TIDMVIP
RNS Number : 9612D
Value and Indexed Prop Inc Tst PLC
26 June 2023
VALUE AND INDEXED PROPERTY INCOME TRUST PLC
ANNUAL FINANCIAL REPORT
FOR THE YEARED 31 MARCH 2023
Chairman's Statement
This is my first communication with you since I became Chairman
in July 2022. We all owe a debt of gratitude to my predecessor,
James Ferguson, for his expert stewardship of the Trust over his 28
years as Chairman. During the year, we welcomed Lucy Winterburn,
with her wide experience of the property market, to the Board.
The property sector was particularly affected by the economic
and geopolitical turmoil over the year - the rise in inflation and
interest rates, the political chaos of the short-lived Truss
administration, and the multiple consequences of the war in
Ukraine. While the Trust's portfolio, which is not exposed to
offices or high street shops, outperformed the MSCI UK Quarterly
Property Index, it was certainly not immune to the general malaise.
In the year under review, the total net asset value return per
share, measuring debt at carrying value, was -17.9%; the share
price total return was -9.2%, the difference reflecting the
substantial narrowing of the discount to asset value, which is now
below the average for the property sector.
This narrowing reflects the completion of the major
reconstruction of the Trust, which has been in progress for the
last three years. The last remaining equity holdings have been
sold. Debt has been refinanced and now has an average maturity of
over seven years and an average, almost entirely fixed, interest
rate below 4%. Our holdings now comprise industrial premises,
supermarkets, and leisure facilities and almost all have rents
linked to inflation. Tenant covenants are strong - all rent due in
the last year has been collected, with 60% of rents coming from our
top 6 tenants. The dividend is now covered by contracted income and
since the average yield exceeds the cost of the Company's debt, the
Board is confident of the Trust's ability to continue the
progressive dividend policy, which the Company has maintained for
36 years. At 31 March 2023, VIP's Ordinary Shares yielded 6.3%.
The majority of the indexed rents in the Company's portfolio
have caps - which limit the rate of increase - and collars - which
specify a minimum increase. The effect of these arrangements is
illustrated in the Annual Report. If the Consumer Price Index (CPI)
increases by 4% annually, the growth of the Company's income will
more or less match the inflation rate. If inflation is less than
this - and the Bank of England's target is 2%, although it has
recently been far from achieving this target - income will increase
by more than inflation. However, if inflation is faster than 4%,
the caps on rent increases imply that these increases will fall
short of full indexation.
The costs of the Company's major debt reconstruction provide
part of the explanation of the Trust's asset value decline in the
year under review - the remaining debenture was repaid at a premium
and there are costs associated with both acquisitions and
disposals. The result is a robust portfolio, which should prove
resilient in the face of continued political and economic
uncertainties. The market has recognised these achievements and the
discount to net asset value has narrowed and is below the property
sector average.
As Shareholders were advised in 2020, when the process of
reconstruction began, the Board intends to offer Shareholders an
exit at net asset value less costs. Proposals will be put to
Shareholders at the 2026 AGM of the Company.
Many uncertainties certainly remain. The fiasco of 'liability
driven investment' - in which long term investors purporting to
minimise risk were forced to scramble for short term cash - is now
largely resolved. Some of the banking institutions most exposed to
mismatched assets and liabilities in a period of rising interest
rates have been rescued. However, there is still much illusory
wealth in tech stocks and crypto related assets, which will
evaporate as reality dawns. While VIP has restructured its debt on
sustainable terms, there are many capital providers who have yet to
do so. Problems in this 'shadow banking' sector are likely to
continue to have implications for both the financial system as a
whole and the property sector, in particular, for several years
yet.
The Board is recommending a final dividend of 3.6 pence per
share, making total dividends of 12.9 pence per share for the year
to 31 March 2023, compared to 12.6 pence in the previous year, an
increase of 2.4%. Subject to Shareholder approval at the 2023
Annual General Meeting (AGM), the final dividend will be paid on 4
August 2023 to Shareholders on the register on 7 July 2023. The
ex-dividend date is 6 July 2023.
The AGM will be held at the Kingham Room, Broadway House
Conference Centre, Tothill Street, London SW1H 9NQ at 12.30pm on
Wednesday, 2 August 2023. The Notice of Annual General Meeting can
be found in the Annual Report. The Board encourages Shareholders to
vote using the proxy form, which can be submitted to the Company's
Registrars, Computershare Investor Services PLC, The Pavilions,
Bridgwater Road, Bristol, BS99 6ZY. Proxy forms should be completed
and returned in accordance with instructions thereon and the latest
time for the receipt of proxy forms is 12.30pm on 31 July 2023.
Proxy votes can also be submitted by Crest or online using the
Registrar's Share Portal service at
www.investorcentre.co.uk/eproxy.
John Kay
Chairman
26 June 2023
Summary of Portfolio
31 March 2023 31 March 2022
----------------------
Portfolio transition GBPm % GBPm %
---------------------- ------- ------- ------- -------
UK property 150.6 98.5 155.8 83.0
Cash 2.3 1.5 5.2 2.7
UK equities - - 26.9 14.3
152.9 100.0 187.9 100.0
VIP property portfolio - sector weightings since 2012
Sector March 2023 March 2022 March 2021 March 2020 March 2014 March 2012
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Offices 0% 0% 0% 0% 0% 0%
============================ ========== ========== ========== ========== ========== ==========
Shops and Retail Warehouses 0% 0% 0% 0% 39% 49%
============================ ========== ========== ========== ========== ========== ==========
Supermarkets 29% 27% 16% 2% 5% 0%
============================ ========== ========== ========== ========== ========== ==========
Pubs and Restaurants 9% 13% 24% 32% 17% 13%
============================ ========== ========== ========== ========== ========== ==========
Leisure 18% 11% 8% 12% 11% 10%
============================ ========== ========== ========== ========== ========== ==========
Industrial 29% 33% 35% 32% 8% 8%
============================ ========== ========== ========== ========== ========== ==========
Roadside 6% 7% 3% 6% 16% 16%
============================ ========== ========== ========== ========== ========== ==========
Other 9% 9% 14% 16% 4% 4%
============================ ========== ========== ========== ========== ========== ==========
Total 100% 100% 100% 100% 100% 100%
============================ ========== ========== ========== ========== ========== ==========
Number of Properties 39 43 31 26 29 27
============================ ========== ========== ========== ========== ========== ==========
Manager's Report
The property market
UK commercial property values peaked in June 2022 after property
yields were pushed down to 40 year lows. QE (Quantitative Easing)
had been going on too far, for too long, in the United Kingdom as
in most Western economies, forcing interest rates unsustainably low
and capital values, especially of low yielding assets,
unsustainably high. The Bank of England, in particular, had dropped
its guard on its official 2% inflation target. So Russia's invasion
of Ukraine, raising world energy and commodity prices, meant that
UK interest rates and gilt yields had to shoot up to take the
strain when the UK's post-pandemic recovery was already the weakest
of the G7 nations and our public sector and overseas trade deficits
were the worst.
Bond and currency markets have now stabilised after the economic
and interest rate chaos of the Truss-Kwarteng administration last
autumn, and average values of commercial property are now down
about 20% from their mid 2022 peak and 13% over 2022 as a whole. So
far in 2023, average property values have been slipping slightly
further on the MSCI UK Monthly Property Index, but turnover is very
low so this is based more on sentiment than actual completed
transactional evidence. Investors are cautious and risk averse.
Properties with long, strong, indexed income let at sustainable
rents to robust tenants are still in demand, particularly from cash
buyers in smaller lot sizes, and should continue to outperform.
There should be attractive investment opportunities over the next
few months from forced or pressured sellers who will find it
increasingly hard to refinance highly geared portfolios as credit
conditions tighten.
Comparative investment yields - End December (except 2023 -
March)
2023* 2022 2021 2020 2019 2011 2008 2006
------------ -------------------- ----- ---- ---- ---- ---- ---- ---- ----
Property (equivalent yield) 6.2 6.1 5.1 5.8 5.6 6.9 8.3 5.4
================================== ===== ==== ==== ==== ==== ==== ==== ====
Long Gilts Conventional 3.5 3.8 1.0 0.2 1.0 2.5 3.7 4.6
============ ==================== ===== ==== ==== ==== ==== ==== ==== ====
Index linked -0.1 0.3 -2.6 -2.6 -2.0 -0.2 0.8 1.1
================================= ===== ==== ==== ==== ==== ==== ==== ====
UK Equities 3.6 3.6 3.1 3.4 4.1 3.5 4.5 2.9
================================== ===== ==== ==== ==== ==== ==== ==== ====
RPI (annual rate) 13.5 13.4 7.5 1.2 2.2 4.8 0.9 4.4
================================== ===== ==== ==== ==== ==== ==== ==== ====
Property less
Yield gaps: Conventional Gilts 2.7 2.3 4.1 5.6 4.6 4.4 4.6 0.8
============ ==================== ===== ==== ==== ==== ==== ==== ==== ====
Property less
Index Linked Gilts 6.3 5.8 7.7 8.4 7.6 7.1 7.5 4.4
================================= ===== ==== ==== ==== ==== ==== ==== ====
Property less
Equities 2.6 2.5 2.0 2.4 1.5 3.4 3.8 2.5
================================= ===== ==== ==== ==== ==== ==== ==== ====
Source: MSCI UK Quarterly Property Index and ONS for the RPI
(*to December except March 2023)
Offices, with a total return of -9.8% over 2022, underperformed
the market as they have over the past 1, 3, 5 and 10 calendar years
on the MSCI UK Quarterly Property Index. Retail property, with a
total return of -4.8% was the best performer of the main sectors
for the first time since 2010. Industrial/warehouse property, by
contrast, gave back much of its previous gains as valuation yields
were marked out, with a return of -14.4%. The alternative sectors
generally outperformed, like retail, with marginally negative total
returns.
Rental values were up on average by 3.8% over 2022, but growth
has started to slow in recent months. Industrial rental growth will
tail off rapidly in 2023 under pressure from rising business rates
and tenant defaults. Sector differences may, therefore, be less
important than individual property selection in 2023, with rents
under pressure but valuation yields bottoming out. Capital values
should be starting to rise again by the year end as inflation falls
back and the UK economy and real incomes start growing again.
UK commercial property - Average annual % growth rates to March
2023
1 year 3 years 5 years 10 years
--------------- ------------- ------ ------- ------- --------
Capital values All property -16.8 -2.6 -2.6 1.5
=============== ============= ====== ======= ======= ========
Rental values All property 3.5 1.2 0.6 1.6
=============== ============= ====== ======= ======= ========
Total returns All property -13.0 1.7 1.9 6.5
=============== ============= ====== ======= ======= ========
Source: MSCI UK Quarterly Property Index March 2023
Property transaction volumes slowed down markedly between June
and October 2022, especially for the lowest yielding properties,
with many sales only going through after agreed prices had been
"chipped" by buyers and more properties having to be withdrawn from
the market unsold. But more realistically priced stock is starting
to appear. This is mainly "off market", particularly from property
unit trusts under redemption pressure, and individual pension funds
and pooled pension vehicles caught out by the Liability Driven
Investing (LDI) crisis. This led, as the Bank of England Financial
Policy Committee put it, to "a vicious spiral of collateral calls
and forced gilt sales, and a material risk to UK financial
stability". Regulatory stable doors are now being loudly shut, but
risks remain in non-bank credit, where the Bank of England
estimates that global private credit has trebled in size over the
past decade.
Retail and industrial property void rates are now back to their
pre-COVID levels, but as the table below shows, office void rates
have shot up from 13% pre-COVID to an all time high of over 20%
now, well above the previous record high of 15% for office voids in
2013. This has dragged the average void rate for all property back
up to its previous peak of 10% in 2009, although retail and
industrial void rates are stable between 6% and 7%. Persistently
high void rates will continue to undermine office sector returns,
for two reasons: first, most office occupiers are downsizing their
net space requirements to reflect hybrid working patterns (40% of
UK working adults are now working from home for at least one day a
week, compared to 12% pre-pandemic), and second, many older office
buildings contain a ticking Energy Performance Certificate
compliance time bomb, making it ever more costly to retain and
replace tenants.
In summary, the main property valuers marked capital values down
much further and faster between September and December than in
previous property market downturns, despite little or no evidence
of transactions completed at the new lower levels. That was still
realistic with the relentless rise in gilt yields and base rate,
now to 5%.
Rental values and rent collection will, however, come under more
recessionary pressures this year, as tenant default rates begin to
rise and rental income falls, particularly in the industrial and
office sectors. The key to portfolio outperformance on both the
income and total return fronts in a difficult market will be
reducing risk and sticking to strong tenants, paying affordable,
preferably index-linked, rents on long leases for sustainable
buildings in prosperous locations.
Property prospects by sector
Warehouse / Industrials - Valuation yields stabilising
Following the industrial market's fall from grace in Q4,
investors' gloom is starting to lift a little. Average valuation
yields, having risen by over 150bps in Q4 2022, have now
stabilised. Any effects of the recent banking crisis have not yet
been seen.
The market remains thin in comparison to recent years, with less
than GBP700m of industrial property transactions completed during
Q1 2023 (over 80% down on Q1 2022). Some institutional money is
back for South East multi-let estates. The key is modern stock in
solid locations and buyers are taking a much more conservative
approach towards future potential rental growth. Equivalent yields
are typically now only 75bps to 100bps above the initial yield, a
significant difference to the 200 - 300 bps differential often seen
in the first half of 2022. With EPC ratings coming ever more into
focus, some sellers are needing to take the cost of improvements
off the sale price to get buildings up to scratch and in line with
legislative requirements.
The pressure of rising occupational costs, such as the business
rate increase and rising energy prices, will be reflected in weaker
occupational demand and rental levels. In April, the business rates
payable on industrial and warehouse property rose on average by 27%
(+33% in London and the South East). These additional costs will
cool occupational demand and the record rental growth of the past
few years will tail off. Industrial occupiers will then be hit with
a further blow in two years' time when business rates will increase
again. So by the end of 2023, there will be more evidence of rental
values falling, tenants' incentives becoming more generous and void
rates increasing.
We are unlikely to see the sharp yields witnessed in the first
half of 2022 for many years, but valuation yields should remain
stable over the rest of the year. The MSCI UK Quarterly Property
Index's net initial yield for industrials was 4.4% for March with a
corresponding equivalent yield of 5.7% compared to 3.1% and 4.0% at
the peak of the market in summer 2022.
Offices - Still more suffering to come
Completed transactions were few and far between over the last
six months and yields continued to soften (significantly in the
case of secondary assets). Agents, having marked out typical prime
West End and City of London yields by over 75 bps and having cut
capital values by around 20% last year, have limited evidence to
move these yields out again so are sitting on the fence for the
time being, but their reported yields are trending weaker. We
expect these yields will move out further over the course of 2023.
Many debt- financed office owners will need to cut their office
exposure due to external pressures such as higher borrowing costs
or even a lack of available financing in addition to the worsening
occupational story and ESG compliance issues and costs.
Many large office holdings in the main office markets, London,
the South East and the "Big Six" UK cities, are predominantly held
by overseas investors, often with high levels of gearing. When
refinancing, these investors will be affected by the recent banking
crisis and interest rate rises and some will be forced to sell,
increasing supply and consequently softening yields and capital
values further. The occupational market will continue to suffer
through the year as many large office employers continue to
consolidate spaces and faces, with permanent working from home
arrangements and job cuts on the back of the disrupted economy and
the current banking crisis. The average actual office occupancy
rate across the UK is 29% in comparison to the 80% recorded pre
pandemic. Occupiers will continue to demand more flexible leases
and superior amenities in order to attract the workforce to use the
office, hitting capital values directly due to high levels of
required capital expenditure.
