TIDMDRIP
RNS Number : 3442B
Drum Income Plus REIT PLC
29 January 2020
Report & Financial Statements for the period to 30 September
2019
DRIP REIT HIGHLIGHTS
LTV* OCCUPANCY RATE*
DIVERSIFICATION
NUMBER OF 40.76% 89.8%
ASSETS TENANTS
10 87 AS AT OF SEPTEMBER AS AT OF SEPTEMBER
2019 2019
AS AT OF SEPTEMBER
2019
------------------------- -------------------------
CURRENT YIELD* NAV PER SHARE*
ANNUAL RENT ROLL* GROSS CONTRACTED RENT
7.1% 85.6p
GBP4.24M
AS AT OF SEPTEMBER AS AT OF SEPTEMBER
AS AT OF SEPTEMBER 2019 2019
2019
------------------------- -------------------------
WAULT* NET DIVID YIELD* EQUITY SHAREHOLDERS'
FUNDS
5.85 YEARS 7.0%
32.5M
AS AT OF SEPTEMBER AS AT OF SEPTEMBER
2019 2019 AS AT OF SEPTEMBER
2019
------------------------- -------------------------
PROPERTY VALUATION
COMPREHENSIVE REVENUE COMPREHENSIVE CAPITAL LOSS
PROFIT LOSS
GBP3.1M
GBP2.0M GBP3.0M
FOR THE PERIOD
FOR THE PERIOD FOR THE PERIOD
------------------------- -------------------------
* Please refer to glossary.
The Board believes the above Alternative Performance Measures
(APMs) are the most appropriate performance measures. A full list
of the Comprehensive Key Performance Indicators is shown below.
Chairman's Statement
INTRODUCTION
Drum Income Plus REIT was established in May 2015 with the
initial objective being to provide its shareholders with a regular
dividend income together with the prospect of income and capital
growth over the longer term from a portfolio of regional real
estate assets in the UK. I am pleased to present the annual report
and accounts for the year to 30th September 2019.
FINANCIAL HIGHLIGHTS
The Group's net asset value per share at 30 September 2019 was
84.5 pence.
When dividends paid during the year are included the net asset
value total return for the year was 6.5%.
At the time of writing the share price stands at 77.5 pence,
representing a premium of 9.5% when compared to the year end net
asset value per share.
DIVIDS
The Company has paid four quarterly dividends during the period
each of 1.5 pence per share, making total dividends in respect of
the financial year of 6.0 pence per share. The dividend yield on
the current share price is 6.3%.
It is the Board's intention, in the absence of unforeseen
circumstances to at least maintain the 6.0p level of payment for
the current period.
INVESTMENT REPORT
The Company was fully invested and had drawn down substantially
all of its available loan facilities when it entered the financial
year. No properties were sold during the year and therefore all the
investment activity related to the existing properties and, in
particular, the realization of a number of asset management
opportunities at the respective properties.
A full description of the portfolio and the management
initiatives is given in the Investment Adviser's Report.
A review of the UK Commercial Property Market as we near the end
of 2019 would suggest that the well established trends of recent
months and indeed quarters remain firmly in place. Institutional
investors from all over the world would appear to have large
quantities of capital available to invest in the UK market, but the
majority are waiting for some clarity on Brexit and the resulting
implications for the sector.
Whilst demand for top quality office property in the UK regional
cities remains very high against a backdrop of increasingly tight
supply, the retail sector in particular continues to display very
negative sentiment in
the face of both the ongoing decline of high streets and the
continuing structural shift toward increased online spend.
As a result of the foregoing, the valuation of the retail parks
and malls within the portfolio have inevitably come under pressure,
and this is reflected in the lower NAV, but our managers continue
to work on asset management initiatives on each of the properties
with a view to improving the long-term NAV, and they have been able
in a number of situations to both improve lease terms and rents,
and these will stand the portfolio in good stead as market
conditions hopefully improve once some of the macro-economic
uncertainties are finally removed.
OUTLOOK
Whilst the result of the UK general Election in December 2019
may have given us greater clarity on the direction of travel, there
is as yet no such clarity for the real estate sector on what the
implications will be of whatever Brexit agreement is eventually
reached. As a result, risks and a level of uncertainty are likely
to remain throughout 2020.
That said, the UK real estate market remains an attractive one
for global investors, and as uncertainties are gradually removed,
we may see
some of the pent up demand for commercial estate being released,
which could be beneficial for valuations.
Our own portfolio is in excellent condition, and is well placed
to benefit over time from the various asset management
opportunities which continue to be undertaken by the managers.
Hugh Little | Chairman
28 January 2020
Board of Directors
The Board comprises three Directors, two of whom are
non-executive and independent of the AIFM and the Investment
Adviser. The Directors are responsible for the determination of the
Group's investment policy and the overall supervision of the Group.
The Directors of the Company who were in office during the year and
up to the date of signing the financial statement were:
Hugh Little (Chairman) qualified as a chartered accountant in
1982. In 1986 he joined Aberdeen Asset Management and from 1990 to
2006 oversaw the growth of the private equity business before
moving in to the corporate team as Head of Acquisitions. He is
Chairman of CLAN Cancer Support and Governor of Robert Gordon's
College.
Date of Appointment
26 March 2015
Andrew Laing (Audit Committee Chairman) originally as a
commercial lawyer, became a private equity Investment Manager in
1983 and joined Aberdeen Asset Management in 1986. As Aberdeen
grew, he held the roles of Managing Director, COO, Deputy CEO and
latterly Head of Integration following the merger with Standard
Life. Mr Laing also held the role of Director with Aberdeen Asset
Management plc from January 2004 to August 2017.
Date of Appointment
4 June 2019
Alan Robertson is a Fellow of the Royal Institution of Chartered
Surveyors (FRICS) with over 35 years experience of working in the
commercial real estate sector. He held posts as managing director
of JLL in both Scotland and Turkey before taking up the post of CEO
of JLL in the Middle East and North Africa region from which he
retired on 31 March 2018. He is a director of Struan Property
Limited and is a member of the Court of Heriot Watt University.
Date of Appointment
26 March 2015
All Directors hold memberships in the Audit Committee,
Investment Committee, Management Engagement Committee, and
Nomination Committee. Mr Laing is Chairman of the Audit Committee.
Mr Little is Chairman of the Investment, Management Engagement and
Nomination Committees.
John Evans resigned as a director of the Company on 4 June
2019.
Investment Adviser's Report
Drum Income Plus REIT plc ("DRIP" or "the Group") is a UK real
estate investment trust ("REIT") which listed on the main market of
the London Stock Exchange on 29 May 2015 ("Admission"). Its
portfolio comprises ten properties predominantly let to
institutional grade tenants on long leases throughout the UK and is
characterised by smaller lot sizes. The Group offers investors the
opportunity to access a diversified portfolio of UK commercial real
estate through a closed-ended fund. By targeting smaller lot size
properties, the Group intends to provide investors with an
attractive level of income and the potential for income and capital
growth.
The Group pays quarterly dividends, equating to an annualised
dividend yield of 7% at 30 September 2019.
The proactive asset management by the Investment Adviser allowed
DRIP to maintain its dividend at 6.00 pence per share.
The total rent roll is now circa GBP4.25m pa. As we enter this
next period of the Business Plans for each asset we are beginning
to see the benefits of the asset management undertaken to date. The
latest quarterly valuations reflect the negative market sentiment
and current lack of transactional sales in the retail sector along
with the impact of not securing a positive planning result at 108
Eastern Avenue, Gloucester. The income from the portfolio remains
strong and tenant retention is high.
The Business Plans across all assets are being progressed and we
look forward to announcing the successful conclusion of these
initiatives in due course. Further information on each property is
shown below.
ACTIVE ASSET MANAGEMENT
DRIP's core strategy of active asset management to drive income
returns continues apace.
The Group invests significantly in the portfolio which both
attracts new and retains existing high quality occupiers, evidenced
through our sustained high occupancy.
THE COMPANY IMPOSES ITS DIFFERENTIATED
INVESTMENT STRATEGY ACROSS THE PORTFOLIO:
Target lot sizes of GBP2m - GBP15m in regional locations
Sector agnostic - opportunity driven
Entrepreneurial asset management
Risk-controlled development
Dividend paid quarterly
Fully covered dividend policy - growing incrementally
ANNUAL RENT ROLL
BY TENANT
TENANT PROPERTY GROSS RENT TOTAL
---------------------------------------- ----------------- ----------- ------
Sainsburys GOSFORTH 426,649 10.1%
Agilent Technologies LDA UK Ltd CHEADLE 310,000 7.3%
Poundstretcher KEW RETAIL PARK 280,000 6.6%
Scottish Network & Tourist Board MONTEITH 235,000 5.5%
Micron Europe Ltd CHEADLE 177,200 4.2%
Sofology Ltd KEW RETAIL PARK 162,000 3.8%
Worldpay Limited GATESHEAD 158,337 3.7%
Abelio Scotrail Ltd MONTEITH 129,220 3.0%
The Skills Development Scotland Co Ltd MONTEITH 126,489 3.0%
Nucana Biomed Ltd LOCHSIDE 101,376 2.4%
Remaining Portfolio 2,135,154 50.3%
----------------------------------------------------------- ----------- ------
TOTAL 4,241,425 100%
----------------------------------------------------------- ----------- ------
Investment Adviser's Report
LEASE INCOME EXPIRY PROFILE
(INCL. BREAKS)
0-2 years 35%
------------- --------------
3-5 years 36%
------------- --------------
5-10 years 17%
------------- --------------
10-15 years 11%
------------- --------------
20+ years 1%
------------- --------------
TOTAL GBP55,350,000
------------- --------------
SECTOR CONCENTRATION BY VALUE AT SEPTEMBER 2018
Offices GBP25,800,000
----------------- --------------
Shopping Centres GBP13,000,000
----------------- --------------
Retail GBP15,150,000
----------------- --------------
Industrial GBP1,400,000
----------------- --------------
TOTAL GBP55,350,000
----------------- --------------
GEOGRAPHIC CONCENTRATION BY VALUE AT SEPTEMBER 2018
North East GBP15,400,000
----------- --------------
Scotland GBP18,250,000
----------- --------------
North West GBP18,200,000
----------- --------------
South West GBP3,500,00
----------- --------------
TOTAL GBP55,350,000
----------- --------------
INNOVATIVE INVESTMENT
We continue to invest strategically into our portfolio. A
physical change drives a clear perception change in our assets
which helps to facilitate corresponding investment from our
customers and fellow stakeholders, as well as helping to attract
new occupiers to the asset.
MAYFLOWER HOUSE
GATESHEAD
Acquisition Price
GBP2.6m
Net Initial Yield at Acquisition
9.25%
Equivalent Yield at Acquisition
8.23%
Occupancy at 30.09.2019
88%
WAULT (including breaks) at 30.09.2019
4.42 years
MONTEITH HOUSE
GLASGOW
Acquisition Price
GBP5.8m
Net Initial Yield at Acquisition
7.60%
Equivalent Yield at Acquisition
6.87%
Occupancy at 30.09.2019
100%
WAULT (including breaks) at 30.09.2019
0.98 years
LAKESIDE 5500
CHEADLE ROYAL BUSINESS PARK, MANCHESTER
Acquisition Price
GBP5.4m
Net Initial Yield at Acquisition
6.71%
Equivalent Yield at Acquisition
7.56%
Occupancy at 30.09.2019
100%
WAULT (including breaks) at 30.09.2019
2.48 years
ARTHUR HOUSE
MANCHESTER
Acquisition Price
GBP4.4m
Net Initial Yield at Acquisition
4.87%
Equivalent Yield at Acquisition
7.75%
Occupancy at 30.09.2019
63%
WAULT (including breaks) at 30.09.2019
2.06 years
Investment Adviser's Report
3 LOCHSIDE WAY
EDINBURGH
Acquisition Price
GBP4.5m
Net Initial Yield at Acquisition
8.44%
Equivalent Yield at Acquisition
7.79%
Occupancy at 30.09.2019
100%
WAULT (including breaks) at 30.09.2019
1.6 years
BURNSIDE
ABERDEEN
Acquisition Price
GBP2.6m
Net Initial Yield at Acquisition
10.55%
Equivalent Yield at Acquisition
8.47%
Occupancy at 30.09.2019
52%
WAULT (including breaks) at 30.09.2019
2.03 years
KEW RETAIL PARK
SOUTHPORT
Acquisition Price
GBP8.65m
Net Initial Yield at Acquisition
8.75%
Equivalent Yield at Acquisition
7.25%
Occupancy at 30.09.2019
89%
WAULT (including breaks) at 30.09.2019
5.11 years
DULOCH PARK
DUNFERMLINE
Acquisition Price
GBP4.5m
Net Initial Yield at Acquisition
7.39%
Equivalent Yield at Acquisition
7.20%
Occupancy at 30.09.2019
94%
WAULT (including breaks) at 30.09.2019
4.14 years
EASTERN AVENUE
GLOUCESTER
Acquisition Price
GBP5.3m
Net Initial Yield at Acquisition
8.41%
Equivalent Yield at Acquisition
7.16%
Occupancy at 30.09.2018
22%
WAULT (including breaks) at 30.09.2018
7.37 years
GOSFORTH SHOPPING CENTRE
GOSFORTH
Acquisition Price
GBP12.2m
Net Initial Yield at Acquisition
7.47%
Equivalent Yield at Acquisition
7.42%
Occupancy at 30.09.2018
99%
WAULT (including breaks) at 30.09.2018
8.47 years
OUTLOOK
Real Estate has been hit hard in the last 6 months due to
investor concerns about retail. The sector has been changing for a
long time in how it is carried out as an activity, and in terms of
what consumers want to buy and from where. Investors and retailers
on the wrong side of this substantial shift are paying a big price.
However, retail is not dying, it is changing.
The advantages of real estate as an asset class remain
compelling both as a source of income and as a diversifier. In
addition, pricing does not appear stretched relative to bonds. From
an international perspective, yields are competitive against the
European markets. Supply levels are in check and development
activity subdued. Demand for property investment companies to
access the market should rise as the liquidity issues in the daily
traded property unit trusts continue to be a cause for concern.
This should be a positive for the closed-ended investment company
sector and its ability to manage illiquid asset classes.
Principal Risks and Uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
forthcoming financial year and could cause actual results to differ
materially from expected and historical results.
The Directors have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten the business model, future performance, solvency or
liquidity.
The table on the right outlines the key risk factors identified,
but does not purport to be exhaustive as there may be additional
risks that materialise over time that the Group has not yet
identified or has deemed not likely to have a potentially material
adverse effect on the business.
RISK TYPE RISKS
Strategic Political; as the MITIGATING FACTORS
UK prepares for leaving Well diversified regional
the EU on 31 January, property portfolio,
the impact of Brexit with no exposure to
remains unclear. Both London.
may be particularly
significant with reference
to the retail sector.
---------------------------- ---------------------------------
Investment Portfolio Tenant default. Investment policy
limits the Group's
rent roll to no more
than 20% to a single
tenant.
---------------------------- ---------------------------------
Change in demand for Focused on established
space particularly business locations
in the retail sector. for investment.
---------------------------- ---------------------------------
Market pricing affecting Active portfolio diversification
value. between office, industrial
and retail.
---------------------------- ---------------------------------
Excess concentration Active management
in geographical location of lease expiry profile
or sector. in forming acquisition
decisions.
---------------------------- ---------------------------------
Lease expiries concentrated Building specifications
in a specific year. not tailored to one
user
---------------------------- ---------------------------------
Decrease in occupancy Investment policy
limits the Group's
rent roll to no more
than 20% to a single
tenant.
