==========================  =============  ========== 
Cash and cash equivalents          50,235      11,642 
==========================  =============  ========== 
Total                              50,235      11,642 
==========================  =============  ========== 
 

13. LOANS

 
                                            As at    As at 30 
                                     30 September   September 
                                             2022        2021 
                                          GBP'000     GBP'000 
==================================  =============  ========== 
Principal amount outstanding              111,076     111,076 
Set-up costs                              (1,612)     (1,612) 
Amortisation of loan set-up costs             979         813 
==================================  =============  ========== 
Total                                     110,443     110,277 
==================================  =============  ========== 
 

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 LTV is maintained below 40%, increasing by 10 basis points if the Loan-to-Value 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 10 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 per cent LTV.

The Group's weighted average cost of borrowings remained 2.86% at 30 September 2022.

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 2022, based on the yield on the treasury 5% 2025 and treasury 4.25% 2027 plus a margin of 0.5%, would have been approximately GBP111,520,000 (2021: GBP120,268,000), including repayment of the principal of GBP111,076,000 (2021: 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 GBP98,682,000 as at 30 September 2022 (2021: GBP114,918,000). This includes the principal amount borrowed. Analysis of net debt:

 
                           Cash and                                Cash and 
                   cash equivalents  Borrowing  Net Debt   cash equivalents  Borrowing  Net debt 
                               2022       2022      2022               2021       2021      2021 
                            GBP'000    GBP'000   GBP'000            GBP'000    GBP'000   GBP'000 
================  =================  =========  ========  =================  =========  ======== 
Opening balance              11,642  (110,277)  (98,635)             12,308  (110,112)  (97,804) 
Cash flows                   38,593      2,837    41,430              (666)          -     (666) 
Non-cash flows                    -    (3,003)   (3,003)                  -      (165)     (165) 
================  =================  =========  ========  =================  =========  ======== 
Closing balance              50,235  (110,443)  (60,208)             11,642  (110,277)  (98,635) 
================  =================  =========  ========  =================  =========  ======== 
 

14. TRADE AND OTHER PAYABLES

 
                                            As at          As at 
                                     30 September   30 September 
                                             2022           2021 
                                          GBP'000        GBP'000 
==================================  =============  ============= 
Rental income received in advance             406          1,320 
VAT payable to HMRC                           471            549 
Investment management fee payable             438            437 
Loan interest payable                         444            444 
Capital expenditure payable                     -              2 
Other payables                              1,008            438 
==================================  =============  ============= 
Total                                       2,767          3,190 
==================================  =============  ============= 
 

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 94.86 pence (2021: 89.69 pence) is based on equity shareholders' funds of GBP200,468,000 (2021: GBP189,549,000) and on 211,333,737 (2021: 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 2022 and 30 September 2021.

16. CALLED-UP EQUITY SHARE CAPITAL

 
Allotted, called-up and fully paid Ordinary Shares of        Number 
 1 pence par value                                        of shares  GBP'000 
======================================================  ===========  ======= 
Opening balance as at 30 September 2021                 211,333,737    2,113 
Issue of Ordinary Shares                                          -        - 
======================================================  ===========  ======= 
Closing balance as at 30 September 2022                 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 GBP1,703,000 in relation to the year ended 30 September 2022 (2021: GBP1,687,000), of which GBP438,000 (2021: GBP437,000) remained payable at the year end. Ediston Investment Services Limited received no development management fees in relation to the year ended 30 September 2022 (2021: GBP257,000).

Ediston Investment Services Limited acquired 541,000 shares in the Company during the year ended 30 September 2022 (2021: 374,215) as part of its commitment to reinvest 20% of its quarterly management fee.