This lack of occupier demand is now being borne out in vacancy
rates, which have edged up to 20.5% in the MSCI UK Monthly Property
Index. These rates will increase even further over 2023 to levels
never seen in the market before. ESG compliance issues and costs
may be the final nail in the coffin for many secondary "zombie"
offices - three-quarters of office stock in the UK does not comply
with the minimum energy efficiency standards for 2027. With high
costs to improve these buildings, upgrading to comply is no longer
viable.
The downward pressure on capital and rental values will continue
throughout the rest of the year and beyond until the economy
recovers and the market starts to fully understand and get on the
right side of the structural change. Many poor secondary assets may
not withstand these changes. We believe the value of office
buildings could fall by at least a further 20% in the next two to
three years. The MSCI UK Quarterly Property Index recorded a
capital value fall of -12.5% over the 12 months to December 2022
and it has already fallen a further -2.6% in the first quarter of
2023. Industrial and office yields are now equal, the market has
shifted, and investors are more likely to purchase occupied
industrial property with land than vacant, costly, depreciating and
unused office space.
Retail - Fighting back as business rates fall
Consumer confidence is low with real retail sales falling in
2023 and real living standards under unprecedented pressure. But
since the pandemic, online sales penetration has declined faster
than expected, with consumers still valuing physical retail.
Occupier profit margins will be under increasing strain as
inflation continues to bite, and with logistics costs soaring, many
occupiers will seek to direct consumers back into stores to
increase efficiencies. Some major retailers are now charging
shoppers who return items bought online, with the cost taken from
their refund but items purchased online can still be returned for
free in stores. Going into 2023 with a lack of transactional
activity, retail yields are higher than in other sectors so should
be better protected against current debt costs and retail may
outperform the property sector as a whole again in 2023.
In 2022, Aldi overtook Morrisons to become the UK's fourth
biggest supermarket, increasing its market share to around 9.2%,
with Lidl hot on their trail at 7.1%. Tesco's market share stands
at 27.5% with Sainsbury's 15.4% followed by Asda at 14.2%. Behind
Morrisons, Aldi and Lidl is the Co-op with 5.5% and Waitrose at
4.7%. The discount supermarkets grew so fast because consumers, who
had moved online during the pandemic, returned to the value-led
stores in person due to their demand for competitive pricing due to
the current economic climate. The discounters continued their store
expansion last year competing directly for the best sites,
increasing store coverage but potentially taking on property risk
to secure representation in key target locations by doubling up.
Lidl opened 54 stores last year but have now announced a reduced
acquisition programme. Tesco, Asda, Morrisons and M&S are also
looking to secure sites in the 15,000 sq ft to 25,000 sq ft bracket
competing head on, with Aldi stating they are still focussed on 40
new stores per year across the UK, targeting London and the South
East. Profits are under pressure across the whole food retail
sector, with supermarket margins squeezed between rising costs and
falling customer incomes, with traditionally loyal customers
trading down to value products or going to cheaper competitors as
food inflation continues to rise to the highest on record of over
16%. Many retailers such as Tesco, Asda and Lidl are giving further
pay rises this year due to the rising cost of living and labour
shortages, with the National Minimum wage just up by 9.7% to
GBP10.42 per hour.
Capital values of supermarkets fell sharply in the second half
of 2022 after valuation yields were forced down too low last
summer, with an Aldi trading at a 3% yield. There are glimmers of a
recovery in Q1 2023 as the sector offers secure income in volatile
markets (food is a necessity). Well-let, particularly smaller,
properties are now again offering low risk, rental growth and
potential for capital recovery. Despite a substantially reduced
volume of investment transactions (volumes below GBP700m in 2022 -
down from GBP1.85bn in 2021) supermarket investment activity should
stabilise with a wider differential between supermarket covenants.
The gap in pricing between supermarkets let on index-linked leases
and those with open market reviews may continue to grow. Morrisons
are still struggling with their sale and leasebacks of larger
stores with buyers hard to find in the investment market where
sellers are unrealistic with pricing.
Demand for retail warehousing cooled towards the end of 2022 as
the reality of consumer pressures started to bite but could improve
in 2023. Transaction volumes were low in Q1 2023 due to the lack of
product, despite the sector benefiting from a stronger than
forecast Christmas period and rental growth in 2022. Previous
downturns suggest bigger ticket items such as household goods /
appliances and non-essential goods such as clothing and footwear
could experience a more pronounced squeeze than areas such as DIY
and trade counters but this sector should prove its resilience.
High street retail and shopping centres suffered a miserable few
years of underperformance since well before COVID, with steep falls
in capital value as institutional investors turned their backs on
these sectors, which have structurally changed as institutions sold
to private investors. Values may have now stabilised and possibly
bottomed out (shopping centres had the least negative returns in
2022). They may prove more resilient than lower-yielding
investments in other sectors but an over supply of shops will
continue to hamper performance. Despite the squeeze on real
incomes, rebased rents are now more affordable, with most retailers
now enjoying short, flexible leases. Retailers with the right
offer, right product and who have not over expanded in recent years
are now taking advantage of lower rents and higher vacancy rates to
secure favourable high street positions, particularly in prosperous
suburbs and smaller towns.
The long awaited business rates reform came into effect on 1
April 2023 (the revaluation is based on April 2021 values), giving
a 20% average reduction in retail rateable values across England
and Wales with no downwards phasing of liabilities, meaning a
property will have its entire reduction in rates payable from day
one, providing a much needed boost for bricks and mortar
retailing.
Alternatives - Strong operators thriving
Property in the "Alternatives" sector - i.e. everything except
offices, retail and industrial/warehouse property - accounts for
about one fifth of the MSCI UK Quarterly Property Index. Volatile,
often disappointing returns in the traditional office, retail and
industrial sectors have led investors to search for higher returns
and lower risk to diversify their portfolios over the past decade.
Properties in this sector usually offer strong defensive
characteristics such as long, index- linked leases and a wide range
of property types and tenants. 2022 saw the RPI and CPI soar to
levels not seen for 40 years, fuelled by ever increasing energy and
food costs. So properties in the alternatives sector have become
increasingly sought after and hold the key to sustained portfolio
performance.
December saw valuers moving yields out further and faster than
in previous downturns to address market volatility and waning
investor confidence. No sector was immune but valuation decline in
the alternatives sector was less acute, with the attraction of
inflation- linked rental uplifts really paying off. Valuations have
started to stabilise. There is a thinner market for the larger lot
sizes but private property companies and high net worth investors
continue to see value in the sector. In some cases, rents will have
risen too high so only robust tenants with strong balance sheets
will be able to weather the storm. The trend of "flight to quality"
has gained momentum. Values will recover faster for properties let
at affordable rents on long index-linked leases in good locations
and to strong tenants, but it is likely there will be a widening of
the gap between prime and secondary assets as investors get
increasingly selective.
Rising costs and staff shortages are hurting the hospitality
industry more than most and at a time when they were relying on
consumers to dig deep into their pockets. The leading pubcos, like
Greene King, as well as traditional regional brewers like Shepherd
Neame and Youngs, have strong balance sheets and will survive
relatively unscathed but independent pub and restaurant operators
will struggle, particularly if rents become unaffordable. High
inflation has meant that sales in real terms continue to lag pre-
pandemic levels in this industry. The start of the year has seen a
noticeable recovery of confidence in London pubs and restaurants as
office workers and visitors returned to the Capital. Consumers
remain eager to eat and drink out despite the mounting pressure on
disposable incomes but operators must ensure that they do not push
all their rising costs onto the consumer, and when possible, return
to investing in their premises, or the goodwill that they have
built up post pandemic will quickly wane causing longer term
trading problems.
Modern discount hotels are well placed to benefit from the more
cost- conscious consumer. Premier Inn, in particular, have been
strategic, opening more hotels in prosperous smaller towns, rural
areas and tourist hot spots to capture British staycationers and
workers rather than focusing on city centres or airports. Constant
flight disruption from 'unexpected' weather, striking workers at
key holiday times and expensive international flights are still
encouraging people to reconsider holidays abroad amid a
cost-of-living crisis with UK caravan parks also benefitting.
Capital values of Premier Inn investments slipped in the general
market weakness, but they are recovering this quarter and remain a
much more secure investment than Travelodge or other weaker
operators.
Health and Fitness clubs in affluent suburban areas have seen
some benefit from the move to hybrid working, but capital values
are under pressure right across the sector as they use so much
energy, and expensive membership renewals are usually the first to
go when customers cut back on non-essential spending. There have
been no gym transactions this quarter and a number that came on to
the market last year remain unsold. When investment does pick up,
only the strongest operators in the sector are likely to attract
attention.
The two main ten pin bowling companies, who dominate the market,
are trading strongly and investing in their properties. They offer
a sensibly priced family outing which cannot be replicated online.
Tenpin owner Ten Entertainment Group enjoyed a record performance
last year with sales up 87.6% on 2021 and 50.6% up on the
pre-pandemic year of 2019.
Like-for-like sales were 40% higher than pre-pandemic. Hollywood
Bowl also reported that annual profits and revenues had grown
against pre- pandemic levels. Both companies look well placed for
the years ahead. But bingo halls and cinemas have suffered
structural change with online gaming and streaming the new norm.
Cinemas in multiplexes and retail parks have no movie magic. Taking
the family to the cinema is now an expensive treat so only cinemas
with genuinely affordable rents will survive. Cineworld's equity
has been wiped out by a deal with its lenders and its rents in the
UK will still need to fall.
Student numbers are rising and investments on long leases to
well- established universities have been in great demand. But
valuation yields on student housing, as on other residential
investment types, now look too low as investment competition had
driven pricing to very hot levels. However, many universities are
facing a critical shortage of student housing with new local supply
limited and likely to remain so with construction costs rising so
fast.
Care homes are struggling with staff shortages and insufficient
public sector funding. Bed vacancy rates are rising rapidly because
of more deaths and admissions are slower. Values will continue to
remain under pressure.
The economy
The UK economy is still flatlining, lagging global GDP growth,
now expected by the IMF to be around 3% over the next year. Average
earnings and productivity have shown little growth since the Global
Financial Crisis hit us especially hard in 2008-9. More recently,
business investment has stagnated since 2016, in the words of the
Office for Budget Responsibility, due to uncertainty about the UK's
future trading relationship with the EU among other concerns.
Different governments have tried different policies and remedies,
often pulling in opposite directions from their predecessors, to
increase investment and productivity growth, but to little net
effect. The UK is running the highest public sector and overseas
trade deficits in the G7 group of developed nations and is the only
one with GDP still lower than pre-COVID.
Our labour market is particularly tight, due partly to Brexit,
partly to a deep seated skills and training deficit and partly to
older people leaving work post-COVID. Consumer price inflation
remains above Western Europe and the USA, with rapidly rising food
prices keeping the Consumer Price Index rising at an annual rate of
10.1% for March and 13.5% for the Retail Price Index.
The UK's sclerotic housing market, with prices and rents both
significantly higher than in our main Western competitor
countries, remains a drag on our economic performance, as a
source of financial instability and a barrier to geographic and
social mobility. The Government's Help To Buy scheme increased
demand for house purchase but not supply, pushing up home prices
and housebuilders' profits. Only 205,000 homes were completed in
the year to April 2022, against 330,000 in 1972 and about 400,000
in 1962, and this year will be worse. Private sector completions
have shown little change, but social housebuilding by local
authorities and housing associations has collapsed, and existing
social housing has been transferred to the private rental sector at
much higher cost. Changes to stamp duty and interest deductibility
for private landlords in recent years have led to an exodus of
small landlords and upward pressure on rents. With over 80% of
mortgages at fixed rates and employment still high, house prices
are less vulnerable to rising interest rates than in previous
downturns, but they are already now about 5% off their late 2022
peak. Housing, whether to buy or to rent, would still be
exceptionally unaffordable in most areas of the UK by long-term
standards, with the only obvious sustainable solution being for
much more genuinely affordable social housing to be built
again.
The UK economy is in a deeper structural hole than many similar
countries post-COVID, with pay rises running well behind the rate
of price increases, especially for essentials like food and heating
which leave little spare spending power for the lower paid. But
poverty is quite polarised, with many people still holding high
savings post-pandemic and keen to spend, but not in predictable
patterns.
Business and consumer confidence are starting to improve, partly
out of relief at calmer Government and partly as gas and
electricity prices fall back. The warm winter in Europe, and major
reductions in gas usage, in particular, due both to high prices and
smarter usage, are leading to sharp falls in some energy and
commodity prices, so international inflation rates should fall this
year, but not to anywhere near 2% in the foreseeable future.
Bank of England Monetary Policy Committee has had a difficult
year. Bank Rate collapsed from a peak of 5.75% in July 2007 to 0.5%
in March 2009, and it stayed around that level for 13 years before
its 9 rises to 3.5% last year. Now it has been raised to 5.0% and
it needs to stay at or above that level at least into 2024 so that
higher inflationary expectations do not become embedded, especially
in the labour market after the current wave of public sector
strikes. The UK cannot afford to run risks on inflation when it
will have to borrow so much for so long from abroad.
There is no particular magic about 2% as the number for the
inflation target for most Central Banks in the developed world.
Underlying inflation in the USA, UK and Eurozone did average around
2% with relatively minor fluctuations between the early 2000's and
COVID in 2020. As the table below shows, the Bank of England has
been slow since the pandemic to raise their forecasts for inflation
for one year ahead - but at least they have raised them. Their
forecasts for two years ahead have, however, stuck firmly in cloud
cuckoo land around 2% p.a., falling to 1% from 2023. So 2% annual
inflation now looks an unrealistic long term target.
The end of ultra-low interest rates is inevitably a stressful
and uneven process but it is ultimately helpful for the economy.
Too much cheap money has inflated asset bubbles, encouraged
speculative frenzies ranging from over-hyped technology stocks to
crypto currencies, diverted too much capital into financial
engineering by private equity, pushed up UK house prices
unaffordably and unsustainably and kept too many zombie companies
alive for too long when their skilled workforces, in particular,
should have been more productively reallocated elsewhere. It is
ending with strains in the international credit markets, which are
being contained so far as mainstream regulated banks are concerned
in the USA and Switzerland.
The real danger for world economies and property markets will
come if the plethora of private equity and hedge fund
property-owning and lending vehicles, which have sprung up mainly
in the shadows over the past 5-10 years, run into serious
redemption or refinancing difficulties. In the words of the Chief
Executive of Brookfield (one of the largest such vehicles and owner
of Canary Wharf) "What we do is behind the scenes. Nobody knows we
are there". What we do know, however, is that loan default risks,
especially on large offices, are rising and that most conventional
UK property trusts are also now gated, although the authorities
have still not stopped them pretending to offer daily dealings on
assets which take months to sell.
The international economic outlook and business confidence are
now improving slightly, but two big question marks remain over
economic forecasts into 2024. On the upside, if the war in Ukraine
ended either in stalemate or an effective Russian defeat, inflation
and interest rates would move lower. But that can only be a hope,
not a forecast.
On the downside, tightening credit conditions and higher
interest rates are not good for growth of commercial or residential
property values, although plenty of pain is now properly priced
into commercial property yields and prices, at least in the United
Kingdom.
