TIDMEPIC
RNS Number : 1127W
Ediston Property Inv Comp PLC
20 December 2021
Ediston Property Investment Company plc
(the 'Company')
(LEI: 213800JRL87EGX9TUI28)
FULL YEAR RESULTS AND NOTICE OF AGM
Ediston Property Investment Company plc (LSE: EPIC), a UK-listed
Real Estate Investment Trust (REIT) investing in commercial
property throughout the UK, announces its full year results for the
year ended 30 September 2021.
The Company also announces that its 2021 Annual General Meeting
will be held on Tuesday, 2 4 February 202 2 at 2.00 p.m. at the
offices of Ediston Investment Services Limited at 1 St Andrew
Square, Edinburgh, EH2 2BD .
The Company's Annual Report and Financial Statements for the
year ended 30 September 2021 and the formal Notice of the Annual
General Meeting will be posted to shareholders and in accordance
with Listing Rule 9.6.1 copies of the documents have been submitted
to the UK Listing Authority and will shortly be available to view
on the Company's corporate website at
https://www.epic-reit.com/literature/ and have also been submitted
to the UK Listing Authority and will be shortly available for
inspection from the National Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Year to 30 September 2021:
Operational
- Dividend was increased by 25% to 5.00 pence per share annualised from May 2021
- Contracted rent increased by 3.0% and was almost back at pre-pandemic levels at the year-end
- Seven lease transactions completed with a contracted rent of GBP1.8m per annum
- Three developments completed delivering GBP1.1m of additional rent per annum
- Two investment transactions and one land sale completed
Key Performance Indicators and Financial
2021 2020 2019
--------------------------------- --------- --------- ---------
NAV total return 9.6% -16.6% -0.8%
Annualised dividend per share 4.42p 4.88p 5.75p
Average discount of share price
to NAV -22.1% -33.2% -11.6%
Share price total return 54.6% -35.3% -17.0%
EPRA vacancy rate 8.6% 5.1% 2.9%
Ongoing charges 1.4% 1.4% 1.4%
Total assets GBP303m GBP294.7m GBP342.2m
Weighted average unexpired lease 5.0 years 5.7 years 6.1 years
term
EPRA NAV per share 89.6p 86.01p 108.7p
Anticipated Financial Calendar 2022
January 2022 Announcement of net asset value as at 31 December
2021
February 2022 Annual General Meeting (AGM)
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April 2022 Announcement of net asset value as at 31 March
2022
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May 2022 Publication of Half Yearly Report for the
six months to 31 March 2022
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July 2022 Announcement of net asset value as at 30 June
2022
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October 2022 Announcement of net asset value as at 30 September
2022
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December 2022 Publication of Annual Report for the year
to 30 September 2022
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It is the intention of the Board that dividends will continue to
be announced and paid monthly.
William Hill, Chairman of the Company, said:
"With an improving NAV, an increased dividend level and
significant progress in realigning the portfolio, the Company is in
a better position than last year, with its asset allocation already
tilted to a segment of the market that is recovering strongly."
Enquiries
Will Barnett Investec Bank plc 0207 597 5873
Ediston Properties
Calum Bruce Limited 0131 225 5599
Ruth Wright JTC 0203 893 1011
Ben Robinson Kaso Legg Communications 0203 995 6672
Stephanie Ross Kaso Legg Communications 0203 995 6676
Chairman's Statement
OVERVIEW
Last year was the most difficult and frustrating Chairman's
report I have had to write. A declining NAV, a cut in dividend and
a widening discount were indicative of the challenges the Company
faced at that time. However, I was able to point to some emerging
positives and reported on these in a more confident tone in my
interim statement. I am pleased to report further progress in the
second half of the year with a rising NAV and an increased dividend
level, with good cover.
This progress, which the Board and Investment Manager are under
no illusion are only steps in the right direction, has enabled the
Company to get back on to the front foot and to start implementing
a refreshed investment strategy, with a focus on retail
warehousing. The first part of this strategy was the sale of the
Tesco Superstore at Prestatyn and the reinvestment of the proceeds
into a high yielding retail warehouse park in Stirling. Since the
year end the Company has sold its office buildings in Bath,
Edinburgh and Newcastle.
One of the turning points in the Company's year was the 25%
increase of the monthly dividend from 4.00 pence to 5.00 pence
annualised which was announced in April. The support for this
increase came from the success in rent collection. This reflects
considerable credit on the Investment Manager, as well as
underlining the resilience of the portfolio.
The completion of the current development programme, lettings
and transactional activity (offset by some lost income) has lifted
the contracted income at the year end to just below the
pre-pandemic level. Lettings since year-end have taken the
Company's contractual income back to the pre-pandemic level.
However, this will fluctuate in the coming months as assets are
sold and the capital reinvested.
With an improving NAV, an increased dividend level and
significant progress in realigning the portfolio, the Company is in
a better position than last year, with its asset allocation already
tilted to a segment of the market that is recovering strongly.
INVESTMENT AND SHARE PRICE PERFORMANCE
The Company's NAV per share increased by 4.2%, with a NAV total
return for the year of 9.6%. At the year end the share price
discount had narrowed from 40.8% to 17.6%.
The value gain was driven by the retail warehouse portfolio,
offsetting a decline in the value of the office portfolio. Our
Investment Manager has argued for some time that "not all retail is
the same" and it is encouraging that the market is increasingly
recognising this with yields starting to fall.
Closing the share price discount remains a priority for the
Board. Since the year end the share price has increased further,
narrowing the discount to 13.4% as at 14 December 2021.
Implementing the revised investment strategy should help maintain
this positive momentum, as should keeping up our net income
cover
and the prospect of future dividend increases.
INVESTMENT STRATEGY
Asset allocation
In July, the Company announced the result of its strategy
review, noted in my report last year. The outcome was that the
Company should maintain its scope as a generalist UK commercial
property investment company and continue to operate within its
current stated return objectives and investment policy. However,
for the foreseeable future, given its attractive investment
potential, the Company should concentrate on the retail warehouse
sector. This sector already accounts for 74.1% of the Company's
property portfolio (30 September 2021).
The Company, therefore, announced that it would sell its offices
and recycle the proceeds into retail warehouse assets. This process
is well underway. However, it is important that shareholders
understand that sale of the office assets may involve some impact
on asset value and income cover until such time as the cash
resources are re-deployed. This process will also involve direct
purchase costs such has SDLT, which will also affect asset
value.
This is a relatively high 'conviction call' based on the belief
that there are compelling investment reasons for the retail
warehouse sector to recover further and provide ongoing value
opportunities. The expectation is that this shift in emphasis in
the portfolio will be accretive to both income and capital growth.
However, it is important to note that the concentration of
investment in the retail warehouse sector is not necessarily a
permanent repositioning and, therefore, not a departure from the
overall investment objective and policy of the Company.
The Investment Manager has always made a strong case for the
retail warehouse sector. It has proved to have been the most
resilient retail sub-sector during the COVID-19 pandemic, with
favourable rent collection figures and an active tenant market.
Following the sell down across all retail markets, the
Investment Manager considers the retail warehouse sub-sector to
have been oversold, and there is now increasing recognition in the
market that is the case. Yields look attractive when compared to
other property sub-sectors, often with income secured on high
quality tenants. The anticipated recovery in consumer spending will
likely favour many of the retailers that trade from retail
warehouses. The format also works well alongside on-line retailing,
supporting retailers' omnichannel strategies.
The Board believes the Investment Manager can capitalise on this
opportunity through its extensive sectoral knowledge and access to
opportunities as an investor, developer and asset manager of UK
retail warehouse assets.
The Board considers that this revision to strategy should ensure
that the Company can fulfil its investment objective of providing
investors with an attractive level of income and the potential for
capital and income growth. At the same time, the Company retains
the ability to reposition into other property assets, when
appropriate to do so, as part of the generalist investment
objective.
Sustainability
The responsibility that managers of capital have in relation to
the climate crisis cannot be any clearer. This is particularly so
in real estate, as a major contributor to global carbon emissions.
Rapid progress must be made in not only reducing carbon in
operation but also the level of embedded carbon which will
influence how existing buildings are maintained and refurbished,
and how new buildings are constructed.
The Company has progressed its sustainability strategy over the
year with vigour. The Company retained its Green Star rating from
GRESB, improving its score in the process, and maintained the Gold
Award under the EPRA sBPR.
The Company has extended its net zero carbon commitment to
include both operational and embedded carbon. This brings the
Company into line with the framework set out by the Better
Buildings Partnership (BBP), a collaboration of many of the
industry's real estate owners, which the Board and Investment
Manager have decided to adopt.
The responsibility of acting sustainably, making disclosures and
complying with regulations come at a short to medium-term cost but
with long term gain for us all, if the worst elements of climate
change can be avoided. These direct costs include the Company
engaging specialist consultants and carrying out assessments of the
portfolio to help us develop a manageable pathway to reduce our
carbon emissions in our portfolio now and in the future.
PORTFOLIO ACTIVITY
Over the year several asset management initiatives were
delivered, and two investment transactions were
completed. They are summarised below:
- sold a low yielding supermarket and acquired a high yielding retail park;
- completed three development projects, on time and on budget;
- delivered seven lease transactions across the office and
retail warehouse portfolios, securing GBP1.8m of income per
annum;
- sold a site to an owner occupier for GBP1.2m (140% ahead of valuation);
- post year end sold three offices realising proceeds of GBP36.4m for re-investment; and
- post year end completed ten lease transactions securing GBP1.2m of income per annum.
Portfolio activity is more fully described in the Investment Manager's report.
RENT COLLECTION
Apart from a 'plateau' during the second lock down in Q1 2021,
rent collection levels improved each quarter as the year
progressed. As a result, the Company had collected 95.7% of the
rent due at the year end, rising to 98.4% at the date of this
report.
Since the onset of the pandemic, the Company has seen some
tenants fail and others use insolvency regulations to reduce their
rental liabilities, transferring value from the Company's
shareholders to their own. Despite this, the contracted rent at the
year-end was only marginally below the pre-pandemic level and
subsequent lettings have taken it back to this level. This is
encouraging and a notable milestone in the Company's recovery.
GEARING AND CASH RESOURCES
The Company's total debt is unchanged at GBP111.1m, at a blended
'all-in' fixed rate of 2.9%. The loans do not mature until 2025 and
2027. Gearing on 30 September 2021 was 36.7% of total assets, a
slight decrease from last year end. Gearing is within investment
policy limits and covenants.
As of 30 September 2021, the Company had approximately GBP11.6m
of cash for follow on investment and operational purposes, and an
additional GBP6.6m of cash available for new investment. This has
been supplemented by cash realised from disposals from the office
portfolio post year end.
DIVIDS
At the height of the uncertainty of the pandemic, the Company
reduced its dividend level from 5.75 pence annualised to 4.00 pence
annualised as part of prudent cash and net income management.
Favourable rent collection levels allowed the Board to pay, from
May 2021, a monthly dividend of 5.00 pence per share annualised.
The dividend remained well covered at 119% over the year. The
annualised dividend paid was 4.42 pence per share for the year just
ended.
The Company's policy of having a fully covered dividend and to
increase the dividend level whenever possible remains in place. As
the Company's contracted income has improved further to reach
pre-pandemic levels, the prospect of being in a position to
increase the dividend again has improved. However the income will
fluctuate in the short term as the disposals are made and new
investments are acquired. This may impact both dividend cover and
the timing when potential increases in dividend can be made. The
Board may consider, when the sales are largely completed, to use
reserves for short periods, if prudent to do so, to help smooth the
cash flow.
LONG-TERM GROWTH STRATEGY
The Board remains committed to growing the equity base of the
Company in order to improve liquidity, lower the cost base per
share and enlarge the investment opportunity set. The progress made
in the second half of the year and the revised investment strategy
are significant steps towards this goal. However, the Board
recognises that growth will require support from both existing and
new investors, as well as some closing of the share price
discount.
During the year we have seen the percentage of retail investors
on the register increase, which the Board welcomes. We have also
attracted new institutional investment. In July, Stadium and
Liontrust sold their holdings in the Company which created the
opportunity for Thames River Capital to become a significant new
investor on the share register. It also allowed execution only
platforms and existing investors to increase their holdings. With
the Company now on a firmer footing, we will start to increase the
marketing spend to maintain this positive momentum.
As part of its planning for growth, the Board is asking
shareholders to renew our non-pre-emptive authority of 10%, so that
we are in a better position to use 'tap issuance' if we were able
to do so. We will also consider other means of raising capital if
there are substantial acquisitions to be financed. In any fund
raising, the interests of existing shareholders and the economics
of any fund raising will be of paramount importance in how we price
and structure any new issuance or take on any new gearing.
CORPORATE AND BOARD MATTERS
It has been another challenging and busy year for the Board,
Investment Manager and all the agents that provide services to the
Company. I would like to take this opportunity to thank everyone
involved for their dedication and hard work under difficult
circumstances. We continue to make progress on a number of
corporate fronts, including on governance and oversight issues.
The alignment of interest between shareholders and the
Investment Manager has been strengthened by the purchase of
additional shares by the Manager under its revised fee arrangements
announced in last year's report and accounts. Board members have
also acquired additional shares during the year.
We appointed a new tax adviser, BDO, as part of our ongoing
review of agents. We have worked very closely with both our ESG
advisers and our marketing agents, recognising the importance of
actions and messaging for the investment community.