---------------------------- ---------------------------------
Investment Management Poor investment decisions. Experienced Investment
Adviser.
---------------------------- ---------------------------------
Over exposure to a Agreed concentration
specific tenant, sector limits reviewed quarterly
or geographic location by the Board and continuously
by the Investment
Adviser.
---------------------------- ---------------------------------
Ineffective added Investment Adviser
value asset management is experienced in
of properties. active asset management
and pro-active with
regard to lease and
development opportunities.
---------------------------- ---------------------------------
Financial Reduced availability 3 year GBP25m revolving
or increased cost credit facility extended
of debt. in September 2019.
---------------------------- ---------------------------------
Breach of borrowing Board has stated that
covenants. it intends to target
a gearing level of
40% and this gearing
number at the point
of drawdown is lower
than that in the new
facility covenants.
---------------------------- ---------------------------------
Operational Inadequate performance Ongoing review of
controls or systems performance by independent
operated by the Investment Board of Directors.
Adviser and Administrator.
---------------------------- ---------------------------------
Regulatory Adverse impact of External professional
new or revised legislation advisers are engaged
or regulations or to review and advise
by changes in the upon control environment
interpretation or and ensure regulatory
enforcement of existing compliance.
laws and regulations.
---------------------------- ---------------------------------
Non-compliance with REIT regime compliance
the REIT regime. is reviewed by external
tax advisers and considered
by the Board in assessing
the Group's financial
position and by the
Manager in making
operational decisions
---------------------------- ---------------------------------
APPROVAL OF STRATEGIC REPORT
The Strategic Report incorporating the Chairman's Statement,
Investment Adviser's Report and Principal Risks and Uncertainties
was approved by the Board of Directors and signed on its behalf
by:
Hugh Little
Chairman
28 January 2020
Corporate Governance Statement
CORPORATE GOVERNANCE
The Board has considered the principles set out in the UK
Corporate Governance Code (published in April 2016), which can be
found at www.frc.org.uk, and the Association of Investment
Companies Code of Corporate Governance (the 'AIC Code') by
reference to the AIC Corporate Governance Guide for Investment
Companies (the 'AIC Guide'), both of which can be found at
www.theaic.co.uk. The Board has not adopted early the revised UK
Corporate Governance Code published in July 2018, which first
applies to the Company for its financial year commencing 1 October
2019.
The Board has considered the AIC Code of Corporate Governance
("2019 AIC Code') published in early 2019. The Company will report
against the 2019 AIC Code in the Annual Report and Financial
Statements for the year ending 30 September 2020. It is not
expected that the Company will report any material departures from
the principles contained within the 2019 AIC Code.
The UK Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive;
-- executive Directors' remuneration; and
-- the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in
the UK
Corporate Governance Code, the Board considers these provisions
are not relevant to the position of the Group being an externally
managed investment company. In particular, all of the Group's
day-to-day management and administrative functions are outsourced
to third parties. As a result, the Group has no executive
Directors, employees or internal operations. The Group has
therefore not reported further in respect of these provisions.
Except for the above provisions, and the provision relating to
the appointment of a Senior Independent Director discussed below,
the Group complied throughout the year with the recommendations of
the AIC Code and the relevant provisions of the UK Corporate
Governance Code.
COMPANY SECRETARY
The company secretarial duties for the Group has been delegated
to Maitland Administration Services (Scotland) Limited
("Maitland").
ADMINISTRATOR
The administration of the Group has been delegated to Drum Real
Estate Investment Management Ltd (DREIM). During the year the
administration was transferred from Maitland Administration
(Scotland) Limited to DREIM following an evaluation made by the
Board. DREIM has also outsourced the accounting function to Ander
Anderson & Brown LLP (AAB).
INVESTMENT MANAGER/INVESTMENT ADVISER
R&H Fund Services (Jersey) Limited has been appointed by the
Group, pursuant to the Investment
Management Agreement, to be the Group's Alternative Investment
Fund Manager ('AIFM' or 'Investment Manager'), under which it is
responsible for overall portfolio management and compliance with
the Group's investment policy, ensuring compliance with the
requirements of the Alternative Investment Fund Manager Directive
('AIFMD') that apply to the Group, and undertaking all risk
management. The AIFM has delegated the day-to-day management of the
Group, pursuant to the Investment Managers' Delegation Agreement,
to Drum Real Estate Investment Management Limited ('DREIM' or the
'Investment Adviser'). DREIM advises the Group on the acquisition
of its investment portfolio and on the development, management and
disposal of UK commercial assets in its portfolio.
In accordance with the AIFMD, the AIFM's remuneration policy and
required disclosures are available from the Investment Manager on
request.
The Investment Adviser provides investment management and other
services to the Group. Details of the arrangements between the
Group and the Investment Adviser in respect of management services
are provided in note 17.
The Board keeps the appropriateness of the Investment Adviser's
appointment under review. In doing so the Board reviews performance
quarterly and considers the past
investment performance of the Group and the capability and
resources of the Investment Adviser to deliver satisfactory
investment performance in the future. It also reviews the length of
the notice period of the investment management agreement and the
fees payable to the Investment Adviser, together with the standard
of the other services provided.
INDEPENCE
The Board consists solely of non-executive Directors with Hugh
Little as Chairman. Two of the Directors are considered by the
Board to be independent of the AIFM. From the next AGM onwards, the
Directors will be required to submit themselves for re-election
annually. New Directors will receive an induction from the
Investment Adviser and the Administrator on joining the Board, and
all Directors will receive other relevant training as
necessary.
OPERATIONAL STRUCTURE
The basis on which the Group aims to generate value over the
longer term is set out in its investment objective and investment
policy.
A management agreement between the Group and the Investment
Adviser sets out the matters over which the Investment Adviser has
authority and the limits beyond which Board approval must be
sought. All other matters, including investment and dividend
policies, corporate strategy, gearing, corporate
governance procedures and risk management, are reserved for the
approval of the Board of Directors.
The Board meets regularly and receives full information on the
Group's investment performance, assets, liabilities and other
relevant information in advance of Board meetings.
Details of loan covenants are included in Note 13 to the
Consolidated Financial Statements.
SENIOR INDEPENT DIRECTOR
The Board does not consider it necessary to appoint a Senior
Independent Director as all the Directors endeavour to make
themselves available to Shareholders, including at general meetings
of the Company.
REMUNERATION OF DIRECTORS
The Group does not have a separate remuneration committee as the
Board as a whole fulfils the function of a remuneration
committee.
BOARD AND DIRECTORS' PERFORMANCE APPRAISAL
The performance of the Board, committees and individual
Directors is evaluated through an assessment process conducted by
the Nomination Committee and led by the Chairman.
This process involves the completion of questionnaires tailored
to suit the nature of the Group, discussions with individual
Directors and individual
feedback from the Chairman to each of the Directors. The
evaluation of the Chairman is led by the Chairman of the Audit
Committee.
The Board has established four committees: Audit, Investment,
Management Engagement and Nomination. Each of the committees has
written terms of reference which are reviewed at least annually and
clearly define their responsibilities and duties. The terms of
reference for these committees are available on request.
THE AUDIT COMMITTEE
Andrew Laing took on the responsibility of being the Chairman of
the Audit Committee during the year. The Committee comprises the
full Board. In discharging its responsibilities the Committee
reviews the Interim and annual Financial Statements, the system of
internal controls, and the terms of appointment and remuneration of
the auditors. It is also the forum through which the auditor
reports to the Board. The Audit Committee is expected to meet at
least twice a year. The objectivity of the auditors will be
reviewed by the Committee, which will also review the terms under
which the external auditors are appointed to perform non-audit
services. The Committee will review the scope and results of the
audit, its cost effectiveness and the independence and objectivity
of the auditors, with particular regard to non-audit fees.
Corporate Governance Statement
THE INVESTMENT COMMITTEE
Hugh Little is the Chairman of the Investment Committee which
comprises the full Board. The Investment Committee is responsible
for authorising all purchases and sales within the Group's
portfolio. The meetings are convened as investment opportunities
arise and therefore frequency may fluctuate.
THE MANAGEMENT ENGAGEMENT COMMITTEE
Hugh Little is the Chairman of the Management Engagement
Committee which comprises the full Board. The Committee reviews the
appropriateness of the continuing appointment of the Investment
Adviser and other key service providers, together with the terms
and conditions thereof, on a regular basis.
THE NOMINATION COMMITTEE
Hugh Little is the Chairman of the Nomination Committee which
comprises the full Board. The Nomination Committee is responsible
for conducting the annual evaluation process and for considering
the composition of and succession plans for the Board.
APPOINTMENTS, DIVERSITY AND SUCCESSION PLANNING
All new appointments by the Board are subject to election by
shareholders at the AGM following their appointment. The Group's
Articles of Association require all Directors to retire at least
every three years. However in accordance with best practice, it is
expected that all Directors will be subject to election
annually.
The Board believes in the benefits of having a diverse range of
skills and backgrounds, and the need to have a balance of
experience, independence, diversity, including gender, and
knowledge on its Board of Directors. All appointments will continue
to be
based on merit and therefore the Board is unwilling to commit to
numerical diversity targets with collective competence to the task,
relevant to the sector in which the Company operates, being the
most important determinant. The Board believes that the current
Directors have the appropriate range of skills and experience
required by the Company. Diversity will continue to be considered
as an important factor in any future appointments.
Attendance at the scheduled meetings throughout the year has
been as below.
In addition to these scheduled meetings, there were a further 8
Board and Board Committee meetings during the year to deal with
other matters.
Board Audit Committee Management Engagement and Nomination Committees
Held Attended Held Attended Held Attended
John Evans (resigned 4 June
2019) 3 3 2 2 1 1
----------------------------- ----- --------- ------ ---------- ------------------ -----------------------------
Andrew Laing (appointed 4
June 2019) 1 1 0 0 0 0
----------------------------- ----- --------- ------ ---------- ------------------ -----------------------------
Hugh Little 4 4 2 2 1 1
----------------------------- ----- --------- ------ ---------- ------------------ -----------------------------
Alan Robertson 4 4 2 2 1 1
----------------------------- ----- --------- ------ ---------- ------------------ -----------------------------
GOING CONCERN
Under Provision C.1.3 of the UK Corporate Governance Code (the
'Code'), the Board needs to consider whether it is appropriate to
adopt the going concern basis of accounting in preparing the
Financial Statements. The Board continues to adopt the going
concern basis and the detailed consideration is contained below.
The viability statement under which the Directors assess the
prospects of the group over a longer period is contained below.
RELATIONS WITH SHAREHOLDERS
The Group seeks the views of its shareholders and places great
importance on communication with them. The Board receives regular
reports, from the Investment Adviser and from the Corporate Broker,
on the views of shareholders, and the Chairman and other Directors
make themselves available to meet shareholders, when required, to
discuss any significant issues that have arisen and address
shareholder concerns and queries. The AGM will be held on 19 March
2020 and it is hoped that this will provide a forum for
shareholders to meet and discuss issues with the Board and the
Investment Adviser.
By order of the Board
Maitland Administration Services (Scotland) Limited
Company Secretary
28 January 2020
Directors' Report
The Directors present The interim dividends paid during the year
their report and were as follows:
audited Financial Payment date Rate per share
Statements of the Fourth interim dividend 23 November 2018 1.5p
Group for the twelve ------------------ ---------------
months ended 30 First interim dividend 22 February 2019 1.5p
September 2019. ------------------ ---------------
The Corporate Governance Second interim dividend 24 May 2019 1.5p
Statement forms ------------------ ---------------
part of their report. Third interim dividend 23 August 2019 1.5p
The Group's Strategic ------------------ ---------------
Report is contained
in the Financial A further interim dividend of 1.5 pence per
Statements. share, was paid on
22 November 2019.
RESULTS AND DIVIDS
The results for the year are set out in the attached Financial
Statements.
It is the policy of the Directors to declare and pay dividends
as quarterly interim dividends. The Directors do not therefore
recommend a final dividend.
DIVID POLICY
Subject to market conditions and performance, financial position
and financial outlook, it is the Directors' intention to pay an
attractive level of dividend income to shareholders on a quarterly
basis. Whilst not forming part of the Company's dividend policy,
the Board is targeting aggregate quarterly dividends of at least
6.0p per share in respect of the year ended 30 September 2020.
PRINCIPAL ACTIVITIES AND STATUS
Drum Income Plus REIT plc (the Company) is registered as a
public limited company in terms of the Companies Act 2006 (number:
09511797). It is an investment company as defined by Section 833 of
the Companies Act 2006.
The Company and its subsidiary Drum Income Plus Limited
(together 'the Group') is a closed ended
property investment group which was launched in May 2015. The
Company has a single class of ordinary shares in issue, which are
listed on the premium segment of the Official List and traded on
the London Stock Exchange's Main Market. The Group subsequent to
its launch, entered the Real Estate Investment Trust (REIT) regime
for the purposes of UK taxation.
SUBSIDIARY COMPANY
The Company has a 100% interest in Drum Income Plus Limited,
company, number 09515513, a property investment company, details of
which are set out in Note 10 to the Consolidated Financial
Statements.
INVESTMENT OBJECTIVE
The Group's investment objective is to provide investors with a
regular dividend income with the prospect of income and capital
growth over the longer term.
INVESTMENT POLICY
The Group pursues its investment objective by investing in a
diversified portfolio of UK commercial properties.
The Group invests principally in three commercial property
sectors: office, retail (including retail warehouses) and
industrial, without regard to a traditional property market
relative return benchmark.
The Group invests predominantly in income producing investments.
Investment decisions are based on analysis of, inter alia,
prospects for future income and capital growth, sector and
geographic prospects, tenant covenant strength, lease length,
initial and equivalent yields and the potential for active asset
management of the property.
The Group does not invest in other investment companies or
funds. However, the Group may hold property through special purpose
vehicles and is permitted to invest up to 25% of total assets, at
the time of investment, in joint ventures which hold real estate
directly. The Group is also permitted to forward fund purchases of
properties on a pre-let or a non-pre-let basis and obtain options
over properties.
Investment risk is spread through investing in a range of
geographical areas and sectors, and through letting properties,
where possible, to low risk tenants. Although the Group has not set
any maximum geographic exposure or maximum weightings in any of the
three principal property sectors, it may invest no more than 25% of
total assets, at the time of investment, in other sectors such as
leisure, residential, student residential, healthcare and hotels.
The Group is now fully invested (including drawdown of available
debt facilities), and no single property may exceed 20% of total
assets at the time of investment. Speculative development (i.e.
properties under construction which have not been pre-let) is
restricted to a maximum of 10% of total assets at the time of
investment or commencement of the development. Development, other
than speculative development, is also restricted to a maximum of
10% of total assets at the time of investment or commencement of
the development.
The Group is not permitted to acquire an investment if, as a
result, income receivable from any one tenant, or from tenants
within the same group (other than from central or local
government), would in any one financial year exceed 20% of the
total rental income of the Group for that financial year.
The Group is permitted to invest cash held for working capital
purposes and awaiting investment in cash deposits, gilts and money
market funds.
The Board intends that gearing, calculated as borrowings as a
percentage of the Group's gross assets, will not exceed 50% at the
time of drawdown. The Board has stated that it intends to target a
gearing level of 40%.
Any material change to the investment policy requires the prior
approval of shareholders.
RISK MANAGEMENT
Under provision C.2.1 of the UK Corporate Governance Code
Directors of listed companies are required to confirm in the annual
report that they have performed a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity. The principal risks and uncertainties, together with
mitigating factors are disclosed above.