Conclusion - Safe property repriced to attractive yields
The rapid valuers' mark down of commercial property prices by
about 20% from their mid-2022 peak is now starting to offer good
buying opportunities at safe, high yields for long-term investors.
At average yields now of over 6%, UK property offers an attractive
yield premium over UK equities and is fundamentally undervalued
against UK conventional and index-linked gilts, which only offer
volatility, doubtful liquidity and negligible real returns. The key
to both relative outperformance and strong real total returns for
property over the next few years will be capturing these high
yields in practice by a relentless focus on strong tenants with
long, preferably index-linked leases with sustainable rents and
buildings.
Annual portfolio summary
VIP specialises in direct investment in UK commercial properties
with long, strong, index-related income streams to deliver above
average long term real returns.
The portfolio comprises 39 properties across 7 well diversified
sub-sectors, all let on 42 full repairing and insuring leases
(WAULT 12.6 years to the tenants' option to break) to 21 different
tenant covenants across England, Scotland and Wales, with 60% of
rents coming from the top 6 tenants. All are freehold except two,
which are long leasehold with 108 and 82 years to run (Doncaster
and Fareham).
Indexed Rent Reviews
The contracted income on the whole portfolio stands at GBP9.3
million per annum where 96.2% (41 out of 42 tenancies) have
index-linked or fixed increases. Only one property, the industrial
at Fareham, has three yearly open market upwards only reviews.
Over the financial year, 15 rent reviews completed representing
40% of the rent roll, with an average increase of 6.4% on their
rents passing, which added GBP0.23 million (2.9%) to all held
properties. Nine were annual reviews; eight were RPI-linked and one
with a fixed increase. Four had five yearly RPI- linked reviews,
one with a fixed increase and one with a sweep up clause after a
three yearly upwards only open market rent review.
There are 41 leases, which are reviewed either; RPI-linked
(69%), CPI-linked (11%) or with fixed increases (16%) and there is
just one industrial with an open market review (4%).
Nine tenancies representing 27% (year ending 31 March 2023) of
the indexed rental income have annual rent reviews and thirty two
(69%) have five yearly reviews with one (4%) having a three yearly
review pattern. Over the following five year period VIP expects the
following percentage of rental income to be reviewed in each
financial year:
Year ending 31 March Annual 5 yearly 3 yearly Total
--------------------- ------ -------- -------- -----
2024 27% 10% 4% 41%
===================== ====== ======== ======== =====
2025 27% 3% - 30%
===================== ====== ======== ======== =====
2026 27% 30% - 57%
===================== ====== ======== ======== =====
2027 27% 10% 4% 41%
===================== ====== ======== ======== =====
2028 27% 15% - 42%
===================== ====== ======== ======== =====
Over the next 12 months, 14 tenancies representing 41% of the
total rent roll, will undergo a rent review.
Of the indexed rents within the portfolio; 66% of the RPI-linked
and CPI- linked rents are subject to collared uplifts, which
average 1.7% per annum and 73% are subject to capped uplifts, which
average 3.9% per annum. 12% of the total indexed income has
uncapped RPI increases. Fixed rent review uplifts average 2.4% per
annum.
Purchases and sales
Three long let index-linked purchases for GBP25.5 million and
six sales for GBP9.8 million completed over the year.
Purchases completed
Supermarket - Eastwood Road, Rayleigh
The purchase of a dominant town centre freehold M&S Simply
Food supermarket in Rayleigh, Essex completed in July 2022 for a
total of GBP11.3 million let to Marks & Spencer plc until 20
July 2035 (WAULT just under thirteen years) with five yearly
RPI-linked rent reviews with a minimum of 1% pa and maximum 4% pa.
The net initial purchase yield was 4.8% which has risen to an
RPI-linked 5.3%.
Hotel - Willowburn Trading Estate, Alnwick (Development)
The forward funding of an 80 bedroom Premier Inn hotel and
inhouse Brewers Fayre pub/ restaurant at Willowburn Trading Estate,
Alnwick, completed in October 2022 for a total of GBP7.2 million at
a net initial yield of 5.0%. The freehold property is open and
trading and is let to Premier Inn for twenty five years until 2047
with a tenant's option to break in 2042, and has five yearly
CPI-linked rent reviews to a maximum of 4% per annum.
Bowling - Crosspoint, Olivier Way, Coventry
The purchase of a freehold purpose built prominently located
leisure investment on a 3.2 acre site with over 140 car parking
spaces in Coventry completed in March 2023 for a total of GBP8.3
million at a net initial yield of 7.4%. The rental income totals
GBP0.6 million; 77% to Tenpin Limited (bowling) on a lease without
a break until 2050, with RPI-linked rent increases capped at 4% and
collared at 2% p.a. The two purpose built restaurants are let to
Starbucks on a RPI-linked lease and Pizza Hut on an annual fixed
increase lease with 11 and 9 years to run respectively (WAULT just
over 23 years).
Sales
Completed
The sale of six overrented properties completed during the year
for GBP9.8 million: two convenience stores, three pubs and a bingo
hall, in line with their March 2022 valuations at an average net
sale yield of 6.1%.
Completed Since 31 March 2023
The sale of a city centre pub in Newcastle upon Tyne let to
Stonegate completed in April 2023 above valuation at a net sale
yield of 7.5%.
Exchanged
The sale of a petrol filling station in Melton Mowbray let to BP
Oil UK Limited with a lease expiring in September 2033 exchanged in
April 2023, above valuation at a net sale yield of 6.2% with
completion due in July 2023.
Reinvestment of sale proceeds is in hand and other properties
are under investigation to upgrade the portfolio quality
further.
Rent Collection
100% of all contracted rents due were collected during the year
to 31 March 2023. The top 6 tenants have 20 leases: Marks &
Spencer, HM Government/ Local Authorities, Ten Entertainment Group,
Premier Inn, Sainsbury's and the Co-operative Group representing
60% of the contracted income.
Fully let
The portfolio is fully let, with no voids (MSCI void rate:
8.2%).
Responsible impact based ESG management
OLIM Property has always taken a cautious and responsible
approach to managing VIP's property portfolio, with environmental
impact, social responsibility and governance (ESG) taken fully into
account in selecting high quality properties and suitable tenants
for acquisition, long term management and disposal. Occupier
relationships are crucial. We engage with our tenants to understand
and establish sustainable rental levels and grow future income
streams, working closely with them to address value add energy
performance targets. All VIP's properties are regularly reviewed,
ESG improvements implemented at appropriate asset management stages
and properties sold where performance may be negatively impacted by
ESG factors.
Top 10 properties by capital value
% of portfolio
Property Tenant Sector by capital value
---------------------- -------------------- ------------- -----------------
Dover Park Resorts Caravan Park 8%
====================== ==================== ============= =================
Newport Isle of
Wight Marks and Spencer Supermarket 7%
====================== ==================== ============= =================
Rayleigh Marks and Spencer Supermarket 7%
====================== ==================== ============= =================
Garstang Sainsbury's Supermarket 6%
====================== ==================== ============= =================
Tenpin, Pizza Hut &
Coventry (Crosspoint) Starbucks Bowling 5%
====================== ==================== ============= =================
Aylesford Kier Industrial 5%
====================== ==================== ============= =================
Catterick Premier Inn Hotel 4%
====================== ==================== ============= =================
Alnwick Premier Inn Hotel 4%
====================== ==================== ============= =================
Milton Keynes Winterbotham Darby Industrial 4%
====================== ==================== ============= =================
Gloucester H.M. Government Industrial 3%
====================== ==================== ============= =================
Total 53%
=========================================================== =================
Energy Performance Certificates (EPCs)
96% of the properties now have an EPC rating A-C (up from 64%
over the past twelve months). We continue to work with our tenants
to upgrade properties and improve EPC ratings.
Performance and independent revaluation
Savills' independent valuation at 31 March 2023 on all 39
properties totalled GBP150,500,000 reflecting a net initial yield
of 5.8% after deducting notional purchase costs (31 March 2022:
5.1%, 30 September 2022: 5.1%), with a running yield of 6.0%. The
half-yearly valuation totals at 30 September 2022 were
GBP157,550,000 and at 31 March 2022 GBP155,478,000. On a like for
like basis, excluding purchases and sales, the portfolio's capital
value declined by 0.1% in the first half of the year and by 12.7%
in the second, reflecting the impact of rising interest rates
across the investment property market and economic and political
turbulence. Investment turnover has been very low with values
marked down more on sentiment than completed evidence. Investors
are cautious and risk averse.
Capital values of the 37 properties held throughout the
financial year had a like for like total decline in value of 12.8%,
being significantly better than the MSCI benchmark of -16.8%. The
only sector to gain in value was bowling up by 3.4% with the
biggest fall in values in the roadside and supermarket sectors of
-19.4% and -14.9% respectively, as a consequence of sector
repricing. The valuation reflects an outward yield shift of 70
basis points over the six months to 31 March 2023 (six months to
September 2022: no yield shift). Contracted income is now GBP9.3
million (up 12.0%) against GBP8.3 million at end of March 2022, due
to three new purchases and fifteen rent increases over the year
providing rental growth in this highly inflationary
environment.
The property portfolio has been upgraded with the sale of six
smaller, mainly overrented properties, which completed for GBP9.8
million (three pubs, a bingo hall and two convenience stores) with
the net sale proceeds reinvested in three long-let property
purchases for GBP25.5 million, a Marks and Spencer Simply Food
supermarket in Rayleigh, Essex, a new Premier Inn at Alnwick,
Northumberland and a leisure investment in Coventry; all let on
index linked leases.
The property portfolio produced a total return on all 39
properties of -7.8% over the past year to March, against -13.0% for
the MSCI UK Quarterly Property Index, the main benchmark for
commercial property performance. Properties held throughout had a
total return of -7.5%.
The returns on VIP's property portfolio have been between 5% and
12% a year over 3, 5, 10, 20 and 36 years and are above the MSCI
averages over all these periods. The real returns have been behind
the Retail Price Index over 1 and 3 years but above it over longer
periods, with a real return of 8% a year over 36 years since the
inception of OLIM Property's Management.
Matthew Oakeshott & Louise Cleary
OLIM Property Limited
26 June 2023
Business Review
This Business Review is intended to provide an overview of the
strategy and business model of the Company as well as the key
measures used by the Directors in overseeing its management. The
Company is an investment trust company that invests in accordance
with the investment objective and investment policy outlined in the
Business Review.
Value and Income Trust PLC changed its name on 22 January 2021
to Value and Indexed Property Income Trust PLC (VIP or the
Company). VIP's Ordinary Shares are listed on the Premium segment
of the Official List and traded on the main market of the London
Stock Exchange. The Company is registered as a public limited
company in Scotland under company number SC050366. VIP is an
investment company within the meaning of Section 833 of the
Companies Act 2006. The Company has one class of share. VIP is a
member of the Association of Investment Companies (AIC).
The Group
Value and Indexed Property Income Services Limited (VIS), a
wholly owned subsidiary of the Company, is authorised by the
Financial Conduct Authority to act as the Company's Alternative
Investment Fund Manager (AIFM).
Capital structure
As at 31 March 2023, and as at the date of this Annual Report,
VIP's share capital consisted of 43,012,464 Ordinary Shares of 10p
nominal value in issue and 2,537,511 Ordinary Shares of 10p each
held in Treasury. Each Ordinary Share in issue entitles the holder
to one vote on a show of hands and, on a poll, to one vote for
every share held.
Share dealing
Shares in VIP can be purchased and sold in the market through a
stockbroker, or indirectly through a lawyer, accountant or other
professional adviser. Further information on how to invest in VIP
is detailed in the Annual Report.
Recommendation of non-mainstream investment products
VIP currently conducts its affairs so that the shares issued by
it can be recommended by independent financial advisers to ordinary
retail investors in accordance with the rules of the Financial
Conduct Authority (FCA) in relation to non-mainstream investment
products and intends to do so for the foreseeable future. VIP's
shares are excluded from the FCA's restrictions which apply to
non-mainstream investment products because they are shares in an
investment trust company and the returns to investors are based on
investments in directly held property.
Highlights of the year
-- Net Asset Value total return (with debt at carrying value)*
of -17.9% (2022: 21.3%) over one year and 11.7% (2022: 7.5%) over
three years.
-- Share Price total return* of -9.2% (2022: 15.8%) over one
year and 48.3% (2022: 13.3%) over three years.
-- MSCI UK Quarterly Property Index total return of -13.0% over
one year (2022: 19.6%) and 5.1% (2022: 6.4%) over three years.
-- FTSE All-Share Index total return of 2.9% (2022: 13.0%) over
one year and 47.4% (2022: 16.8%) over three years.
-- Dividends for year up 2.4% - the 36th consecutive year of dividend increases.
-- Dividend yield at 31 March 2023 - 6.3% (2022: 5.3%).
Financial record
30 31 31 31 31 31 31 31 31 31 31 31
Sep Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
1986 1987 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
--------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NAV (valuing
debt at carrying
value)* (p) 44.0 55.1 325.5 326.9 319.0 345.5 330.5 332.5 253.1 271.1 314.3 246.9
===================== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Share price (p) 42.0 52.0 265.0 254.3 221.8 255.0 262.0 251.0 165.0 218.0 239.0 204.5
===================== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Discount of share
price to NAV
(valuing debt
at carrying value)*
(%) 4.6 5.6 18.6 22.2 30.5 26.2 20.7 24.5 34.8 19.6 24.0 17.2
===================== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Dividend per
share (p) N/A 1.25 8.5 9.0 10.5 11.0 11.4 11.8 12.1 12.3 12.6 12.9
===================== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total assets
less current
liabilities (GBPm) 17.4 24.8 183.6 189.0 185.5 207.3 200.4 205.6 176.2 177.6 196.5 158.0
===================== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
* This is an Alternative Performance Measure (APM) which has
been explained in the Glossary in the Annual Report.
Investment objective and investment policy
Investment objective
The Company invests mainly in directly held UK commercial
property to deliver secure, long-term, index-linked income. The
Company aims to achieve long-term, real growth in dividends and
capital value without undue risk.
Investment policy
The Company's policy is to invest in directly held UK commercial
property and cash or near cash securities. The Company will not
invest in overseas property or securities or in unquoted companies.
UK directly held commercial property will usually account for at
least 80 per cent. of the total portfolio but it may fall below
that level if relative market levels and investment value, or a
desired increase in cash or near cash securities, make it
appropriate. The Company will not use derivatives. The Company is
permitted to invest cash held for working capital purposes and
awaiting investment in cash deposits, gilts and money market
funds.
The UK commercial property portfolio
The Company will target secure income and capital returns linked
to inflation, mainly through its diversified portfolio of UK
property assets, let or pre-let to a broad range of strong tenants
on long leases with rental growth subject to index-linked or fixed
increases. The Company has not set any geographical limits, except
that it may invest in all four nations of the United Kingdom. It
has also set no structural limits and expects the portfolio to be
focused on (but not limited to), the industrial/ warehouse,
supermarket, roadside and leisure sectors (including for example,
caravan parks, pubs, hotels, garden and bowling centres) income
strips and ground rents. Offices and high street retail properties
would not be priority sectors for investment. In order to manage
risk in the portfolio, at the time of purchase, no single property
asset will exceed in value 25 per cent. of the Company's gross
asset value and no single tenant (except UK Government and public
sector) will account for more than 30 per cent. of the Company's
total rental income.