The aggregate shareholding of the Manager and its senior personnel as at 30 September 2022 is 2,618,148 (2021: 1,984,667) shares, 1.2% (2021:

0.9%) 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 2022 (2021: 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             As at 30 September 
                                           2022                            2021 
                              ==============================  ============================= 
                                   Held at         Financial      Held at 
                                fair value            assets   fair value   Financialassets 
                                   through   and liabilities      through   and liabilities 
                                    profit      at amortised       profit      at amortised 
                                   or loss              cost      or loss              cost 
                                   GBP'000           GBP'000      GBP'000           GBP'000 
============================  ============  ================  ===========  ================ 
Financial assets 
Trade and other receivables              -            31,912            -             8,012 
Cash and cash equivalents                -            50,235            -            11,642 
============================  ============  ================  ===========  ================ 
                                         -            82,147            -            19,654 
 =========================================  ================  ===========  ================ 
 
Financial liabilities 
Loan                                     -         (110,443)            -         (110,277) 
Trade and other payables                 -           (1,890)            -           (1,321) 
============================  ============  ================  ===========  ================ 
                                         -         (112,333)            -         (111,598) 
 =========================================  ================  ===========  ================ 
 

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 GBP82,147,000 (2021: GBP19,654,000), consisting of cash of GBP50,235,000 (2021: GBP11,642,000), the secured balance held with the loan provider of GBP31,047,000 (2021: GBP6,837,000) and rent receivable of GBP865,000 (2021: GBP1,175,000).

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 ECL 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 GBP34,000 at 30 September 2022 from GBP85,000 at 30 September 2021. 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 2022, collection plans are in place to recover any outstanding amounts. There were no other financial assets that were either past due or considered impaired at 30 September 2022 or at 30 September 2021.

At 30 September 2022, the Group held GBP47,382,000 (2021: GBP8,789,000) with RBS and GBP2,853,000 (2021: GBP2,853,000) 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 2022, 'S&P Global Ratings' 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 nine-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 2022

 
                                           More than 
                                               three    More than 
                                              months     one year 
                                    Three   but less     but less  More than 
                                   months   than one   than three      three 
                                  or less       year        years      years     Total 
                                  GBP'000    GBP'000      GBP'000    GBP'000   GBP'000 
===============================  ========  =========  ===========  =========  ======== 
Cash and cash equivalents          50,235          -            -          -    50,235 
Secured balance held with loan 
 provider                          31,047          -            -          -    31,047 
Rent receivable                       865          -            -          -       865 
===============================  ========  =========  ===========  =========  ======== 
Total                              82,147          -            -          -    82,147 
===============================  ========  =========  ===========  =========  ======== 
 

FINANCIAL ASSETS AS AT 30 SEPTEMBER 2021

 
                                                   More than    More than 
                                                three months     one year 
                                                    but less     but less 
                                 Three months       than one   than three     More than 
                                      or less           year        years   three years     Total 
                                      GBP'000        GBP'000      GBP'000       GBP'000   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 
===============================  ============  =============  ===========  ============  ======== 
 

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

FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2022

 
                                     More than 
                                         three    More than 
                                        months     one year 
                              Three   but less     but less  More than 
                             months   than one   than three      three 
                            or less       year        years      years     Total 
                            GBP'000    GBP'000      GBP'000    GBP'000   GBP'000 
=========================  ========  =========  ===========  =========  ======== 
Loan                              -          -       56,920     54,156   111,076 
Interest payable on loan        802      2,378        5,927      3,439    12,546 
Other payables                1,446          -            -          -     1,446 
=========================  ========  =========  ===========  =========  ======== 
Total                         2,248      2,378       62,847     57,595   125,068 
=========================  ========  =========  ===========  =========  ======== 
 

FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2021

 
                                             More than    More than 
                                          three months     one year 
                                              but less     but less 
                           Three months       than one   than three     More than 
                                or less           year        years   three years     Total 
                                GBP'000        GBP'000      GBP'000       GBP'000   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 
=========================  ============  =============  ===========  ============  ======== 
 

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 2022, the Group remain in compliance with the loan covenants.

As at 30 September 2022, EPIC 1 reported a LTV of 38.10% (LTV of less than 50% required), the historical interest cover was reported at 349.74% (historical interest cover of at least 300% required) and the projected interest cover was reported at 493.81% (projected interest cover of at least 300% required).