We continue to operate as a relatively small and highly engaged
board. The nominations committee has concluded from its annual
review that the Board is working effectively and has established an
outline succession plan to be implemented over the next two to
three years. The focus is on ensuring the Board has the necessary
depth of experience and skills to fulfil its relatively demanding
role.
The Board has not revised its remuneration levels in four years,
other than for the senior independent director, as discussed last
year in the accounts. The Company did set out last year how it
intended to adjust remuneration if the Company's position had
changed for the better during the course of the coming year.
Although the Company's position is much improved, the Board
believes it is still not appropriate, at this stage of the
Company's recovery, to add to the cost base. Remuneration will
therefore remain unchanged into the fifth year.
ANNUAL GENERAL MEETING (AGM)
Shareholders are invited to attend the Company's AGM to be held
at 1 St Andrew Square, Edinburgh EH2 2BD on 24 February 2022.
Those shareholders who are unable to attend the AGM in person
are encouraged to raise any questions in advance with the Company
Secretary at epic.reit@jtcgroup.com (please include 'EPIC AGM' in
the subject heading). Questions must be received by 5.00 p.m. on 10
February 2022. Any questions received will be replied to by either
the Investment Manager or Board, via the Company Secretary, as far
as practical before the AGM. A shareholder presentation will be
made available on the Company website updating shareholders on the
activities of the Company.
In light of the continued relative uncertainty in relation to
the COVID-19 pandemic, the Board will continue to monitor
Government guidance and will update shareholders on any changes to
the above arrangements through the Company's website
(https://www.epic-reit.com/) and by announcement through a
regulatory information service.
OUTLOOK
Trying to write an outlook against the turmoil of recent events
might 'make astrology look respectable'. John Kenneth Galbraith
used this type of illustration in describing economic forecasting.
I think it illustrates quite well the difficulties of being too
confident about what lies ahead. I am, therefore, going to focus on
just two points set out in our investment strategy - asset
allocation and sustainability.
Our shift to a concentrated retail warehouse portfolio, where we
believe the best investment prospects lie, is important.
Significant steps have already been made in repositioning the
portfolio with the sale of three of our four offices to release
capital for reinvestment. The Company will be active in the
investment market over the coming months. It will aim to build a
resilient portfolio that can contribute to dividend growth, as well
as providing opportunities for capital growth driven by the asset
management activity of the Investment Manager. This is an exciting
and critical phase in the Company's development.
The pressure on owners and managers of capital to reduce carbon
emissions is going to increase. The industry is responding to this
agenda and those behind the Better Buildings Partnership and the
Green Building Council deserve considerable credit. We can expect
further regulation from Government and more demands from the
planning system. Progress on measuring investment returns beyond
purely financial ones is also likely. The Company will be on top of
these developments and will respond positively to them, as it is in
accelerating progress on our journey to net zero carbon.
Much work lies ahead. We have in place a distinctive and clear
investment strategy that is well on the way to being executed, a
NAV which has been on an upward trajectory and increasing income.
There is justification for the share price discount to close.
Assuming other events do not work against us, there is a reasonable
prospect that the Company will not only deliver attractive returns
for shareholders over the short to medium term but also to put
itself in a position to grow its equity base and the returns from
it.
William Hill
Chairman
Investment Manager's Review
During the first quarter of the financial year the restrictions
intended to stop the spread of COVID-19 were tightened. This
included the reintroduction of short-term lockdown measures in
various parts of the country that prevented certain businesses from
opening. Whilst the approval for use of various COVID-19 vaccines
and the rolling out of the vaccination programme offered some hope
of light at the end of the tunnel, rising cases and
hospitalisations resulted in strict lockdown conditions being
enforced in December 2020, which lasted until April 2021.
Encouragingly, during this period, rent collection held up as
businesses adapted to these conditions. Out of town retailers were
better prepared than they had been for previous lockdowns, and many
stayed open for trade. Several retailers who were not classed as
'essential' by the Government offered click and collect,
appointment only or delivery services to enable sales to be
fulfilled. In January 2021, during the national lockdown, 73% (by
income) of the Company's retail warehouse portfolio was either open
or offering a click and collect service. This compared favourably
to the first lockdown in early 2020 when 56% of the Company's
income was from tenants who were allowed to open for trade. By
comparison, at the time of writing the Company's retail warehouse
portfolio can open for trade but the office portfolio is largely
unoccupied (although tenants do continue to pay rent) as office
workers have not yet returned in great numbers to their work
premises following lockdown. The Company's two leisure assets are
also open for trade.
During this period, investment volumes did suffer, but not as
badly as was predicted by many commentators. As the economy
reopened from April, liquidity improved across the different
sub-sectors of the commercial property market.
During the second half of the reporting period investor
sentiment towards the retail warehouse sector improved and there
was increased investor demand. It is anticipated that this positive
momentum will continue, as the yields on offer remain attractive
and they are secured against robust income streams. In many ways it
has taken a pandemic for the market to fully appreciate the
qualities of the retail warehouse sector.
There are reasons to be optimistic, but a degree of caution
still needs to be exercised as we learn to live and work with
COVID-19 in circulation. In addition to COVID-19 related risks, the
disruption to the UK's supply chain will present logistical
challenges to some of the Company's tenants as they face
difficulties importing goods into the UK and then moving them into
their stores.
The UK has also entered a period of increased inflation, which
can be good for the real estate market. As the economy expands and
the demand for goods and services increases, rents tend to grow,
making property investments a relatively good hedge against
inflation. However, increased inflation will also drive up the
costs of goods and materials used in construction, which when
coupled with supply chain issues, will make development and
refurbishment works more expensive.
RENT COLLECTION AND DIVID
The Company continued to work closely with its tenants to
optimise rent collection and offered assistance to those who were
in some financial distress. The number of tenants who required help
was significantly lower than in the prior year.
Inevitably, some companies continued to struggle, with their
problems compounded by the additional lockdown measures implemented
in Q4 2020 and Q1 2021. Once again, some tenants used insolvency
measures, such as CVAs and administrations, to reduce their
liabilities and restructure their businesses.
As in prior years, the Company was not immune to this and was
negatively affected by insolvency events. During the year the loss
of rent because of these measures equated to 4.6% of the contracted
rent roll.
However, overall rent collection was good, with 95.7% of the
rent due collected for the year at the period end. Post period end,
this figure has risen to 98.4%, which is a significant improvement
from 89.3% in the prior year.
As a result of this robust rent collection, in April, the
Company announced it would be increasing its dividend by 25% from
4.00 pence to 5.00 pence per share annualised. The dividend has
been paid at this new level since May 2021. The dividend remains
well-covered and at the yearend this was 119%.
Due to the completion of asset management initiatives and
development projects, and the acquisition of a new retail park
asset, the
Company's contracted rent has increased in the period, is
greater than in the prior year and is almost back to pre-pandemic
levels.
PROPERTY VALUATION
The Company's property portfolio is valued by Knight Frank on a
quarterly basis throughout the year. As at 30 September 2021 it was
valued at GBP283.3m, a like-for-like increase of 5.3% over the
reporting period.
The increase was driven by a rise in value of the retail
warehouse portfolio, although the gains were partially offset by a
reduction in the value of the office portfolio.
EPRA VACANCY RATE
During the period the EPRA Vacancy Rate increased from 5.1% to
8.6%. This was due to lease expiries, tenant administrations, lease
surrenders negotiated by the Company to facilitate wider asset
management plans, and
the fact that two vacant units were acquired with Springkerse Retail Park.
If the two acquired units are removed from the calculation, the
vacancy rate, on a like for-like basis,
would be 7.7%. As a result of post period end activity, the vacancy rate is expected to reduce.
PORTFOLIO UPDATE
Despite the ongoing challenges of COVID-19, the Company has
continued to deliver asset management transactions. Over the period
seven lease transactions, three developments, two investment deals
and one land sale were completed.
LEASE TRANSACTIONS
In the office portfolio two lease restructures were completed,
in Birmingham and Newcastle, securing GBP973,000 of income per
annum. Existing tenants AXA Insurance UK plc and N&D (London)
Limited ('N&D') regeared their leases and committed to the
properties. At St Philips Point, Birmingham, AXA leased 27,990 sq.
ft. across three floors, reducing its occupancy by 5,005 sq. ft. As
part of the deal, it leased the vacant refurbished first floor
suite which extends to 14,208 sq. ft., on a lease which gives a
term certain of five years. The rents are in line with passing
rents and the independent valuer's ERV.
At Citygate II in Newcastle a lease restructure was completed
with N&D. N&D occupies c. 11,000 sq. ft. on the first floor
and signed a ten-year reversionary lease, with a tenant break
option after five years. The new rent agreed is 9.0% ahead of the
passing rent and 6.5% ahead of the independent valuer's ERV.
Five transactions completed in the retail warehouse portfolio at
Rhyl, Sunderland, Hull, Wrexham and Widnes. The deals with
Halfords, B&M, Jack's, SDI Fitness and Superdrug secured
GBP855,000 of income per annum.
At Rhyl, Halfords signed a five-year lease extension on its
7,500 sq. ft. unit. At Sunderland, B&M upsized from a unit of
20,000 sq. ft. into a vacant unit of 30,000 sq. ft. The lease will
expire in 2032. At Widnes, Superdrug signed a five-year lease on a
vacant unit of 6,280 sq. ft. The letting means the retail park is
now 100% let. Following the administration of DW Sports, SDI
Fitness leased the 23,500 sq. ft. gym unit at Plas Coch Retail Park
in Wrexham. The deal agreed contains break options which allow the
Company to break the lease should a more suitable tenant for the
park be identified. Finally, at Hull, Jack's has signed a new
10-year lease, with a five-year break on a vacant unit of 15,000
sq. ft.
DEVELOPMENT UPDATE
Three developments completed during the period. Haddington
Retail Park achieved practical completion on 24 June 2021 and was
on time and budget. The leases have now been completed, and the
tenants have fitted out their units and are open for trade. The
Retail Park is 97% pre-let to Aldi, Home Bargains, Food Warehouse,
Costa Coffee and Euro Garages, with one unit of 1,500 sq. ft.
available to let. Once fully occupied, the retail park will provide
the Company with new contracted rental income of GBP875,000 per
annum. The cost of the development was funded by a combination of
drawn but uninvested debt from Aviva (60%) and the Company's own
cash reserves (40%).
At Barnsley, the development of a drive-thru pod for Costa
Coffee was completed. Practical completion was achieved in October
2020, meaning the lease to Costa could complete. Costa has signed a
15-year lease (no
break) on a 1,800 sq. ft. unit and pays a rent of GBP72,500 per annum.
At Coatbridge, two drive-thru pods were developed for Costa
Coffee and Burger King. Costa has signed a 15-year lease with a 10-
year break option on a 1,800 sq. ft. unit and Burger King has
signed a 20-year lease with a 15-year break on a unit which extends
to 2,750 sq. ft. The two units provide a combined rental income of
GBP160,000 per annum.
LAND SALE
In June, at Clwyd Retail Park in Rhyl, the Company sold a
1.6-acre site to an owner occupier, having been granted planning
permission for a food use. The net price of GBP1.2m was 140% ahead
of the prevailing valuation. The sale delivered a greater profit to
the Company than would have been the case if it had completed the
development of the site by itself.
INVESTMENT TRANSACTIONS AND REFRESHING THE PORTFOLIO
The Company is always looking for ways to make its capital work
harder. One way to do this is to sell lower yielding assets and
reinvest in higher yielding ones. With this in mind, the Company
sold the Tesco Superstore, which forms part of Prestatyn Shopping
Park, for GBP26.5m, a yield of 5.2%. The price was in line with the
prevailing valuation and ahead of the 2017 purchase price.
The Company has retained the remainder of the retail park, which
extends to c. 91,500 sq. ft. across 14 units. The retail park is
let to 13 tenants, with M&S as an anchor, and has further asset
management angles to exploit.
Part of the Prestatyn sale proceeds were reinvested in August,
with the acquisition of Springkerse Retail Park in Stirling. The
Company paid GBP21.85m, in an 'off market' transaction for the
asset. The price reflects an initial yield of 9.54%.
Stirling is in central Scotland, 26 miles from Glasgow and 35
miles from Edinburgh. The Stirling Council area has a population of
just under 100,000, which is forecast to grow at an above average
rate and draws on a primary retail catchment of 228,000 people. The
asset is the dominant retail park in Stirling and extends to
162,593 sq. ft. across 12 units. It is let to 10 tenants and
produces a passing rent of GBP2.23m per annum.
The Park is anchored by B&Q, with other tenants including
Wren Kitchens, DFS, Pets at Home and Halfords represented on the
site. The asset will benefit from the intensive asset management
style of the Investment Manager. The planned upgrades should
improve the letting potential of the two vacant units (13% by ERV),
providing an opportunity to increase the income stream and drive
capital value upwards. On completion of the letting of these two
vacant units, the yield is expected to rise to 10.8%.
The purchase of this asset is consistent with our recently
updated investment strategy of acquiring retail warehouse parks. It
is our objective to recycle capital from lower yielding assets into
properties which are more suited to our intensive style of asset
management, and this acquisition achieves this aim.
STRATEGY UPDATE
As the Chairman notes in his statement, the investment strategy
has been revised. The decision was taken to sell the Company's
office assets with the next phase of investment being focused on
the retail warehouse sector. The Investment Manager believes it can
capitalise on this opportunity through its extensive knowledge and
expertise as an investor, developer, and asset manager of UK retail
warehouse assets, along with its access to investment
opportunities.