Borrowing policy
The Company has a longstanding policy of funding most of the
increases in its property portfolio through the judicious use of
borrowings. Gearing will normally be within a range of 25 per cent.
and 50 per cent. of the total portfolio. The Company will not raise
new borrowings if total net borrowings would then represent more
than 50 per cent. of the total assets.
Detail of the Company's current borrowings, comprising two fixed
term secured loan facilities can be found in Note 12.
Performance, results and dividend
As at 31 March 2023, the Net Asset Value (NAV) total return
(with debt at carrying value) over one year was -17.9% and the
Share Price total return over one year was -9.2%. This compares to
the MSCI UK Quarterly Property Index total return of -13.0%. Total
assets less current liabilities were GBP158.0 million. A review of
the performance of the property portfolio is detailed in the
Chairman's Statement and in the Manager's Report.
For the year to 31 March 2023, quarterly dividends of 3.0p per
share, 3.1p per share, and 3.2p per share were paid on 28 October
2022, 27 January 2023 and 28 April 2023, respectively. The
Directors have declared a final dividend of 3.6p per Ordinary Share
(2022: 3.6p) which, if approved by Shareholders at the 2023 AGM,
will be paid on 4 August 2023 to Shareholders on the register on 7
July 2023. The ex-dividend date is 6 July 2023. This represents an
annual increase in dividends of 2.4% as compared with the 13.5% and
10.1% annual increases in the Retail Price and Consumer Price
Indices, respectively, as at the end of March 2023.
Principal and emerging risks and uncertainties
The Board has an ongoing process for identifying, evaluating and
monitoring the principal and emerging risks and uncertainties
facing the Group and the Parent Company. The risk register forms a
key part of the Group and the Parent Company's risk management
framework used to carry out a robust assessment of the risks,
including a significant focus on the controls in place to mitigate
them. The principal and emerging risks and uncertainties which
affect the Group's and the Company's business are:
Market risk
The fair value of, or future cash flows from, a financial
instrument held by the Group may fluctuate because of changes in
market prices. This market risk comprises two elements - price risk
and interest rate risk.
Price risk
Changes in market prices (other than those arising from interest
rate or currency risk) may affect the value of the Group's
investments.
VIS delegates its portfolio management responsibilities to OLIM
Property Limited (OLIM Property), the Investment Manager
responsible for managing the property portfolio, which reports to
VIS and to the Board, which meet regularly in order to review the
investment strategy. All investment properties held by the Group
are commercial properties located in the UK, mainly with long-term,
index-linked income streams.
Interest rate risk
Interest rate movements may affect:
-- the fair value of the investments in property;
-- the level of income receivable on cash deposits; and
-- the fair value of borrowings.
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment and borrowing decisions.
The Board imposes borrowing limits to ensure that gearing levels
are appropriate to market conditions and reviews these on a regular
basis. Current borrowings comprise two secured term loans, with
three and ten year terms remaining, providing secure long-term
funding. It is the Board's policy to maintain a gearing level,
measured on the most stringent basis of calculation after netting
off cash equivalents, of between 25% and 50%.
Liquidity risk
This is the risk that the Group will encounter difficulty in
meeting obligations associated with its financial liabilities.
The Group's assets comprise investment properties which, by
their nature, are not readily realisable. The maturity of the
Company's existing borrowings is set out in the interest rate risk
profile section of Note 21 to the Financial Statements.
Property risk
The Group's commercial property portfolio is subject to both
market and specific property risk. Since the UK commercial property
market has been markedly cyclical for many years, it is prudent to
expect that to continue.
The price and availability of credit, real economic growth and
the constraints on the development of new property are the main
influences on the property investment market.
Against that background, the specific risks to the income from
the portfolio are tenants being unable to pay their rents and other
charges or leaving their properties at the end of their leases. All
leases are on full repairing and insuring terms, with upward only
rent reviews and the weighted average unexpired lease length to the
break option is 12.6 years. Details of the tenant and geographical
spread of the portfolio are set out in the Annual Report. The
long-term record of performance through the varying property cycles
since 1987 is set out in the Annual Report. OLIM Property is
responsible for property investment management, with surveyors,
solicitors and managing agents acting on the portfolio under OLIM
Property's supervision.
Political risk
Political changes that result in parties with extreme political
or social agendas having power or influence over policies could
lead to instability and uncertainty in the markets, legislation and
the economy.
The Board reviews regularly the political situation, together
with any associated changes to the economic, regulatory and
legislative environment, to ensure that any risks arising are
mitigated as effectively as possible.
An explanation of certain economic and financial risks and how
they are managed is contained in Note 21 to the Financial
Statements.
Climate change and social responsibility risk
The Board recognises that climate change is an important
emerging risk that all companies should take into consideration
within their strategic planning. As referred to elsewhere in the
Strategic Report and in the Governance Report in the Annual Report,
the Company has little direct impact on environmental issues. All
of the Company's properties are let on full repairing and insuring
leases, with the tenants responsible for complying with statutory
obligations. The Board is aware that the Manager continues to take
into account environmental, social and governance matters, and, in
particular, Energy Performance Certificates and flood risks, in
managing the portfolio.
Economic risk
The valuation of the Company's investments may be affected by
underlying economic conditions, such as fluctuating interest rates,
rising inflation, increased fuel and energy costs, and the
availability of bank finance, all of which can be impacted during
times of geopolitical uncertainty and volatile markets, including
the recent coronavirus pandemic and the ongoing war in Ukraine. The
Board monitors the economic and market environment closely,
including the situation in Ukraine, and believes that the diverse,
well-spread, long let indexed portfolio should prove resilient.
Other key risks
Additional risks and uncertainties include:
-- Discount volatility: The Company's shares may trade at a
price which represents a discount to its underlying net asset
value.
-- Regulatory risk: The Directors strive to maintain a good
understanding of the changing regulatory agenda and consider
emerging issues so that appropriate changes can be implemented and
developed in good time. The Group operates in a complex regulatory
environment and, therefore, faces a number of regulatory risks. A
breach of Section 1158 of the Corporation Tax Act 2010 would result
in the Company being subject to capital gains tax on portfolio
investments. Breaches of other regulations, including but not
limited to, the Companies Act 2006, the FCA Listing Rules, the FCA
Disclosure, Guidance and Transparency Rules, the Market Abuse
Regulation, the Packaged Retail and Insurance-based Investment
Products (PRIIPs) Regulation, the Second Markets in Financial
Instruments Directive (MiFID II) and the General Data Protection
Regulation (GDPR), could lead to a number of detrimental outcomes
and reputational damage.
The Company is also required to comply with tax legislation
under the Foreign Account Tax Compliance Act and the Common
Reporting Standard. The Company has appointed its registrar,
Computershare, to act on its behalf to report annually to HM
Revenue & Customs (HMRC).
The Company's privacy policy is available to view on the
Company's web pages hosted by the Investment Manager at
www.olimproperty.co.uk/value-and-indexed-property-income-trust.html.
Breaches of controls by service providers to the Company could
also lead to reputational damage or loss. The Audit and Management
Engagement Committee monitors compliance with regulations by
reviewing internal control reports from the Administrator and from
the Investment Manager.
Alternative investment fund managers directive
The Alternative Investment Fund Managers Directive (AIFMD)
introduced an authorisation and supervisory regime for all managers
of authorised investment funds in the EU.
In accordance with the requirements of the AIFMD, the Company
appointed VIS as its Alternative Investment Fund Manager (AIFM) and
BNP Paribas Trust Corporation UK Limited as its Depositary. VIS's
status as AIFM remains unchanged following the UK's departure from
the EU. The Board has controls in place in the form of regular
reporting from the AIFM and the Depositary to ensure that both are
meeting their regulatory responsibilities in relation to the
Company.
Key performance indicators
At each Board Meeting, the Directors consider a number of
performance measures to assess the Company's success in achieving
its objectives and which also enable Shareholders and prospective
investors to gain an understanding of its business.
A historical record of these performance measures, with
comparatives, together with the Alternative Performance Measures
(APMs) are shown in the Highlights of the year and Financial record
section of the Business Review. Definitions of the APMs can be
found in the Glossary in the Annual Report.
Following the change in investment policy to invest
predominantly in property, the Directors have carried out a review
of the key performance indicators to determine the performance of
the Company. The Directors have identified the following as key
performance indicators:
-- Net asset value and share price total returns relative to the
MSCI UK Quarterly Property Index (total returns); and
-- Dividend growth relative to Consumer Price Inflation.
The net asset value (NAV) total return is considered to be an
appropriate measure of Shareholder value as it includes the current
NAV per share and the sum of dividends paid to date.
The medium term dividend policy is for increases at least in
line with inflation.
The Board reviews the Company's rental income and operational
expenses on a quarterly basis, as the Directors consider that both
of these elements are important components in the generation of
Shareholder returns. Further information can be found in Notes 2
and 4 to the Financial Statements.
In addition, the Directors will consider economic, regulatory
and political trends and factors that may impact on the Company's
future development and performance.
Share buy-backs
545,000 Ordinary Shares were bought back in the year to 31 March
2023 (2022: nil Ordinary Shares bought back). As at 31 March 2023,
and as at the date of this Annual Report, 2,537,511 Ordinary Shares
of 10p each are held in Treasury. Further information can be found
in Note 14 to the Financial Statements.
At the forthcoming AGM, the Board will seek the necessary
Shareholder authority to continue to conduct share buy-backs.
Statement of compliance with investment policy
The Company is adhering to its stated investment policy and
managing the risks arising from it. This can be seen in various
tables and charts throughout the Annual Report, and from the
information provided in the Chairman's Statement and in the
Manager's Report.
The Board's section 172 duty and stakeholder engagement
The Directors recognise the importance of an effective Board and
its ability to discuss, review and make decisions to promote the
long-term success of the Company and protect the interests of its
key stakeholders. As required by Provision 5 of The AIC Code of
Corporate Governance (the AIC Code) (and in line with The UK
Corporate Governance Code (the Code)), the Board has discussed the
Directors' duty under Section 172 of the Companies Act and how the
interests of key stakeholders have been considered in the Board
discussions and decision making during the year. This has been
summarised in the table below:
Stakeholder Form of Engagement Influence on Board decision
making
Shareholders AGM - Shareholders are encouraged Dividend declarations - The
to attend the AGM and are Board recognises the importance
provided with the opportunity of dividends to Shareholders
to ask questions and engage and takes this into consideration
with the Directors and the when making decisions to pay
Manager. Shareholders are quarterly and propose final
also encouraged to exercise dividends for each year. Further
their right to vote on the details regarding dividends
resolutions proposed at the for the year under review can
AGM (please refer to the further be found in the Chairman's
information on the AGM in Statement.
the Directors' Report in the Share buy-back policy - the
Annual Report). Directors recognise the importance
Shareholder documents - The to Shareholders of the Company
Company reports formally to maintaining a buy-back policy
Shareholders by publishing and considered this when establishing
Annual and Interim Reports, the current programme. Further
normally in June and November details can be found in the
each year. Business Review and in the
Significant matters or reporting Directors' Report in the Annual
obligations are disseminated Report.
to Shareholders by way of Shareholder communication and
announcement to the London feedback from the Broker feeds
Stock Exchange. directly into the Board's annual
The Company Secretary acts strategy review, the asset
as a key point of contact allocation considerations and
for the Board and all communications the Manager's guidance on desirable
received from Shareholders investment characteristics.
are circulated to the Board. The Directors recognise the
Other Shareholder events include importance to Shareholders
investor and wealth manager of having a diverse Board with
lunches and roadshows organised a range of skilled and experienced
by the Company's Broker at individuals represented, and
which the Manager is invited took this into account when
to present. the decision was made during
the year to appoint Lucy Winterburn
as a Director.
-------------------------------------- ---------------------------------------
Manager Quarterly Board Meetings - The Directors and the Manager
The Manager attends every are cognisant of the Company's
Board Meeting and presents investment policy and the strategy
a detailed portfolio analysis agreed by the Board, which
and reports on key issues the Manager has been tasked
such as performance of the with implementing. The Directors
property portfolio. and Manager worked together
The Manager reports to the during the year on the restructuring
Board on the Company's property of the Company's debt, on competitive
portfolio and the Directors terms, and completed the transition
challenge the Manager where to a direct property investment
they feel it is appropriate. trust.
The Board engages constructively
with the Manager to ensure
investments are consistent
with the agreed strategy and
investment policy.
The Manager works closely with
all tenants and, as a result,
100% of all contracted rents
due were collected in the year
to 31 March 2023.
-------------------------------------- ---------------------------------------
Registrar Review meetings and control The Directors review the performance
reports. of all third party service
providers; this includes ensuring
compliance with GDPR.
-------------------------------------- ---------------------------------------
Depositary Regular statements and control The Directors review the performance
and Custodian reports received, with all of all third party providers,
holdings and balances reconciled. including oversight of securing
the Company's assets.
-------------------------------------- ---------------------------------------
Advisers The Company relies on the The Directors review the performance
expert audit, accounting and of all third party service
legal advice received from providers.
its Auditor, Administrator
and Legal Advisers.
-------------------------------------- ---------------------------------------
As referred to in the Chairman's Statement, during the year the
Company carried out a major debt reconstruction, which included the
early repayment of the 9.375% Debenture Stock 2026; secured an
additional GBP13 million of borrowings under an existing loan;
increased the term of one of the loans to 2033; and completed its
transition to a direct property investment trust. There were no
other key decisions made in the year to 31 March 2023 that require
to be disclosed.
Employee, environmental and human rights policy
As an investment trust company, the Company has no direct
employee or environmental responsibilities, nor is it responsible
for the emission of greenhouse gases. Its principal responsibility
to Shareholders is to ensure that the investment portfolio is
properly managed and invested. The Company has no employees and,
accordingly, has no requirement to report separately on employment
matters.
Management of the investment portfolio is undertaken by the
Investment Manager through members of its portfolio management
team. In light of the nature of the Company's business, there are
no relevant human rights issues and, therefore, the Company does
not have a human rights policy.
Independent auditor
The Company's Independent Auditor is required to report if there
are any material inconsistencies between the content of the
Strategic Report and the Financial Statements. The Independent
Auditor's Report can be found in the Annual Report.
Future strategy
The Board and the Investment Manager intend to maintain the
strategic policies set out above for the year ending 31 March 2024
as it is believed that these are in the best interests of
Shareholders.
The Company's Viability Statement is included in the Directors'
Report in the Annual Report.
Approval
This Business Review, and the Strategic Report as a whole, was
approved by the Board of Directors and signed on its behalf by:
John Kay
Chairman
26 June 2023
Going concern
The Group and the Parent Company's business activities, together
with the factors likely to affect their future development and
performance, are set out in the Directors' Report, and the
financial position of the Group and of the Parent Company is
described in the Chairman's Statement within the Strategic Report.
In addition, Note 21 to the Financial Statements includes: the
policies and processes for managing the financial risks; details of
the financial instruments; and the exposures to market risk (price
risk and interest rate risk), liquidity risk, credit risk and
property risk. The Directors believe that the Group and the Parent
Company are well placed to manage their business risks.