As at 30 September 2022, EPIC 2 reported a LTV of 32.78% (LTV of less than 50% required), the historical interest cover was reported at 627.54% (historical interest cover of at least 300% required) and the projected interest cover was reported at 557.03% (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        As at 30 September 
                                                    2022                       2021 
                                          ========================  ========================= 
                                              Fixed 
                                               rate       Variable  Fixed rate       Variable 
                                            GBP'000   rate GBP'000     GBP'000   rate GBP'000 
========================================  =========  =============  ==========  ============= 
Cash and cash equivalents                         -         50,235           -         11,642 
Secured balance held with loan provider           -         31,047           -          6,837 
Loan                                      (110,443)              -   (110,277)              - 
========================================  =========  =============  ==========  ============= 
 

VARIABLE RATE

An increase of 1% in interest rates would have increased the reported profit for the year and increased the net assets at 30 September 2022 by GBP813,000 (2021: 0.5% GBP92,000), a decrease of 1% 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 1% in interest rates as at the balance sheet date would have decreased its fair value by approximately GBP3,373,000 (2021: 0.50% GBP2,500,000) and a decrease of 1% would have increased its fair value by approximately GBP3,390,000 (2021: 0.50% GBP2,600,000). 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 GBP62,100 in relation to new frontages and roofs overclad of units 1A-1C, Stirling, as at 30 September 2022 (30 September 2021: 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 4.5 years (2021: 5.0 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 RPI, 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 
                      30 September   September 
                              2022        2021 
                           GBP'000     GBP'000 
===================  =============  ========== 
Year 1                      12,795      19,448 
Year 2                      11,510      16,136 
Year 3                      10,182      14,267 
Year 4                       7,857      12,887 
Year 5                       6,680      10,643 
Year 6 and onwards          16,026      27,507 
===================  =============  ========== 
Total                       65,050     100,888 
===================  =============  ========== 
 

The largest single tenant at the year end accounted for 9% (2021: 6.4%) of the contracted rent.

22. ALTERNATIVE INVESTMENT FUND MANAGERS (AIFM) DIRECTIVE

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 2022 are shown below:

 
                         Leverage ratio 
                    ======================== 
                                  Commitment 
Leverage exposure   Gross method      method 
==================  ============  ========== 
Maximum limit               3.00        3.00 
==================  ============  ========== 
Actual                       1.3         1.3 
==================  ============  ========== 
 

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 in a similar manner as the Company doesn't have any hedging or netting arrangements.

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

No 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.

Company Statement of Financial Position

As at 30 September 2022

 
                                                       As at    As at 30 
                                                30 September   September 
                                                        2022        2021 
                                        Notes        GBP'000     GBP'000 
======================================  =====  =============  ========== 
Non-current assets 
Investment in subsidiary undertakings       3        200,553     177,448 
======================================  =====  =============  ========== 
                                                     200,553     177,448 
======================================  =====  =============  ========== 
Current assets 
Trade and other receivables                 4          3,077       3,521 
Cash and cash equivalents                   5          2,958       2,989 
======================================  =====  =============  ========== 
                                                       6,035       6,510 
======================================  =====  =============  ========== 
Total assets                                         206,588     183,958 
======================================  =====  =============  ========== 
 
Current liabilities 
Trade and other payables                    6        (1,304)     (1,143) 
======================================  =====  =============  ========== 
Total liabilities                                    (1,304)     (1,143) 
======================================  =====  =============  ========== 
Net assets                                           205,284     182,815 
======================================  =====  =============  ========== 
 
Equity and reserves 
Called-up equity share capital              7          2,113       2,113 
Share premium                                        125,559     125,559 
Capital reserve - investments sold                     4,649       4,649 
Capital reserve - investments held                   (9,112)    (32,217) 
Special distributable reserve                         82,075      82,711 
Revenue reserve                                            -           - 
======================================  =====  =============  ========== 
Equity shareholders' funds                           205,284     182,815 
======================================  =====  =============  ========== 
Net asset value per Ordinary Share         10         97.15p      86.51p 
======================================  =====  =============  ========== 
 

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

Company number: 09090446.