In line with this strategy, post period end the Company has sold
its office properties in Bath, Edinburgh and Newcastle. Whilst
there has been some loss on the current holding value in making
these disposals (although not when measured against cost), both the
Investment Manager and Board are convinced that this is the correct
thing to do given the continuing uncertainty over office usage (as
a result of the COVID-19 pandemic) and the increasing environmental
and social demands on office properties. The proceeds of these
sales and existing cash resources will be deployed into higher
yielding retail warehouse opportunities.
POST PERIOD ACTIVITY
Post period end the Company has completed another ten lease
transactions securing GBP1.2m of income per annum.
At Kingston Retail Park in Hull, the letting to the Range has
completed. The Range has signed a 15-year lease on a 14,500 sq. ft.
unit which was vacated by Outfit (Arcadia) earlier this year. Also
at Hull, Greggs has exchanged an Agreement for Lease on a 2,000 sq.
ft. unit which is leased to, but not occupied by, Carphone
Warehouse. A lease surrender has been agreed with Carphone
Warehouse.
At Prestatyn Shopping Park, The Tech Edge has leased a vacant
unit of 1,300 sq. ft. on a five-year lease and JD Sports Fashion
has signed an agreement for lease on a 7,623 sq. ft. unit. At Rhyl,
Now to Bed has leased 8,017 sq. ft. on a three-year lease.
At Barnsley, three deals have completed across 20,000 sq. ft. of
space. Bensons has downsized from a unit of 10,000 sq. ft. into one
of 5,036 sq. ft., and has signed a five-year lease. Jysk has signed
an agreement for lease on the unit vacated by Bensons. On
completion of some landlord works, Jysk will enter into a new
ten-year lease with a five-year tenant break option. One Below, who
was occupying a 4,996 sq. ft. unit on a short-term lease, has now
committed to the park for five years.
In the office portfolio, at Citygate II in Newcastle, UNW LLP
signed an extension to its leases meaning they expire in March
2032, with a tenant break option in March 2027.
Finally, in the leisure portfolio, at Hartlepool, Mecca Bingo
has signed a 10-year reversionary lease with a seven-year tenant
break option. The lease will expire in September 2032, with the
break option in September 2029.
This is the second year in which the Company's activities have
been affected by COVID-19, but this year we have been able to be on
the front foot and there has been positive progression on a number
of the key metrics. Continued asset management has helped protect,
secure and grow the contracted rent, further improvement in rent
collection allowed the dividend to be increased, and the improving
sentiment towards retail warehousing contributed to an increase in
the NAV. It is expected that this positive momentum will
continue.
Calum Bruce
Investment Manager
Finance Review
Whilst COVID-19 restrictions have eased in the second half of
the reporting period, the past financial year was still impacted by
the pandemic and the enforced countrywide lockdowns. However,
during the lockdown, the Company benefitted from 73% of its retail
tenants being able to trade as they were either classed as
essential, had a click and collect platform, were open by
appointment only or offered a delivery service.
During the year the Company continued to focus on cash flow
management with intensive monitoring of rent collection, whilst
aligning this with asset management initiatives, to minimise the
effect of the pandemic on the portfolio. The outcome of this is
illustrated by the rent collection statistics for the year and the
number of asset management transactions completed which has almost
returned the contracted rental income to pre-pandemic levels.
This report summarises the financial performance for the year
and provides statistics which demonstrate the Company's
performance.
CONTRACTED RENT
The Company's contracted rental income at the year end was
GBP20.8m (2020: GBP20.2m). The increase in the year of GBP0.6m to
GBP20.8m can be principally explained by the completion of the
development of Haddington Retail Park in June 2021, and the
acquisition of Springkerse Retail Park in Stirling in August 2021.
The acquisition used most of the sale proceeds from the sale of
Tesco at Prestatyn which completed in March 2021. These initiatives
contributed a net GBP1.5m to the rent roll of the portfolio.
However, these gains were partially offset by insolvency events,
such as CVAs and administrations. During the year the loss of rent,
because of these measures, equated to 4.6% of the contracted rent
roll. Against this backdrop, it is noteworthy that 76% of our
tenants received Dun and Bradstreet 4A1 ratings or above,
highlighting further the strength of the portfolio's income.
The primary focus this year has been on the intensive management
of the portfolio, rent collection and providing assistance to
tenants if required. During the year, 95.7% (2020: 89.3%) of rent
billed in the year was collected, with an additional 3.9% expected.
Of the sum collected to date, 75.5% was collected within seven days
of the due date.
Rent-free periods as a percentage of contracted rent at the year
end was 9.3% (2020: 1.9%). This has risen due to new lettings and
the completion of the Haddington development.
The portfolio continues to provide long-term stability to the
Company's income. This is demonstrated by income secured from the
completed development at Haddington of GBP0.8m per annum plus the
new acquisition at Stirling contributing GBP2.3m annually. The EPRA
vacancy rate has increased to 8.6% from 5.1% in the year due to the
expiry of leases and the fact that two vacant units were acquired
with the acquisition of Springkerse Retail Park. The WAULT at the
year-end was 5.0 years (2020: 5.7 years) and the decrease can be
explained by the passing of another year offset by the asset
management activity on the portfolio.
COVID-19 has, for a second year, challenged rent collection.
However, the diversification of tenants, the number of retailers
and office tenants who managed to trade throughout lockdown
measures and rigorous cash collection all highlight the strength
and resilience of the Company's income.
INCOME STATEMENT
Rental income for the year was GBP17.4m (2020: GBP19.8m). This
decrease of GBP2.4m resulted from tenants going into administration
or completing CVAs, COVID-19 variations to leases, and the sale of
the Tesco supermarket at Prestatyn in March 2021. This decrease was
offset by the acquisition of the retail park in Stirling in August
2021 and the completion of the development at Haddington in June
2021 which have a combined annual rent roll of GBP3.0m.
Revenue expenditure in the period was GBP3.1m (2020: GBP4.0m),
including GBP0.9m of property-specific expenditure and GBP1.7m
relating to the Investment Manager's fee. Net interest costs were
GBP3.1m, all similar to the prior year's expenditure. As a result,
revenue profit decreased to GBP11.3m (2020: GBP12.6m), a fall of
10.3%.
The value of the investment properties increased by GBP4.7m in
the year, plus there was a further GBP1.2m gain from the sales of
the Tesco at Prestatyn and the site at Rhyl. This resulted in the
Company reporting a total profit of GBP17.1m.
2021 (GBPm) 2020 (GBPm)
==================================================== =========== ===========
Rental income 17.4 19.8
Property expenditure (1.0) (1.2)
==================================================== =========== ===========
Net rental income 16.4 18.6
Administration expenses (2.0) (2.8)
Net financing costs (3.1) (3.2)
==================================================== =========== ===========
Revenue profit 11.3 12.6
Gain/(loss) on revaluation of investment properties 4.7 (50.0)
Profit/(loss) on sale of investment properties 1.2 0.0
==================================================== =========== ===========
Accounting (loss)/profit after tax 17.1 (37.4)
==================================================== =========== ===========
EPRA and diluted EPRA earnings per share 5.34p 5.90p
Dividend per share 4.42p 4.88p
Basic and diluted earnings per share 8.10p (17.70p)
==================================================== =========== ===========
EPRA PERFORMANCE MEASURES
As a member of EPRA, we support EPRA's drive to bring
consistency to the comparability and quality of information
provided to investors and other key stakeholders of this report. We
therefore continue to include a number of performance measures
which are based on EPRA methodology.
It should be noted that there is no difference between the
Company's IFRS and EPRA net asset value (NAV) in this year's
accounts, or in any of our accounts to date.
2021 2020
================================================= ======== ========
EPRA earnings GBP11.3m GBP12.5m
EPRA earnings per share 5.34p 5.90p
Diluted EPRA earnings per share 5.34p 5.90p
EPRA NAV per share 89.69p 86.01p
EPRA cost ratio (including direct vacancy costs) 18.4% 20.8%
EPRA cost ratio (excluding direct vacancy costs) 18.0% 20.4%
EPRA net initial yield 6.2% 6.9%
EPRA topped up net initial yield 6.9% 7.0%
EPRA vacancy rate 8.6% 5.1%
================================================= ======== ========
NET ASSET VALUE (NAV)
At 30 September 2021 our net assets were GBP189.5m, equating to
net assets per share of 89.61 pence (2020: 86.01 pence) an increase
of 4.3%. This is primarily due to an increase in the valuation of
the investment properties in the year.
The NAV of GBP189.5m is summarised in the table below:
Pence per
GBP million share
=========================================================== =========== =========
NAV at 30 September 2020 181.77 86.01
Increase in value of investment properties (net of capital
expenditure, gain on sale and transaction costs) 5.83 2.76
Net earnings in the year 11.28 5.34
Less: dividends paid in the year (9.33) (4.42)
NAV at 30 September 2021 189.55 89.69
=========================================================== =========== =========
The NAV is predominantly represented by our investment
properties, which have a fair value of GBP283.3m at the year end.
This is included in the Financial Statements as 'Investment
properties' at GBP278.0m with the difference relating to lease
incentives. The remaining GBP88.5m of net liabilities is made up
of: i) GBP(110.3)m of ammortised debt; ii) GBP11.6m of cash and
cash equivalents; and iii) GBP10.2m of net current assets.
DEBT
The Company has two debt facilities with Aviva Commercial
Finance Limited principally totalling GBP111.1m. One facility of
GBP56.9m will mature in 2025 and the other of GBP54.2m will mature
in 2027. The facilities have an all-in blended interest rate of
2.86%. The Company is fully compliant with all debt covenants and
has significant headroom against income and asset cover breach
covenants. Property values in the two facilities would need to drop
by more than 26% and 30% respectively, from the 30 September 2021
valuations, for the loan-to-value covenant to be breached.
Gearing (debt to total assets) was 36.7% at the year end (2020:
37.6%). Whilst this is higher than the Board's target range of
30-35%, it does not breach the Company's investment policy, as no
new gearing has been taken on. As noted above, there is headroom
against the loan-to-value breach covenants of the debt
facilities.
Further details are included in Note 13 to the Consolidated
Financial Statements.
CASH
As at 30 September 2021 the Company had cash and cash
equivalents of GBP11.6m with a further GBP6.6m drawn and held in a
disposals account under the debt facility which will be used to
assist with future asset management or investment
opportunities.
DIVIDS
At the start of the financial year, the Company was paying
monthly dividends at the annual rate of 4.00 pence. The dividend
rate was increased to an annual rate of 5.00 pence per share, with
the first payment at this new rate being made in May 2021 for the
month of April. The average dividend paid in the year was,
therefore, 4.42 pence per share and was fully covered for the
financial year at 119.0%. The dividend yield at the year end was
6.8%, based on an annual dividend rate of 5.00 pence per share and
a share price of 73.80 pence as at 30 September 2021.
The Board declared a dividend of 0.4167 pence per share for the
month of September which was paid in October 2021.
The Company continues to monitor passing rent and cash
collection in reviewing the dividend level and also reviews the
aggregate distributions made to ensure compliance with REIT
regulations, which, with some flexibility on timing, requires a
REIT to distribute 90% of tax-exempt rental income as Property
Income Distributions (PIDs): a condition that the Company has met
since inception.
TAX
Owing to the Company's REIT status, income and capital gains
from our property rental business are exempt from corporation tax
and the tax charge for the year is therefore nil. The Company
recovers all of its VAT cost.
The Company continues to meet all the REIT requirements ensuring
that its REIT status is maintained.
STRATEGY REVIEW AND IMPLEMENTATION
The Company announced on 22 July 2021 that, following an
internal review, it would retain its scope as a generalist UK
commercial property company with a focus on income but would, for
the foreseeable future, given its attractive investment potential,
focus on the retail warehousing sector, which already accounted for
over 70% of the Group's portfolio by value.
This will require an orderly disposal of the office part of the
portfolio and redeployment of the assets into retail warehousing.
Progress has already been made in this direction with the purchase,
in August, of Springkerse Retail Park in Stirling, and post period
end, the sale of three of the four of the Company's offices. The
Company has sold Midland Bridge House, Bath; 145 Morrison Street,
Edinburgh; and Citygate II, Newcastle for a combined headline price
of GBP37.36m. Once deductions for topped up rents and rent-free
periods are factored in, the Company will have GBP36.42m to
reinvest. It is the Company's intention to sell the remaining
office when it is appropriate to do so. The sale of the office
assets may involve some impact on asset values and income cover
until such time as the cash resources can be re-deployed into the
new strategic direction. This process will also involve direct
purchase costs such as SDLT, which will also affect asset value.
The Company will continue to provide an update on progress through
its quarterly announcement of net asset value, which will include
reference to net income cover, and is expected to show the positive
direction of the existing and future retail assets held.
SUMMARY AND OUTLOOK
COVID-19 continued to present the Company with challenges during
the year. However, positive progress was made with rent collection,
which returned to pre-pandemic levels. The contracted rent has also
increased and has almost reached pre-pandemic levels too.
The portfolio was refreshed by the sale of the Tesco supermarket
at Prestatyn and the purchase of Springkerse Retail Park. The
development of Haddington Retail Park was finished, and several
asset management initiatives were completed. All of these
initiatives generated additional income for the Company.