Following a detailed review, the Directors have a reasonable
expectation that the Group and the Parent Company have adequate
financial resources to enable them to continue in operational
existence for the foreseeable future, being at least 12 months from
approval of the Financial Statements, and accordingly, they have
continued to adopt the going concern basis (as set out in Note 1(b)
to the Financial Statements) when preparing the Annual Report and
Financial Statements.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with UK adopted
international accounting standards and applicable laws and
regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law, the Directors
are required to prepare the Group Financial Statements, and have
elected to prepare the Company Financial Statements, in accordance
with UK adopted international accounting standards. Under company
law, the Directors must not approve the Financial Statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Group and Company and of the profit or loss for
the Group and 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 they have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006, subject to any material
departures disclosed and explained in the Financial Statements;
-- state whether they have been prepared in accordance with UK
adopted international accounting standards, subject to any material
departures disclosed and explained in the Financial Statements;
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- prepare a Directors' Report, a Strategic Report and
Directors' Remuneration Report which comply with the requirements
of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company
and, hence, for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for ensuring that the Annual
Report and Financial Statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for Shareholders to assess the Group's position and performance,
business model and strategy.
The Directors are responsible for ensuring the Annual Report and
Financial Statements are made available on a website. Financial
Statements are published on the Company's web pages hosted by the
Investment Manager in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company's web pages is the
responsibility of the Directors. The Directors' responsibility also
extends to the ongoing integrity of the Financial Statements
contained therein.
Directors' responsibility statement
Each Director confirms, to the best of his or her knowledge,
that:
-- the Financial Statements have been prepared in accordance
with the applicable set of accounting standards and give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Group and Company; and that
-- the Annual Report includes a fair review of the development
and performance of the business and the financial position of the
Group and Company, together with a description of the principal
risks and uncertainties that they face.
The Directors confirm that the Annual Report and Financial
Statements taken as a whole is fair, balanced and understandable
and provides the information necessary for Shareholders to assess
the Group's position and performance, business model and
strategy.
For and on behalf of the Board of
Value and Indexed Property Income Trust PLC
John Kay
Chairman
26 June 2023
Group Statement of Comprehensive Income
Year ended 31 March 2023 Year ended 31 March 2022
---------------------------------
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- --------- --------- -------- -------- --------
Income
Rental income 2 8,358 - 8,358 5,647 - 5,647
Investment income 2 168 - 168 1,682 - 1,682
Other income 2 314 - 314 - - -
-------- --------- --------- -------- -------- --------
Gains and losses on investments 8,840 - 8,840 7,329 - 7,329
Realised gains on held-at-
fair-value investments
and investment properties 9 - 1,446 1,446 - 10,440 10,440
Unrealised (losses)/
gains on held-at-fair-value
investments and investment
properties 9 - (24,695) (24,695) - 8,797 8,797
-------- --------- --------- -------- -------- --------
Total income 8,840 (23,249) (14,409) 7,329 19,237 26,566
-------- --------- --------- -------- -------- --------
Expenses
Investment management
fees 3 (990) - (990) (1,088) (2) (1,090)
Other operating expenses 4 (895) - (895) (870) - (870)
Finance costs 5 (1,779) (6,269) (8,048) (3,177) - (3,177)
-------- --------- --------- -------- -------- --------
Total expenses (3,664) (6,269) (9,933) (5,135) (2) (5,137)
-------- --------- --------- -------- -------- --------
Profit/(loss) before
taxation 5,176 (29,518) (24,342) 2,194 19,235 21,429
Taxation 6 (979) 1,425 446 (321) 3,154 2,833
-------- --------- --------- -------- -------- --------
Profit/(loss) attributable
to equity shareholders
of parent company 4,197 (28,093) (23,896) 1,873 22,389 24,262
-------- --------- --------- -------- -------- --------
Earnings per Ordinary
Share (pence) 7 9.70 (64.92) (55.22) 4.30 51.40 55.70
The total column of this statement represents the Statement of
Comprehensive Income of the Group, prepared in accordance with
IFRS. The revenue return and capital return columns are
supplementary to this and are prepared under guidance published by
the Association of Investment Companies. All items in the above
statement derive from continuing operations.
The Group does not have any other comprehensive income and so
the total profit/(loss), as disclosed above, is the same as the
Group's total comprehensive income. All income is attributable to
the equity holders of Value and Indexed Property Income Trust PLC,
the parent company. There are no minority interests.
The Board is proposing a final dividend of 3.6p per share,
making a total dividend of 12.9p per share for the year ended 31
March 2023 (2022: 12.6p per share) which, if approved by
Shareholders, will be payable on 4 August 2023 (see Note 8).
The Notes form part of these Financial Statements.
Company Statement of Comprehensive Income
Year ended 31 March 2023 Year ended 31 March 2022
-----------------------------
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- --------- --------- -------- -------- --------
Income
Rental income 2 8,358 - 8,358 5,647 - 5,647
Investment income 2 168 - 168 1,682 - 1,682
Other income 2 314 - 314 - - -
-------- --------- --------- -------- -------- --------
Gains and losses on
investments 8,840 - 8,840 7,329 - 7,329
Realised gains on held-at-
fair-value investments
and investment properties 9 - 1,446 1,446 - 10,440 10,440
Unrealised (losses)/
gains on held-at-fair-value
investments and investment
properties 9 - (24,695) (24,695) - 8,797 8,797
-------- --------- --------- -------- -------- --------
Total income 8,840 (23,249) (14,409) 7,329 19,237 26,566
-------- --------- --------- -------- -------- --------
Expenses
Investment management
fees 3 (990) - (990) (1,088) (2) (1,090)
Other operating expenses 4 (895) - (895) (870) - (870)
Finance costs 5 (1,779) (6,269) (8,048) (3,177) - (3,177)
-------- --------- --------- -------- -------- --------
Total expenses (3,664) (6,269) (9,933) (5,135) (2) (5,137)
-------- --------- --------- -------- -------- --------
Profit/(loss) before
taxation 5,176 (29,518) (24,342) 2,194 19,235 21,429
Taxation 6 (979) 1,425 446 (321) 3,154 2,833
-------- --------- --------- -------- -------- --------
Profit/(loss) attributable
to equity shareholders
of parent company 4,197 (28,093) (23,896) 1,873 22,389 24,262
-------- --------- --------- -------- -------- --------
Earnings per Ordinary
Share (pence) 7 9.70 (64.92) (55.22) 4.30 51.40 55.70
The total column of this statement represents the Statement of
Comprehensive Income of the Company prepared in accordance with
IFRS. The revenue return and capital return columns are
supplementary to this and are prepared under guidance published by
the Association of Investment Companies. All items in the above
statement derive from continuing operations.
The Company does not have any other comprehensive income and so
the total profit/(loss), as disclosed above, is the same as the
Company's total comprehensive income.
The Notes form part of these Financial Statements.
Group Statement of Financial Position
As at As at
31 March 2023 31 March 2022
-------------------------------------------
Note GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------ -------- -------- -------- --------
Assets
Non current assets
Investment properties 9 150,636 155,838
Investments held at fair value through
profit or loss 9 - 26,871
-------- -------- -------- --------
150,636 182,709
Deferred tax asset 6 4,537 4,091
Receivables 10 2,366 2,238
-------- -------- -------- --------
157,539 189,038
Current assets
Cash and cash equivalents 2,273 5,153
Receivables 10 599 4,709
2,872 9,862
-------- -------- -------- --------
Total assets 160,411 198,900
Current liabilities
Payables 11 (2,376) (2,423)
(2,376) (2,423)
-------- -------- -------- --------
Total assets less current liabilities 158,035 196,477
Non-current liabilities
Payables 12 (2,845) (2,854)
Borrowings 12 (49,000) (56,723)
(51,845) (59,577)
-------- -------- -------- --------
Net assets 106,190 136,900
------------------ ------------------
Equity attributable to equity shareholders
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 83,189 113,899
-------- -------- -------- --------
Total equity 106,190 136,900
------------------ ------------------
Net asset value per Ordinary Share
(pence) 17 246.88 314.30
These Financial Statements were approved by the Board on 26 June
2023 and were signed on its behalf by:
John Kay
Chairman
The Notes form part of these Financial Statements.
Company Statement of Financial Position
As at As at
31 March 2023 31 March 2022
-------------------------------------------
Note GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------ -------- -------- -------- --------
Assets
Non current assets
Investment properties 9 150,636 155,838
Investments held at fair value through
profit or loss 9 200 27,071
-------- -------- -------- --------
150,836 182,909
Deferred tax asset 6 4,537 4,091
Receivables 10 2,366 2,238
-------- -------- -------- --------
157,739 189,238
Current assets
Cash and cash equivalents 2,073 4,953
Receivables 10 599 4,709
2,672 9,662
-------- -------- -------- --------
Total assets 160,411 198,900
Current liabilities
Payables 11 (2,376) (2,423)
(2,376) (2,423)
-------- -------- -------- --------
Total assets less current liabilities 158,035 196,477
Non-current liabilities
Payables 12 (2,845) (2,854)
Borrowings 12 (49,000) (56,723)
(51,845) (59,577)
-------- -------- -------- --------
Net assets 106,190 136,900
------------------ ------------------
Equity attributable to equity shareholders
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 83,189 113,899
-------- -------- -------- --------
Total equity 106,190 136,900
------------------ ------------------
Net asset value per Ordinary Share
(pence) 17 246.88 314.30
These Financial Statements were approved by the Board on 26 June
2023 and were signed on its behalf by:
John Kay
Chairman
The Notes form part of these Financial Statements.
Group Statement of Cashflows
Year ended Year ended
31 March 2023 31 March 2022
-------------------------------------------
Note GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- -------- -------- -------- ---------
Cash flows from operating activities
Rental income received 8,936 5,970
Dividend income received 266 1,835
Interest and other income received/(paid) 295 (1)
Operating expenses paid (1,974) (1,914)
Taxation paid (29) -
-------- -------- -------- ---------
Net cash inflow from operating activities 18 7,494 5,890
Cash flows from investing activities
Purchase of investments held at fair
value through profit or loss (7,215) (30,132)
Purchase of investment properties (25,353) (63,412)
Sale of investments held at fair
value through profit or loss 35,720 32,042
Sale of investment properties 9,746 3,445
-------- -------- -------- ---------
Net cash inflow/(outflow) from investing
activities 12,898 (58,057)
Cash flow from financing activities
Repayment of debenture stock (26,380) -
Drawdown of loan 13,000 -
Fees paid on new loan (176) -
Interest paid on loans (2,815) (3,113)
Finance cost of leases (78) (78)
Payments of lease liabilities (9) (9)
Dividends paid 8 (5,507) (5,445)
Buyback of Ordinary Shares for Treasury 14 (1,307) -
-------- -------- -------- ---------
Net cash outflow from financing activities (23,272) (8,645)
------------------ -------------------
Net decrease in cash and cash equivalents (2,880) (60,812)
Cash and cash equivalents at 1 April 5,153 65,965
-------- -------- -------- ---------
Cash and cash equivalents at 31 March 2,273 5,153
------------------ -------------------
The Notes form part of these Financial Statements.
Company Statement of Cashflows
Year ended Year ended
31 March 2023 31 March 2022
-------------------------------------------
Note GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- -------- -------- -------- ---------
Cash flows from operating activities
Rental income received 8,936 5,970
Dividend income received 266 1,835
Interest and other income received/(paid) 295 (1)
Operating expenses paid (1,974) (1,914)
Taxation paid (29) -
-------- -------- -------- ---------
Net cash inflow from operating activities 18 7,494 5,890
Cash flows from investing activities
Purchase of investments held at fair
value through
profit or loss (7,215) (30,132)
Purchase of investment properties (25,353) (63,412)
Sale of investments held at fair
value through profit
or loss 35,720 32,042
Sale of investment properties 9,746 3,445
-------- -------- -------- ---------
Net cash inflow/(outflow) from investing
activities 12,898 (58,057)
Cash flow from financing activities
Repayment of debenture stock (26,380) -
Drawdown of loan 13,000 -
Fees paid on new loan (176) -
Interest paid on loans (2,815) (3,113)
Finance cost of leases (78) (78)
Payments of lease liabilities (9) (9)
Dividends paid 8 (5,507) (5,445)
Buyback of Ordinary Shares for Treasury 14 (1,307) -
-------- -------- -------- ---------
Net cash outflow from financing activities (23,372) (8,645)
------------------ -------------------
Net decrease in cash and cash equivalents (2,880) (60,812)
Cash and cash equivalents at 1 April 4,953 65,765
-------- -------- -------- ---------
Cash and cash equivalents at 31 March 2,073 4,953
------------------ -------------------
The Notes form part of these Financial Statements.
Statement of Changes in Equity
Year ended 31
March 2023
Share Retained
capital Share premium earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- --------- --------------- ----------------------- ----------------- --------------------
Group
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
Loss for the year - - (23,896) (23,896)
Dividends paid 8 - - (5,507) (5,507)
Buyback of Ordinary Shares for
Treasury 14 - - (1,307) (1,307)
--------------- ----------------------- ----------------- --------------------
Net assets at 31 March 2023 4,555 18,446 83,189 106,190
--------------- ----------------------- ----------------- --------------------
Company
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
Loss for the year - - (23,896) (23,896)
Dividends paid 8 - - (5,507) (5,507)
Buyback of Ordinary Shares for
Treasury 14 - - (1,307) (1,307)
--------------- ----------------------- ----------------- --------------------
Net assets at 31 March 2023 4,555 18,446 83,189 106,190
--------------- ----------------------- ----------------- --------------------
Year ended 31 March 2022
Share Retained
capital Share premium earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ------------- ------------- ------------------------ -------------------- ------------------
Group
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
Profit for the year - - 24,262 24,262
Dividends paid 8 - - (5,445) (5,445)
------------- ------------------------ -------------------- ------------------
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
------------- ------------------------ -------------------- ------------------
Company
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
Profit for the year - - 24,262 24,262
Dividends paid 8 - - (5,445) (5,445)
------------- ------------------------ -------------------- ------------------
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
---------------------- ---------------------- ------------------- ------------
The Notes form part of these Financial Statements.
Notes to the Financial Statements
1. Accounting policies
The Financial Statements have been prepared in accordance with
UK adopted international accounting standards.
The functional and presentational currency of the Group and
Company is pounds sterling because that is the currency of the
primary economic environment in which the Group and Company
operate. The Financial Statements and the accompanying Notes are
presented in pounds sterling and rounded to the nearest thousand
pounds except where otherwise indicated.
(a) Basis of preparation
The Financial Statements have been prepared on a going concern
basis as disclosed in the Directors' Report in the Annual Report
and on the historical cost basis, except for the revaluation of
equities, investment properties and investment in subsidiaries, all
of which are valued at fair value through profit and loss. The
principal accounting policies adopted are set out below. Where
presentational guidance set out in the Statement of Recommended
Practice Financial Statements of Investment Trust Companies and
Venture Capital Trusts (the SORP) issued by the Association of
Investment Companies (AIC) in July 2022 is consistent with the
requirements of IFRSs, the Directors have sought to prepare the
Financial Statements on a basis compliant with the recommendations
of the SORP, except for the allocation of finance costs to revenue
as explained in Note 1(f).
The Board has considered the requirements of IFRS 8, 'Operating
Segments'. The Board is charged with setting the Group's investment
strategy. The Board has delegated the day to day implementation of
this strategy to the Investment Manager but the Board retains
responsibility to ensure that adequate resources of the Group are
directed in accordance with its decisions. The Board is of the view
that the Group is engaged in a single segment of business, being
investments in UK commercial properties. The view that the Group is
engaged in a single segment of business is based on the fact that
one of the key financial indicators received and reviewed by the
Board is the total return from the investment portfolio taken as a
whole. A review of the investment portfolio is included in the
report from the Investment Manager.