The Company made a profit for the year ended 30 September 2022 of GBP33,037,000 (2021: loss of GBP8,955,000).

The Company Financial Statements were approved by the Board of Directors on 13 December 2022 and signed on its behalf by:

William Hill

Chairman

Company Statement of Changes in Equity

For the year ended 30 September 2022

 
                                                          Capital       Capital 
                                                          reserve       reserve 
                                                                -             -        Special 
                       Share capital                  investments   investments  distributable   Revenue 
                             account  Share premium          held          sold        reserve   reserve  Total equity 
                Notes        GBP'000        GBP'000       GBP'000       GBP'000        GBP'000   GBP'000       GBP'000 
==============  =====  =============  =============  ============  ============  =============  ========  ============ 
As at 30 
 September 
 2021                          2,113        125,559      (32,217)         4,649         82,711         -       182,815 
Profit and 
 total 
 comprehensive 
 income for 
 the year                          -              -        23,105             -              -     9,932        33,037 
 
Transactions 
 with owners 
 recognised 
 in equity: 
Issue of 
 Ordinary 
 Shares             7              -              -             -             -              -         -             - 
Dividends paid      2              -              -             -             -              -  (10,568)      (10,568) 
Transfer from 
 special 
 reserve                           -              -             -             -          (636)       636             - 
==============  =====  =============  =============  ============  ============  =============  ========  ============ 
As at 30 
 September 
 2022                          2,113        125,559       (9,112)         4,649         82,075         -       205,284 
==============  =====  =============  =============  ============  ============  =============  ========  ============ 
 

For the year ended 30 September 2021

 
                                                          Capital       Capital 
                                                          reserve       reserve 
                                                                -             -        Special 
                       Share capital                  investments   investments  distributable   Revenue 
                             account  Share premium          held          sold        reserve   reserve  Total 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      (32,289)         4,649         83,162         -       183,194 
 
Profit and 
 total 
 comprehensive 
 income for 
 the year                          -              -            72             -              -     8,883         8,955 
 
Transactions 
 with owners 
 recognised 
 in equity: 
Issue of 
 Ordinary 
 Shares             7              -              -             -             -              -         -             - 
Dividends paid      2              -              -             -             -              -   (9,334)       (9,334) 
Transfer from 
 special 
 reserve                           -              -             -             -          (451)       451             - 
==============  =====  =============  =============  ============  ============  =============  ========  ============ 
As at 30 
 September 
 2021                          2,113        125,559      (32,217)         4,649         82,711         -       182,815 
==============  =====  =============  =============  ============  ============  =============  ========  ============ 
 

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

Notes to the Company Financial Statements

1. ACCOUNTING POLICIES

BASIS OF PREPARATION

The Company Financial Statements have been prepared in accordance with FRS 101: Reduced Disclosure Framework and applicable legal and regulatory requirements of the Companies Act 2006.

The accounts have been prepared on a historical cost basis. 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.

The major accounting policies of the Company are set out below and have been applied consistently throughout the current and prior year.

The results of the Company have been included in the Group's Consolidated Financial Statements. The accounting policies adopted are consistent with those adopted by the Group as stated in Note 1 to the Consolidated Financial Statements. The only additional policy applied is in relation to investments in subsidiary undertakings and this is set out below.

The Company has taken advantage of the following exemptions permitted under FRS 101:

   -   an exemption from preparing the Company cash flow statement and related notes; 

- an exemption from listing any new or revised standards that have not been adopted or providing information about their likely impact; and

- an exemption from disclosing transactions between the Company and its wholly-owned subsidiaries.