Neelum Yousaf
Director of Finance
Principal and Emerging Risks
The principal risks and emerging risks have all been reviewed in
detail, taking into account the challenging health and economic
environment globally and how this impacts or might impact the
Company. The Audit and Risk Committee recognises that there are
risks and uncertainties that could have a material effect on the
Company's results. Under the 2019 AIC Code of Corporate Governance
(the 'AIC Code'), directors of listed companies are required to
confirm in the annual report that they have performed a robust
assessment of the Company's emerging and principal risks, including
those that would threaten its business model, future income and
asset value performance, solvency or liquidity and pricing of the
Company's shares.
The Board is also cognisant of emerging risks defined as
potential trends, sudden events or changing risks which are
characterised by a high degree of uncertainty in terms of
probability of occurrence and possible effects on the Company. Once
emerging risks become sufficiently clear, they may be treated as
specific risks and added to the Company's matrix of significant
risks, which was the case in 2020 for the impact of the pandemic
and in this year includes emerging inflationary pressures, supply
lines and continuing changes in the uses of commercial property in
the UK.
The Board works closely with the Investment Manager and advisers
to the Company to try and manage the risks, including emerging
risks, as best as they can. The central aims remain to preserve net
income for the Company, resilience in its day-to-day operations
(including meeting its regulatory obligations and obligations to
its stakeholders), capital value and the price at which shares are
traded where it can, whilst looking to the longer term to try and
find strategic direction for positive rather than simply protective
returns.
The impact of exposure to a particular sector, for example
retail and offices, the impact of share price volatility on
shareholder returns, the effects of gearing (when returns are
negative) and the continuing risks of an uncertain economic and
political environment in the UK have all resulted in challenges,
and emerging opportunities, during the financial year.
While the effects of the COVID-19 pandemic are ongoing, the
immediate restrictions and perceived health risks have
significantly reduced during the second part of the current year
and this is reflected in the Company's risk matrix. However, the
economic impact is likely to have much longer-term impacts which
are difficult to evaluate as to their effects on the Company.
For the purposes of this year's report the concentration has
been on looking to the longer term for the significant changes that
are impacting on the UK commercial property sector, the eventual
outcomes of which are difficult to assess or predict with any
accuracy.
The Board and its advisers have identified the following
categories of risk:
-- Investment strategy and performance
- Strategic direction of the Company and how and where it invests
- Significant exposure to a specific property, tenant,
geographic location or to lease expiries in a given year
- Lack of investment opportunities reducing the ability to
acquire properties at the required return
- Poor investment decisions, incomplete due diligence and mistimed investment of capital
- Ineffective active asset management of properties
- Poor execution of development and other construction projects
-- Premium/discount level and share price volatility
- Share price volatility
-- Financial, which includes the impact of gearing
- Gearing
- Non-compliance with debt facilities
- Insufficient Working Capital
- Protection of income and asset value in light of the COVID-19 crisis
-- Regulatory
- Non-compliance with laws and regulations
-- Operational
- Health and safety
- Lack or failure of internal controls of the Investment Manager or Administrator
- Failure to manage Environmental, Social and Governance (ESG) issues
- Resilience of sub-agents
-- Economic, governmental and exogenous risks outside the
Company's control
- Weak economic and/or political environment, including the potential impacts of Brexit
- Exogenous factors outside the Company's control, including the
impact of the COVID-19 pandemic
- Supply chain risks
- Inflation
The categories of risk are broken into individual key risks with
an assessment of potential impact controls and mitigation in place
and changes in that environment since the previous year end. The
risks include those that may be more remote but, should they arise,
would have an impact, given the nature of a property investment
company with tangible assets and these risks, as set out in detail
in the annual accounts, are also aligned with the strategy of the
Company which is also set out in the accounts.
Directors' Responsibilities Statement
The Directors are responsible for preparing the Strategic
Report, the Directors' Report, the Directors' Remuneration Report
and the Financial Statements in accordance with applicable law and
regulations.
These Consolidated Financial Statements have been prepared in
accordance with international accounting standards (IAS) in
conformity with the requirements of the Companies Act 2006 and in
accordance with international financial reporting standards (IFRS)
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union. Company law requires the Directors to prepare
financial statements for each financial year. Under that law the
Directors have to prepare the Consolidated Financial Statements in
accordance with IFRS and have elected to prepare the parent company
financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice, including FRS 101 'Reduced Disclosure
Framework' (UK Accounting Standards and applicable law). Under
company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of
the state of affairs and profit or loss of the Company and Group
for that period. In preparing these Financial Statements, the
Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable IFRSs have been followed, subject to
any material departures disclosed and explained in the Financial
Statements; and
- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements and the Directors' Remuneration Report
comply with the Companies Act 2006 and Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
DIRECTORS' RESPONSIBILITY STATEMENT IN RESPECT OF THE ANNUAL
REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report in
accordance with applicable law and regulations. The Directors
consider the Annual Report and the Financial Statements, taken as a
whole, provide the information necessary to assess the Company's
performance, business model and strategy and are fair, balanced and
understandable.
DIRECTORS' RESPONSIBILITY STATEMENT UNDER THE DISCLOSURE
GUIDANCE AND TRANSPARENCY RULES
To the best of our knowledge:
- the Group Financial Statements, prepared in accordance with
IFRSs as adopted by the European Union, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
- the Annual Report, including the Strategic Report and the
Directors' Report, includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
DISCLOSURE OF INFORMATION TO THE AUDITOR
The Directors confirm that:
- so far as each Director is aware, there is no relevant audit
information of which the Company's Auditor is unaware; and
- the Directors have taken all the steps that they ought to have
taken as Directors in order to make themselves aware of any
relevant audit information and to establish that the Company's
Auditor is aware of that information.
William Hill
Chairman
17 December 2021
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2021
Year ended 30 September Year ended 30 September
2021 2020
============================ ============================
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================================== ===== ======== ======== ======== ======== ======== ========
Revenue
Rental income 17,371 - 17,371 19,857 - 19,857
====================================== ===== ======== ======== ======== ======== ======== ========
Total revenue 17,371 - 17,371 19,857 - 19,857
Unrealised gain/(loss) on revaluation
of investment properties 9 - 4,655 4,655 - (49,991) (49,991)
Realised gain on sale of investment
properties realised 9 - 1,179 1,179 - - -
====================================== ===== ======== ======== ======== ======== ======== ========
Total income 17,371 5,834 23,205 19,857 (49,991) (30,134)
====================================== ===== ======== ======== ======== ======== ======== ========
Expenditure
Investment management fee 2 (1,687) - (1,687) (1,882) - (1,882)
Other expenses 3 (1,914) - (1,914) (1,460) - (1,460)
====================================== ===== ======== ======== ======== ======== ======== ========
Total expenditure (3,601) - (3,601) (3,342) - (3,342)
====================================== ===== ======== ======== ======== ======== ======== ========
Movement in expected credit
losses 11 615 - 615 (700) - (700)
====================================== ===== ======== ======== ======== ======== ======== ========
Profit/(loss) before finance
costs and taxation 14,385 5,834 20,219 15,815 (49,991) (34,176)
Net finance costs
Interest receivable 4 - - - 58 - 58
Interest payable 5 (3,109) - (3,109) (3,258) - (3,258)
====================================== ===== ======== ======== ======== ======== ======== ========
Profit/(loss) before taxation 11,276 5,834 17,110 12,615 (49,991) (37,376)
Taxation 6 - - - - - -
====================================== ===== ======== ======== ======== ======== ======== ========
Profit/(loss) and total comprehensive
income for the year 11,276 5,834 17,110 12,615 (49,991) (37,376)
====================================== ===== ======== ======== ======== ======== ======== ========
Basic and diluted earnings per
share (pence) 8 5.34p 2.76p 8.10p 5.97p (23.66)p (17.69)p
====================================== ===== ======== ======== ======== ======== ======== ========
The total column of this statement represents the Group's
Consolidated Statement of Comprehensive Income, prepared in
accordance with IFRS.
The supplementary revenue return and capital return columns are
prepared under guidance published by the Association of Investment
Companies.
All revenue and capital items in the above statement are derived
from continuing operations.
No operations were acquired or discontinued in the year.
The accompanying notes are an integral part of these Financial
Statements.
Consolidated Statement of Financial Position
As at 30 September 2021
As at 30 As at 30
September September
2021 2020
Notes GBP'000 GBP'000
=========================================== ===== ========== ==========
Non-current assets
Investment properties 9 277,984 268,246
=========================================== ===== ========== ==========
277,984 268,246
=========================================== ===== ========== ==========
Current assets
Trade and other receivables 11 13,390 14,164
Cash and cash equivalents 12 11,642 12,308
=========================================== ===== ========== ==========
25,032 26,472
=========================================== ===== ========== ==========
Total assets 303,016 294,718
=========================================== ===== ========== ==========
Non-current liabilities
Loans 13 (110,277) (110,112)
=========================================== ===== ========== ==========
(110,277) (110,112)
=========================================== ===== ========== ==========
Current liabilities
Trade and other payables 14 (3,190) (2,833)
=========================================== ===== ========== ==========
Total liabilities (113,467) (112,945)
=========================================== ===== ========== ==========
Net assets 189,549 181,773
=========================================== ===== ========== ==========
Equity and reserves
Called-up equity share capital 16 2,113 2,113
Share premium 125,559 125,559
Capital reserve - investments held (42,710) (47,365)
Capital reserve - investments sold 3,561 2,382
Special distributable reserve 82,711 83,162
Revenue reserve 18,315 15,922
=========================================== ===== ========== ==========
Equity shareholders' funds 189,549 181,773
=========================================== ===== ========== ==========
Net asset value per Ordinary Share (pence) 15 89.69p 86.01p
=========================================== ===== ========== ==========
The accompanying notes are an integral part of these Financial
Statements.
Company number: 09090446.
The Financial Statements were approved by the Board of Directors
on 17 December 2021 and signed on its behalf by:
William Hill
Chairman
Consolidated Statement of Changes in Equity
For the year ended 30 September 2021
Capital Capital
reserve reserve
Share - - Special
capital Share investments investments distributable Revenue Total
account premium held sold reserve reserve equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ===== ======== ======== ============ ============ ============== ======== ========
As at 30 September 2020 2,113 125,559 (47,365) 2,382 83,162 15,922 181,773
Profit and total
comprehensive
income for the year - - 4,655 1,179 - 11,276 17,110
Transactions with owners
recognised in equity:
Dividends paid 7 - - - - - (9,334) (9,334)
Transfer from special
reserve - - - - (451) 451 -
=========================== ===== ======== ======== ============ ============ ============== ======== ========
As at 30 September 2021 2,113 125,559 (42,710) 3,561 82,711 18,315 189,549
=========================== ===== ======== ======== ============ ============ ============== ======== ========
For the year ended 30 September 2020
Capital Capital
reserve reserve
Share - - Special
capital Share investments investments distributable Revenue Total
account premium held sold reserve reserve equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ===== ======== ======== ============ ============ ============== ======== ========
As at 30 September 2019 2,113 125,559 2,626 2,382 83,639 13,441 229,760
Loss and total
comprehensive
income for the year - - (49,991) - - 12,615 (37,376)
Transactions with owners
recognised in equity:
Dividends paid 7 - - - - - (10,611) (10,611)
Transfer from special
reserve - - - - (477) 477 -
=========================== ===== ======== ======== ============ ============ ============== ======== ========
As at 30 September 2020 2,113 125,559 (47,365) 2,382 83,162 15,922 181,773
=========================== ===== ======== ======== ============ ============ ============== ======== ========
The accompanying notes are an integral part of these Financial
Statements.
Consolidated Statement of Cash Flow
For the year ended 30 September 2021
Year ended Year ended
30 September 30 September
Notes 2021 GBP'000 2020 GBP'000
===================================================== ===== ============= =============
Cash flows from operating activities
Profit/(loss) before tax 17,110 (37,376)
Adjustments for:
Interest receivable - (58)
Interest payable 3,109 3,258
Unrealised revaluation (gain)/loss on property
portfolio (4,655) 49,991
Realised gain on sale of investment property
realised (1,179) -
===================================================== ===== ============= =============
Operating cash flows before working capital
changes 14,385 15,815
Decrease in trade and other receivables 1,823 620
(Decrease)/increase in trade and other payables (492) 1,169
===================================================== ===== ============= =============
Net cash inflow from operating activities 15,716 17,604
===================================================== ===== ============= =============
Cash flows from investing activities
Capital expenditure (10,345) (3,355)
Acquisition of investment properties (21,640) -
Sale of investment properties 27,953 -
===================================================== ===== ============= =============
Net cash outflow from investing activities (4,032) (3,355)
===================================================== ===== ============= =============
Cash flows from financing activities
Dividends paid (9,334) (10,803)
Interest received - 58
Interest paid (3,016) (3,172)
===================================================== ===== ============= =============
Net cash outflow from financing activities (12,350) (13,917)
===================================================== ===== ============= =============
Net (decrease)/increase in cash and cash equivalents (666) 332
Opening cash and cash equivalents 12,308 11,976
===================================================== ===== ============= =============
Closing cash and cash equivalents 12 11,642 12,308
===================================================== ===== ============= =============
The accompanying notes are an integral part of these Financial
Statements.