(b) Going concern
The Group's business activities, together with the factors
likely to affect its future development and performance, are set
out in the Strategic Report in the Annual Report. The financial
position of the Group as at 31 March 2023 is shown in the Statement
of Financial Position. The cash flows of the Group for the year
ended 31 March 2023 are shown in the Group and Company Statement of
Cashflows. The Group had fixed debt totalling GBP49,000,000 as at
31 March 2023, as set out in Notes 11 and 12; none of the
borrowings is repayable before March 2026. Note 21 sets out the
Group's risk management policies and procedures, including those
covering market price risk, liquidity risk and credit risk. As at
31 March 2023, the Group's total assets less current liabilities
exceeded its total non current liabilities by a factor of over
three. The assets of the Group consist mainly of investment
properties that are held in accordance with the Group's investment
policy. The Directors, who have reviewed carefully the Group's
forecasts for the coming year and having taken into account the
liquidity of the Group's investment portfolio and the Group's
financial position in respect of cash flows, borrowing facilities
and investment commitments (of which there is none of
significance), are not aware of any material uncertainties that may
cast significant doubt upon the Group's ability to continue as a
going concern. Accordingly, the Directors believe that it is
appropriate to continue to adopt the going concern basis in
preparing the Financial Statements.
(c) Basis of consolidation
The consolidated Financial Statements incorporate the Financial
Statements of the Company and the entity controlled by the Company
(its subsidiary). An investor controls an investee when it is
exposed, or has rights, to variable returns from its involvement
with the investee and has ability to affect those returns through
its power over the investee. The Company consolidates the investee
that it controls. All intra-group transactions, balances, income
and expenses are eliminated on consolidation. The investment in the
subsidiary is recognised at fair value in the Financial Statements
of the Company. This is considered to be the net asset value of the
Shareholders' funds, as shown in its Statement of Financial
Position.
Value and Indexed Property Income Services Limited is a private
limited company incorporated in Scotland under company number
SC467598. It is a wholly owned subsidiary of the Company and has
been appointed to act as Alternative Investment Fund Manager of the
Company.
(d) Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented alongside the Statement of Comprehensive Income.
In accordance with the Company's Articles, net realised capital
returns may be distributed by way of dividend.
Additionally, the net revenue is the measure that the Directors
believe to be appropriate in assessing the Company's compliance
with certain requirements set out in sections 1158-1160 of the
Corporation Tax Act 2010.
(e) Income
Dividend income from investments is recognised as revenue for
the period on an ex-dividend basis. Where no ex- dividend date is
available, dividends receivable on or before the period end are
treated as revenue for the period.
Where the Group has elected to receive dividend income in the
form of additional shares rather than cash, the amount of cash
dividend foregone is recognised as income.
Any excess in the value of shares received over the amount of
cash dividend foregone is recognised as a gain in the income
statement.
Interest receivable from cash and short term deposits and
interest payable is accrued to the end of the period.
Rental receivable and lease incentives, where material, from
investment properties under operating leases are recognised in the
Statement of Comprehensive Income over the term of the lease on a
straight line basis. Other income is recognised on an accruals
basis.
(f) Expenses and Finance Costs
All expenses and finance costs are accounted for on an accruals
basis. Expenses are presented as capital where a connection with
the maintenance or enhancement of the value of investments can be
demonstrated. In this respect and in accordance with the SORP, the
investment management fees have been allocated, 100% to revenue to
reflect the Board's expectations of long term investment
returns.
It is normal practice and in accordance with the SORP for
investment trust companies to allocate finance costs to capital on
the same basis as the investment management fee allocation. However
as the Company has a significant exposure to property, and property
companies allocate finance costs to revenue to match rental income,
the Directors consider that, contrary to the SORP, it is
inappropriate to allocate finance costs to capital.
(g) Other Receivables
Financial assets classified as loans and receivables are held to
collect contractual cash flows and give rise to cash flows
representing solely payments of principal and interest. As such
they are measured at
amortised cost. Other receivables do not carry any interest,
they have been assessed for any expected credit losses over their
lifetime due to their short-term nature.
(h) Other payables
Payables are non-interest bearing and are stated at their
discounted cash flow.
(i) Taxation
The Company's liability for current tax is calculated using tax
rates that have been enacted or substantially enacted by the date
of the Statement of Financial Position.
Deferred tax is recognised in respect of all temporary
differences that have originated but not reversed at the date of
the Statement of Financial Position, where transactions or events
that result in an obligation to pay more tax in the future or the
right to pay less tax in the future have occurred at the date of
the Statement of Financial Position.
This is subject to deferred tax assets only being recognised if
it is considered more probable than not that there will be suitable
profits from which the future reversal of the temporary differences
can be deducted.
Due to the Company's status as an investment trust company, and
the intention to continue to meet the conditions required to
maintain approval for the foreseeable future, the Company has not
provided deferred tax on any capital gains and losses arising on
the revaluation or disposal of investments.
(j) Dividends payable
Interim dividends are recognised as a liability in the period in
which they are paid as no further approval is required in respect
of such dividends. Final dividends are recognised as a liability
only after they have been approved by Shareholders in general
meeting.
(k) Investments
Equity investments
All equity investments were classified on the basis of their
contractual cashflow characteristics and the Group's business model
for managing its assets. The business model, which is the
determining feature, was such that the portfolio of equity
investments was managed, and performance was evaluated, on the
basis of fair value. Consequently, all equity investments were
measured at fair value through profit or loss.
For listed investments, fair value through profit or loss was
deemed to be bid market prices or closing prices for SETS stocks
sourced from the London Stock Exchange. SETS is the London Stock
Exchange electronic trading service covering most of the market
including all FTSE 100 constituents and most liquid FTSE 250
constituents along with some other securities. Gains and losses
arising from changes in fair value were included in net profit or
loss for the period as a capital item in the Statement of
Comprehensive Income and were ultimately recognised in the retained
earnings.
Investment property
Investment properties are initially recognised at cost, being
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 is included within the book
cost of the property.
After initial recognition, investment properties are measured at
fair value. Gains and losses arising from changes in fair value are
included in net profit or loss for the period as a capital item in
the Statement of Comprehensive Income and are ultimately recognised
in the retained earnings.
As disclosed in Note 21, the Group leases out all of its
properties on operating leases. A property held under an operating
lease is classified and accounted for as an investment property
where the Group holds it to earn rental, capital appreciation or
both. Any such property leased under an operating lease is carried
at fair value. Fair value is established by half-yearly
professional valuation on an open market basis by Savills (UK)
Limited, Chartered Surveyors and Valuers, and in accordance with
the RICS Valuation - Global Standards (January 2022) (the 'RICS Red
Book'). The determination of fair value by Savills is supported by
market evidence, excluding prepaid or accrued operating lease
income arising from the spreading of lease incentives or minimum
lease payments because it has been recognised as a separate
liability or asset. The fair value of investment property held by a
lessee as a right-of-use asset reflects expected cash flows
(including variable lease payments that are expected to become
payable). Accordingly, if a valuation obtained for a property is
net of all payments expected to be made, it will be necessary to
add back any recognised lease liability, to arrive at the carrying
amount of the investment property using the fair value model. These
valuations are disclosed in Note 9.
The Company accounts for its investment in its subsidiary at
fair value. All fair value adjustments in relation to the
subsidiary are eliminated on consolidation.
(l) Cash and cash equivalents
Cash and cash equivalents comprises deposits held with
banks.
(m) Non-current liabilities
All new loans and borrowings are initially measured at cost,
being the fair value of the consideration received, less issue
costs where applicable. Thereafter, all interest-bearing loans and
borrowings are subsequently measured at amortised cost. Amortised
cost is calculated by taking into account any discount or premium
on settlement. The costs of arranging any interest-bearing loans
are capitalised and amortised over the life of the loan. When the
term of a loan is modified, the amortisation of costs is adjusted
in line and the loan measured at fair value on the balance
sheet.
(n) Leases
The Group leases properties that meet the definition of
investment property. These right-of-use assets are presented as
part of Investment Properties in the Statement of Financial
Position and held at fair-value. All properties are leased out
under operating leases and rental income is recognised on a
straight line basis over the expected term of the relevant lease.
Many leases have fixed or minimum rental uplifts and where lease
incentives or temporary rent reductions have been granted as a
result of the recent COVID pandemic, rental income is recognised on
a straight line basis over the expected term of the lease. The
capital element of lease obligations is recorded as a finance lease
payable liability in the Statement of Financial Position on
inception of the arrangement. Lease payments are apportioned
between capital repayment and finance charge, using the effective
interest rate method, to produce a constant rate of charge on the
balance of the capital repayments outstanding. The lease liability
relates to the head rent on the property in Fareham. The current
lease is for a period of 99 years with an option for a further 26
years. The liability is based on the option being taken up and
extinguishing in December 2105.
(o) Critical accounting judgements and key estimates
The preparation of the Financial Statements requires the
Directors to make judgements, estimates and assumptions that may
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expenses. The
critical accounting area involving a higher degree of judgement or
complexity comprises the determination of fair value of the
investment properties. The Group engages independent professional
qualified valuers to perform the valuation. Information about the
valuation techniques and inputs used in determining fair value as
at 31 March 2023 is disclosed in Note 9 to the Financial
Statements.
(p) Adoption of new and revised Accounting Standards
New and revised standards and interpretations that became
effective during the year had no significant impact on the amounts
reported in these Financial Statements but may impact accounting
for future transactions and arrangements. At the date of
authorisation of these Financial Statements, the following
Standards and interpretations, which have not been applied to these
Financial Statements, were in issue but were not yet effective.
Standards
IAS 1 Amendments - Presentation of Financial Statements
(effective 1 January 2023)
IAS 8 Amendments - Accounting Policies, Changes in Accounting
Estimates and Errors (effective 1 January 2023)
IAS 12 Amendments - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction (effective 1 January
2023)
IFRS 17 (Initial Application of IFRS 17 and IFRS 9 - Comparative
Information) (effective 1 January 2023)
IFRS 16 Amendments (Lease Liability in a Sale and Leaseback)
(effective 1 January 2024)
IAS 1 Amendments - Presentation of Financial Statements
(effective 1 January 2024)
The Directors do not expect the adoption of these Standards and
interpretations (or any other Standards and interpretations which
are in issue but not effective) will have a material impact on the
Financial Statements of the Group in future periods.
2. Income
Year ended Year ended
31 March 2023 31 March 2022
----------------------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- --------
Investment income
Dividends from listed investments
in UK 168 168 1,682 1,682
Other operating income
Rental income 8,358 8,358 5,647 5,647
Interest receivable on short term
deposits 155 155 - -
Other income 159 159 - -
-------- -------- -------- --------
Total income 8,840 8,840 7,329 7,329
-------- -------- -------- --------
3. Investment management fee
Year ended 31 March Year ended 31 March
2023 2022
--------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- -------- -------- --------
Group and Company
Investment management fee 990 - 990 1,088 2 1,090
-------- -------- -------- -------- -------- --------
A summary of the terms of the management agreement is given in
the Directors' Report in the Annual Report.
OLIM Property Limited received an investment management fee of
GBP990,000 (2022 - GBP1,090,000), the basis of calculation of which
is detailed in the Directors' Report in the Annual Report.
4. Other operating expenses
Year ended Year ended
31 March 2023 31 March 2022
-----------------------------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- -------- -------- -------- --------
Fee payable to the Company's auditor
for the audit of the Company's accounts 65 65 55 55
- audit of the Subsidiary's accounts - - 2 2
Directors' fees 97 97 105 105
NIC on Directors' fees 3 3 3 3
Fees for company secretarial services 237 237 222 222
Direct property costs (23) (23) (2) (2)
Other expenses 516 516 485 485
-------- -------- -------- --------
895 895 870 870
-------- -------- -------- --------
Directors' fees comprise the Chairman's fees of GBP30,000 (2022
- GBP30,000), the Audit and Management Engagement Committee
Chairman's fees of GBP24,500 (2022 - GBP24,500) and fees of
GBP22,000 (2022 - GBP22,000) per annum paid to each other
Director.
Additional information on Directors' fees is given in the
Directors' Remuneration Report in the Annual Report.
5. Finance costs
Year ended Year ended
31 March 2023 31 March 2022
------------------------------------------------
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------ -------- -------- -------- --------
Interest payable on:
9.375% Debenture Stock 2026 456 456 1,875 1,875
Less amortisation of issue premium (111) (111) (24) (24)
Bank loan interest payable 1,753 1,753 1,181 1,181
Loan expenses derecognised 385 385 - -
Gain on loan modification (908) (908) - -
Borrowing costs expensed on recognition
of fair value 80 80 - -
Effective interest 24 24 - -
Amortisation of loan expenses 22 22 67 67
Finance costs attributable to lease liabilities 78 78 78 78
-------- -------- -------- --------
1,779 1,779 3,177 3,177
-------- -------- -------- --------
In June 2022, the 9.375% Debenture Stock 2026 was repaid early
at a premium of GBP6,380,000 and a balance of GBP111,000
unamortised premium from the issue of the debenture was expensed,
resulting in a capital charge of GBP6,269,000 for the year to 31
March 2023 (see Note 12).
On 28 November 2019, the Company entered into a GBP22,000,000
fixed term secured loan facility for a period of up to seven years
to 30 November 2026. On 3 March 2021, this facility was extended
until 31 March 2031. During the year ended 31 March 2023, the loan
was increased to GBP35,000,000 and extended for a further two years
until 31 March 2033, costs previously incurred on the loan were
extinguished at this point.
6. Taxation
Year ended 31 March Year ended 31 March
2023 2022
---------------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- -------- -------- -------- -------- --------
a) Analysis of the tax credit/(charge)
for the year:
Group
Current tax (979) 979 - (321) 321 -
Deferred tax - 446 446 - 2,833 2,833
-------- -------- -------- -------- -------- --------
(979) 1,425 446 (321) 3,154 2,833
-------- -------- -------- -------- -------- --------
Factors affecting the total
tax credit/ (charge) for
year:
-------- --------
(Loss)/profit before tax (24,342) 21,429
---------------------------- ----------------------------
Tax charge thereon at 19%
(2022 - 19%) (4,625) 4,072
Effects of:
Non taxable dividends 32 (320)
Losses/(gains) on investments
not taxable 4,417 (3,655)
Unrelieved finance costs (270) (2,930)
-------- -------- -------- -------- -------- --------
(446) (2,833)
---------------------------- ----------------------------
Company
Current tax (979) 979 - (321) 321 -
Deferred tax - 446 446 - 2,833 2,833
-------- -------- -------- -------- -------- --------
(979) 1,425 446 (321) 3,154 2,833
-------- -------- -------- -------- -------- --------
Factors affecting the total
tax credit/ (charge) for
year:
-------- --------
Profit before tax (24,342) 21,429
---------------------------- ----------------------------
Tax charge thereon at 19%
(2022 - 19%) (4,625) 4,072
Effects of:
Non taxable dividends 32 (320)
Losses/(gains) on investments
not taxable 4,417 (3,655)
Unrelieved finance costs (270) (2,930)
-------- -------- -------- -------- -------- --------
(446) (2,833)
Year ended 31 March Year ended 31 March
2023 2022
-----------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- -------- -------- -------- -------- -------- --------
b) Factors affecting future
tax charges
-------- --------
Unutilised tax losses 18,148 23,192
---------------------------- ----------------------------
Potential tax benefit at
19% - 635
Potential tax benefit at
25% 4,537 4,963
-------- -------- -------- -------- -------- --------
4,537 5,598
---------------------------- ----------------------------
Recognised as a deferred
tax non-current asset 4,537 4,091
Not recognised as a deferred
tax asset - 1,507
-------- -------- -------- -------- -------- --------
4,537 5,598
The Company and Group have deferred tax assets of GBP4,537,000
(2022 - GBP5,598,000) at 31 March 2023 relating to total
accumulated unrelieved tax losses carried forward of GBP18,148,000
(2022 - GBP23,192,000). The Company and Group have recognised
deferred tax assets of GBP4,537,000 (2022 - GBP4,091,000), based on
forecast profits for the next five years but have not recognised
deferred tax assets of GBPnil (2022 - GBP1,507,000) arising as a
result of losses carried forward. These losses do not have an
expiry date but it is considered too uncertain that the Group will
generate profits against which these losses would be available to
offset and, on that basis, the deferred tax asset in respect of
these losses has not been recognised.