The Group's risk register is the core element of the risk
management process. The register is prepared, in conjunction with
the Board, by the Administrator, Company Secretary, Investment
Adviser and Investment Manager. The Audit Committee review and
challenge the register, assessing the likelihood of each risk, the
impact on the Group and the strength of controls operating over
each risk.
FINANCIAL RISK MANAGEMENT
Details of the financial risk management objectives and policies
followed by the Directors can be found in note 19.
KEY PERFORMANCE INDICATORS
The Board uses a number of performance measures to assess
success in meeting objectives. The key performance indicators are
as follows:
-- Dividend per share;
-- Earnings per share;
-- Net Asset Value ("NAV") per share; and
-- Premium/discount at which the Company's shares trade to NAV.
The Group's key performance indicators were chosen in light of
its investment objective.
The Group's performance against the key performance indicators
for the year under review is reported above and in the Financial
Statements.
In addition to the key performance indicators, the Board also
reports a number of other measures which it believes may be of
interest to shareholders. These include diversification;
loan-to-value; occupancy rate; annual rent roll; current yield;
gross contracted rent; and, WAULT, all shown on above. The Board
believes these measures provide background information which
shareholders should be aware of.
Directors' Report
INVESTMENT ADVISER DIRECTORS The Directors believe
Drum Real Estate Investment Biographical details that the Board has
Management Limited of the Directors, all an appropriate balance
manages the Group's of whom are non-executive, of skills, experience,
investment portfolio. can be found on above. independence and knowledge
The Board keeps the As explained in the to enable it to provide
appropriateness of Corporate Governance effective strategic
the Investment Adviser's Statement, the Board leadership and proper
appointment under review. has agreed that the guidance to the Group.
In doing so the Board Directors will retire The Board confirms
reviews performance annually. The Board that, following the
and considers the past has concluded that evaluation process
investment performance this approach is market set out in the Corporate
of the Group and the best practice it is Governance Statement,
capability and resources more appropriate, both the performance of
of the Investment Adviser for the Group and shareholders, each of the Directors
to deliver satisfactory to move towards a staggered continues to be effective
investment performance. rotation of elections and demonstrates commitment
It also considers the with at least one Director to the role. The Board
length of the notice standing for re-election therefore believes
period of the investment at each AGM. Accordingly, that it is in the interests
management contract Hugh Little, Andrew of shareholders that
and the fees payable Laing and Alan Robertson the Directors subject
to the Investment Adviser, will retire at the to re-election in accordance
together with the standard AGM and, being eligible, with the Board's policy
of the other services offer themselves for be re-elected.
provided. The Board re-election.
is satisfied with the
Investment Adviser's
ability to deliver
satisfactory investment
performance and with
the quality of the
other services provided.
It is therefore its
opinion that the continuing
appointment of the
Investment Adviser
is in the best interest
of shareholders as
a whole. Details of
the terms of the Investment
Adviser's appointment
are contained in note
17.
FUTURE DEVELOPMENTS
The likely future developments
of the Company are
contained in the Chairman'
Report above.
SUBSTANTIAL INTERESTS IN SHARE CAPITAL
As at 30 September 2019, the Company had
received notification of
the following holdings of voting rights
(under the Financial Conduct
Authority's Disclosure, Guidance and Transparency
Rules):
30 September 2019
--------------------------------------------------
Number of Ordinary Shares Percentage
held held*
Funds under
the management
of Seven Investment
Management
LLP 30,449,740++ 79.7%
Drum REIT LLP 2,000,000 5.2%
* Based on 38,201,990 shares in issue as
at 30 September 2019.
++ These shares are held on behalf of the
underlying beneficial shareholders.
On 17 December 2018 the Company received
notification that the entire holding of
Tcam Asset Management Ltd ('Tcam') had
transferred to Seven Investment Management
LLP ('7IM') as a result of the acquisition
of Tcam by 7IM. The Holding of 7IM as at
this date was 30,449,740 ordinary shares
(79.7%).
There have been no other changes notified
to the Company in respect of the above
holdings, and no new holdings notified,
since the year end.
DIRECTORS DEEDS' OF INDEMNITY
The Group has entered into deeds of indemnity in favour of each
of the Directors which were in place throughout the year and to the
date of signing this report. The deeds of indemnity give each
Director the benefit of an indemnity, out of the assets and profits
of the Group, to the extent permitted by the Companies Act 2006 and
subject to certain limitations against liabilities incurred by each
of them in the execution of their duties and exercise of the powers
as Directors of the Group. A copy of each deed of indemnity is
available for inspection at the Group's registered office during
normal business hours throughout the year, and will be available
for inspection at the AGM.
CONFLICTS OF INTEREST
Under the Companies Act 2006 a Director must avoid a situation
where he or she has, or could have, a direct or indirect interest
that conflicts, or possibly may conflict, with the Group's
interests. The requirement is very broad and could apply, for
example, if a Director becomes a director of another company or a
trustee of another organisation. The Companies Act 2006 allows
directors of public companies to authorise conflicts and potential
conflicts, where appropriate, where the Articles of Association
contain a provision to this effect. The Company's Articles of
Association give the Directors authority to approve such
situations. Throughout the year, and to date, the
Company has maintained a register of Directors' conflicts of
interest which have been disclosed and approved by the other
Directors. This register is kept up-to-date and the Directors are
required to disclose to the Company Secretary any changes to
conflicts or any potential new conflicts.
LISTING RULE 9.8.4
Listing Rule 9.8.4 requires the Company to include specified
information in a single identifiable section of the Annual Report
and Financial Statements or a table cross referencing where the
information is set out. No disclosures are required in relation to
Listing Rule 9.8.4.
OTHER COMPANIES ACT 2006 DISCLOSURES
- The Company's equity capital structure consists wholly of
Ordinary Shares. Details of the share capital, including voting
rights, are set out in Note 16 to the Financial Statements.
- Details of the substantial shareholders in the Company are
listed above.
- The rules for appointment and replacement of Directors are
contained in the Articles of Association of the Company. In respect
of periodic retirement, the Articles of Association provide that
each Director is required to retire at the third AGM after the AGM
at which last elected.
-
Amendment of the Articles of Association and powers to issue and
buy back shares require shareholder authority.
- There are no significant restrictions concerning the transfer
of securities in the Company (other than certain restrictions
imposed by laws and regulations such as insider trading laws); no
agreements known to the Company concerning restrictions on the
transfer of securities in the Company or on voting rights; and no
special rights with regard to control attached to securities.
Pursuant to the Company's loan facility, mandatory prepayment
may be required in the event of a change of control of the
Company; there are no other significant agreements which the Group
is a party to that might be affected by a change of control of the
Company following a takeover bid.
- There are no agreements between the Group and the Directors
providing for compensation for loss of office that occurs because
of a takeover bid.
Directors' Report
RESOLUTIONS TO BE PROPOSED AT THE ANNUAL GENERAL MEETING
The Notice of Annual General Meeting is contained in the 2019
Annual Report and Financial Statements.
Resolution 1 - To receive the Company's Annual Report and
Financial Statements for the year ended 30 September 2019
Resolution 2 - To approve the Directors' Remuneration Report
Under section 420 of the Companies Act 2006 (the "Act"), the
Directors must prepare an annual report detailing the remuneration
of the Directors (the "Directors' Remuneration Report"). The act
also requires that a resolution be put to shareholders each year
for their approval of that report. The Directors' Remuneration
Report can be found in the 2019 Annual Report. Resolution 2 is an
advisory vote only.
Resolution 3 - To approve the Dividend Policy
Subject to market conditions and the Company's performance,
financial position and financial outlook, it is the Directors'
intention to pay an attractive level of dividend income to
shareholders on a quarterly basis. In order to be able to continue
paying a consistent dividend on a regular basis, and to ensure that
sufficient distributions are made to meet the Group's REIT status,
the Company intends to continue to pay
all dividends as interim dividends. Recognising that this means
that shareholders will not have the opportunity to vote on a final
dividend, the Company will instead propose a non-binding resolution
to approve the Company's dividend policy at each AGM.
Resolutions 4 to 6 - To re-elect Hugh Little and Alan Robertson
and elect Andrew Laing as Directors of the Company
The Board has agreed, in accordance with corporate governance
best practice, that each of the Directors wishing to continue to
serve on the Board, will retire annually and offer themselves for
election or re-election. This decision is explained in more detail
within the Corporate Governance Statement of the 2019 Annual
Report. Accordingly, Hugh Little and Alan Robertson, retire at the
AGM and, being eligible, offer themselves for re-election. Andrew
Laing who was appointed by the Board during the year will retire at
the AGM and, being eligible, offers himself for re-election.
Resolution 7 - To re-appoint PricewaterhouseCoopers LLP as the
Company's auditors and to authorise the Directors to determine its
remuneration
Resolution 8 - To approve the Directors' general authority to
issue shares
The Directors are seeking authority to allot new shares.
Resolution 8 will, if passed, authorise the Directors to
allot new shares up to an aggregate nominal amount of GBP76,040
being 20% of the issued shares as at 5 December 2019. This
resolution would therefore authorise the Directors to allot up to
7,640,040 shares.
Resolution 9 - To approve by Special Resolution that the
Directors be authorised to issue shares on a non pre-emptive
basis
Resolution 9, which is a special resolution, seeks to provide
the Directors with the authority to issue shares or sell shares
held in treasury on a non pre-emptive basis for cash (i.e. without
first offering such shares to existing shareholders pro-rata to
their existing holdings) up to an aggregate nominal amount of
GBP76,040 (representing 20% of the issued ordinary share capital of
the Company as at 5 December 2019). The Company does not currently
hold any shares in treasury.
The authorities granted under resolutions 8 and 9 will expire at
the conclusion of the next Annual General Meeting of the Company
after the passing of the resolutions or on the expiry of 15 months
from the passing of the resolutions, unless they are previously
renewed, varied or revoked. It is expected that the Company will
seek these authorities on an annual basis.
The authorities sought under resolutions 8 and 9 will only be
used to issue shares at a premium to net asset value and only when
the
Directors believe that it would be in the best interests of the
Group to do so.
Resolution 10 - To approve by Special Resolution that the
Company be authorised to buy back its own shares
Given the early stage in the Group's life, it is unlikely that
the Directors will buy back any Ordinary Shares in the short term.
Thereafter any buyback of Ordinary Shares will be subject to the
Companies Act 2006 (as amended), the Listing Rules and within
guidelines established by the Board from time to time (which take
into account the income and cash flow requirements of the
Group).
Resolution 10 will be proposed as a special resolution and seeks
to provide the Directors with the authority to purchase up to
5,726,478 Ordinary Shares or, if less, the number representing
approximately 14.99% of the Company's Ordinary Shares in issue at
the date of the passing of resolution 10. This will replace the
Company's existing authority to purchase up to 5,726,478 Ordinary
Shares.
This authority will expire at the conclusion of the next AGM of
the Company after the passing of this resolution unless it is
previously renewed, varied or revoked.
Resolution 11 - To allow a general meeting, other than an Annual
General Meeting, to be called on not less than 14 days clear
notice
Resolution 11 is being proposed to reflect the provisions of the
Companies Act 2006 relating to meetings and the minimum notice
period for listed Company General Meetings being increased to 21
clear days, but with an ability for companies to reduce this period
back to 14 clear days (other than for AGMs), provided that the
Group offers facilities for shareholders to vote by electronic
means and that there is an annual resolution of shareholders
approving the reduction in the minimum period for notice of General
Meetings (other than for AGMs) from 21 clear days to 14 clear days.
The Board is therefore proposing resolution 11 as a special
resolution to ensure that the minimum required period for notice of
General Meetings of the Group (other than for AGMs) is 14 clear
days.
The approval will be effective until the earlier of 15 months
from the passing of the resolution or the conclusion of the next
AGM of the Group when it is intended that a similar resolution will
be proposed. The Board intends that this flexibility of a shorter
notice period to be available to the Group will be used only for
non routine business and only where needed in the interests of
shareholders as a whole.
Recommendation
The Directors believe that the resolutions contained in the
Notice of AGM are in the best interests of the Company and
shareholders as a whole and unanimously recommend that shareholders
vote in favour of them, as the Directors intend to do in respect of
their beneficial shareholdings. As at 5 December 2019 the total
beneficial shareholdings held by the Directors was 150,000 ordinary
shares, which represented 0.39 per cent of the total voting
rights.
DISCLOSURE OF INFORMATION TO THE AUDITOR
The Directors confirm that, so far as each of the Directors is
aware, there is no relevant information of which the Company's
auditors are unaware and the Directors have taken all the steps
that they ought to have taken as Directors to make themselves aware
of any relevant audit information and to establish that the
Company's auditors are aware of the information.
AUDITOR
The Independent Auditors' Report can be found below.
SOCIAL COMMUNITY, ENVIRONMENTAL AND DIVERSITY POLICIES
The Directors recognise that their first duty is to act in the
best financial interest of the Group's shareholders and to achieve
good
Directors' Report
financial returns against acceptable levels of risk, in
accordance with the objective of the Group.
The Investment Adviser acquires and manages properties on behalf
of the Group. It is recognised that these activities have both
direct and indirect environmental impacts.
The Investment Adviser is required to take into account the
broader social, ethical and environmental issues around the
investment properties. As a REIT with its current structure, the
Group has no direct, social, community or employee responsibilities
of its own. The Group has no greenhouse gas emissions to report nor
does it have responsibility for any other emission producing
sources.
At 30 September 2019, there were three male Directors and,
whilst there is no particular policy on the makeup of the Board,
other than having collective competence to the task, the Board
recognises the potential benefits of diversity on a Board. As a
general principle, the Group will show no bias for age, gender,
race, sexual orientation, marital status, religion, nationality,
ethnic or national origins, or disability in considering the
appointment of Directors.
As an investment vehicle the Company does not provide goods or
services in the normal course of business and does not have
customers. Accordingly, the Directors
consider that the Company does not fall within the scope of the
Modern Slavery Act 2015 and is not, therefore, obliged to make a
slavery and human trafficking statement. In any event, the Company
considers its supply chains to be of low risk as its suppliers are
typically professional advisers.
In line with the requirements of The Criminal Finances Act 2017,
the Directors confirm that the Company has a commitment to zero
tolerance towards the criminal facilitation of tax evasion.
In order to ensure compliance with the UK Bribery Act 2010, the
Directors confirm that the Company has zero tolerance towards
bribery and a commitment to carry out business openly, honestly and
fairly.
GOING CONCERN
Under Provision C.1.3 of the UK Corporate Governance Code (the
'Code'), the Board needs to consider whether it is appropriate to
adopt the going concern basis of accounting in preparing the
Financial Statements. The detailed consideration is contained
below. Based on this information the Directors believe that the
Group has the ability to meet its financial commitments for a
period of at least 12 months from the date of approval of the
Financial Statements. For this reason they continue to adopt the
going concern basis in preparing the Financial Statements.
VIABILITY STATEMENT
In accordance with the Code, the Directors have also assessed
the prospects of the Group over a period longer than the 12 months
required by the 'Going Concern' provision. The Board conducted this
review for a period of three years, which was selected for the
following reason:
- The Board regularly considers a detailed cash flow model
covering a longer time period which does not indicate any matters
which would give concern over the Group's longer term viability,
the property portfolio held by the Group is not expected to remain
unchanged over the longer term.
- The Investment Adviser is expected to undertake property
acquisitions, and may undertake sales, in line with the Group's
investment objective and policy. While the weighted average
unexpired lease term ("WAULT") of the portfolio is 5.85 years, 5 of
the 10 properties have a WAULT less than 4.0 years. The longer the
time horizon which is considered, the higher the degree of
uncertainty over the constituents of the Group's investment
property portfolio and, on balance, the Board considers that a
period of three years is an appropriate length of time over which a
detailed sensitivity analysis can be conducted whilst retaining a
reasonable level of accuracy regarding forecast rental income and
valuation movements.