Notes to the Consolidated Financial Statements
1. ACCOUNTING POLICIES
(A) BASIS OF PREPARATION
BASIS OF ACCOUNTING
These Consolidated Financial Statements have been prepared in
accordance with international accounting standards (IAS) in
conformity with the requirements of the Companies Act 2006 and in
accordance with international financial reporting standards (IFRS)
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union. The accounts have been prepared on a historical
cost basis, except for investment property valuations that have
been measured at fair value.
The Notes and Financial Statements are presented in pounds
sterling (being the functional currency and presentational currency
for the Company) and are rounded to the nearest thousand except
where otherwise indicated.
GOING CONCERN
Under the AIC Code of Corporate Governance (the 'AIC Code'), the
Board needs to report whether the business is a going concern. In
considering this requirement, the Directors have taken the
following into account:
- the Group's projections for the next three years, in
particular the cash flows, borrowings and occupancy rate;
- the ongoing ability to comply comfortably with the Group's
financial covenants (details of the loan covenants are included in
Note 13);
- the risks included on the Group's risk register that could
impact on the Group's liquidity and solvency over the next 12
months; and
- the risks on the Group's risk register that could be a
potential threat to the Group's business model.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report. The Strategic Report also
includes the Group's risks and risk management processes.
The Directors made an assessment of Going Concern, under the
guidelines of the AIC. Details of this assessment is included in
the Directors' Report in the annual accounts.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of Financial Statements requires management to
make estimates and assumptions that affect the amounts reported for
assets and liabilities as at the year-end date and the amounts
reported for revenue and expenses during the period. The nature of
the estimation means that actual outcomes could differ from those
estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis.
KEY ESTIMATES
The only significant source of estimation uncertainty relates to
the investment property valuations. The fair value of investment
properties is determined by independent real estate valuation
experts using recognised valuation techniques. The properties have
been valued on the basis of 'Fair Value' in accordance with the
current editions of RICS Valuation - Global Standards, which
incorporate the International Valuation Standards, and the RICS UK
National Supplement. Investment property under construction is
subject to a higher estimation uncertainty than that of investment
property due to the estimation required for future expenditure,
which is factored into the valuation models for these properties.
In line with the recommendation of the European Public Real Estate
Association (EPRA), all properties have been deemed to be Level 3
under the fair value hierarchy classification set out below. This
is described in more detail in Note 9. Revisions to accounting
estimates are recognised in the year in which the estimate is
revised if the revision affects only that year, or in the year of
the revision and future years if the revision affects both current
and future years.
The fair value measurement for the assets and liabilities are
categorised into different levels in the fair value hierarchy based
on the inputs to valuation techniques used. The different levels
have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Group can access at the
measurement date.
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly.
Level 3: unobservable inputs for the asset or liability. Value
is the Directors' best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and
on assumptions as to what inputs other market participants would
apply in pricing the same or a similar instrument. As explained in
more detail in Note 9, all investment properties are included in
Level 3.
The Group recognises transfers between levels of the fair value
hierarchy as of the end of the reporting period during which the
transfer has occurred.
KEY JUDGEMENTS
Key judgements relate to property acquisitions where different
accounting policies could be applied and operating lease contracts.
These are described in more detail below, or in the relevant notes
to the financial statements.
PROPERTY ACQUISITIONS AND BUSINESS COMBINATIONS
The Group acquires real estate either as individual properties
or as the acquisition of a portfolio of properties either directly
or through the acquisition of a corporate entity. During the year,
judgement was applied in determining whether the acquisition of the
Springkerse Retail Park represented the acquisition of a business
or a property. Management considered that an integrated set of
activities, capable of being independently conducted and managed
for the purpose of generating a return, was not acquired in
addition to the property, and as such, accounted for the
acquisition as an addition to the property portfolio, rather than a
business combination.
OPERATING LEASE CONTRACTS - THE GROUP AS LESSOR
The Group has determined, based on an evaluation of the terms
and conditions of the arrangements, particularly the duration of
the lease terms and minimum lease payments, that it retains all the
significant risks and rewards of ownership of these properties and
so accounts for the leases as operating leases. Management has
applied judgement by considering key new leases this year and have
assessed that no lease exceeds a term of 40 years and as such
determined that the terms and conditions of the arrangements do not
result in a transfer of significant risks and rewards of ownership
of these properties and that these should therefore be accounted
for as operating leases.
The leases when signed, are for between five and 35 years. At
the inception of the lease, management do not consider any
extension of the leases to be reasonably certain and, as such do
not factor any lease extensions into their considerations of lease
incentives and the treatment of rental income.
BASIS OF CONSOLIDATION
The Consolidated Financial Statements comprise the financial
statements of the Company and its two subsidiaries drawn up to 30
September 2021. Subsidiaries are those entities, including special
purpose entities, controlled by the Company and are detailed in
Note 10. Control exists when the Company is exposed, or has rights,
to variable returns from its investment with the investee and has
the ability to affect those returns through its power over the
investee. In assessing control, potential voting rights that
presently are exercisable are taken into account. The financial
statements of subsidiaries are included in the Consolidated
Financial Statements from the date that control commences until the
date that control ceases.
In preparing the Consolidated Financial Statements, intra-Group
balances, transactions and unrealised gains or losses have been
eliminated in full. Uniform accounting policies are adopted for all
companies within the Group.
(B) REVENUE RECOGNITION
RENTAL INCOME
Rental income, excluding VAT, arising on investment properties
is accounted for in the Statement of Comprehensive Income on a
straight-line basis over the terms of the individual leases.
Lease incentives including rent-free periods and payments to
tenants, are allocated to the Statement of Comprehensive Income on
a straight-line basis over the lease term or on another systematic
basis, if applicable. Where income is recognised in advance of the
related cash flows, an adjustment is made to ensure that the
carrying value of the relevant property, including accrued rent
disclosed separately within 'trade and other receivables', does not
exceed the external valuation.
The Group may from time to time receive surrender premiums from
tenants who break their leases early. To the extent they are deemed
capital receipts to compensate the Group for loss in value of
property to which they relate, they are credited through the
capital column of the Statement of Comprehensive Income to capital
reserves. All other surrender premiums are recognised within rental
income in the Statement of Comprehensive Income.
INTEREST INCOME
Interest income is accounted for on an accruals basis.
SERVICE CHARGES AND EXPENSES RECOVERABLE FROM TENANTS
Where service charges and other expenses are recharged to
tenants, the expense and the income received in reimbursement are
offset within the Statement of Comprehensive Income and are not
separately disclosed, as the Directors consider that the Group acts
as agent in this respect. Service charges and other
property-related expenses that are not recoverable from tenants are
recognised in expenses on an accruals' basis.
(C) OTHER EXPENSES
Expenses are accounted for on an accruals' basis. The Group's
investment management and administration fees, finance costs and
all other expenses are charged to revenue through the Statement of
Comprehensive Income.
(D) DIVIDS PAYABLE
Dividends are accounted for in the period in which they are
paid. All of the dividends are paid as interim dividends and the
dividend policy is put to shareholders for approval.
(E) TAXATION
The Group is a Real Estate Investment Trust (REIT) and is
thereby exempt from tax on both rental profits and chargeable
gains. In order to retain REIT status, certain ongoing criteria
must be maintained. The main criteria are as follows:
- at the start of each accounting period, the assets of the
tax-exempt business must be at least 75% of the total value of the
Group's assets;
- at least 75% of the Group's total profits must arise from the tax-exempt business;
- at least 90% of the tax-exempt rental business profits must be
distributed in the form of a Property Income Distribution (PID);
and
- the Group must hold a minimum of three properties with no
single property exceeding 40% of the portfolio value.
The Directors intend that the Group should continue as a REIT
for the foreseeable future, with the result that deferred tax is
not recognised on temporary differences relating to the property
rental business which is within the REIT structure.
Taxation on any profit or loss for the period not exempt under
UK-REIT regulations comprises current and deferred tax. Taxation is
recognised in the Statement of Comprehensive Income except to the
extent that it relates to items recognised as direct movements in
equity, in which case it is also recognised as a direct movement in
equity.
Current tax is the expected tax payable on the taxable income
for the period, using tax rates and laws enacted or substantively
enacted at the year-end date.
Deferred tax is provided using the liability method on all
temporary differences at the reporting date between the tax bases
of assets and liabilities and their carrying amounts for financial
reporting purposes calculated using rates and laws enacted or
substantively enacted by the end of the period expected to apply.
Deferred tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which
deductible temporary differences, carried forward tax credits or
tax losses can be utilised. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities. In determining the
expected manner of realisation of an asset the Directors consider
that the Group will recover the value of investment property
through sale. Deferred tax relating to items recognised directly in
equity is recognised in equity and not in profit or loss.
(F) INVESTMENT PROPERTIES
Investment properties consist of land and buildings which are
not occupied for use by or in the operations of the Group or for
sale in the ordinary course of business but are held to earn rental
income together with the potential for capital and income
growth.
Investment properties are initially recognised at the fair value
of consideration given, including transaction costs associated with
the investment property. Any subsequent capital expenditure
incurred in improving investment properties is capitalised in the
period incurred and included within the book cost of the
property.
After initial recognition, investment properties are measured at
fair value, with gains and losses recognised in the Statement of
Comprehensive Income. Fair value is based on an open market
valuation provided by Knight Frank LLP, Chartered Surveyors at the
year-end date using recognised valuation techniques appropriately
adjusted for unamortised lease incentives, lease surrender premiums
and rental adjustments.
The determination of the fair value of investment properties
requires the use of estimates such as future cash flows from assets
(including lettings, tenants' profiles, future revenue streams,
capital values of fixtures and fittings, plant and machinery, any
environmental matters and the overall repair and condition of the
property) and discount rates applicable to those assets. These
estimates are based on local market conditions existing at the
reporting date.
In terms of IAS 40, investments property under construction is
measured at fair value, with gains and losses recognised in the
Statement of Comprehensive Income. Fair value is based on an open
market valuation provided by Knight Frank LLP, Chartered Surveyors
at the year-end date. The determination of the fair value of
investment property under construction requires the use of
estimates such as future cash flows from assets (including
lettings, tenants' profiles, future revenue streams, capital values
of fixtures and fittings, plant and machinery, any environmental
matters and the overall repair and condition of the property) and
discount rates applicable to those assets. These estimates are
based on local market conditions existing at the reporting
date.
Investment property is derecognised when it has been disposed of
or permanently withdrawn from use and no future economic benefit is
expected from its disposal. On derecognition, gains and losses on
disposals of investment properties are recognised in the Statement
of Comprehensive Income and transferred to the capital reserve -
investments sold. Recognition and derecognition occurs on the
completion of a sale.
(G) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand and short-term
deposits in banks with an original maturity of three months or
less.
(H) TRADE AND OTHER RECEIVABLES
Rents receivable, which are generally due for settlement at the
relevant quarter end, are recognised and carried at the original
invoice amount less an allowance for any uncollectable amounts. An
expected credit loss (ECL) methodology is applied to applicable
trade and other receivables. Expected credit losses are recognised
in the Statement of Comprehensive Income as part of the ongoing
assessment. Any incurred losses are written off when
identified.
The Group applies the IFRS 9 simplified approach to measuring
the expected credit losses for trade receivables whereby the
allowance or provision for all trade receivables are based on the
lifetime expected credit losses. The Group considers historical
defaults over the expected life of the trade receivables and any
information related to the debtors available at year end to
determine forward-looking estimates of possible defaulting. This is
consistent with the approach followed in prior periods.
(I) INTEREST-BEARING LOANS AND BORROWINGS
All loans and borrowings are initially recognised at the fair
value of the consideration received net of arrangement costs
associated with the borrowing. After initial recognition, all
interest-bearing loans and borrowings are subsequently measured at
amortised cost; any difference is recognised in the Statement of
Comprehensive Income over the period of the borrowing using the
effective interest method. Amortised cost is calculated by taking
into account any loan arrangement costs and any discount or premium
on settlement.
The Company discloses the bases and impact of early repayment of
debt and also the fair value of the loans but includes the creditor
amounts on the accounting policy above.
(J) PROPERTY ACQUISITIONS
Where property is acquired, via corporate acquisitions or
otherwise, management considers the substance of the assets and
activities of the acquired entity in determining whether the
acquisition represents the acquisition of a business or the
acquisition of an asset.
Where such acquisitions are not judged to be an acquisition of a
business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based on their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred taxation arises. Otherwise,
acquisitions are accounted for as business combinations.
(K) RESERVES
SHARE PREMIUM
The surplus of net proceeds received from the issuance of new
shares over their par value is credited to this account and the
related issue costs are deducted from this account. The reserve is
non-distributable. The initial share premium account, on the launch
of the Company in 2014, was transferred to the special
distributable reserve, following shareholder approval and
successful application to court.
CAPITAL RESERVES
The following are accounted for in the capital reserve -
investments sold:
- realised gains and losses arising on the disposal of investment properties.
The following are accounted for in the capital reserve -
investments held:
- increases and decreases in the fair value of investment properties held at the period end.
REVENUE RESERVE
The net profit arising in the revenue column of the Statement of
Comprehensive Income is added to or deducted from this reserve
which is available for paying dividends. Where the Company's
revenue reserve is insufficient to fund the dividends paid, a
transfer can be made to this reserve from the special distributable
reserve.
SPECIAL DISTRIBUTABLE RESERVE
Shortly after the launch of the Company, an application to Court
was successfully made for the cancellation of the initial share
premium account which allowed the balance of the share premium
account at that date to be transferred to the special distributable
reserve. This reserve is available for paying dividends and buying
back the Company's shares.