7. Return per Ordinary Share
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
The return per Ordinary Share is based
on the following figures:
Revenue return 4,197 4,197 1,873 1,873
Capital return (28,093) (28,093) 22,389 22,389
Weighted average number of Ordinary
Shares in issue 43,272,601 43,272,601 43,557,464 43,557,464
Return per share - revenue 9.70p 9.70p 4.30p 4.30p
Return per share - capital (64.92p) (64.92p) 51.40p 51.40p
Total return per share (55.22p) (55.22p) 55.70p 55.70p
8. Dividends
Year ended Year ended
31 March 2023 31 March 2022
GBP'000 GBP'000
Dividends on Ordinary Shares:
Third quarterly dividend of 3.00p per share (2022-
2.90p) paid 29 April 2022 1,307 1,263
Final dividend of 3.60p per share (2022 - 3.60p)
paid 29 July 2022 1,568 1,568
First quarterly dividend of 3.00p per share (2022-
3.00p) paid 28 October 2022 1,296 1,307
Second quarterly dividend of 3.10p per share (2022-
3.00p) paid 27 January 2023 1,336 1,307
Dividends paid in the period 5,507 5,445
The third interim dividend of 3.20p (2022 - 3.00p), paid on 28
April 2023, has not been included as a liability in these financial
statements.
The final dividend of 3.60p (2022 - 3.60p), to be paid on 4
August 2023, has not been included as a liability in these
financial statements.
Set out below is the total dividend paid and proposed in respect
of the financial year, which is the basis upon which the
requirements of Sections 1158 - 1159 of the Corporation Tax Act
2010 are considered. The current year's revenue available for
distribution by way of dividend is GBP4,197,000 (2022 -
GBP1,874,000).
Year ended Year ended
31 March 2023 31 March 2022
GBP'000 GBP'000
First quarterly dividend of 3.00p per share
(2022- 3.00p) paid 28 October 2022 1,296 1,307
Second quarterly dividend of 3.10p per share
(2022- 3.00p) paid 27 January 2023 1,336 1,307
Third quarterly dividend of 3.20p per share
(2022 - 3.00p) payable 28 April 2023 1,376 1,307
Final quarterly dividend of 3.60p per share
(2022 - 3.60p) payable 4 August 2023 1,549 1,568
5,557 5,489
The final dividend is based on the latest share capital of
43,012,464 Ordinary Shares in issue, excluding those held in
Treasury.
9. Investments
Investment
properties Equities Total
GBP'000 GBP'000 GBP'000
Group
Cost at 31 March 2022 129,913 24,395 154,308
Unrealised appreciation 25,925 2,476 28,401
Valuation at 31 March 2022 155,838 26,871 182,709
Purchases 25,353 6,891 32,244
Sales proceeds (9,746) (31,527) (41,273)
Realised gains on sales 1,005 441 1,446
Movement in unrealised appreciation
in year (21,814) (2,676) (24,490)
Valuation at 31 March 2023 150,636 - 150,636
Investment Investment
properties in subsidiary Equities Total
GBP'000 GBP'000 GBP'000 GBP'000
Company
Cost at 31 March 2022 129,913 200 24,395 154,508
Unrealised appreciation 25,925 - 2,476 28,401
Valuation at 31 March 2022 155,838 200 26,871 182,909
Purchases 25,353 - 6,891 32,244
Sales proceeds (9,746) - (31,527) (41,273)
Realised gains on sales 1,005 - 441 1,446
Movement in unrealised appreciation
in year (21,814) - (2,676) (24,490)
Valuation at 31 March 2023 150,636 200 - 150,836
The fair value valuation given by Savills plc excludes prepaid
or accrued operating lease income arising from the spreading of
lease incentives or minimum lease payments and for adjustments to
recognise finance lease liabilities for one leasehold property,
both in accordance with IFRS 16. The valuation has, therefore, been
increased.
Year ended Year ended
31 March 2023 31 March 2022
GBP'000 GBP'000
Savills plc valuation 150,500 155,478
Operating lease assets (2,717) (2,502)
Finance lease liabilities 2,853 2,862
150,636 155,838
Increase in fair value 136 360
The fair value valuation given by Savills plc includes
GBP1,600,000 relating to the property at Newcastle where contracts
have been exchanged for sale in April 2023.
Transaction costs
During the year, expenses were incurred in acquiring and
disposing of investments classified as fair value through profit or
loss. These have been expensed through capital and are included
within gains and losses on investments in the Statement of
Comprehensive Income. The total costs were as follows:
Year ended Year ended
31 March 2023 31 March 2022
GBP'000 GBP'000
Purchases 9 95
Sales 32 32
41 127
The fair values of the investment properties were independently
valued by professional valuers from Savills (UK) Limited, acting in
the capacity of External Valuers as defined in the RICS Red Book
(but not for the avoidance of doubt as an External Valuers of the
portfolio as defined by the Alternative Investment Fund Managers
Regulations 2013). The valuations were prepared on the basis of
Fair Value as required by the IFRS (International Financial
Reporting Standards). In addition, the valuations have also been
prepared in accordance with RICS Valuation - Professional Standards
VPS 3.5 Fair Value and VPS 4.1 Valuations for Inclusion in
Financial Statements. The definition of Fair Value is set out in
IFRS 13 and is adopted by the International Accounting Standards
Board as follows:
"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"
The RICS Red Book directs us to consider that Fair Value is
consistent with the concept of Market Value, the definition of
which is set out in Valuation Practice Statement 4 1.2 of the Red
Book, as follows:
"The estimated amount for which an asset or liability should
exchange on the valuation date between a willing buyer and a
willing seller in an arm's length transaction after proper
marketing and where the parties had each acted knowledgeably,
prudently and without compulsion."
The valuations have been arrived at predominantly by reference
to market evidence for comparable property (Level 3 of the Fair
Value Hierarchy). As part of Savills' standard process, the
valuations were carried out by specialist valuers, which were peer
reviewed and reviewed again prior to the valuation date. During the
review process, the various characteristics of each property were
taken into consideration.
Fair value
Passing rent -
range Group Key unobservable
Property portfolio GBP GBP'000 input Inputs range Blended yield
Net Equivalent
Industrials 49,500 - 400,000 46,570 Yield 4.00% - 7.50% 5.50%
Net Equivalent
Supermarkets 87,000 - 967,590 43,124 Yield 5.25% - 8.00% 6.00%
Net Equivalent
Other 61,097 - 559,968 14,297 Yield 5.00% - 9.50% 7.25%
Net Equivalent
Bowling 66,788 - 469,586 13,632 Yield 7.25% - 8.50% 8.00%
Net Equivalent
Hotels 360,000 -373,549 13,233 Yield 5.00% - 5.50% 5.25%
Net Equivalent
Pubs 75,129 - 176,932 11,113 Yield 5.25% - 9.50% 7.50%
Net Equivalent
Roadside 181,025 - 213,784 8,667 Yield 6.75% - 7.50% 7.00%
150,636
A 25 bps decrease in the equivalent yield applied would have
increased the net assets attributable to the Group and Company's
Shareholders and the total gain for the year by GBP6,500,000. A 25
bps increase in the equivalent yield applied would have decreased
the net assets attributable to the Group and Company's Shareholders
and the total gain for the year by GBP6,150,000. A 5% decrease in
the rental value applied would have decreased the net assets
attributable to the Group and Company's Shareholders and the total
gain for the year by GBP3,725,000. A 5% increase in the rental
value applied would have increased the net assets attributable to
the Group and Company's Shareholders and the total loss for the
year by GBP3,825,000.
Investment in subsidiary
% Principal
Country of incorporation Date of acquisition ownership activity
Name
Value and Indexed Property
Income Services Limited UK 16 January 2014 100 AIFM
10. Receivables
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Amounts falling due within one year:
Dividends receivable - - 98 98
Prepayments and accrued income 599 599 418 418
Amounts due from brokers - - 4,193 4,193
599 599 4,709 4,709
Amounts falling due after more than one
year: Rent 2,366 2,366 2,238 2,238
2,965 2,965 6,947 6,947
Many of the Company's leases provide for minimum and maximum
increases of rental at future rent reviews. Minimum increases have
been averaged over the life of the lease, generating amounts
receivable which require to be recognised as an asset.
11. Payables
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Amounts due to OLIM Property Limited
Accruals and other creditors 53 53 103 103
Value Added Tax payable 1,907 1,907 1,676 1,676
Amounts due to brokers 408 408 312 312
Lease liability - - 324 324
8 8 8 8
2,376 2,376 2,423 2,423
The amount due to OLIM Property Limited comprises the monthly
management fee for March 2023, subsequently paid in April 2023.
12. Non-current liabilities
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Bank loans 50,000 50,000 37,000 37,000
Balance of costs incurred (388) (388) (473) (473)
Costs written off in the year 385 385 - -
Gain on fair value valuation of debt (908) (908) - -
Borrowing costs expensed on recognition
of fair value 80 80 - -
Effective interest 24 24 - -
Costs incurred in the year (215) (215) - -
Add: Debit to income for the year 22 22 85 85
49,000 49,000 36,612 36,612
9.375% Debenture Stock 2026 - - 20,000 20,000
Add: Balance of premium less issue expenses 111 111 135 135
Less: Credit to income for the year (111) (111) (24) (24)
- - 20,111 20,111
Total borrowings 49,000 49,000 56,723 56,723
Lease liability payable in more than
one year
- within 2 - 5 years 28 28 28 28
- over 5 years 2,817 2,817 2,826 2,826
Total payables 2,845 2,845 2,854 2,854
51,845 51,845 59,577 59,577
The Company has a GBP15,000,000 fixed term secured loan facility
for a period of up to ten years to 31 March 2026 (2022 -
GBP15,000,000). At 31 March 2023, GBP11,893,750 was drawn down at a
rate of 4.344% and GBP3,106,250 was drawn down at a rate of 3.60%.
The terms of the loan facility contain financial covenants that
require the Company to ensure that:
-- in respect of each 3 month period ending on 31 March and 30
September (the Half Year dates), net rental income shall be at
least 200 per cent of interest costs;
-- in respect of each 12 month period beginning immediately
after 31 March and 30 September, net rental income shall be at
least 200 per cent of interest costs; and
-- at all times, the loan shall not exceed 60 per cent of the
value of the properties that have been charged.
On 28 November 2019, the Company entered into a GBP22,000,000
fixed term secured loan facility for a period of up to seven years
to 30 November 2026. On 3 March 2021, this facility was extended
until 31 March 2031. On 27 April 2022, the loan was increased to
GBP30,000,000 and on 22 June 2022, the loan was increased to
GBP35,000,000 and extended for a further two years until 31 March
2033, costs previously incurred on the loan were extinguished at
this point. Subsequent to this the loan is recorded on the
Statement of Financial Position at it's fair value. 95% of the loan
is at a fixed rate and 5% at a floating rate of interest. At 31
March 2023, GBP35,000,000 was drawn down at a net effective
interest rate of 3.65%. The terms of the loan facility contain
financial covenants that require the Company to ensure that:
-- the total debt ratio does not at any time exceed 50 per cent;
-- projected interest cover is not less than 200 per cent at all times; and
-- the Loan to Value shall not exceed 68% of the value of the
properties that have been charged.
The 9.375% Debenture Stock 2026 issued by VIP was repayable at
par on 30 November 2026 and secured by a floating charge over the
property and assets of the Company. In June 2022, it was repaid
early at a premium of GBP6,380,000 and a balance of GBP111,000
unamortised premium from the issue of the debenture was taken to
profit and loss.
The fair values of the loan and the Debenture are disclosed in
Note 21 and the Net Asset Value per share, calculated with the
borrowings at fair value, is disclosed in Note 17.
13. Deferred tax
Under IAS 12, provision must be made for any potential tax
liability on revaluation surpluses. As an investment trust, the
Company does not incur capital gains tax and no provision for
deferred tax is therefore required in this respect.
As disclosed in Note 6, a deferred tax asset has been recognised
to reflect the estimated value of tax losses carried forward which
are likely to be capable of offset against future profits.
14. Share capital
Year ended Year ended
31 March 2023 31 March 2022
GBP'000 GBP'000
Authorised:
56,000,000 Ordinary Shares of 10p each (2022
- 56,000,000) 5,600 5,600
Called up, issued and fully paid:
43,012,464 Ordinary Shares of 10p each (2022
- 43,557,464) 4,301 4,356
Treasury shares:
2,537,511 Ordinary Shares of 10p each (2022
- 1,992,511) 254 199
4,555 4,555
The ordinary share capital on the Statement of Financial
Position relates to the number of Ordinary Shares in issue and in
Treasury. Only when shares are cancelled, either from Treasury or
directly, is a transfer made to the Capital Redemption Reserve.
During the year, the Company repurchased 545,000 Ordinary Shares
at a cost of GBP1,307,000, including expenses. All of these shares
were placed in Treasury.
15. Share premium
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance 18,446 18,446 18,446 18,446
16. Retained earnings
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance at 31 March 113,899 113,899 95,082 95,082
(Loss)/profit for the year (23,896) (23,896) 24,262 24,262
Dividends paid (see Note 8) (5,507) (5,507) (5,445) (5,445)
Buyback of Ordinary Shares for Treasury
(see Note 14) (1,307) (1,307) - -
Closing balance at 31 March 83,189 83,189 113,899 113,899
The table below shows the movement in retained earnings analysed
between revenue and capital items.
Year ended 31 March Year ended 31 March
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Group
Opening balance at 31 March (3,476) 117,375 113,899 96 94,986 95,082
Profit/(loss) for the year 4,197 (28,093) (23,896) 1,873 22,389 24,262
Dividends paid (see Note 8) (5,507) - (5,507) (5,445) - (5,445)
Buyback of Ordinary Shares for
Treasury
(see Note 14) - (1,307) (1,307) - - -
Closing balance at 31 March (4,786) 87,975 83,189 (3,476) 117,375 113,899
Company
Opening balance at 31 March (4,563) 118,462 113,899 (991) 96,073 95,082
Profit/(loss) for the year 4,197 (28,093) (23,896) 1,873 22,389 24,262
Dividends paid (see Note 8) (5,507) - (5,507) (5,445) - (5,445)
Buyback of Ordinary Shares for
Treasury
(see Note 14) - (1,307) (1,307) - - -
Closing balance at 31 March (5,873) 89,062 83,189 (4,563) 118,462 113,899
Of the Company's Retained Earnings of GBP83,189,000,
GBP76,433,000 is considered to be distributable.