The three-year viability assessment conducted by the Board
considered the Group's cash flows, dividend cover, REIT compliance
and other key financial ratios over the period.
A new GBP25 million 3 year Revolving Credit Facility was entered
into on 30 September 2019 with the Royal Bank of Scotland. The
lease incentive assumptions in the three-year viability assessment
are prudent. There is headroom in the bank covenants. As such, no
downside sensibility analysis was deemed necessary.
At 30 September 2019 the Group held GBP0.5 million in cash and
GBP22.8 million of the GBP25 million facility agreement had been
drawn down. This resource is sufficient to finance all currently
identified capital expenditure opportunities within the Group's
existing property portfolio.
The principal risks faced by the Group, together with the steps
taken to mitigate them, are highlighted in the Strategic Report and
in the Report of the Audit Committee.
Based on the results of this analysis, the Directors have
concluded that there is a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as
they fall due, for a
period of three years from the date of approval of this
Report.
By order of the Board
Maitland Administration Services (Scotland) Limited
Company Secretary
28 January 2020
Statement of Directors' Responsibilities
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and company financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101 "Reduced
Disclosure Framework", 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 of the group and company and of the profit or loss of the
group and company for that period. In preparing the financial
statements, the directors are required to:
--
select suitable accounting policies and then apply them
consistently;
-- state whether applicable IFRSs as adopted by the European
Union have been followed for the group financial statements and
United Kingdom Accounting Standards, comprising FRS 101, have been
followed for the company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and company
will continue in business.
The directors are also responsible for safeguarding the assets
of the group and company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group and
company's transactions and disclose with reasonable accuracy at any
time the financial position of the group and company and enable
them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS
Regulation.
The directors are responsible for the maintenance and integrity
of 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' confirmations
Each of the directors, whose names and functions are listed in
Board of Directors confirm that, to the best of their
knowledge:
-- the company financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101
"Reduced Disclosure Framework", and applicable law), give a true
and fair view of the assets, liabilities, financial position and
profit of the company;
-- the group financial statements, which have been 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 of the group; and
-- the Directors' Report includes a fair review of the
development and performance of the business and the position of the
group and company, together with a description of the principal
risks and uncertainties that it faces.
Hugh Little
Chairman
28 January 2020
Report of the Audit Committee
COMPOSITION OF THE AUDIT COMMITTEE
Due to the relatively small size of the Group and the
independent non-executive nature of the Directors, the Audit
Committee comprises all of the Directors. There are written terms
of reference which are reviewed at each meeting and are available
on request.
ROLE OF THE AUDIT COMMITTEE
The Committee's responsibilities are shown in the table below
together with a description of how they have been discharged. More
detailed information on certain aspects of the Committee's work is
given in the subsequent text.
RESPONSIBILITIES OF HOW THEY HAVE
THE COMMITTEE BEEN DISCHARGED
Consideration of the The Committee has met twice during the year
interim and annual under review and has reviewed the contents
Financial Statements, of the interim and annual reports. The Investment
the appropriateness Adviser and Administrator attended both
of the accounting meetings. The significant judgements and
policies applied and estimates made in the Financial Statements,
any financial reporting each of which was considered by the Committee,
judgements and key are detailed below.
assumptions.
---------------------------------------------------
Evaluation of the The Investment Adviser and Administrator
effectiveness of the maintain risk matrices which summarise the
risk management and Group's key risks and which include the
internal control procedures. Group's key internal controls over its principal
financial systems. From a review of these
matrices, a review of regular management
information, and discussion with the Investment
Adviser and Administrator, the Committee
has satisfied itself as to the effectiveness
of the risk and control procedures during
the accounting year and the period up to
the date of this report.
---------------------------------------------------
Consideration of the The Committee has reviewed the content and
narrative elements presentation of the annual financial report
of the annual financial and discussed how well it achieves the three
report, including criteria opposite. As disclosed below, the
whether the annual Committee concluded that the annual report
financial report taken is fair, balanced and understandable.
as a whole is fair,
balanced and understandable
and provides the necessary
information for shareholders
to assess the Group's
business model, strategy
and performance.
---------------------------------------------------
RESPONSIBILITIES OF HOW THEY HAVE
THE COMMITTEE BEEN DISCHARGED
Evaluation of reports The Audit Plan and related timetable were
received from the discussed with the Auditors in advance of
Auditors with respect work commencing, together with the areas
to the annual Financial of audit focus. At the conclusion of the
Statements. audit the Committee discussed the audit
findings report with the Auditors, Administrator
and Investment Adviser.
The independent auditors' report below highlights
their view of the areas of greatest risk
of misstatement and these points were discussed
with the Committee.
---------------------------------------------------------
Monitoring developments The Group ensures through its Legal Adviser,
in accounting and Administrator, Investment Adviser and Auditors
reporting requirements that any developments impacting on its responsibilities
that impact on compliance are tabled for discussion at Committee or
with relevant statutory Board meetings.
and listing requirements.
Any new standards are highlighted in the
basis of accounting section in Note 1 to
the Consolidated Financial Statements.
The Committee continued to monitor ongoing
developments in accounting and reporting
requirements; in particular the Committee
considered the UK Code of Corporate Governance
and the continuing evolution of the Viability
Statement.
---------------------------------------------------------
Management of the The scope of the audit was discussed at
relationship with the planning stage along with the staffing
the external Auditors, and timing of audit procedures to ensure
including its appointment that an effective audit could be undertaken.
and the evaluation The Committee has also reviewed the independence
of scope, effectiveness, and objectivity of the auditors and has
independence and objectivity considered the effectiveness of the audit.
of its audit.
In relation to the provision of non-audit
services by the auditors, it has been agreed
that all non-audit work to be carried out
by the auditors must be approved in advance
by the Audit Committee and any special projects
must also be approved in advance so as not
to compromise the independence of PwC as
auditors. Separate teams within PwC would
have the responsibility for completing any
non-audit work.
No non-audit work has been carried out by
PwC.
---------------------------------------------------------
Report of the Audit Committee
RISK MANAGEMENT AND INTERNAL CONTROLS
RISKS
The Directors have conducted a robust assessment of the
principal risks faced by the Group. A description of these risks
including those that would threaten its business model, future
performance, solvency or liquidity, together with the procedures
employed to manage or mitigate them, are described in the Strategic
Report.
INTERNAL CONTROLS
The Board is responsible for the internal financial control
system and for reviewing their effectiveness. It has contractually
delegated to external agencies the services the Group requires, but
the Directors are fully informed of the internal control framework
established by the Investment Adviser and the Administrator to
provide reasonable assurance on the effectiveness of internal
financial control in the following areas:
-- income flows, including rental income;
-- expenditure, including operating and finance costs;
-- capital expenditure, including pre-acquisition diligence and authorisation procedures;
-- dividend payments, including the calculation of Property Income Distributions;
-- the maintenance of proper accounting records; and
--
the reliability of the financial information upon which business
decisions are made and which is used for publication, whether to
report net asset values or used as the basis for the Financial
Statements.
As the Group has evolved, the Investment Adviser and
Administrator have continued to develop the system of internal
controls covering the processes listed above. These have been
presented to the Audit Committee in the form of a risk register
which has been discussed with the Committee.
Board members receive and consider quarterly reports from the
Investment Adviser, giving full details of the portfolio and of all
aspects of the financial position of the Group. Additional ad hoc
reports are received as required and Directors have access at all
times to the advice and services of the Company Secretary, which is
responsible to the Board for ensuring that Board procedures are
followed and that applicable rules and regulations are complied
with.
In addition, the Board keeps under its own direct control,
through the Investment Committee, all property transactions.
The review procedures detailed above have been in place
throughout the year and up to the date of this report and the Board
is satisfied with
their effectiveness and that they are in accordance with the
guidance in the Financial Reporting Council's 'Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting' in so far as applicable given the Company's size and
structure. There were no significant weaknesses or failings to
report. The procedures are designed to manage rather than eliminate
risk and, by their nature, can only provide reasonable, but not
absolute, assurance against material misstatement or loss.
The Board has reviewed the need for an internal audit function.
It has decided that the systems and procedures employed by the
Investment Adviser and the Administrator provide sufficient
assurance that a sound system of internal control, which safeguards
the Group's assets, is maintained. An internal audit function
specific to the Group is therefore considered unnecessary.
THE AUDITORS
As part of the review of auditors independence and
effectiveness, PricewaterhouseCoopers LLP ('PwC') has confirmed
that it is independent of the Group and has complied with relevant
auditing standards. In evaluating PwC's performance, the Audit
Committee has taken into consideration the standing, skills and
experience of the firm and of the audit team.
The Committee assessed the effectiveness of the audit process
through the quality of the formal reports it received from PwC at
the planning and conclusion of the audit, together with the
contribution which PwC made to the discussion of any matters raised
in these reports
or by Committee members. The Committee also took into account
any relevant observations made by the Investment Adviser and the
Administrator. The Committee is satisfied that PwC provided an
effective independent challenge in carrying out its
responsibilities.
Service provided (excluding VAT) Fee (GBP'000)
Audit fee 35
--------------
Total 35
--------------
Report of the Audit Committee
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Board of Directors is responsible for preparing the Annual
Report and Financial Statements. The Audit Committee considers the
form and content of the Annual Report and Financial Statements, any
issues which may arise and any specific areas which require
judgement. The Audit Committee considered certain significant
issues during the year. These are noted in the table below:
MATTER AUDIT COMMITTEE ACTION
VALUATION AND EXISTENCE The Investment Adviser liaises with
OF THE INVESTMENT PROPERTY the valuers on a regular basis and
PORTFOLIO meets with them prior to the production
The Group's property portfolio of each quarterly valuation. The Audit
accounted for 94.5% of Committee reviewed the results of the
its total assets as at valuation procedure throughout the
30 September 2019. Although year and discussed in detail the process
valued by an independent of producing each of the quarterly
firm of valuers, Savills, valuations with the Investment Adviser.
the valuation of the investment The Committee met with the valuer to
property portfolio is ensure that it understood the key assumptions
inherently subjective, underlying the valuation methodology
requiring significant and the sensitivities inherent in the
judgement by the valuers. valuation and any significant area
Errors in the valuation of judgement.
could have a material The Committee also discussed with the
impact on the Group's auditors the work performed to confirm
net asset value. Further the valuation and existence of the
information about the properties in the portfolio.
property portfolio and
inputs to the valuations
are set out in Note 9
to the Consolidated Financial
Statements.
-----------------------------------------------
INCOME RECOGNITION The Audit Committee reviewed the Investment
Incomplete or inaccurate Adviser's and Administrator's processes
income recognition could and controls around the recording of
have an adverse effect investment income. It also compared
on the Group's net asset the final level of income received
value, earnings per share, for the year to forecasts.
its level of dividend
cover and compliance with
REIT regulations.
-----------------------------------------------
CONCLUSION WITH RESPECT TO THE ANNUAL REPORT AND FINANCIAL
STATEMENTS
The Audit Committee has concluded that the Annual Report and
Financial Statements for the year ended 30 September 2019, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group's
business model, strategy and performance.
The Audit Committee has reported its conclusions to the Board of
Directors. The Committee reached this conclusion through a process
of review of the document and enquiries of the various parties
involved in the preparation of the annual report and Financial
Statements.
Andrew Laing
Chairman of the Audit Committee
28 January 2020
Directors' Remuneration Report
The Board comprises only independent non-executive Directors.
The Group has no executive Directors or employees. For these
reasons, it is not considered necessary to have a separate
Remuneration Committee. The full Board determines the level of
Directors' fees.
STATEMENT BY THE CHAIRMAN
Full details of the Group's policy with regards to Directors'
fees and fees paid during the year ended 30 September 2019 are
shown below.
The Remuneration Policy, which is noted below was put to
shareholders at the AGM in 2019.
The Board considers the level of Directors' fees at least
annually.
The Board has not received any direct communications from the
Group's shareholders in respect of the levels of Directors'
remuneration.
REMUNERATION POLICY
The Company's policy is that the remuneration of the Directors
should reflect the experience of the Board as a whole, the time
commitment required, and be fair and comparable with that of other
similar companies. Furthermore, the level of remuneration should be
sufficient to attract and retain the Directors needed to oversee
the Group properly and to reflect its specific circumstances. There
were no changes to the policy during the year and it is intended
that this policy will continue to apply for the year ending 30
September 2020.
The fees for the Directors are determined within the limit set
out in the Company's Articles of Association. The present limit is
an aggregate of GBP200,000 per annum and may not be changed without
seeking shareholder approval at a General Meeting. The fees are
fixed
and are payable in cash, monthly in arrears. Directors are not
eligible for bonuses, pension benefits, share options, long-term
incentive schemes or other benefits.
It is the Board's policy that Directors do not have service
contracts, but each new Director is provided with a letter of
appointment. The Directors' letters of appointment are available on
request at the Company's registered office during business hours
and will be available for 15 minutes prior to and during the
forthcoming AGM.
The directors did not receive any taxable benefits in the
current financial year.
ANNUAL REPORT ON DIRECTORS' REMUNERATION
DIRECTORS' EMOLUMENTS FOR THE YEAR
The Directors who served during the year received the following
emoluments (excluding employers' NIC) in the form of fee:
Year ended Year ended
30 September 30 September
2019 2018
(Audited) (Audited)
GBP'000 GBP'000
John Evans* 20 30
--------------- ---------------
Hugh Little (Chairman) 27 25
--------------- ---------------
Alan Robertson 20 20
--------------- ---------------
Andrew Laing* 8 -
--------------- ---------------
Total 75 75
--------------- ---------------
* Mr Evans resigned and Mr Laing was appointed on 4 June
2019.
There were no taxable benefits paid during the year (2018:
nil).
The table below shows the rates of annual fees payable to the
highest paid Director, the Chairman, and all other non-executive
Directors proposed for the year to 30 September 2020 and paid for
year to 30 September 2019:
2020 2019
(proposed) (proposed)
GBP'000 GBP'000
Chairman 30 30
------------- -------------
Audit Committee Chair 25 25
------------- -------------
Board Member 20 20
------------- -------------
Based on the current levels of fees and the Directors appointed
at the date of this report, Directors' remuneration for the year
ending 30 September 2020 will remain at the same level as paid in
the year ended 30 September 2019.
RELATIVE IMPORTANCE OF SP ON PAY
The table below sets out in respect of the financial year ended
30 September 2019 and the preceding financial year:
a) The remuneration paid to Directors; and
b) The distribution made to shareholders by way of dividend.
Year ended Year ended
30 September 30 September
2019 2018
Total remuneration GBP75,000 GBP75,000
-------------- --------------
Dividend GBP2,292,314 GBP2,244,000
-------------- --------------
Expenses GBP1,453,000 GBP1,143,000
-------------- --------------
DIRECTORS' FEES AS A PERCENTAGE OF:
2019 2018
% %
Dividend 3.3 3.3
----- -----
Expenses 5.0 7.2
----- -----
DIRECTORS' SHAREHOLDINGS
The Directors, including connected parties, who held office as
at 30 September 2019 and their interests (all beneficial) in the
Ordinary Shares of the Company as at that date and as at 30
September 2018 were as follows:
Ordinary Shares Ordinary Shares
30 September 30 September
2019 2018
John Evans n/a 100,000
---------------- ----------------
Hugh Little (Chairman) 100,000 50,000
---------------- ----------------
Alan Robertson 50,000 50,000
---------------- ----------------
Andrew Laing - n/a
---------------- ----------------
Total 150,000 200,000
---------------- ----------------
There were no changes in the interests of the Directors,
including connected parties, between 30 September 2019 and 28
January 2020.