CAPITAL MANAGEMENT
The Group's capital is represented by the Ordinary Shares, share
premium, capital reserves, revenue reserve and special
distributable reserve. The Group is not subject to any
externally-imposed capital requirements.
The capital of the Group is managed in accordance with its
investment policy, in pursuit of its investment objective. Capital
management activities may include the allotment of new shares, the
buyback or re-issuance of shares from treasury, the management of
the Group's discount to net asset value and consideration of the
Group's net gearing level.
There have been no changes in the capital management objectives
and policies or the nature of the capital managed during the
year.
(L) CHANGES IN ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the
previous financial year, except that the following new standards
have become effective in the current year:
- IFRS 16 'Leases' COVID-19-Related Rent Concessions - As a
result of the coronavirus (COVID-19) pandemic, rent concessions
have been granted to lessees. Such concessions might take a variety
of forms, including payment holidays and deferral of lease
payments. Lessees can elect to account for such rent concessions in
the same way as they would if they were not lease modifications. In
many cases, this will result in accounting for the concession as
variable lease payments in the period(s) in which the event or
condition that triggers the reduced payment occurs.
This standard has not had any impact on the Group's Financial
Statements as presented for the current year as there has been no
change in the accounting principles applicable to the lessor.
STANDARDS ISSUED BUT NOT YET EFFECTIVE
The following standards have been issued but are not effective
for this accounting period and have not been adopted early:
- IAS 1 (amended) - Amendments regarding classifications of
liabilities, and disclosure of accounting policies - effective from
1 January 2023.
- IAS 8 (amended) - Amendments regarding the definition of
accounting estimates - effective from 1 January 2023.
- IAS 12 (amended) - Amendments regarding deferred tax on leases
and decommissioning obligations - effective from 1 January
2023.
Adoption of the new or amended standards and relevant
interpretations in future periods is not expected to have a
material impact on the Financial Statements of the Group.
The Group does not consider the adoption of any new standards or
amendments, other than those noted above, to be applicable to the
Group.
2. INVESTMENT MANAGEMENT FEE
Year ended Year ended
30 September 30 September
2021 GBP'000 2020 GBP'000
========================== ============= =============
Investment management fee 1,687 1,882
========================== ============= =============
Total 1,687 1,882
========================== ============= =============
Ediston Investment Services Limited has been appointed as the
Company's Alternative Investment Fund Manager (AIFM) and Investment
Manager, with the property management service of the Group being
delegated to Ediston Properties Limited. Ediston Investment
Services Limited is entitled to a fee calculated as 0.95% per annum
of the net assets of the Group up to GBP250m, 0.75% per annum of
the net assets of the Group over GBP250m and up to GBP500m and
0.65% per annum of the net assets of the Group over GBP500m. The
management fee on any cash available for investment (being all cash
held by the Group except cash required for working capital and
capital expenditure) is reduced to 0.475% per annum while such cash
remains uninvested. The management fee is reduced by a quarterly
contribution of GBP10,000 (GBP40,000 per annum) towards the overall
management costs of the Company.
Ediston Investment Services Limited has committed to investing
20.0% of the quarterly management fee in the Company's shares each
quarter for a period of three years commencing 1 October 2020.
Refer to Note 17 for further information.
3. OTHER EXPENSES
Year ended Year ended
30 September 30 September
2021 GBP'000 2020 GBP'000
============================================================ ============= =============
Direct operating expenses for investment properties:
* from which income is received 1,016 512
* from which income is not received - -
Administration fee 179 231
Valuation and other professional fees 157 235
Directors' fees 212 175
Public relations and marketing 73 111
Auditor's remuneration for:
Audit services:
* fees payable for the audit of the consolidation and
the parent company accounts 42 39
* fees payable for the audit of subsidiaries, pursuant
to legislation 36 38
Listing and registrar fees 46 47
Other 153 72
============================================================ ============= =============
Total 1,914 1,460
============================================================ ============= =============
The movement in expected credited losses, which was previously
grouped with other expenses, has been reconsidered and whilst this
is immaterial, it has been presented separately on the face of the
Consolidated Statement of Comprehensive Income, in line with the
requirements of IAS 1.
4. INTEREST RECEIVABLE
Year ended Year ended
30 September 30 September
2021 GBP'000 2020 GBP'000
================= ============= =============
Deposit interest - 58
================= ============= =============
Total - 58
================= ============= =============
5. INTEREST PAYABLE
Year ended Year ended
30 September 30 September
2021 GBP'000 2020 GBP'000
================================== ============= =============
Loan interest 2,938 3,092
Amortisation of loan set-up costs 165 166
Bank interest 6 -
================================== ============= =============
Total 3,109 3,258
================================== ============= =============
6. TAXATION
Year ended Year ended
30 September 30 September
2021 GBP'000 2020 GBP'000
================ ============= =============
Total tax charge - -
================ ============= =============
A reconciliation of the corporation tax charge applicable to the
results at the statutory corporation tax rate to the charge for the
year is as follows:
Year ended Year ended
30 September 30 September
2021 GBP'000 2020 GBP'000
================================================ ============= =============
Profit/(loss) before taxation 17,110 (37,376)
================================================ ============= =============
UK tax at a rate of 19.0% (2020: 19.0%) 3,251 (7,101)
Effects of:
REIT exempt profits (2,228) (2,488)
REIT exempt (gains)/losses (1,109) 9,498
Excess management expenses of residual business 86 91
================================================ ============= =============
Total tax charge - -
================================================ ============= =============
The Company served notice to HM Revenue & Customs that the
Company, and its subsidiaries, qualified as a REIT with effect from
31 October 2014. Subject to continuing relevant UK-REIT criteria
being met, the profits from the Group's property rental business,
arising from both income and capital gains, are exempt from
corporation tax.
The Group has unutilised tax losses carried forward in its
residual business of GBP2,566,000 at 30 September 2021 (2020:
GBP2,044,000). No deferred tax asset has been recognised on this
amount as the Group cannot be certain that there will be taxable
revenue profits arising within its residual business from which the
future reversal of the deferred tax asset could be deducted.
Although the Group anticipates sufficient capital profits, these
cannot be offset against losses which are revenue in nature.
7. DIVIDS
Seven monthly dividends of 0.3333 pence per share and five
monthly dividends of 0.4167 pence per share, at a total cost of
GBP9,334,000 (2020: seven monthly dividends at a rate of 0.4792
pence per share and five monthly dividends at a rate of 0.3333
pence per share, at a cost of GBP10,611,000) were paid during the
year. This equates to an annualised dividend of 4.42 pence (2020:
5.02 pence) per share. The rate was increased from 0.3333 pence per
share to 0.4167 pence per share in May 2021.
Since the year end, interim dividends, each of 0.4167 pence per
share, have been paid on 29 October 2021 and 30 November 2021. A
further
interim dividend, of 0.4167 pence per share, will be paid on 31
December 2021. This monthly dividend of 0.4167 pence per share
equates to an annualised dividend level of 5.00 pence per share.
All of the distributions made by the Company have been PIDs.
8. EARNINGS PER SHARE
Basic and diluted earnings per share.
Year ended 30 September Year ended 30 September
2021 2020
========================= =========================
Pence per Pence per
GBP'000 share GBP'000 share
================================== ========= ============== ========== =============
Revenue earnings 11,276 5.34 12,615 5.97
Capital earnings 5,834 2.76 (49,991) (23.66)
Total earnings 17,110 8.10 (37,376) (17.69)
================================== ========= ============== ========== =============
Average number of shares in issue 211,333,737 211,333,737
================================== ========= ============== ========== =============
9. INVESTMENT PROPERTIES
As at 30 As at 30
September September
Freehold and leasehold properties 2021 GBP'000 2020 GBP'000
=============================================== ============= =============
Opening book cost 315,611 312,517
Opening unrealised (depreciation)/appreciation (47,365) 2,626
=============================================== ============= =============
Opening fair value 268,246 315,143
=============================================== ============= =============
Movements for the period
Acquisitions 21,850 -
Sales - proceeds (27,953) -
- gain on sales 1,179 -
Capital expenditure 10,007 3,094
=============================================== ============= =============
Movement in book cost 5,083 3,094
=============================================== ============= =============
Unrealised gains on investment properties 10,798 -
Unrealised losses on investment properties (6,143) (49,991)
=============================================== ============= =============
Movement in fair value 4,655 (49,991)
=============================================== ============= =============
Closing book cost 320,694 315,611
Closing unrealised depreciation (42,710) (47,365)
=============================================== ============= =============
Closing fair value 277,984 268,246
=============================================== ============= =============
During the year ended 30 September 2021 the Group sold the Tesco
Superstore, which forms part of Prestatyn Shopping Park, a strip of
undeveloped land at Hull (which was acquired from us by way of a
compulsory purchase order) and land at Rhyl. The Group received a
net amount of GBP27,953,000 (2020: GBPnil) from investments sold
during the year. The total book cost of the investments when it was
purchased was GBP26,774,000. These investments have been revalued
over time and, until it was sold, any unrealised gains/losses were
included in the fair value of the investments.
In August 2021 the Group acquired Springkerse Retail Park in
Stirling, Scotland at a cost of GBP21,850,000.
During the year, expenditure totalling GBP10,007,000 (2020:
GBP3,094,000), incurred in improving investment properties, has
been capitalised to the book cost of the property.
The fair value of the investment properties reconciled to the
appraised value as follows:
As at 30 As at 30
September September
2021 GBP'000 2020 GBP'000
=========================================== ============= =============
Closing fair value 277,984 268,246
Lease incentives held as debtors (Note 11) 5,361 4,729
=========================================== ============= =============
Appraised market value per Knight Frank 283,345 272,975
=========================================== ============= =============
Changes in the valuation of investment properties:
Year ended Year ended
30 September 30 September
2021 GBP'000 2020 GBP'000
========================================================== ============= =============
Gain on sale of investment properties 1,179 -
Unrealised profit realised during the year - -
========================================================== ============= =============
Gain on sale of investment properties realised* 1,179 -
Unrealised gains on investment properties - -
Unrealised gains/(losses) on investment properties 4,655 (49,991)
========================================================== ============= =============
Total gain/(loss) on revaluation of investment properties 5,834 (49,991)
========================================================== ============= =============
* Represents the difference between the sales proceeds, net of
costs, and the property valuation at the end of the prior year.
The gain/(loss) on revaluation of investment properties
reconciles to the movement in appraised market value as
follows:
Year ended Year ended
30 September 30 September
2021 GBP'000 2020 GBP'000
========================================================== ============= =============
Total gain/(loss) on revaluation of investment properties 4,655 (49,991)
Purchases 21,850 -
Capital expenditure 10,007 3,094
Sales - net proceeds (26,774) -
========================================================== ============= =============
Movement in fair value 9,738 (46,897)
========================================================== ============= =============
Movement in lease incentives held as debtors 632 697
========================================================== ============= =============
Movement in appraised market value 10,370 (46,200)
========================================================== ============= =============
At 30 September 2021, the investment properties were valued at
GBP283,345,000 (2020: GBP272,975,000) by Knight Frank LLP (Knight
Frank), in their capacity as external valuers. This includes no
investment property under construction (2020: GBP3,150,000). The
valuation was undertaken in accordance with the current editions of
RICS Valuation - Global Standards, which incorporate the
International Valuation Standards, and the RICS UK National
Supplement. Fair value is based on an open market valuation (the
price that would be received to sell an asset, or paid to transfer
a liability, in an orderly transaction between market participants
at the measurement date), provided by Knight Frank on a quarterly
basis, using recognised valuation techniques as set out in the
Group's accounting policies.
The Group is required to classify fair value measurements of its
investment properties using a fair value hierarchy, in accordance
with IFRS 13 'Fair Value Measurement'. In determining what level of
the fair value hierarchy to classify the Group's investments
within, the Directors have considered the content and conclusion of
the position paper on IFRS 13 prepared by the EPRA, the
representative body of the publicly listed real estate industry in
Europe. This paper concludes that, even in the most transparent and
liquid markets, it is likely that valuers of investment property
will use one or more significant unobservable inputs or make at
least one significant adjustment to an observable input, resulting
in the vast majority of investment properties being classified as
Level 3.
Observable market data is considered to be that which is readily
available, regularly distributed or updated, reliable and
verifiable, not proprietary and provided by independent sources
that are actively involved in the relevant market. In arriving at
the valuation Knight Frank will have to make adjustments to
observable data of similar properties and transactions to determine
the fair value of a property and this will involve the use of
considerable judgement.
Considering the Group's specific valuation process, industry
guidance, and the level of judgement required in the valuation
process, the Directors believe it appropriate to classify the
Group's assets within Level 3 of the fair value hierarchy.
All leasehold properties are carried at fair value rather than
amortised over the term of the lease. The same valuation criteria
are applied to leasehold and freehold properties. All leasehold
properties have more than 100 years remaining on the lease
term.
The Group's investment properties, which are all commercial
properties, are considered to be a single class of assets. There
have been no changes to the valuation technique used through the
period, nor have there been any transfers between levels.
The key unobservable inputs made in determining the fair values
are:
- estimated rental value (ERV): the rent at which space could be
let in the market conditions prevailing at the date of valuation;
and
- net equivalent yield: the equivalent yield is defined as the
internal rate of return of the cash flow from the property,
assuming a rise to ERV at the next review, but with no further
rental growth.