17. Net asset value per equity share
The net asset values per Ordinary Share are based on the Group's
net assets attributable of GBP106,190,000 (2022 - GBP136,900,000)
and on the Company's net assets attributable of 105,780,000 (2022 -
GBP136,900,000) and on 43,012,464 (2022 - 43,557,464) Ordinary
Shares in issue at the year end, excluding shares held in
Treasury.
The net asset value per Ordinary Share, based on the net assets
of the Group and the Company adjusted for borrowings at fair value
(see Note 21) of GBP108,194,000 (2022 - GBP132,836,000) is 251.54p
(2022 - 304.97p).
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
Net assets at 31 March 2023 106,190 106,190 136,900 136,900
Fair value adjustments 252 252 (4,064) (4,064)
Net assets with borrowings at fair value 106,442 106,442 132,836 132,836
Number of shares in issue 43,012,464 43,012,464 43,557,464 43,557,464
Net asset value per share 246.88p 246.88p 314.30p 314.30p
Net asset value per share with borrowings
at fair value 247.47p 247.47p 304.97p 304.97p
18. Reconciliation of income from operations before tax to net
cash inflow from operating activities
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Income from operations before tax (14,409) (14,409) 26,566 26,566
Losses/(gains) on investments 23,249 23,249 (19,237) (19,237)
Investment management fee (990) (990) (1,090) (1,090)
Other operating expenses (895) (895) (870) (870)
Decrease in receivables 521 521 303 303
Increase in other payables 18 18 218 218
Net cash from operating activities 7,494 7,494 5,890 5,890
19. Reconciliation of current and non-current liabilities arising from financing activities
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
GBP'000 GBP'000 GBP'000 GBP'000
Cash movements
Payment of rental (for leasing) 87 87 88 88
Repayment of debenture 20,000 20,000 - -
Drawdown of loans (for financing) (13,000) (13,000) - -
Loan costs 80 80 32 32
Non-cash movements
Finance costs (for leasing) (78) (78) (78) (78)
Changes in fair value 578 578 (33) (33)
Issue premium on debenture 111 111 - -
Effective interest (24) (24) - -
Amortisation of loan premium and expenses
and fair value adjustment (22) (22) (61) (61)
Change in debt in the year 7,732 7,732 (52) (52)
Opening debt at 31 March (59,585) (59,585) (59,533) (59,533)
Closing debt at 31 March (51,853) (51,853) (59,585) (59,585)
20. Relationship with the Investment Manager and Related Parties
Value and Indexed Property Income Services Limited is a wholly
owned subsidiary of Value and Indexed Property Income Trust PLC and
all costs and expenses are borne by Value and Indexed Property
Income Trust PLC. Value and Indexed Property Income Services
Limited has not traded during the year.
Matthew Oakeshott is a director of OLIM Property Limited which
has an agreement with the Group to provide investment management
services, the terms of which are outlined in the Directors' Report
in the Annual Report and in Note 3.
21. Financial instruments and investment property risks
Risk management
The Group's and the Company's financial instruments and
investment property comprise property and other investments, cash
balances, loans and debtors and creditors that arise directly from
its operations; for example, in respect of sales and purchases
awaiting settlement or debtors for accrued income.
The Managers have dedicated investment management processes
which ensures that the Investment Policy is achieved. The portfolio
is reviewed on a periodic basis by a senior investment manager and
by OLIM Property's Investment Committee.
Additionally, the Manager's Compliance Officer continually
monitors the Group's investment and borrowing powers and reports to
the Manager.
The main risks that the Group faces from its financial
instruments are:
(i) market risk (comprising price risk and interest rate risk
(ii) liquidity risk
(iii) credit risk
The Board regularly reviews and agrees policies for managing
each of these risks. The Manager's policies for managing these
risks are summarised below and have been applied throughout the
year.
(i) Market risk
The fair value of, or future cash flows from, a financial
instrument held by the Group may fluctuate because of changes in
market prices. This market risk comprises three elements - price
risk, interest rate risk and currency risk.
Price risk
Price risks (i.e. changes in market prices other than those
arising from interest rate or currency risk) may affect the value
of the Group's investments.
All investment properties held by the Group are commercial
properties located in the UK with long, strong income streams.
Price risk sensitivity
If market prices at the date of the Statement of Financial
Position had been 10% higher or lower, while all other variables
remained constant, the return attributable to ordinary shareholders
for the year ended 31 March 2023 would have increased/decreased by
GBP15,043,000 (2022 - increase/ decrease of GBP18,271,000) and
equity reserves would have increased/ decreased by the same
amount.
Interest rate risk
Interest rate movements may affect:
-- the fair value of the investments in property; and
-- the level of income receivable on cash deposits.
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment and borrowing decisions.
The Board imposes borrowing limits to ensure gearing levels are
appropriate to market conditions and reviews these on a regular
basis. Borrowings comprise three and ten year bank loans, providing
secure long term funding. It is the Board's policy to maintain a
gearing level, measured on the most stringent basis of calculation
after netting off cash equivalents, of between 25% and 50%. Details
of borrowings at 31 March 2023 are shown in Notes 11 and 12.
Interest risk profile
The interest rate risk profile of the portfolio of financial
assets and liabilities at the statement of financial position date
was as follows:
Weighted average
period for which Weighted average Floating
rate is fixed interest rate Fixed rate rate
Years % GBP'000 GBP'000
At 31 March 2023
Assets
Sterling - 3.18 - 2,273
Total assets - 3.18 - 2,273
At 31 March 2023
Liabilities
Sterling 6.51 3.63 50,000 -
Total liabilities 6.51 3.63 50,000 -
At 31 March 2022
Assets
Sterling - - - 5,153
Total assets - - - 5,153
At 31 March 2022
Liabilities
Sterling 6.17 5.64 57,000 -
Total liabilities 6.17 5.64 57,000 -
The weighted average interest rate on borrowings is based on the
interest rate payable, weighted by the total value of the loans.
The maturity dates of the Group's loans are shown in Notes 11 and
12.
The floating rate assets consist of cash deposits on call,
earning interest at prevailing market rates. The Group's equity and
property portfolios and short term receivables and payables are non
interest bearing and have been excluded from the above tables. All
financial liabilities are measured at amortised cost.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the
exposure to interest rates at the statement of financial position
date and the stipulated change taking place at the beginning of the
financial year and held constant throughout the reporting period in
the case of instruments that have floating rates.
If interest rates had been 100 basis points higher or lower and
all other variables were held constant, the Group's:
-- profit for the year ended 31 March 2023 would
increase/decrease by GBP21,000 (2022 - increase / decrease by
GBP31,000). This is mainly attributable the Group's exposure to
interest rates on its floating rate cash balances.
-- the Group holds no financial instruments that will have an equity reserve impact.
In the opinion of the Directors, the above sensitivity analyses
are not representative of the year as a whole, since the level of
exposure changes frequently as part of the interest rate risk
management process used to meet the Group's objectives.
Currency sensitivity
There is no sensitivity analysis included as the Group has no
outstanding foreign currency denominated monetary items. Where the
Group's equity investments (which are non-monetary items) are
affected, they have been included within the other price risk
sensitivity analysis so as to show the overall level of
exposure.
(ii) Liquidity risk
This is the risk that the Group will encounter difficulty in
meeting obligations associated with its financial liabilities.
The Group's assets of cash or near cash securities and
investment properties which, by their nature, are less readily
realisable. The maturity of the Group's mainly fixed rate
borrowings is set out in the interest risk profile section of this
Note.
The table below details the Group's remaining contractual
maturity for its financial liabilities, based on the undiscounted
cash outflows, including both interest and principal cash flows,
and on the earliest date upon which the Group can be required to
make payment.
Due between
Due within 3 months and Due after
Carrying value Expected cashflows 3 months 1 year 1 year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 March 2023
Borrowings 50,270 62,378 405 1,245 60,728
Leases 2,853 7,177 22 65 7,090
Other payables 1,500 1,500 1,500 - -
Total 54,623 71,055 1,927 1,310 67,818
At 31 March 2022
Borrowings 57,850 75,519 1,261 1,955 72,303
Leases 2,895 7,265 22 65 7,178
Other payables 356 356 356 - -
Total 61,101 83,140 1,639 2,020 79,481
(iii) Credit risk
This is the failure of a counterparty to a transaction to
discharge its obligations under that transaction that could result
in the Group suffering a loss. Cash is held only with reputable
banks with high quality external credit rating, which are monitored
on a regular basis.
Credit risk exposure
In summary, compared to the amounts on the Group Statement of
Financial Position, the maximum exposure to credit risk during the
year to 31 March was as follows:
Year ended Year ended
31 March 2023 31 March 2022
Statement Statement
of Financial Maximum of Financial Maximum
Position exposure Position exposure
GBP'000 GBP'000 GBP'000 GBP'000
Current assets
Cash and cash equivalents 2,273 27,725 5,153 58,689
Other receivables 599 8,239 4,709 5,186
2,872 35,964 9,862 63,875
(iv) Property risk
The Group's commercial property portfolio is subject to both
market and specific property risk. Since the UK commercial property
market has been markedly cyclical for many years, it is prudent to
expect that to continue. The price and availability of credit, real
economic growth and the constraints on the development of new
property are the main influences on the property investment
market.
Against that background, the specific risks to the income from
the portfolio are tenants being unable to pay their rents and other
charges, or leaving their properties at the end of their leases.
All leases are on full repairing and insuring terms, with upward
only rent reviews and the weighted average unexpired lease length
to the break option is 12.6 years (2022 - 12.8 years). Details of
the tenant and geographical spread of the portfolio are set out in
the Annual Report. The long term record of performance through the
varying property cycles since 1987 is set out in the Annual Report.
OLIM Property is responsible for property investment management,
with surveyors, solicitors and managing agents acting on the
portfolio under OLIM Property's supervision.
The Group leases out its investment property to its tenants
under operating leases. At 31 March 2023, the future minimum lease
receipts under non-cancellable leases are as follows:
Year ended Year ended
31 March 2023 31 March 2022
GBP'000 GBP'000
Due within 1 year 9,338 8,159
Due between 2 and 5 years 36,302 32,525
Due after more than 5 years 89,151 78,686
134,791 119,370
This amount comprises the total contracted rent receivable as at
31 March 2023.
None of the Group's financial assets is past due or
impaired.
Fair values of financial assets and financial liabilities
All assets and liabilities of the Group other than receivables
and payables and the borrowings are included in the Statement of
Financial Position at fair value.
(i) Fair value hierarchy disclosures
All assets and liabilities of the Group other than receivables
and payables and the borrowings are included in the Statement of
Financial Position at fair value.
The table below sets out fair value measurements using the IFRS
13 Fair Value hierarchy:
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
At 31 March 2023
Investment properties - - 150,636 150,636
- - 150,636 150,636
At 31 March 2022
Equity investments 26,871 - - 26,871
Investment properties - - 155,838 155,838
--------
26,871 - 155,838 182,709
Company and Group numbers per the above fair value disclosures
are the same except for the investment of GBP200,000 made by the
Company in its subsidiary, which was the subject of an inter-group
transfer in 2014.
Fair value categorisation within the hierarchy has been
determined on the basis of the degree to which the inputs to the
fair value measurements are observable and the significance of the
inputs to the fair value measurement in its entirety as
follows:-
Level 1 - inputs are unadjusted quoted prices in an active
market for identical assets
Level 2 - inputs, not being quoted prices, are observable,
either directly (i.e. as prices) or indirectly (i.e. derived from
prices)
Level 3 - inputs are not observable
There were no transfers between Levels during the year.
(ii) Borrowings
The fair value of borrowings has been calculated at
GBP48,748,000 as at 31 March 2023 (2022 - GBP61,064,000) compared
to a Statement of Financial Position value in the Financial
Statements of GBP49,000,000 (2022 - GBP56,723,000) per Notes 11 and
12.
The fair values of the loans are determined by a discounted cash
flow calculation based on the appropriate inter-bank rate plus the
margin per the loan agreement. These instruments are, therefore,
considered to be Level 2 as defined above. There were no transfers
between Levels during the year.
All other assets and liabilities of the Group are included in
the Statement of Financial Position at fair value.
Statement of financial
Fair value position value
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
9.375% Debenture Stock 2026 - 23,592 - 20,111
Bank loans 48,748 37,472 49,000 36,612
48,748 61,064 49,000 56,723
In June 2022, the 9.375% Debenture Stock 2026 was repaid early
at a premium of GBP6,380,000 and a balance of GBP111,000
unamortised premium from the issue of the Debenture was
expensed.
Principal financial instruments
(iii) Financial instruments by category
Financial assets
Fair value through profit Amortised cost
or loss
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash equivalents - - 2,273 5,153
Other receivables - - 2,965 6,947
Equity investments - 26,871 - -
Total financial
assets - 26,871 5,238 12,100
Financial liabilities
Fair value through profit Amortised cost
or loss
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
Other payables - - (5,221) (5,277)
Loans and other borrowings (34,116) - (14,884) (56,723)
Total financial
liabilities (34,116) - (20,105) (62,000)
22. Capital management policies and procedures
The Group's capital management objectives are:
-- to ensure that the Group will be able to continue as a going concern; and
-- to maximise the return to its equity shareholders in the form
of long term real growth in dividends and capital value without
undue risk.
The capital of the Group consists of equity, comprising issued
capital, reserves, borrowings and retained earnings.
The Board monitors and reviews the broad structure of the
Group's capital. This review includes:
-- the planned level of gearing which takes into account the
Manager's view of the market and the extent to which revenue in
excess of that which requires to be distributed should be
retained.
The Group's objectives, policies and processes for managing
capital are unchanged from the preceding accounting period.
Details of the Group's gearing and financial covenants are
disclosed in Notes 11 and 12.
23. Commitments
The Board is recommending the payment of a final dividend of
3.6p per Ordinary Share (2022: 3.6p) which, subject to receiving
Shareholder approval at the 2023 AGM, will be paid on 4 August 2023
to all Shareholders on the register as at 7 July 2023.
There are no significant subsequent events for the Group or the
Company, though purchases and sales of property in the normal
course of business which completed after the year end are disclosed
in the Annual Report.
Additional Information
In accordance with section 435 of the Companies Act 2006, the
Directors advise that the financial information set out in this
announcement does not constitute the Group's statutory Financial
Statements for the period ended 31 March 2023 but is derived from
these Financial Statements. The statutory Financial Statements for
the year ended 31 March 2022 have been delivered to the Registrar
of Companies and contained an audit report which was unqualified
and did not constitute statements under S498(2) or S498(3) of the
Companies Act 2006.
The Financial Statements for the period ended 31 March 2023 have
been prepared in accordance with UK adopted international
accounting standards. The Financial Statements for the period ended
31 March 2023 will be forwarded to the Registrar of Companies
following the Company's Annual General Meeting. The Auditors have
reported on these Financial Statements; their reports were
unqualified and did not contain statements under Section 498(2) or
(3) of the Companies Act 2006.
The Group and Company Statement of Financial Position at 31
March 2023 and the Group and Company Statement of Comprehensive
Income, Statement of Changes in Equity and Statement of Cash Flows
for the year then ended have been extracted from the Group's
Financial Statements. Those Financial Statements have not yet been
delivered to the Registrar.
The 2023 Annual Report and Financial Statements will be posted
to Shareholders shortly and will contain the Notice of the Annual
General Meeting of the Company to be held on Wednesday, 2 August
2023 at 12.30pm at the Kingham Room, Broadway House Conference
Centre, Tothill Street, London SW1H 9NQ.
For Value and Indexed Property Income Trust PLC
Maven Capital Partners UK LLP
Company Secretary
26 June 2023
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