Directors' Remuneration Report
GROUP PERFORMANCE
The Board is responsible for the Group's investment strategy and
performance, whilst the management of the investment portfolio is
delegated to the Investment Adviser. The graph below compares, for
the period from launch to 30 September 2019, the total return
(assuming all dividends are reinvested) to ordinary shareholders
compared to the FTSE All-Share Index. This index was chosen as it
is considered an indicative measure of the expected return from an
equity stock. An explanation of the performance of the Group for
the year ended 30 September 2019 is given in the Strategic
Report.
It is a company law requirement to compare the performance of
the Group's share price to a single broad equity market index on a
total return basis. However, it should be noted that constituents
of the comparative index used above are larger in size than the
Group. The Group does not have a benchmark index.
VOTING AT ANNUAL GENERAL MEETING
An ordinary resolution for the approval of this Report on
Directors' Remuneration will be put to shareholders at the AGM.
APPROVAL
The details of how shareholders voted on both the advisory vote
to approve the Directors' Remuneration Report 2018 and the binding
vote to approve the Directors' Remuneration Policy at the Company's
AGM on 7 March 2019, was as follows:
% For % Against % Withheld
Approve Directors' Remuneration Report 100.0 - -
------ ---------- -----------
Approve Directors' Remuneration Policy 100.0 - -
------ ---------- -----------
On behalf of the Board
Hugh Little
Chairman
28 January 2020
Independent Auditors' Report To The
Members Of Drum Income Plus REIT Plc
Report on the audit of the financial statements
Opinion:
In our opinion,
-- Drum Income Plus REIT plc's group financial statements and
company financial statements (the "financial statements") give a
true and fair view of the state of the group's and of the company's
affairs as at 30 September 2019 and of the group's loss and the
group's cash flows for the year then ended;
-- the group financial statements have been properly prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
-- the company financial statements have been properly prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101
"Reduced Disclosure Framework", and applicable law); and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as regards the
group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the
Annual Report & Financial Statements (the "Annual Report"),
which comprise: the Consolidated and Company Statements of
Financial Position as at 30 September 2019; the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of
Cash Flow, and the Consolidated and Company Statements of Changes
in Equity for the year then ended; and the notes to the financial
statements, which include a description of the significant
accounting policies.
Our opinion is consistent with our reporting to the Audit
Committee.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities under ISAs (UK) are further described in the
Auditors' responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We remained independent of the group in accordance with the
ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC's Ethical
Standard, as applicable to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements.
To the best of our knowledge and belief, we declare that
non-audit services prohibited by the FRC's Ethical Standard were
not provided to the group or the company.
We have provided no non-audit services to the group or the
company in the period from 1 October 2018 to 30 September 2019.
Our audit approach
Overview
-- Overall group materiality: GBP327,000 (2018: GBP359,000), based on 1% of Net Assets.
-- Overall company materiality: GBP300,000 (2018: GBP301,000), based on 1% of Net Assets.
-- The Group is an Investment Trust and engages R&H Fund
Services (Jersey) Limited (the "Manager") to manage its assets,
Drum Real Estate Investment Management Ltd as the company
administrator and Maitland Administrative Services (Scotland)
Limited as company secretary.
-- We conducted our audit of the financial statements using
information from Anderson Anderson & Brown LLP (AAB) to whom
the Administrator has, with the consent of the Directors, delegated
the provision of certain administrative functions.
-- We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the structure
of the Group, the accounting processes and controls, and the
industry in which the Group operates.
-- We obtained an understanding of the control environment in
place at both the Manager and the Administrator, and adopted a
fully substantive testing approach using reports obtained from
AAB.
-- Valuation of Investment Property (Group)
-- Revenue recognition (Group).
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made
subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain.
Independent Auditors' Report To The
Members Of Drum Income Plus REIT Plc
Capability of the audit in detecting irregularities, including
fraud
Based on our understanding of the group and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to the group's compliance with the REIT Regime
in the current year as well as testing the tax disclosures in Note
6, and we considered the extent to which non-compliance might have
a material effect on the financial statements. We also considered
those laws and regulations that have a direct impact on the
preparation of the financial statements such as the Companies Act
2006 and Chapter 15 of the UK Listing Rules applicable to
Closed-Ended Investment Funds. We evaluated management's incentives
and opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and
determined that the principal risks were related to management bias
in estimates and judgments being applied to the valuation of
investment property and inappropriate journal entries to increase
net asset value. Audit procedures performed by the group engagement
team and/or component auditors included:
-- Enquires with management and the Administrator, including
consideration of known or suspected instances of non-compliance
with laws and regulation and fraud;
-- Reviewing relevant meeting minutes, including those of the Audit Committee;
-- Evaluation of the controls implemented by the group and the
Administrator designed to prevent and detect irregularities;
-- Assessment of the group's compliance with the REIT Regime;
-- Challenging assumptions and judgements made by management in
their significant accounting estimates, in particular in relation
to the valuation of investment property (see related key audit
matter below);
-- Identifying and testing journal entries, in particular year end journal entries posted by the administrator during the preparation of the financial statements and any journals with unusual account combinations; and
-- Designing audit procedures to incorporate unpredictability
around the nature, timing or extent of our testing.
There are inherent limitations in the audit procedures described
above and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the
financial statements, the less likely we would become aware of it.
Also, the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations, or through
collusion.
Key audit matters
Key audit matters are those matters that, in the auditors'
professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had
the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the
results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on
these matters. This is not a complete list of all risks identified
by our audit.
Key audit matter How our audit addressed the key
audit matter
Valuation of Investment Property We have assessed design and implementation
Refer to the Report of the Audit of key controls around the valuation
Committee, Accounting Policies process, including the Manager's
and Notes to the Financial Statements. review and oversight of the third
Investment property is the single party valuers.
largest and most important balance We assessed the valuers' qualifications,
in the accounts, which drives expertise and independence, including
the value of the company. reading their terms of engagement
The valuation of investment property and fee arrangements with the
is inherently subjective due group to determine whether there
to, among other factors, the were any matters that might have
individual nature of each property, affected their objectivity or
its location and the expected may have placed scope limitations
future rentals for that particular on their work. We found no evidence
property. to suggest that the objectivity
The Directors engage third party of the valuers in their performance
experts to perform the valuations of the valuations was compromised.
in accordance with Royal Institute We obtained and read the valuation
of Chartered Surveyors ('RICS') reports for all of the properties
Valuation - Professional Standards. and confirmed that the valuation
In determining a properties valuation approach for each was in accordance
the valuers take into account with RICS standards and suitable
property-specific information for use in determining the carrying
such as the current tenancy agreements value for the financial statements.
and rental income. The valuers
apply assumptions
-------------------------------------------
Key audit matter How our audit addressed the key
audit matter
Valuation of Investment Property Using our own internal property
(continued) valuation specialists, we assessed
for yields and estimated market the appropriateness of the key
rent, which are influenced by assumptions and inputs used in
prevailing market yields and the investment property valuations.
comparable market transactions. This included comparison of the
The materiality of Investment investment yields used by the
Property, coupled with the significance valuers to expected range of
of estimates and judgements involved yields based on our experience
warrants specific audit focus. and knowledge of the market as
well as consideration of the
reasonability of other inputs.
We also carried out procedures,
on a sample basis, to satisfy
ourselves of the accuracy of
property information supplied
to the valuers by the manager.
We concluded that the valuation
methodologies and assumptions
used in the valuations were supportable
in light of available and comparable
market evidence.
---------------------------------------------
Revenue recognition We have assessed design and implementation
Refer to Report of the Audit of key controls in relation to
Committee, Accounting Policies the recognition of revenue in
and Notes to the Financial Statements. the financial statements.
Revenue consists primarily of We have assessed the inputs into
rental income. Rental income the rental income calculation
is based on tenancy agreements by validating the nature, specific
where there are numerous individual features, timings and other key
agreements in place. These can information back to individual
include specific, individual lease agreements on a sample
features such as the spreading basis. We then assessed the appropriateness
of tenant incentives or rent of the accounting treatment followed
review agreements. These balances and related entries recorded
require adjustments to be made in the financial statements by
to the recognition of revenue analysing the formulae followed
to ensure that the appropriate to calculate the rental revenue
value of revenue is recognised figure.
at the appropriate time over We have no material matters or
the life of the lease. exceptions to report in relation
The recognition of revenue warrants to these procedures.
additional audit focus because
of the increased inherent risk
of error due to the nonstandard
nature of individual agreements
and transactions.
---------------------------------------------
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
group and the company, the accounting processes and controls, and
the industry in which they operate.
The Company's accounting is carried out by the Administrator,
who maintains the Company's accounting records and who has
implemented controls over those accounting records.
We obtained our audit evidence from substantive tests. However,
as part of our risk assessment, we understood and assessed the
internal controls in place at the administrator to the extent
relevant to our audit. Following this assessment, we applied
professional judgement to determine the extent of testing required
over each balance in the financial statements.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Independent Auditors' Report To The
Members Of Drum Income Plus REIT Plc
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Overall GBP327,000 (2018: GBP359,000). GBP300,000 (2018: GBP301,000).
materiality
----------------------------------- -----------------------------------
How we determined 1% of net assets. 1% of net assets.
it
----------------------------------- -----------------------------------
Rationale Net assets is deemed the Net assets is deemed the
for benchmark most appropriate materiality most appropriate materiality
benchmark. Revenue or profit benchmark. Revenue or profit
are not deemed to be significant are not deemed to be significant
value drivers as these do value drivers as these do
not provide long term returns not provide long term returns
for investors, which remain for investors, which remain
the primary concern of investors. the primary concern of investors.
Asset value on the other Asset value on the other
hand incorporates the value hand incorporates the value
of a property, taking into of a property, taking into
account expected future account expected future
rental income, which provides rental income, which provides
the closest approximation the closest approximation
of shareholder value. An of shareholder value. An
investor therefore would investor therefore would
most likely be focused on most likely be focused on
total assets, rather than total assets, rather than
another profit based benchmark. another profit based benchmark.
----------------------------------- -----------------------------------
For each component in the scope of our group audit, we allocated
a materiality that is less than our overall group materiality. The
range of materiality allocated across components was GBP327,000.
Certain components were audited to a local statutory audit
materiality that was also less than our overall group
materiality.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP16,000 (Group
audit) (2018: GBP18,000) and GBP15,000 (Company audit) (2018:
GBP15,000) as well as misstatements below those amounts that, in
our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting on other information Outcome
We are required to report if We have nothing material to add
we have anything material to or to draw attention to.
add or draw attention to in respect However, because not all future
of the directors' statement in events or conditions can be predicted,
the financial statements about this statement is not a guarantee
whether the directors considered as to the group's and company's
it appropriate to adopt the going ability to continue as a going
concern basis of accounting in concern. For example, the terms
preparing the financial statements on which the United Kingdom may
and the directors' identification withdraw from the European Union
of any material uncertainties are not clear, and it is difficult
to the group's and the company's to evaluate all of the potential
ability to continue as a going implications on the group's business
concern over a period of at least and the wider economy.
twelve months from the date of
approval of the financial statements.
----------------------------------------
We are required to report if We have nothing to report.
the directors' statement relating
to Going Concern in accordance
with Listing Rule 9.8.6R(3) is
materially inconsistent with
our knowledge obtained in the
audit.
----------------------------------------
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our auditors'
report thereon. The directors are responsible for the other
information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we
identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to
report that fact. We have nothing to report based on these
responsibilities.
With respect to the Strategic Report and Directors' Report, we
also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, the Companies Act 2006
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct
Authority (FCA) require us also to report certain opinions and
matters as described below (required by ISAs (UK) unless otherwise
stated).
Strategic Report and Directors' Report
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Strategic Report and
Directors' Report for the year ended 30 September 2019 is consistent
with the financial statements and has been prepared in accordance
with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and
company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the
Strategic Report and Directors' Report. (CA06)
The directors' assessment of the prospects of the group and
of the principal risks that would threaten the solvency or liquidity
of the group
We have nothing material to add or draw attention to regarding:
* The directors' confirmation in the Annual Report that
they have carried out a robust assessment of the
principal risks facing the group, including those
that would threaten its business model, future
performance, solvency or liquidity.
* The disclosures in the Annual Report that describe
those risks and explain how they are being managed or
mitigated.
* The directors' explanation in the Annual Report as to
how they have assessed the prospects of the group,
over what period they have done so and why they
consider that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the group will be able to continue
in operation and meet its liabilities as they fall
due over the period of their assessment, including
any related disclosures drawing attention to any
necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors'
statement that they have carried out a robust assessment of
the principal risks facing the group and statement in relation
to the longer-term viability of the group. Our review was substantially
less in scope than an audit and only consisted of making inquiries
and considering the directors' process supporting their statements;
checking that the statements are in alignment with the relevant
provisions of the UK Corporate Governance Code (the "Code");
and considering whether the statements are consistent with the
knowledge and understanding of the group and company and their
environment obtained in the course of the audit. (Listing Rules)
Independent Auditors' Report To The
Members Of Drum Income Plus REIT Plc
Other Code Provisions
We have nothing to report in respect of our responsibility to
report when:
* The statement given by the directors that they
consider the Annual Report taken as a whole to be
fair, balanced and understandable, and provides the
information necessary for the members to assess the
group's and company's position and performance,
business model and strategy is materially
inconsistent with our knowledge of the group and
company obtained in the course of performing our
audit.
* The section of the Annual Report describing the work
of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
* The directors' statement relating to the company's
compliance with the Code does not properly disclose a
departure from a relevant provision of the Code
specified, under the Listing Rules, for review by the
auditors.
Directors' Remuneration
In our opinion, the part of the Directors' Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial
statements
As explained more fully in the Statement of Directors'
Responsibilities, the directors are responsible for the preparation
of the financial statements in accordance with the applicable
framework and for being satisfied that they give a true and fair
view. The directors are also responsible for such internal control
as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the company's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or the company or to cease operations, or have no realistic
alternative but to do so.
Auditors' responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors' report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/ auditorsresponsibilities. This description forms
part of our auditors' report.
Use of this report
This report, including the opinions, has been prepared for and
only for the company's members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose. We
do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- adequate accounting records have not been kept by the
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- the company financial statements and the part of the
Directors' Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Appointment
Following the recommendation of the audit committee, we were
appointed by the directors on 24 March 2017 to audit the financial
statements for the year ended 30 September 2017 and subsequent
financial periods. The period of total uninterrupted engagement is
3 years, covering the years ended 30 September 2017 to 30 September
2019.