Shareholders were informed about the Company's intention to use the above disclosure exemptions in the Annual Report and Accounts 2017 and no objections have since been received. A shareholder holding, or shareholders holding in aggregate, 5% or more of the total allotted shares in Ediston Property Investment Company plc may serve objections to the future use of the disclosure exemptions on Ediston Property Investment Company plc, in writing, to its registered office (The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF) to be received not later than 90 days prior to the end of Company's relevant reporting period.

GOING CONCERN

The Financial Statements are prepared on the going concern basis as explained for the Consolidated Financial Statements.

INVESTMENTS IN SUBSIDIARY UNDERTAKINGS

Investments in subsidiary undertakings are stated at cost less, where applicable, any provision for impairment under the provisions of IAS 36. A provision for impairment is recognised to reflect the recoverable amount (Note 3) of the subsidiaries. In accordance with IAS 36, provisions for impairment will be reduced or increased dependent on the assessment of the recoverable amount of the subsidiary in future. The value of investments can never exceed costs.

CAPITAL MANAGEMENT

The Company's capital is represented by the Ordinary Shares, Share Premium, Capital Reserves, Revenue Reserve and Special Distributable Reserve and is managed in line with the policies set out for the Group.

COMPANY PROFIT FOR THE FINANCIAL YEAR AFTER TAX

Under Section 408 of the Companies Act 2006, the Company is exempt from the requirement to present its own profit and loss account. The profit after tax for the year was GBP33,037,000 (2021: GBP8,955,000).

The Company does not have any employees (2021: nil). Details of the Directors' fees paid during the year are disclosed in the Group's Remuneration Report and in Note 3 to the Consolidated Financial Statements. All of the Directors' fees were paid by the parent company, although GBP217,000 (2021: GBP202,000) was subsequently re-allocated to the subsidiaries to reflect the work completed by the Directors in relation to the property assets held by those companies.

Audit fees in relation to the parent company only were GBP70,000 (2021: GBP42,000), excluding VAT. There were no non-audit fees paid to Grant Thornton UK LLP by the Company during the year (2021: nil).

2. DIVIDS

Details of dividends paid by the Company are included in Note 7 to the Consolidated Financial Statements.

3. INVESTMENTS IN SUBSIDIARIES

 
                                                              As at          As at 
                                                       30 September   30 September 
                                                               2022           2021 
                                                            GBP'000        GBP'000 
====================================================  =============  ============= 
Opening balance - Investment in EPIC (No.1) Limited          99,527        104,160 
Opening balance - Investment in EPIC (No.2) Limited          77,921         73,216 
====================================================  =============  ============= 
Opening balance - Investments in subsidiaries               177,448        177,376 
====================================================  =============  ============= 
Impairment loss - EPIC (No.1) Limited                         (509)        (4,633) 
Impairment loss reversal - EPIC (No.2) Limited               23,614          4,705 
====================================================  =============  ============= 
Closing balance - Investment in EPIC (No.1) Limited          99,018         99,527 
Closing balance - Investment in EPIC (No.2) Limited         101,535         77,921 
====================================================  =============  ============= 
Closing balance - Investments in subsidiaries               200,553        177,448 
====================================================  =============  ============= 
 

At 1 October 2017, the Company had a single equity investment in a wholly owned subsidiary, EPIC (No.1) Limited. During the year ended 30 September 2018, EPIC (No.1) Limited repurchased GBP19,520,000 of the equity previously issued to the Company.

During the year ended 30 September 2018, the Company subscribed for shares in a newly incorporated subsidiary, EPIC (No.2) Limited.

The Company's two property-owning subsidiaries above has seen an increase in investment property values over the course of the year to 30 September 2022. Details of the movement in the fair value of the investment properties of the Group are set out in Note 9 to the Consolidated Financial Statements. At 30 September 2022, an assessment of potential impairment of the equity investment in EPIC (No.1) Limited and EPIC (No.2) Limited was conducted, pursuant to the principles of IAS 36: Impairment of Assets. The net assets of EPIC (No.1) were lower than its carrying value which resulted in an impairment, and the net assets of EPIC (No. 2) Limited were higher than its carrying value which triggered an impairment write back. Following the principles of IAS 36 an impairment of GBP509,000 (2021: GBP4,633,000 impairment) was identified for EPIC (No.1) and a write back of GBP23,614,000 (2021: GBP4,705,000) in EPIC 2 was determined.