Information on these significant unobservable inputs is
disclosed below:
30 September 2021 30 September 2020
======================= ======================
Weighted Weighted
Significant unobservable input Range average Range average
=============================== ============= ======== ============ ========
ERV per sq. ft. per annum GBP5 - GBP43 GBP13.80 GBP5 - GBP43 GBP13
Net equivalent yield 6.0% - 9.8% 7.0% 5.1% - 9.5% 6.8%
=============================== ============= ======== ============ ========
The ERV for the total portfolio is not materially different from
the contracted rent.
A decrease in the net equivalent yield applied to the portfolio
by 0.25% will increase the fair value of the portfolio by
GBP10,500,000 (2020: GBP10,400,000), and consequently increase the
Group's reported income from unrealised gains on investments. An
increase in yield by 0.25% will decrease the fair value of the
portfolio by GBP9,800,000 (2020: GBP9,700,000) and reduce the
Group's income.
The management of market price risk is part of the investment
management process and is typical of a property investment company.
The portfolio is managed with an awareness of the effects of
adverse valuation movements through detailed and continuing
analysis, with an objective of maximising overall returns to
shareholders. Investments in property and property-related assets
are inherently difficult to value due to the individual nature of
each property. As a result, valuations are subject to substantial
uncertainty. There is no assurance that the estimates resulting
from the valuation process will reflect the actual sales price even
where such sales occur shortly after the valuation date. Such risk
is minimised through the appointment of external property valuers.
The basis of valuation of the property portfolio is set out in
detail in the accounting policies.
Any changes in market conditions will directly affect the profit
and loss reported through the Statement of Comprehensive Income.
Details of the Group's investment property portfolio held at the
balance sheet date are disclosed in Note 9. A 10% increase in the
value of the investment properties held as at 30 September 2021
would have increased net assets available to shareholders and
increased the net income for the year by GBP28,000,000 (2020:
GBP27,000,000); an equal and opposite movement would have decreased
net assets and decreased the net income by an equivalent
amount.
The calculations are based on the investment property valuations
at the respective balance sheet date and are not representative of
the year as a whole, nor reflective of future market
conditions.
10. INVESTMENT IN SUBSIDIARIES
EPIC (No.1) Limited is a wholly-owned subsidiary of Ediston
Property Investment Company plc and is incorporated in England and
Wales (Company number: 09106328) with registered address The
Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF. EPIC (No.1)
Limited was incorporated on 27 June 2014 and began trading on 5 May
2015. On 5 May 2015, the ownership of the property portfolio held
by the Company at that date was transferred to EPIC (No.1) Limited.
The net asset value of EPIC (No.1) Limited as at 30 September 2021
was GBP102,605,000 (2020: GBP103,379,000). The profit of EPIC
(No.1) Limited for the year to 30 September 2021 was GBP4,716,000
(2020: GBP17,852,000 loss).
EPIC (No.2) Limited is a wholly-owned subsidiary of Ediston
Property Investment Company plc and is incorporated in England and
Wales (Company number: 10978359) with registered address The
Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF. EPIC (No.2)
Limited was incorporated on 23 September 2017, having been
established to hold the five properties acquired by the Group and
to enter into the Group's additional loan facility. The net asset
value of EPIC (No.2) Limited as at 30 September 2021 was
GBP81,576,000 (2020: GBP72,576,000). The profit of EPIC (No.2)
Limited for the period to 30 September 2021 was GBP12,680,000
(2020: GBP19,046,000 loss).
11. TRADE AND OTHER RECEIVABLES
As at 30 As at 30
September September
2021 GBP'000 2020 GBP'000
====================================================== ============= =============
Secured balance held with loan provider 6,837 8,297
Capital and rental lease incentives 5,361 4,729
Rent receivable (net of allowance for expected credit
losses) 1,175 1,121
Other debtors and prepayments 17 17
====================================================== ============= =============
Total 13,390 14,164
====================================================== ============= =============
The secured balance held with the loan provider represents
monies that have been drawn under the Group's loan facilities,
which are not currently invested in properties and which have been
placed in a secured account with Aviva until required. The balance
includes interest receivable of GBP186,000 (2020: GBPnil). These
monies are available for reinvestment in the Group's investment
property portfolio or, if necessary, could be used to partially
repay the Group's borrowings. During the year ended 30 September
2021, the Company utilised a net amount of GBP1,646,000 (2020:
GBP2,500,000) from the secured account.
Capital and rental lease incentives consist of GBP3,717,000
(2020: GBP3,434,000) being the prepayments for rent-free periods
recognised over the life of the lease and GBP1,644,000 (2020:
GBP1,295,000) relating to capital incentives paid to tenants. As
set out in the accounting policy for rental income, an adjustment
is made for these amounts to the fair value of the investment
properties (see Note 9) to prevent double counting.
Rent receivable is shown net of an allowance for expected credit
losses balance of GBP85,000 (2020: GBP700,000). The movement in the
allowance is shown below and reflected in the Statement of
Comprehensive Income.
Allowance for expected credit losses GBP'000
================================================= =======
Opening balance as at 30 September 2020 700
Reversal of allowance for expected credit losses (615)
================================================= =======
Closing balance as at 30 September 2021 85
================================================= =======
12. CASH AND CASH EQUIVALENTS
All cash balances at the year end were held in cash, current
accounts or deposit accounts.
As at 30 As at 30
September September
2021 GBP'000 2020 GBP'000
========================== ============= =============
Cash and cash equivalents 11,642 12,308
========================== ============= =============
Total 11,642 12,308
========================== ============= =============
13. LOANS
As at 30 As at 30
September September
2021 GBP'000 2020 GBP'000
================================== ============= =============
Principal amount outstanding 111,076 111,076
Set-up costs (1,612) (1,612)
Amortisation of loan set-up costs 813 648
================================== ============= =============
Total 110,277 110,112
================================== ============= =============
The Group's loan arrangements are with Aviva Commercial Finance
Limited.
The Group has loans totalling GBP56,920,000 which carry a
blended fixed interest rate of 2.99% and mature in May 2025. This
rate is fixed for the period of the loan as long as the
loan-to-value (LTV) is maintained below 40%, increasing by ten
basis points if the LTV is 40% or higher. These loans are secured
over EPIC (No.1) Limited's property portfolio.
The Group also has a loan totalling GBP54,156,000 which carries
a fixed interest rate of 2.73% and matures in December 2027. This
rate is fixed for the period of the loan as long as the LTV is
maintained below 40%, increasing by ten basis points if the LTV is
40% or higher. This loan is secured over EPIC (No.2) Limited's
property portfolio. At year end the covenants were both below 40%
LTV.
The Group's weighted average cost of borrowings remained 2.86%
at 30 September 2021.
Under the financial covenants relating to the loans the Group
has to ensure that for each of EPIC (No.1) Limited and EPIC (No.2)
Limited:
- the Historic Interest Cover and Projected Interest Cover, each
being the passing rental income as a percentage of finance costs
and generally calculated over a period of 12 months to/from the
calculation date, is at least 300%; and
- the LTV ratio, being the adjusted value of the loan as a
percentage of the aggregate market value of the relevant
properties, must not exceed 50%.
Breach of the financial covenants, subject to various cure
rights, may lead to the loans falling due for repayment earlier
than the final maturity dates stated above. The Group has complied
with all the loan covenants during the year. Under the terms of
early repayment relating to the loans, the cost of repaying the
loans on 30 September 2021, based on the yield on the Treasury 5%
2025 and Treasury 4.25% 2027 plus a margin of 0.5%, would have been
approximately GBP120,268,000 (2020: GBP126,362,000), including
repayment of the principal of GBP111,076,000 (2020:
GBP111,076,000).
The fair value of the loans based on a marked-to-market basis,
being the yield on the relevant Treasury plus the appropriate
margin, was GBP114,918,000 as at 30 September 2021 (2020:
GBP119,668,000). This includes the principal amount borrowed.
Analysis of net debt:
Cash and Cash and
cash equivalents Borrowing Net debt cash equivalents Borrowing Net debt
2021 GBP'000 2021 GBP'000 2021 GBP'000 2020 GBP'000 2020 GBP'000 2020 GBP'000
================ ================= ============= ============= ================= ============= =============
Opening balance 12,308 (110,112) (97,804) 11,976 (109,946) (97,970)
Cash flows (666) - (666) 332 - 332
Non-cash flows - (165) (165) - (166) (166)
================ ================= ============= ============= ================= ============= =============
Closing balance 11,642 (110,277) (98,635) 12,308 (110,112) (97,804)
================ ================= ============= ============= ================= ============= =============
14. TRADE AND OTHER PAYABLES
As at 30 As at 30
September September
2021 GBP'000 2020 GBP'000
================================== ============= =============
Rental income received in advance 1,320 1,441
VAT payable to HMRC 549 224
Investment management fee payable 437 430
Loan interest payable 444 444
Capital expenditure payable 2 59
Other payables 438 235
================================== ============= =============
Total 3,190 2,833
================================== ============= =============
The Group's payment policy is to ensure settlement of supplier
invoices in accordance with stated terms.
15. NET ASSET VALUE
The Group's net asset value per Ordinary Share of 89.69 pence
(2020: 86.01 pence) is based on equity shareholders' funds of
GBP189,549,000 (2020: GBP181,773,000) and on 211,333,737 (2020:
211,333,737) Ordinary Shares, being the number of shares in issue
at the year end.
The net asset value calculated under IFRS above is the same as
the EPRA net asset value at 30 September 2021 and 30 September
2020.
16. CALLED-UP EQUITY SHARE CAPITAL
Allotted, called-up and fully paid Ordinary Shares Number of
of 1 pence par value shares GBP'000
=================================================== =========== =======
Opening balance as at 30 September 2020 211,333,737 2,113
Issue of Ordinary Shares - -
=================================================== =========== =======
Closing balance as at 30 September 2021 211,333,737 2,113
=================================================== =========== =======
The Company did not issue any Ordinary Shares in the last two
financial years. The Company did not hold any shares in treasury
during the previous two years. Under the Company's Articles of
Association, the Company may issue an unlimited number of Ordinary
Shares but issuance is subject to shareholder approval.
Ordinary shareholders are entitled to all dividends declared by
the Company and to all of the Company's assets after repayment of
its borrowings and ordinary creditors. Ordinary shareholders have
the right to vote at meetings of the Company. All Ordinary Shares
carry equal voting rights.
17. RELATED PARTIES
There have been no material transactions between the Company and
its Directors during the year other than amounts paid to them in
respect of expenses and remuneration for which there were no
outstanding amounts payable at the year end.
Ediston Investment Services Limited has received investment
management fees of GBP1,687,000 in relation to the year ended 30
September 2021 (2020: GBP1,882,000) of which GBP437,000 (2020:
GBP430,000) remained payable at the year end. Ediston Investment
Services Limited received development management fees of GBP257,000
in relation to the year ended 30 September 2021 (2020: GBPnil) of
which GBPnil (2020: GBPnil) remained payable at the year end.
Ediston Investment Services Limited acquired 121,944 shares in
the Company during the year ended 30 September 2021 (2020:
276,971l) as part of its commitment to reinvest 20 per cent of its
quarterly management fee.
The aggregate shareholding of the Manager and its senior
personnel as at 30 September 2021 is 1,984,667 (2020: 1,532,593)
shares, 0.9% (2020: 0.7%) of the issued share capital as at that
date.
18. OPERATING SEGMENTS
The Board has considered the requirements of IFRS 8 'Operating
Segments'. The Board is of the view that the Group is engaged in a
single unified business, being property investment, and in one
geographical area, the United Kingdom, and that, therefore, the
Group has no segments. The Board of Directors, as a whole, has been
identified as constituting the chief operating decision maker of
the Group. The key measure of performance used by the Board to
assess the Group's performance is the total return on the Group's
net asset value. As the total return on the Group's net asset value
is calculated based on the net asset value per share calculated
under IFRSs as shown at the foot of the Consolidated Statement of
Financial Position, the key performance measure is that prepared
under IFRSs. Therefore, no reconciliation is required between the
measure of profit or loss used by the Board and that contained in
the Financial Statements.
The view that the Group is engaged in a single unified business
is based on the following considerations:
- one of the key financial indicators received and reviewed by
the Board is the total return from the property portfolio taken as
a whole;
- there is no active allocation of resources to particular types
or groups of properties in order to try to match the asset
allocation of an index or benchmark; and
- the management of the portfolio is ultimately delegated to a
single property manager, Ediston Properties Limited.
19. FINANCIAL INSTRUMENTS
Consistent with its objective, the Group holds UK commercial
property investments. In addition, the Group's financial
instruments comprise cash, and receivables and payables that arise
directly from its operations. The Group does not have exposure to
any derivative instruments.
The Group is exposed to various types of risk that are
associated with financial instruments. The most important types are
credit risk, liquidity risk and interest rate risk. There is no
foreign currency risk as all assets and liabilities of the Group
are maintained in pounds sterling. The Group has insignificant
exposure to market price risk related to financial instruments.
The Board reviews and agrees policies for managing the Group's
risk exposure. These policies are summarised below and have
remained unchanged for the period under review. These disclosures
include, where appropriate, consideration of the Group's investment
properties which, whilst not constituting financial instruments as
de ned by IFRSs, are considered by the Board to be integral to the
Group's overall risk exposure.