Christopher Meyrick (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
28 January 2020
Consolidated Statements
Consolidated Statement of Comprehensive Income
Year ended Year ended
30 September 2019 30 September 2018
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----- --------- --------- --------- --------- --------- ---------
Capital losses on investments
----- --------- --------- --------- --------- --------- ---------
Held at fair value 9 - (3,133) (3,133) - (427) (427)
----- --------- --------- --------- --------- --------- ---------
Revenue
----- --------- --------- --------- --------- --------- ---------
Rental income 4,249 - 4,249 4,375 - 4,375
----- --------- --------- --------- --------- --------- ---------
Total income/(expense) 4,249 (3,133) 1,116 4,375 (427) 3,948
----- --------- --------- --------- --------- --------- ---------
Expenditure
----- --------- --------- --------- --------- --------- ---------
Investment adviser's fees 2 (335) - (335) (384) - (384)
----- --------- --------- --------- --------- --------- ---------
Other expenses 3 (1,193) - (1,193) (834) - (834)
----- --------- --------- --------- --------- --------- ---------
Total expenditure (1,528) - (1,528) (1,218) - (1,218)
----- --------- --------- --------- --------- --------- ---------
Profit/(loss) before finance costs and
taxation 2,721 (3,133) (412) 3,157 (427) 2,730
----- --------- --------- --------- --------- --------- ---------
Interest receivable 4 - - - - - -
----- --------- --------- --------- --------- --------- ---------
Interest payable 5 (657) - (657) (561) - (561)
----- --------- --------- --------- --------- --------- ---------
Profit/(loss) before taxation 2,064 (3,133) (1,069) 2,596 (427) 2,169
----- --------- --------- --------- --------- --------- ---------
Taxation 6 - - - - - -
----- --------- --------- --------- --------- --------- ---------
Other Comprehensive income - - - - - -
----- --------- --------- --------- --------- --------- ---------
Total comprehensive Income for the year 2,064 (3,133) (1,069) 2,596 (427) 2,169
----- --------- --------- --------- --------- --------- ---------
Basic and diluted earnings/(loss) per
ordinary share 8 5.40p (8.02)p (2.8)p 6.80p (1.12)p 5.68p
----- --------- --------- --------- --------- --------- ---------
The total column of this statement represents the Group's
Consolidated Statement of Comprehensive Income, prepared in
accordance with IFRS. There are no other gains and losses for the
year other than total comprehensive income/(expenses) reported
above.
The supplementary revenue 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 As at
30 September 30 September
2019 2018
Notes GBP'000 GBP'000
Non-current assets
------ -------------- --------------
Investment properties 9 54,880 57,351
------ -------------- --------------
54,880 57,351
------ -------------- --------------
Current assets
------ -------------- --------------
Trade and other receivables 11 2,643 2,649
------ -------------- --------------
Cash and cash equivalents 12 510 1,139
------ -------------- --------------
3,153 3,788
------ -------------- --------------
Total assets 58,033 61,139
------ -------------- --------------
Current liabilities
------ -------------- --------------
Trade and other payables 14 (3,014) (2,606)
------ -------------- --------------
Loan 13 - (22,721)
------ -------------- --------------
(3,014) (25,318)
------ -------------- --------------
Non-current liabilities
------ -------------- --------------
Loan 13 (22,559) -
------ -------------- --------------
Total liabilities (25,573) (25,318)
------ -------------- --------------
Net assets 32,460 35,821
------ -------------- --------------
Equity and reserves
------ -------------- --------------
Called up equity share capital 16 3,820 3,820
------ -------------- --------------
Share premium 5,335 5,335
------ -------------- --------------
Special distributable reserve 16 21,840 21,840
------ -------------- --------------
Capital reserve (5,713) (2,580)
------ -------------- --------------
Revenue reserve 7,178 7,406
------ -------------- --------------
Total Equity 32,460 35,821
------ -------------- --------------
Net asset value per Ordinary Share 15 84.97p 93.77p
------ -------------- --------------
The accompanying notes are an integral part of these Financial
Statements.
Company number: 09511797.
The Financial Statements were approved by the Board of Directors
on 28 January 2020 and signed on its behalf by:
Hugh Little
Chairman
Consolidated Statements
Consolidated Statement of Changes in Equity
For the year ended 30 September 2019
Share Special
capital distributable Total
account Share premium reserve Capital reserve Revenue reserve equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 October
2018 3,820 5,335 21,840 (2,580) 7,406 35,821
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Profit/(loss) for
the year and
total
comprehensive
income/(expense) - - - (3,133) 2,064 (1,069)
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Other
Comprehensive
Income - - - - - -
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Transactions with
owners recognised
in equity:
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Issue of Ordinary
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Share capital 16 - - - - - -
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Dividends paid 7 - - - - (2,292) (2,292)
----- --------- -------------- ----------------- ---------------- ---------------- ---------
As at 30
September 2019 3,820 5,335 21,840 (5,713) 7,178 32,460
----- --------- -------------- ----------------- ---------------- ---------------- ---------
For the year ended 30 September 2018
Share Special
capital distributable Total
account Share premium reserve Capital reserve Revenue reserve equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 October
2017 3,820 5,335 24,340 (2,153) 4,554 35,896
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Profit/(loss) for
the year and
total
comprehensive
income/(expense) - - - (427) 2,596 2,169
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Other
Comprehensive
Income - - - - - -
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Transactions with
owners recognised
in equity:
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Issue of Ordinary
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Share capital 16 - - - - - -
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Dividends paid 7 - - - - (2,244) (2,244)
----- --------- -------------- ----------------- ---------------- ---------------- ---------
Transfer to
revenue reserves 16 - - (2,500) - 2,500 -
----- --------- -------------- ----------------- ---------------- ---------------- ---------
As at 30
September 2018 3,820 5,335 21,840 (2,580) 7,406 35,821
----- --------- -------------- ----------------- ---------------- ---------------- ---------
The accompanying notes are an integral part of these Financial
Statements.
Consolidated Statement of Cash Flow
Year ended Year ended
30 September 2019 30 September 2018
Note GBP'000 GBP'000
Cash flows from operating activities
----- ------------------- -------------------
(Loss)/profit before tax (1,069) 2,169
----- ------------------- -------------------
Adjustments for:
----- ------------------- -------------------
Amortisation 16 -
----- ------------------- -------------------
Interest payable 657 561
----- ------------------- -------------------
Unrealised revaluation loss on property portfolio 3,133 427
----- ------------------- -------------------
Operating cash flows before working capital changes 2,737 3,157
----- ------------------- -------------------
Decrease in trade and other receivables 6 147
----- ------------------- -------------------
Increase in trade and other payables 60 166
----- ------------------- -------------------
Net cash inflow from operating activities 2,803 3,470
----- ------------------- -------------------
Cash flows from investing activities
----- ------------------- -------------------
Purchase of investment properties - -
----- ------------------- -------------------
Property costs capitalised (489) (292)
----- ------------------- -------------------
Net cash outflow from investing activities (489) (292)
----- ------------------- -------------------
Cash flows from financing activities
----- ------------------- -------------------
Bank loan drawn down net of arrangement fees 13 - -
----- ------------------- -------------------
Issue of Ordinary Share capital - -
----- ------------------- -------------------
Interest paid (651) (533)
----- ------------------- -------------------
Equity dividends paid 7 (2,292) (2,153)
----- ------------------- -------------------
Net cash (outflow)/inflow from financing activities (2,943) (2,686)
----- ------------------- -------------------
Net (decrease)/increase in cash and cash equivalents 12 (629) 492
----- ------------------- -------------------
Opening cash and cash equivalents 1,139 647
----- ------------------- -------------------
Closing cash and cash equivalents 510 1,139
----- ------------------- -------------------
The accompanying notes are an integral part of these Financial
Statements.
Notes to the Consolidated
Financial Statements
The entity is incorporated and registered in England and Wales
and is domiciled in the United Kingdom. It is public limited
company and is limited by shares.
1. ACCOUNTING POLICIES
(A) BASIS OF PREPARATION
Basis of Accounting
These Consolidated Financial Statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union, the Statement of Recommended
Practice in line with the Association of Investment Companies (AIC)
best accounting practice, applicable legal and regulatory
requirements of the Companies Act 2006 as applicable to companies
using IFRS and the Disclosure, Guidance and Transparency Rules and
Article 4 of the IAS Regulation. The Financial Statements have been
prepared on a historical cost basis, except for investment property
valuations that have been measured at fair value. The financial
statements have been prepared in accordance with IFRS
Interpretations Committee (FRS IC) interpretation.
The Group opted for one single statement of profit or loss and
other comprehensive income approach as permitted under IFRS.
The major accounting policies of the Group are set below and
have been applied consistently throughout the current and prior
years.
The notes and Financial Statements are presented in pounds
sterling (being the functional currency and presentational currency
for the Company and Group) and are rounded to the nearest thousand
except where otherwise indicated.
Going Concern
Under Provision C.1.3 of the UK Corporate Governance 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 forecast for the next three years, in particular
the cash flows, borrowings and occupancy rate;
-- A new facility was signed on 30 September 2019 on compatible terms, for three years.
-- the ongoing ability to comfortably comply with the Group's
financial covenants (details of the loan covenants are included in
Note 13);
-- the risks included on the Group's risk register that could
impact on the Group's liquidity and solvency over the next 12
months (details of risks are included in the Strategic Report
and
-- the risks on the Group's risk register that would be a
potential threat to the Group's business model (details of risks
are included in the Strategic Report).
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report. The Strategic Report also
includes the Group's risks and risk management processes.
Having due regard to these matters and after making appropriate
enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Therefore, the Board continues to adopt
the going concern basis in preparing these Consolidated Financial
Statements.
Significant Accounting Judgements, Estimates and Assumptions
The preparation of Financial Statements requires management to
make judgements, estimates and assumptions that affect the amounts
reported for revenues, expenses, assets and liabilities and the
disclosure of contingent liabilities as at the year end date. 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 assumptions made in the investment property valuations, further
details are provided in note 1(f) of the financial statements. In
line with the recommendation of the European Public Real Estate
Association, all properties have been deemed to be Level 3 under
the fair value hierarchy classification set out below. This is
described in more detail in the accounting policy and 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 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 at the end of the reporting period during which the
transfer has occurred.
Valuation of Investment Properties
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' as adopted by the
International Accounting Standards Board. Further detail is
provided in note 1(f) to the financial statements.
Key judgements
Key judgements relate to the treatment of compliance with REIT
status, the valuation of investment properties, production of
consolidated financial statements and property acquisitions where
different accounting policies could be applied. These are described
in more detail below.
Compliance with REIT Status
As disclosed in Note 6 , the Group has been approved as a REIT.
As a result, the Group does not pay UK corporation tax on its
profits and gains from qualifying rental business in the UK
provided it meets certain conditions. Non-qualifying profits and
gains of the Group continue to be subject to corporation tax as
normal. In order to achieve and retain group REIT status, several
entrance tests had to be met and certain ongoing criteria must be
maintained. The main criteria are as follows:
-- at least 90% of the tax exempt rental business profits must
be distributed in the form of a Property Income Distribution;
-- 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; 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 group
REIT for the foreseeable future, with the result that deferred tax
is not recognised on temporary differences relating to the property
rental business. Should the ongoing criteria not continue to be
met, the corporation tax payable by the Group may be significantly
higher. Further detail is provided in note 1(e) to the financial
statements.
Production of Consolidated Financial Statements
The Company is required to consider whether it is an 'investment
entity' under the definition contained within IFRS 10. The
Directors have concluded that the Company is not an investment
entity as so defined. In arriving at this conclusion the Directors
considered:
-- the Company does not have a defined timeframe for exiting each investment property;
-- although the Company measures the investment properties held
by its subsidiary at fair value, other measures, such as cash flows
and rental income, are also considered when making and evaluating
investment decisions; and
-- the Company does not, through its subsidiary, just hold a
portfolio of static investment properties but also undertakes other
business activities including maintenance, capital expenditure and
leasing activities.
Were the Directors to conclude that the Company was an
investment entity then it would not consolidate its wholly owned
subsidiary and would Instead report the investment in its
subsidiary at fair value through profit or loss.
Notes to the Consolidated
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. At the time of
acquisition, the Group considers whether the acquisition represents
the acquisition of a business or a property. The Group financial
statements for an acquisition as a business combination where an
integrated set of activities is acquired in addition to the
property.
When the acquisition of a property portfolio, or subsidiary,
does not represent a business, it is accounted for as an
acquisition of an investment property. Given the nature of the
transactions undertaken during the year which consisted of the
transfer of a portfolio of assets without the additional transfer
of significant activities, operations or employees, and the fact
they are held as investment properties, all acquisitions have been
determined to be the purchases of investment properties and the
accounting treatment followed is that set out in Note 1(f).
Basis of Consolidation
The Consolidated Financial Statements comprise the Financial
Statements of the Company and its subsidiary drawn up to 30
September 2019. The Subsidiary is an entity controlled by the
Company as 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 the
subsidiary 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 by the
Company and the Subsidiary.
(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.
Lease incentives are spread evenly over the lease term, even if
payments are not made on such a basis. The lease term is the
non-cancellable period of the lease together with any further term
for which the tenant has the
option to continue the lease, where, at the inception of the
lease, the Directors are reasonably certain that the tenant will
exercise that option. 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 the property to which they relate, they are
credited to capital reserves. All other surrender premiums are
recognised within rental income in the Statement of Comprehensive
Income.
Amounts drawn down from escrow which arise from rent free
periods are accounted for on an accruals basis and recognised as
rental income within the Statement of Comprehensive Income over the
length of the time that the rental guarantee exists as it pertains
to vacant space and/or rent-free periods.
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 net of Value Added Tax.
Amounts drawn down from escrow which arise from non-recoverable
expenses relating to vacant space are recognised as a deduction
from expenses.
(D) DIVIDS PAYABLE
Dividends are accounted for in the period in which they are
paid.
(E) TAXATION
The Group is a 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 stated above.
The Directors intend that the Group should continue as a REIT
for the foreseeable future, with the result that deferred tax is no
longer 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 year, using tax rates and laws enacted or substantively
enacted at the year end date.
Deferred income 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. Deferred income 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
income tax relating to items recognised directly in equity is
recognised in equity enacted or substantively enacted at the
balance sheet date.
(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 cost, being
the fair value of consideration given, including transaction costs
associated with the investment property. Any subsequent capital
expenditure incurred in improving investment properties is
capitalised in the period incurred and 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 Savills (UK) Limited, 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 balance sheet 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.
Gains or losses on the disposal of investment property are
determined as the difference between net disposal proceeds and the
carrying value of the asset in the previous period's financial
information.
Notes to the Consolidated
Financial Statements
(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
estimate for credit losses in accordance with IFRS 9 is made when
collection of the full amount is no longer probable. Bad debts are
written off when identified.
(I) INTEREST-BEARING LOANS AND BORROWINGS
All loans and borrowings are initially recognised at cost, being
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.
(J) PROPERTY ACQUISITIONS
Where property is acquired, via corporate acquisitions or
otherwise, the substance of the assets and activities of the
acquired entity is considered 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.
Capital Reserves
The following are accounted for in the capital reserve:
- gains and losses on the disposal of investment properties;
- increases and decreases in the fair value of investment
properties held at the year end; and
- the cost of professional advice relating to the capital
structure of the Group.
Revenue Reserve
The net profit/(loss) 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.
Special Distributable Reserve
An application to Court was successfully made for the
cancellation of the launch share premium account
which allowed the transfer of monies to the special
distributable reserve. This reserve is available for paying
dividends and buying back the Company's shares.
Capital Management
The Group's capital is represented by the Ordinary Shares, Share
Premium, Capital Reserves, Revenue Reserve and Special
Distributable Reserve. The Group is not subject to any
externally-imposed capital requirements.
The capital of the Group is managed in accordance with its
investment policy, in pursuit of its investment objective. Capital
management activities may include the allotment of new shares, the
buy back or re-issuance of shares from treasury, the management of
the Group's discount to net asset value and consideration of the
Group's net gearing level.
There have been no changes in the capital management objectives
and policies or the nature of the capital managed during the
year.
The account policies adopted are consistent with those of the
previous financial year.
(L) CHANGES IN ACCOUNTING POLICIES
The following new standards have been adopted in the current
year with no material impact on the Financial Statements:
- IFRS 9 'Financial Instruments'
This standard deals with the classification, measurement and
recognition of financial assets and liabilities and replaces the
guidance in IAS 39 Financial Instruments:
Recognition and Measurement. The adoption of IFRS 9 has led to
no changes in the carrying amounts of financial instruments. The
standard also introduces an expected credit losses model, which
replaces the incurred loss impairment model. The financial impact
of the new standard on the provisioning for the Group's financial
assets is immaterial.