In terms of IAS 36, an asset should be carried at no more than their recoverable amount. The recoverable amount is determined as the higher of an asset's fair value less costs of disposal (FVLCOD) and its value in use. The cost of disposal used in determining the recoverable amount was 1.5% of the fair value of the asset. The value in use of an asset is the present value of the future cash flows expected to be derived from the asset.

In the assessment of this impairment, consideration was given to the nature of the assets and liabilities of the subsidiaries and a suitable determination of the recoverable amount of the investment in the subsidiaries. In line with the requirements of IAS 36, the value in use of each subsidiary was determined using projected cash flows over a five-year period using a discount rate of 7.7% (2021: 7%) and an expected growth rate of 2% for periods beyond the projected period of five years. The valuation technique is the sum of the fair value of the different components within the subsidiaries. Properties are carried at fair value, cash and working capital are held at amortised cost, which is considered its fair value. The fair value of debt was discounted based on a blended discount rate of 7.05% for EPIC (No.1) Limited and a discount rate of 6% for EPIC (No.2) Limited. The fair value hierarchy of the assets has been assessed as part of the fair value less costs of disposal, the assessment sits as a level 3 asset (refer to the accounting policies in the group accounts for the definition of a level 3 asset). The cost of disposal used in determining the recoverable amount was 3% of the fair value of the asset. The inputs to the calculations are subject to a high degree of estimation uncertainty.

EPIC (No.1) Limited has a FVLCOD of GBP99,018,000, which is considered an appropriate recoverable amount. The impairment thus reflects the amount by which the carrying value of GBP99,527,000 exceeds the recoverable amount of the investment in EPIC (No.1). A reasonably possible increase of 10% in the fair value of EPIC 1's property values would result in a recoverable amount of GBP104,160,000 this is limited to the original purchase price of the subsidiary in line with the principals of IAS36. Similarly, a decrease of 10% in the fair value of the subsidiary would result in a decrease in the recoverable amount to GBP88,866,000.

EPIC (No.2) Limited has a FVLCOD of GBP101,535,000, which is considered an appropriate recoverable amount. A write back of previous impairment of GBP23,614,000 has therefore been raised, as the recoverable amount of the investment in EPIC (No.2) Limited exceeds its carrying amount of GBP77,921,000. A reasonably possible increase of 10% in the fair value of EPIC 2's property values would result in a recoverable amount of GBP105,505,000 this is limited to the original purchase price of the subsidiary in line with the principals of IAS36. Similarly, a decrease of 10% in the fair value of the subsidiary would result in a decrease in the recoverable amount to GBP90,937,000.

See Note 10 to the Consolidated Financial Statements for further details on the Group structure.

4. TRADE AND OTHER RECEIVABLES

 
                                                  As at          As at 
                                           30 September   30 September 
                                                   2022           2021 
                                                GBP'000        GBP'000 
========================================  =============  ============= 
Amount due from subsidiary undertakings           3,052          3,504 
Other receivables and prepayments                    25             17 
========================================  =============  ============= 
Total                                             3,077          3,521 
========================================  =============  ============= 
 

The amount due from subsidiary undertakings is a short-term balance, which arises from the re-allocation of the Group VAT payment and certain expenses between members of the Group on a quarterly basis and is settled in cash shortly after each quarter end.

Based on the assessment of impairment of the subsidiaries, there are no expected credit losses related to the amounts due from subsidiary undertakings.