SECURITIES FINANCING TRANSACTIONS (SFT)
The Company has not, during the year to 30 September 2021 (2020:
same), participated in any: repurchase transactions; securities
lending or borrowing; buy-sell back transactions; margin lending
transactions; or total return swap transactions (collectively
called SFT). As such, it has no disclosure to make in satisfaction
of the EU regulations on transparency of SFT.
The following table summarises the Group's financial assets and
liabilities into the categories required by IFRS 7 'Financial
Instruments: Disclosures':
As at 30 September 2021 As at 30 September 2020
============================= =============================
Financial Financial
Held at fair assets and Held at fair assets and
value through liabilities value through liabilities
profit or at amortised profit or at amortised
loss GBP'000 cost GBP'000 loss GBP'000 cost GBP'000
============================ ============== ============= ============== =============
Financial assets
Trade and other receivables - 8,012 - 9,418
Cash and cash equivalents - 11,642 - 12,308
============================ ============== ============= ============== =============
- 19,654 - 21,726
============================ ============== ============= ============== =============
Financial liabilities
Loan - (110,277) - (110,112)
Trade and other payables - (1,321) - (1,168)
============================ ============== ============= ============== =============
- (111,598) - (111,280)
============================ ============== ============= ============== =============
Apart from the Aviva loans, as disclosed in Note 13, the fair
value of financial assets and liabilities is not materially
different from their carrying value in the Financial
Statements.
CREDIT RISK
Credit risk is the risk that a counterparty will be unable or
unwilling to meet a commitment that it has entered into with the
Group. At the reporting date, the Group's financial assets exposed
to credit risk amounted to GBP19,654,000 (2020: GBP21,726,000),
consisting of cash of GBP11,642,000 (2020: GBP12,308,000), the
secured balance held with the loan provider of GBP6,837,000 (2020:
GBP8,297,000) and rent receivable of GBP1,175,000 (2020:
GBP1,121,000).
In the event of default by a tenant, if it is in financial
difficulty or otherwise unable to meet its obligations under the
lease, the Group will suffer a rental shortfall and incur
additional expenses until the property is re-let. These expenses
could include legal and surveyor's costs in re-letting, maintenance
costs, insurances, rates and marketing costs and may have an
adverse impact on the financial condition and performance of the
Group. The Board receives regular reports on concentrations of risk
and any tenants in arrears. The Investment Manager monitors such
reports in order to anticipate, and minimise the impact of,
defaults by occupational tenants. In assessing the probability of
default of the individual debtor. The Directors have considered a
number of factors including history of default, past experience,
future expectations as well as the support the debtor receives from
its parent company and the ability to settle the amount receivable
when due.
Where there are concerns over the recoverability of rental
income, the Group monitors creditworthiness of the tenants and
makes provision for potential bad debts based on the expected
credit loss model. The Group considers historical defaults over the
expected life of the trade receivables and any information related
to the debtors available at year end to determine forward-looking
estimates of possible defaulting. This is consistent with the
approach followed in prior periods. Given an improved rent profile
of tenants and having considered their ability to pay, the wider
expected credit losses considered by the Group has reduced to
GBP85,000 at 30 September 2021 from GBP700,000 at 30 September
2020. Having given consideration to these criteria, the Group has
determined that there are no additional expected credit losses
other than those already recognised. As at 30 September 2021,
collection plans are in place to recover any outstanding amounts.
There were no other financial assets which were either past due or
considered impaired at 30 September 2021 or at 30 September
2020.
At 30 September 2021, the Group held GBP8,789,000 (2020:
GBP8,239,000) with RBS and GBP2,853,000 (2020: GBP4,069,000) with
Bank of Scotland plc. Bankruptcy or insolvency of the bank holding
cash balances may cause the Group's ability to access cash placed
with them to be delayed, limited or lost. Both RBS and Bank of
Scotland plc are rated by all the main rating agencies. Should the
credit quality or the financial position of the banks currently
employed significantly deteriorate, cash holdings would be moved to
another bank. As at 30 September 2021, Standard & Poor's credit
rating for RBS was A-1 and Moody's was P-1. The equivalent credit
ratings for Bank of Scotland plc were A-1 and P-1, respectively.
There has been no change in the fair values of cash or receivables
as a result of changes in credit risk in the current or prior
periods.
LIQUIDITY RISK
Liquidity risk is the risk that the Group will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. The Group's investments comprise commercial
properties.
Property and property-related assets in which the Group invests
are not traded in an organised public market and are relatively
illiquid assets, requiring individual attention to sell in an
orderly way. As a result, the Group may not be able to liquidate
quickly its investments in these properties at an amount close to
their fair value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the
Investment Manager and monitored on a quarterly basis by the Board.
In order to mitigate liquidity risk the Group has a comprehensive
ten-year cash flow forecast that aims to have sufficient cash
balances, taking into account projected receipts for rental income
and property sales, to meet its obligations for a period of at
least 12 months. At the reporting date, the maturity of the
financial assets was:
FINANCIAL ASSETS AS AT 30 SEPTEMBER 2021
More than More than
three months one year
but less but less More than
Three months than one than three three years
or less GBP'000 year GBP'000 years GBP'000 GBP'000 Total GBP'000
========================== ================ ============= ============== ============ =============
Cash and cash equivalents 11,642 - - - 11,642
Secured balance held
with loan provider 6,837 - - - 6,837
Rent receivable 1,175 - - - 1,175
========================== ================ ============= ============== ============ =============
Total 19,654 - - - 19,654
========================== ================ ============= ============== ============ =============
FINANCIAL ASSETS AS AT 30 SEPTEMBER 2020
More than More than
three months one year
but less but less More than
Three months than one than three three years
or less GBP'000 year GBP'000 years GBP'000 GBP'000 Total GBP'000
========================== ================ ============= ============== ============ =============
Cash and cash equivalents 12,308 - - - 12,308
Secured balance held
with loan provider 8,297 - - - 8,297
Rent receivable 1,121 - - - 1,121
========================== ================ ============= ============== ============ =============
Total 21,726 - - - 21,726
========================== ================ ============= ============== ============ =============
At the reporting date, the financial liabilities on a
contractual maturity basis were:
FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2021
More than More than
three months one year
but less but less More than
Three months than one than three three years
or less GBP'000 year GBP'000 years GBP'000 GBP'000 Total GBP'000
==================== ================ ============= ============== ============ =============
Loan - - - 111,076 111,076
Interest payable on
loan 802 2,378 6,389 6,162 15,731
Other payables 877 - - - 877
==================== ================ ============= ============== ============ =============
Total 1,679 2,378 6,389 117,238 127,684
==================== ================ ============= ============== ============ =============
FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2020
More than More than
three months one year
but less but less More than
Three months than one than three three years
or less GBP'000 year GBP'000 years GBP'000 GBP'000 Total GBP'000
==================== ================ ============= ============== ============ =============
Loan - - - 111,076 111,076
Interest payable on
loan 802 2,379 6,361 9,367 18,909
Other payables 724 - - - 724
==================== ================ ============= ============== ============ =============
Total 1,526 2,379 6,361 120,443 130,709
==================== ================ ============= ============== ============ =============
Included in the tables above are payments due to Aviva,
including interest payable, in connection with the loans as
detailed in Note 13.
As at 30 September 2021 the Group remain in compliance with the
loan covenants.
As at 30 September 2021, EPIC 1 reported a LTV of 36.99% (LTV of
50% required), the historical interest cover was reported at
605.09% (historical interest cover of at least 300% required) and
the projected interest cover was reported at 532.97% (projected
interest cover of at least 300% required).
As at 30 September 2021, EPIC 2 reported a LTV of 36.68% (LTV of
50% required), the historical interest cover was reported at
437.38% (historical interest cover of at least 300% required) and
the projected interest cover was reported at 614.39% (projected
interest cover of at least 300% required).
INTEREST RATE RISK
Some of the Group's financial instruments will be
interest-bearing. They are a mix of both fixed and variable rate
instruments with differing maturities. As a consequence, the Group
is exposed to interest rate risk due to fluctuations in the
prevailing market rate. The Group's exposure to floating interest
rates gives cash flow interest rate risk and its exposure to fixed
interest rates gives fair value interest rate risk.
The following table sets out the carrying amount of the Group's
financial instruments that are exposed to interest rate risk:
As at 30 September 2021 As at 30 September 2020
========================= =========================
Variable Variable
Fixed rate rate Fixed rate rate
GBP'000 GBP'000 GBP'000 GBP'000
=============================== ============= ========== ============= ==========
Cash and cash equivalents - 11,642 - 12,038
Secured balance held with loan
provider - 6,837 - 8,297
Loan (110,277) - (110,112) -
=============================== ============= ========== ============= ==========
VARIABLE RATE
An increase of 0.50% in interest rates would have increased the
reported profit for the year and increased the net assets at 30
September 2021 by GBP92,000 (2020: GBP102,000), a decrease of 0.50%
in interest rates would have had an equal and opposite effect.
These calculations are based on the variable rate balances at the
respective balance sheet date and are not representative of the
year as a whole, nor reflective of actual future conditions.
FIXED RATE
Considering the effect on the loan balance, it is estimated that
an increase of 0.50% in interest rates as at the balance sheet date
would have decreased its fair value by approximately GBP2,500,000
(2020: GBP3,200,000) and a decrease of 0.50% would have increased
its fair value by approximately GBP2,600,000 (2020: GBP3,300,000).
As the loan balance is recognised in the Consolidated Financial
Statements at amortised cost, this change in fair value would not
have resulted in a change in the reported loss for the year, nor
the net assets of the Group at the year end.
20. CAPITAL COMMITMENTS
The Group had contractual commitments totalling GBP405,000 in
relation to capital works at Coatbridge Pods, Barnsley, Rhyl, Hull,
Birmingham, Widnes and Haddington, as at 30 September 2021 (30
September 2020: GBP4,666,000).
21. OPERATING LEASES
The Group leases out its investment properties under operating
leases. These properties are measured under the fair value model as
the properties are held to earn rentals. All leases are
non-cancellable with a weighted average unexpired lease term of 5.0
years (2020: 5.7 years).
The Group's investment properties are leased to tenants under
the terms of property leases that include rent reviews as
determined at the inception of the lease. These reviews can be
linked to Retail Price Index, fixed rate or stepped rent
increases.
The following table sets out the maturity analysis of leases
receivables, showing the undiscounted lease payments under
non-cancellable operating leases receivable by the Group:
As at As at
30 September 30 September
2021 GBP'000 2020 GBP'000
=================== ============= =============
Year 1 19,448 18,646
Year 2 16,136 17,210
Year 3 14,267 13,727
Year 4 12,887 12,111
Year 5 10,643 11,033
Year 6 and onwards 27,507 39,881
=================== ============= =============
Total 100,888 112,608
=================== ============= =============
The largest single tenant at the year end accounted for 6.4%
(2020: 6.6%) of the contracted rent.
22. ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)
Ediston Investment Services Limited has been authorised as an
AIFM by the Financial Conduct Authority under the AIFMD regulations
and became the Group's AIFM with effect from 24 February 2016. In
accordance with the AIFMD, information in relation to the Group's
leverage and the remuneration of the Company's AIFM is required to
be made available to investors. Ediston Investment Services Limited
has provided disclosures on its website,
https://www.ediston.com/about-us-ediston-investment-services-limited/
incorporating the requirements of the AIFMD regulations regarding
remuneration.
The Group's maximum and actual leverage levels at 30 September
2021 are shown below:
Commitment
Leverage exposure Gross method method
================== ============ ==========
Maximum limit 3.00 3.00
================== ============ ==========
Actual 1.55 1.56
================== ============ ==========
For the purposes of the AIFMD, leverage is any method which
increases the Group's exposure, including the borrowing of cash and
the use of derivatives. It is expressed as a percentage of the
Group's exposure to its net asset value and is calculated on both a
gross and commitment method.
Under the gross method, exposure represents the sum of the
Group's positions after deduction of cash balances, without taking
account of any hedging or netting arrangements. Under the
commitment method, exposure is calculated without the deduction of
cash balances and after certain hedging and netting positions are
offset against each other.
The leverage limits are set by the AIFM and approved by the
Board, and are in line with the maximum leverage levels permitted
in the Company's Articles of Association. The AIFM is also required
to comply with the gearing parameters set by the Board in relation
to borrowings.
Detailed regulatory disclosures to investors in accordance with
the AIFMD are contained on the Company's website.
23. SUBSEQUENT EVENTS
On 24 November 2021, the Company sold its office building,
Midland Bridge House, Bath, for GBP5.925m. The net initial yield is
5.7%, which is in line with the 30 September 2021 valuation.
On 13 December 2021 the Company sold its office buildings in
Edinburgh (145 Morrison Street) and Newcastle (Citygate II). The
headline price of GBP31,435,000 is 3.4% below the 30 September 2021
valuation. Once deductions for topped up rents and rent-free
periods are factored in, the net receipt to the Company is
GBP30,496,770. These sales are in line with the Company's new
strategy to sell its office portfolio and to reinvest the proceeds
in retail warehouses, a sector in which the Investment Manager has
considerable experience as an investor, developer and asset
manager.
No further significant events have occurred between the
Statement of Financial Position date and the date when the
Financial Statements have been approved, which would require
adjustments to, or disclosure in the Financial Statements.
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END
FR UWURRAVUUAUA
(END) Dow Jones Newswires
December 20, 2021 02:00 ET (07:00 GMT)
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