- IFRS 15 'Revenue from Contracts with Customers'
This standard is based on the principle that revenue is
recognised when control passes to a customer. This standard will
not have any material impact on the Group's financial statements as
presented for the current year as the majority of the Group's
revenue consists of rental income from the Group's investment
properties which is outside the scope of IFRS 15.
'Standard issued but not yet effective'
The following standards have been issued but are not yet
effective for the accounting year and have not been adopted
early.
- IFRS 16 'Leases'
IFRS 16 specifies how an IFRS reporter will recognise, measure,
present and disclose leases. The standard provides a single lessee
accounting model, requiring lessees to recognise assets and
liabilities for all leases unless the lease term is 12 months or
less or the underlying asset has a low value. Lessors continue to
classify leases as operating or finance, with IFRS 16's approach to
lessor accounting substantially unchanged from its predecessor, IAS
17. IFRS 16 applies to annual reporting periods beginning on or
after 1 January 2019.
The Group does not consider that the future adoption of any new
standards, in the form currently available, will have any material
impact on the financial statements as presented.
Notes to the Consolidated
Financial Statements
2. INVESTMENT ADVISER'S FEE
Year ended Year ended
30 September 2019 30 September 2018
GBP'000 GBP'000
Investment Adviser's fee 335
------------------- -------------------
Total 335 384
------------------- -------------------
The Group's Alternative Investment Fund Manager ("AIFM") and
Investment Manager, R&H Fund Services (Jersey) Limited was
appointed on 28 April 2015. The property management arrangements of
the Group were delegated by R&H Fund Services (Jersey) Limited,
with the approval of the Group, to Drum Real Estate Investment
Management Limited ("the Investment Adviser") on 28 April 2015. The
Investment Adviser is responsible for the day to day management of
the portfolio. See note 17 for further details.
The capital of the Group is managed in accordance with its
investment policy, in pursuit of its investment objective. Capital
management activities may include the allotment of new shares, the
buy back or re-issuance of shares from treasury, the management of
the Group's discount to net asset value and consideration of the
Group's net gearing level.
There have been no changes in the capital management objectives
and policies or the nature of the capital managed during the
year.
3. OTHER EXPENSES
Year ended Year ended
30 September 2019 30 September 2018
GBP'000 GBP'000
Administration fee 20 80
------------------- -------------------
AIFM fee 15 15
------------------- -------------------
Directors' fees 75 75
------------------- -------------------
Statutory audit - PwC 35 38
------------------- -------------------
Tax services - Deloitte 12 32
------------------- -------------------
Service charges* 386 371
------------------- -------------------
Consultancy fees 49 22
------------------- -------------------
Valuation fees 24 38
------------------- -------------------
Legal fees 32 20
------------------- -------------------
Property expenses 77 -
------------------- -------------------
Abortive costs+ 264 -
------------------- -------------------
Other 204 143
------------------- -------------------
Total 1,193 834
------------------- -------------------
*Service charges relate to non-recoverable expenses on vacant
properties.
+Abortive costs relate to a cost incurred in relation to a deal
which was not finalised.
4. INTEREST RECEIVABLE
Year ended Year ended
30 September 2019 30 September 2018
GBP'000 GBP'000
Bank interest received - -
------------------- -------------------
Total - -
------------------- -------------------
5. INTEREST PAYABLE
Year ended Year ended
30 September 2019 30 September 2018
GBP'000 GBP'000
Bank loan interest 609 551
------------------- -------------------
Loan arrangement fees 48 10
------------------- -------------------
Total 657 561
------------------- -------------------
6. TAXATION
Year ended Year ended
30 September 2019 30 September 2018
GBP'000 GBP'000
Total tax charge - -
------------------- -------------------
A reconciliation of the corporation tax charge applicable to the
results at the statutory corporation tax rate to the charge for the
year is as follows:
Year ended Year ended
30 September 2019 30 September 2018
GBP'000 GBP'000
(Loss)/profit before taxation (1,069) 2,169
------------------- -------------------
UK tax at a rate of 19.0% (2018: 19.0%) (203) 412
------------------- -------------------
Effects of:
------------------- -------------------
REIT exempt profits (382) (493)
------------------- -------------------
REIT exempt gains 585 81
------------------- -------------------
Total tax charge - -
------------------- -------------------
The Company served notice to HM Revenue & Customs that the
Company, and its subsidiary, qualified as a Real Estate Investment
Trust with effect from August 2015. Subject to continuing relevant
UK-REIT criteria being met, the profit from the Group's property
rental business, arising from both income and capital gains, are
exempt from corporation tax.
7. DIVIDS
The Group declared the following dividends:
Year ended Year ended
30 September 2019 30 September 2018
GBP'000 GBP'000
A fourth interim dividend of GBP1.5p (GBP1.3175) in respect of the period
ended 30 September
2018 was paid to shareholders on 23 November 2018. 573 525
------------------- -------------------
A first interim dividend of 1.5p (1.375p) in respect of the period ended 31
December 2018
was paid to shareholders on 22 February 2019. 573 573
------------------- -------------------
A second interim dividend of 1.5p (1.375) in respect of the period ended 31
March 2019 was
paid to shareholders on 24 May 2019. 573 573
------------------- -------------------
A third interim dividend of 1.5p (1.375) in respect of the period ended 30
June 2019 was paid
to shareholders on 23 August 2019. 573 573
------------------- -------------------
Total dividends paid 2,292 2,244
------------------- -------------------
A fourth interim dividend of 1.5p (GBP573,000) in respect of the
period ended 30 September 2019 was paid to shareholders on 22
November 2019.
8. TOTAL EARNINGS PER SHARE
Year ended Year ended
30 September 2019 30 September 2018
GBP'000 Pence per share GBP'000 Pence per share
-------- ---------------- -------- ----------------
Revenue earnings 2,064 5.40 2,596 6.80
-------- ---------------- -------- ----------------
Capital loss (3,133) (8.20) (427) (1.12)
-------- ---------------- -------- ----------------
Total (loss)/earnings (1,069) (2.80) 2,169 5.68
-------- ---------------- -------- ----------------
Average number of shares in issue 38,201,990 38,201,990
-------------------------- --------------------------
Notes to the Consolidated
Financial Statements
9. INVESTMENT PROPERTIES
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
Opening fair value 57,351 57,489
-------------- --------------
Purchases - -
-------------- --------------
Property costs capitalised 678 312
-------------- --------------
Amortisation of lease costs (16) -
-------------- --------------
Revaluation movement (including lease incentive movement) (3,133) (450)
-------------- --------------
Closing fair value 54,880 57,351
-------------- --------------
Changes in the valuation of investment properties
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Unrealised loss on revaluation of investment properties (3,133) (427)
-------------- --------------
The properties were valued at GBP55,350,000 as at 30 September
2019 (30 September 2018: GBP57,950,000) by Savills (UK) Limited
('Savills'), in their capacity as external valuers adjusted for
lease incentives of GBP470,000. (2018: GBP599,000).
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' and VPGA1 Valuations for Inclusion in the Financial
Statements, which adopt the definition of Fair Value as adopted by
the International Accounting Standards Board. In line with the
recommendation of the European Public Real Estate Association, all
properties have been deemed to be Level 3 under the fair value
hierarchy classification. This is described in more detail in the
accounting policy. Revisions to accounting estimates are recognised
in the period in which the estimate is revised, if the revision
affects only that period, or in the period of the revision and
future period/years, if the revision affects both current and
future period/years.
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 of IFRS 13. The
position paper on IFRS 13 prepared by the European Public Real
Estate Association concludes that, it is likely that valuers of
investment property will use unobservable inputs resulting in the
vast majority of investment properties being classified as level
3.
After significant consideration of the Group's valuation process
and IFRS 13, the Directors believe it is reasonable to classify the
Group's assets within level 3 of the fair value hierarchy.
10. INVESTMENT IN SUBSIDIARY
The Group's results consolidate those of Drum Income Plus
Limited, a wholly owned subsidiary, incorporated in England &
Wales (Company Number: 09515513). Drum Income Plus Limited was
incorporated on 28 March 2015, acquired on 19 August 2015 and began
trading on 19 January 2016, when it was transferred the ownership
of the entirety of the Group's property portfolio. Drum Income Plus
Limited continues to hold all the investment properties owned by
the Group and is also the party which holds the Group's borrowings.
The registered office of Drum Income Plus Limited is Level 13,
Broadgate Tower, 20 Primrose Street, London, EC2A 2EW.
11. TRADE AND OTHER RECEIVABLES
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Rent receivable 441 738
-------------- --------------
Service charge receivable 1,042 807
-------------- --------------
Lease incentives 470 599
-------------- --------------
Other 690 505
-------------- --------------
Total 2,643 2,649
-------------- --------------
12. CASH AND CASH EQUIVALENTS
All cash balances at the year-end were held in cash, current
accounts or deposit accounts.
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Cash and cash equivalents 510 1,139
-------------- --------------
Total 510 1,139
-------------- --------------
13. LOAN
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Principal amount outstanding 22,760 22,760
-------------- --------------
Set-up costs (201) (48)
-------------- --------------
Total 22,559 22,712
-------------- --------------
On 6 January 2017 the Group entered into a GBP25 million secured
3 year revolving credit facility agreement with the Royal Bank of
Scotland ('the Bank') at a rate of 1.75% plus LIBOR per annum which
had a maturity date of January 2020. This facility was extended on
30 September 2019 for a further 3 years.
As part of the loan agreement the Bank has a standard security
over the properties currently held by the Group, with an aggregate
value of GBP55,350,000 at 30 September 2019 (30 September 2018
GBP57,950,000).
Under the financial covenants related to this loan, the Group
has to ensure that for Drum Income Plus Limited:
- the interest cover, being the rental income as a percentage of
finance costs is at least 250%;
- the loan to value ratio, being the 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 date stated above. The Group has complied
with all the loan covenants during the year.
Notes to the Consolidated
Financial Statements
14. TRADE AND OTHER PAYABLES
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Rental income received in advance 890 847
-------------- --------------
Service charge 923 771
-------------- --------------
Accruals 744 19
-------------- --------------
VAT 95 149
-------------- --------------
Other creditors 362 820
-------------- --------------
Total 3,014 2,606
-------------- --------------
The 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 84.97 pence
(30 September 2018: 93.77 pence) is based on equity shareholders'
funds of GBP32,460,000 (30 September 2018: GBP35,821,000) and on
38,201,990 (30 September 2018: 38,201,990) ordinary shares, being
the number of shares in issue at the year end.
16. CALLED UP EQUITY SHARE CAPITAL
Year Year Year Year
to 30 September to 30 September to 30 September to 30 September
2019 2018 2019 2018
Shares Shares GBP'000 GBP'000
Issued and fully paid
----------------- ----------------- ----------------- -----------------
Opening total issued ordinary shares of
10p each 38,201,990 38,201,990 3,820 3,820
----------------- ----------------- ----------------- -----------------
Issued during the year - - - -
----------------- ----------------- ----------------- -----------------
Closing total issued ordinary shares 38,201,990 38,201,990 3,820 3,820
----------------- ----------------- ----------------- -----------------
Shares were issued to increase the capital base of the
Company.
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.
There is only one class of share in issue.
An application to Court was successfully made for the
cancellation of the launch share premium account which allowed the
transfer of monies to the special distributable reserve. This
reserve is available for paying dividends and buying back the
Company's shares. GBPnil was transferred from the special
distributable reserve to the revenue reserve during the year (2018:
GBP2.5m).
17. RELATED PARTY TRANSACTIONS
The Directors are considered to be related parties. No Director
had an interest in any transactions which are, or were, unusual in
their nature or significant to the nature of the Group.
The Directors of the Group received fees for their services.
Total fees for the year were GBP75,000 (30 September 2018:
GBP75,000 ) of which GBPnil was payable at the year end (30
September 2018: GBPnil). Shares held by the Directors are shown
above.
The Investment Manager and Investment Adviser are considered to
be related parties.
Under the terms of the agreements amongst the Group, R&H
Fund Services (Jersey) Limited (the "AIFM") and Drum Real Estate
Investment Management Limited (the "Investment Adviser"), the Group
paid to the AIFM a fixed fee of GBP15,000 per annum plus an annual
portfolio management fee of 1.15% per annum of the Group's net
assets up to GBP150 million and 1.00% of net assets over GBP150
million. The AIFM agreed that the annual portfolio management fee
would be paid to the Investment Adviser, in accordance with the
terms of the agreements. With effect from 1 October 2019, Drum Real
Estate Investment Management Limited reduced its annual portfolio
management fee to 0.7%. The cap on TER at 2% was also removed.
The management agreements are terminable by any party on 12
months' written notice, provided that such notice shall expire no
earlier than the fourth anniversary of Admission.
As per the prospectus published in April 2015, the Investment
Adviser agreed to reduce its portfolio management fee under the
AIFM agreement to the extent necessary to ensure that the core
annual expenses of the Group did not exceed 2.0% of the Group's net
assets. Certain expenses (in particular marketing, broking and some
loan related costs) fall outwith the ongoing charges calculation,
resulting in the ongoing charges ratio being 2.0% of net
assets.
R&H Fund Services (Jersey) Limited, as AIFM and Investment
Manager, earned GBP15,000 during the year (30 September 2018:
GBP15,000). GBP32,000 was payable at the year end (30 September
2018: GBP17,000).
Drum Real Estate Investment Management Limited, as Investment
Adviser, earned GBP335,000 during the year (30 September 2018:
GBP384,000). GBPnil was payable at the year end (GBP32,000 at 30
September 2018).
Notes to the Consolidated
Financial Statements
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 IFRS as shown at the foot of the Consolidated Statement of
Financial Position, the key performance measure is that prepared
under IFRS. 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 Investment Adviser, Drum Real Estate Investment Management
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, interest rate risk and market price
risk. There is no foreign currency risk as all assets and
liabilities of the Group are maintained in pounds sterling.
The Board reviews and agrees policies for managing the Group's
risk exposure. These policies are summarised below. These
disclosures include, where appropriate, consideration of the
Group's investment properties which, whilst not constituting
financial instruments as defined by IFRS, are considered by the
Board to be integral to the Group's overall risk exposure.
The Company has not, in the year to 30 September 2019 (2018:
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 2019 As at 30 September 2018
Held at fair value Financial assets and Held at fair value Financial assets and
through profit and liabilities at through profit and liabilities at
loss amortised cost loss amortised cost
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------------------- ---------------------- ----------------------
Financial assets
---------------------- --------------------- ---------------------- ----------------------
Investment properties 54,880 - 57,351 -
---------------------- --------------------- ---------------------- ----------------------
Cash and cash
equivalents - 510 - 1,139
---------------------- --------------------- ---------------------- ----------------------
Rent receivable - 441 - 738
---------------------- --------------------- ---------------------- ----------------------
Service charge
receivable - 1,042 - 807
---------------------- --------------------- ---------------------- ----------------------
Lease incentives - 470 - 599
---------------------- --------------------- ---------------------- ----------------------
Other receivables - 690 - 505
---------------------- --------------------- ---------------------- ----------------------
54,880 3,153 57,351 3,788
---------------------- --------------------- ---------------------- ----------------------
Financial liabilities
---------------------- --------------------- ---------------------- ----------------------
Loan - (22,559) - (22,712)
---------------------- --------------------- ---------------------- ----------------------
Trade and other
payables - (3,014) - (2,606)
---------------------- --------------------- ---------------------- ----------------------
- (25,573) - (25,318)
---------------------- --------------------- ---------------------- ----------------------
CREDIT RISK
Credit risk is the risk that an issuer or 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 GBP3,153,000 (2018:
GBP3,788,000), consisting of cash of GBP510,000 (2018:
GBP1,139,000), rent receivable of GBP441,000 (2018: GBP738,000),
service charge receivable of GBP1,089,000 (2018: GBP807,000), lease
incentives of GBP470,000 (2018: GBP599,000), and other receivables
of GBP643,000 (2018: GBP505,000).