5. CASH AND CASH EQUIVALENTS

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

6. TRADE AND OTHER PAYABLES

 
                                            As at    As at 30 
                                     30 September   September 
                                             2022        2021 
                                          GBP'000     GBP'000 
==================================  =============  ========== 
VAT payable to HMRC                           471         549 
Investment management fee payable             438         437 
Other payables                                395         157 
==================================  =============  ========== 
Total                                       1,304       1,143 
==================================  =============  ========== 
 

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

7. SHARE CAPITAL

 
Allotted, called-up and fully paid Ordinary Shares of        Number 
 1 pence par value                                        of shares  GBP'000 
======================================================  ===========  ======= 
Opening balance as at 30 September 2021                 211,333,737    2,113 
Issue of Ordinary Shares                                          -        - 
======================================================  ===========  ======= 
Closing balance as at 30 September 2022                 211,333,737    2,113 
======================================================  ===========  ======= 
 

During the year to 30 September 2022, the Company did not issue any Ordinary Shares (year ended 30 September 2021: did not issue any Ordinary Shares). The Company did not buyback or resell from treasury any Ordinary Shares during the year (2021: nil). The Company did not hold any shares in treasury. Under the Company's Articles of Association, the Company may issue an unlimited number of Ordinary Shares.

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.

8. FINANCIAL INSTRUMENTS

The Company's risks associated with financial instruments and the policies for managing its risk exposure are consistent with those detailed in Note 19 to the Consolidated Financial Statements.

With regards to the categorisation required by IFRS 7 'Financial Instruments: Disclosures' all of the Company financial assets and liabilities are categorised as 'financial assets and liabilities at amortised cost'. The Company's financial assets consist of trade and other receivables and cash and cash equivalents. The Company's financial liabilities consist of trade and other payables.

At the reporting date, the Company's financial assets exposed to credit risk amounted to GBP6,010,000 (2021: GBP6,493,000), consisting of the Company's cash balance of GBP2,958,000 (2021: GBP2,989,000) and current account balances due from its wholly-owned subsidiaries of GBP3,052,000 (2021: GBP3,504,000).

The maturity of the Company's financial liabilities (on a contractual maturity basis) at 30 September 2022 was as follows:

 
                               More than 
                            three months 
                    Three       but less 
                   months     than three     More than 
                  or less          years   three years     Total 
                  GBP'000        GBP'000       GBP'000   GBP'000 
===============  ========  =============  ============  ======== 
Other payables        833              -             -       833 
===============  ========  =============  ============  ======== 
 

The maturity of the Company's financial liabilities (on a contractual maturity basis) at 30 September 2021 was as follows:

 
                                    More than 
                                 three months 
                 Three months        but less     More than 
                      or less      than three   three years     Total 
                      GBP'000   years GBP'000       GBP'000   GBP'000 
===============  ============  ==============  ============  ======== 
Other payables            594               -             -       594 
===============  ============  ==============  ============  ======== 
 

The Company's only financial instrument exposed to interest rate risk at 30 September 2022 was its cash balance of GBP2,958,000 (2021: GBP2,989,000), which received a variable rate of interest. An increase of 1% in interest rates would have increased the reported profit for the year, and the net assets at year end, by GBP30,000 (2021: 0.50% GBP15,000). A decrease of 1% 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.

9. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE INVESTMENT MANAGER

Other than transactions between the Company and its wholly owned subsidiaries, in relation to which the Company has adopted the permitted exemption allowed by FRS 101, related party transactions are the same for the Company as for the Group. For details, refer to Note 17 to the Consolidated Financial Statements. The fees payable to the Directors and the Investment Manager are initially paid by the Company, but may be reallocated, in whole or in part, to the subsidiaries.

10. NET ASSET VALUE

The Company's NAV per Ordinary Share of 97.15 pence (2021: 86.51 pence) is based on equity shareholders' funds of GBP205,284,000 (2021: GBP182,815,000) and on 211,333,737 (2021: 211,333,737) Ordinary Shares, being the number of shares in issue at the year end.

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END

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(END) Dow Jones Newswires

December 14, 2022 02:00 ET (07:00 GMT)

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