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 reletting, maintenance
costs, insurances, rates and marketing costs and may have a
material adverse impact on the financial condition and performance
of the Group and/or the level of dividend cover. The Board receives
regular reports on concentrations of risk and any tenants in
arrears. The Investment Adviser monitors such reports in order to
anticipate, and minimise the impact of, defaults by occupational
tenants.
Where there are concerns over the recoverability of rental
income, the amounts outstanding will be fully provided for. There
was a provision recognised in the year to 30 September 2019 for
potential bad debts.
All of the Group's cash was placed with The Royal Bank of
Scotland plc as at 30 September 2019. 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. RBS is
rated at BBB- or better by the main rating agencies, with a stable
or positive outlook. Should the credit quality or the financial
position of the banks currently employed significantly deteriorate,
cash holdings would be moved to another bank.
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 may be illiquid.
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.
Notes to the Consolidated
Financial Statements
The Group's liquidity risk is managed on an ongoing basis by the
Investment Adviser and monitored on a quarterly basis by the Board.
In order to mitigate liquidity risk the Group has a comprehensive
three year cashflow 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:
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Trade and other receivables
-------------- --------------
- 3 months or less 2,173 2,050
-------------- --------------
- 3 months to 3 years 34 93
-------------- --------------
- more than 3 years 436 506
-------------- --------------
2,643 2,649
-------------- --------------
The lease incentive debtor is shown in the period in which the
lease incentive ends
At the reporting date, the financial liabilities on a
contractual maturity basis were:
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Loan
-------------- --------------
- 3 months - -
-------------- --------------
- 3 months - 3 years 22,559 22,712
-------------- --------------
- more than 3 years - -
-------------- --------------
22,559 22,712
-------------- --------------
Trade and other payables
-------------- --------------
- 3 months or less 3,014 2,606
-------------- --------------
- 3 months to 3 years - -
-------------- --------------
- more than 3 years - -
-------------- --------------
3,014 2,606
-------------- --------------
Total 25,573 25,318
-------------- --------------
INTEREST RATE RISK
Some of the Group's financial instruments will be
interest-bearing. During the year to 30 September 2019, the Group
only held interest-bearing financial instruments that carried
interest at a variable rate. As a consequence, the Group will be
exposed to cash flow interest rate risk due to fluctuations in the
prevailing market rate. The Group did not hold any interest-bearing
financial instruments that carried interest at a fixed interest
rate and was therefore not exposed to fair value interest rate
risk.
When the Group retains cash balances, they will ordinarily be
held on interest-bearing deposit accounts. The Group's policy is to
hold cash in variable rate or short-term fixed rate bank accounts.
Exposure varies throughout the year as a consequence of changes in
the composition of the net assets of the Group arising out of the
investment and risk management policies.
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 2019 As at 30 September 2018
Fixed Variable Fixed Variable
rate rate rate rate
GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------ ------------ ------------
Cash and cash equivalents - 510 - 1,139
------------- ------------ ------------ ------------
Loan - (22,559) - (22,712)
------------- ------------ ------------ ------------
An increase of 0.50% in interest rates would have increased the
reported loss for the year and decreased the net assets at the year
end by GBP113,000 (30 September 2018: GBP108,000), a decrease of
0.50% in interest rates would have an equal and opposite effect.
These movements are calculated as at 30 September 2019 (30
September 2018) and may not be reflective of actual future
conditions.
MARKET PRICE RISK
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 2019 (30
September 2018) would have increased net assets available to
shareholders and increased the net income for the year by GBP5.4
million (30 September 2018: GBP5.7m); 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.
20. CAPITAL COMMITMENTS
The Group did not have any contractual commitments to refurbish,
construct or develop any investment property, or for repair,
maintenance or enhancements as at 30 September 2019 (30 September
2018: nil).
Notes to the Consolidated
Financial Statements
21. LEASE LENGTH
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
5.85 years.
The minimum lease payments based on the unexpired lessor lease
length at the year end were as follows (based on actual
rentals):
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Less than one year 298 158
-------------- --------------
Between one and five years 4,521 5,370
-------------- --------------
Over five years 11,608 21,148
-------------- --------------
Total 16,427 26,676
-------------- --------------
The largest single tenant at the year-end accounted for 10% (30
September 2018: 9.3%) of the passing rental income.
Company Statements
Company Statement of Financial Position as at 30 September
2019
As at As at
30 September 30 September
2019 2018
Non-current assets Notes GBP'000 GBP'000
Investment in subsidiary undertaking C 30,400 30,400
------- -------------- --------------
30,400 30,400
---------------------------------------------- -------------- --------------
Current assets
------- -------------- --------------
Trade and other receivables D 8 35
------- -------------- --------------
Cash and cash equivalents E 36 33
------- -------------- --------------
44 68
---------------------------------------------- -------------- --------------
Total assets 30,444 30,468
-------------- --------------
Current liabilities
------- -------------- --------------
Trade and other payables F (473) (418)
------- -------------- --------------
Total liabilities (473) (418)
-------------- --------------
Net assets 29,971 30,050
-------------- --------------
Equity and reserves
------- -------------- --------------
Called up equity share capital G 3,820 3,820
------- -------------- --------------
Share premium 5,334 5,334
-------------- --------------
Special distributable reserve 21,840 21,840
-------------- --------------
Capital reserve brought forward (1,146) (1,146)
-------------- --------------
Capital loss for year the year - -
------- -------------- --------------
Revenue reserve brought forward 202 264
-------------- --------------
Revenue (loss)/profit for the year (79) (62)
-------------- --------------
Equity shareholders' funds 29,971 30,050
-------------- --------------
The accompanying notes are an integral part of these Financial
Statements.
Company number 09511797.
The Company Financial Statements were approved by the Board of
Directors on 28 January 2020 and signed on its behalf by:
Hugh Little
Chairman
Company Statements
Company Statement of Changes in Equity
For the year ended 30 September 2019
Share Special
capital Share Capital distributable Revenue Total
account premium reserve reserve reserve equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 October 2018 3,820 5,334 (1,146) 21,840 202 30,050
------ --------- --------- --------- --------------- --------- ---------
Profit and total comprehensive
expense for the year - - - - 2,213 2,213
------ --------- --------- --------- --------------- --------- ---------
Transactions with owners recognised
in equity:
------ --------- --------- --------- --------------- --------- ---------
Issue of Ordinary Share capital G - - - - - -
------ --------- --------- --------- --------------- --------- ---------
Issue costs - - - - - -
------ --------- --------- --------- --------------- --------- ---------
Dividends paid B - - - - (2,292) (2,292)
------ --------- --------- --------- --------------- --------- ---------
Transfer to revenue reserves - - - - - -
------ --------- --------- --------- --------------- --------- ---------
As at 30 September 2019 3,820 5,334 (1,146) 21,840 123 29,971
------ --------- --------- --------- --------------- --------- ---------
For the year ended 30 September 2018
Share Special
capital Share Capital distributable Revenue Total
account premium reserve reserve reserve equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 October 2017 3,820 5,334 (1,146) 24,340 264 32,612
--------- --------- --------- --------------- --------- ---------
Loss and total comprehensive expense for the
year - - - - (318) (318)
--------- --------- --------- --------------- --------- ---------
Transactions with owners recognised
in equity:
------ --------- --------- --------- --------------- --------- ---------
Issue of Ordinary Share capital G - - - - - -
------ --------- --------- --------- --------------- --------- ---------
Issue costs - - - - - -
------ --------- --------- --------- --------------- --------- ---------
Dividends paid B - - - - (2,244) (2,244)
------ --------- --------- --------- --------------- --------- ---------
Transfer to revenue reserves - - - (2,500) 2,500 -
--------- --------- --------- --------------- --------- ---------
As at 30 September 2018 3,820 5,334 (1,146) 21,840 202 30,050
--------- --------- --------- --------------- --------- ---------
The accompanying notes are an integral part of these Financial
Statements.
Notes to the Company
Financial Statements
The entity is incorporated and registered in England and Wales
and is domiciled in the United Kingdom. It is public limited
company and is limited by shares.
A. ACCOUNTING POLICIES BASIS OF PREPARATION
The Company Financial Statements have been prepared in
accordance with Financial Reporting Standard 101: Reduced
Disclosure Framework ('FRS 101') and in accordance with applicable
legal and regulatory requirements of the Companies Act 2006.
The Financial Statements have been prepared on a historical cost
basis except for investment property valuations that have been
measured at fair value. A summary of the principal accounting
policies, all of which have been applied consistently throughout
the year, is set out below.
The major accounting policies of the Company are set out below
and have been applied consistently throughout the current and prior
year.
The Company has taken advantage of the following disclosure
exemption available under FRS 101: Reduced Disclosure
Framework:
-- the requirement to prepare a cash flow statement;
-- the disclosure of related party transactions between a parent
and its wholly owned subsidiaries;
-- the requirement to present comparative reconciliations from
investment property; -- the requirement to present capital
management disclosures; and
-- the requirement to disclose standards in issue which are not yet effective.
The results of the Company are included in the consolidated
Financial Statements of its parent company as presented above, Drum
Income Plus REIT plc which are available from Broadgate Tower, 20
Primrose Street, London EC2A 2EW.
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
The Financial Statements are prepared on the going concern basis
as explained for the Consolidated Financial Statements.
INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
Investments in subsidiary undertakings are stated at cost less,
where applicable, any provision for impairment.
CAPITAL MANAGEMENT
The Company's capital is represented by the Ordinary Shares,
Share Premium, Capital Reserves, Revenue Reserve and Special
Distributable Reserve and is managed in line with the policies set
out for the Group in the Financial Statements.
COMPANY PROFIT FOR THE FINANCIAL YEAR AFTER TAX
Under Section 408 of the Companies Act 2006 the Company is
exempt from the requirement to present its own profit and loss
account. The profit for the financial year was GBP2,213,000 (2018:
loss GBP318,000).
The Company does not have any employees (2018: nil). Details of
the Directors' fees paid during the year are disclosed in the
Group's Remuneration Report and in Note 3 to the Consolidated
Financial Statements.
Audit fees payable to PwC in relation to the parent Company were
GBP19,000 (2018: GBP19,000), excluding VAT.
Notes to the Company
Financial Statements
B. DIVIDS
Details of dividends paid by the Company are included in Note 7
to the Consolidated Financial Statements.
C. INVESTMENTS IN SUBSIDIARY UNDERTAKING
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Opening balance 30,400 30,400
-------------- --------------
Closing balance 30,400 30,400
-------------- --------------
The Company has a single equity investment in a wholly owned
subsidiary, Drum Income Plus Limited. This is the only regulated
undertaking of the Company. The registered office address is: Level
13, Broadgate Tower, 20 Primrose Street, London EC2A. See Note 10
to the Consolidated Financial Statements.
D. TRADE AND OTHER RECEIVABLES
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Amount due from subsidiary undertaking - -
-------------- --------------
Other debtors 8 35
-------------- --------------
Total 8 35
-------------- --------------
E. CASH AND CASH EQUIVALENTS
All cash balances at the year-end were held in cash, current
accounts or deposit accounts.
F. TRADE AND OTHER PAYABLES
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Amount due to subsidiary undertaking - 183
-------------- --------------
Other payables 473 235
-------------- --------------
Total 473 418
-------------- --------------
The Company's payment policy is to ensure settlement of supplier
invoices in accordance with stated terms.
G. CALLED UP SHARE CAPITAL
Allotted, called-up and fully paid Ordinary Shares of 10 pence
par value
Number of GBP'000
shares
Opening balance as at 1 October 2018 38,201,990 3,820
----------- --------
Balance as at 30 September 2019 38,201,990 3,820
----------- --------
Shares were issued to increase the capital base of the
Company.
There is only one class of share in issue.
H. FINANCIAL INSTRUMENTS
The Company's risks associated with financial instruments and
the policies for managing its risk exposure are consistent with
those detailed in Note 19 to the Consolidated Financial
Statements.
With regards to the categorisation required by IFRS 7 'Financial
Instruments: Disclosures' all of the Company financial assets and
liabilities are categorised as 'financial assets and liabilities at
amortised cost'. The Company's financial assets consist of trade
and other receivables and cash and cash equivalents. The Company's
financial liabilities consist of trade and other payables.
At the reporting date, the Company's financial assets exposed to
credit risk amounted to GBP44,000 (2018: GBP68,000) consisting
solely of the Company's cash balance of GBP36,000 (2018:
GBP33,000), a current account balance due from its wholly owned
subsidiary of GBPnil (2018: GBPnil) and other debtors and accrued
income of GBP8,000 (2018: GBP35,000).
The maturity of the Company's financial liabilities (on a
contractual maturity basis) at 30 September 2019 was as
follows:
As at As at
30 September 30 September
2019 2018
GBP'000 GBP'000
Three months or less 473 254
-------------- --------------
More than three months but less than three years - -
-------------- --------------
More than three years - -
-------------- --------------
473 254
-------------- --------------
The Company's only financial instrument exposed to interest rate
risk at 30 September 2019 was its cash balance of GBP36,000 (2018:
GBP33,000) which received variable rate of interest. An increase of
0.50% in interest rates would have decreased the reported loss for
the year, and the net assets at year end, by GBP180 (2018: GBP165).
A decrease in interest rates would have had an equal and opposite
effect. These movements are calculated as at 30 September 2019 (30
September 2018) and may not be reflective of actual future
conditions.
Notes to the Company
Financial Statements
I. OPERATING SEGMENTS
The Board has considered the requirements of IFRS 8 'Operating
Segments'. The Board is of the view that the Company is engaged in
a single unified business, being property investments, and in one
geographical area, the United Kingdom, and that therefore the
Company has no segments. Full details are provided in Note 18 to
the Consolidated Financial Statements.
Shareholder Information
TAX STRUCTURE
Drum Income Plus REIT plc is tax resident in the UK and is a
Real Estate Investment Trust (REIT) under Part 12 of the
Corporation Tax Act 2010, subject to continuing compliance with the
REIT rules and regulations. The main REIT rules with which the
Group must comply are set out in the section entitled 'Compliance
with REIT Status' above.
A REIT does not suffer UK corporation tax on the profits (income
and capital gains) derived from its qualifying property rental
businesses in the UK and elsewhere (the Tax-Exempt Business),
provided that certain conditions are satisfied. Instead,
distributions in respect of the Tax-Exempt Business will be treated
for UK tax purposes as UK property income in the hands of
shareholders (see further below for details on the UK tax treatment
of shareholders in a REIT). A dividend paid by the Company relating
to profits or gains of the Tax-Exempt Business is referred to in
this section as a Property Income Distribution (PID).
However, UK corporation tax remains payable in the normal way in
respect of income and gains from the Company's business (generally
including any property trading business) not included in the
Tax-Exempt Business (the Residual Business). Dividends relating to
the Residual Business are treated for UK tax purposes as normal
dividends. Any normal dividend paid by the Company is referred to
as a Non-PID Dividend.
Distributions to shareholders are likely over time to consist of
a mixture of PID and Non-PID Dividends as calculated in accordance
with specific attribution rules. The Company provides shareholders
with a certificate setting out how much, if any, of their dividends
is a PID and how much, if any, is a Non-PID dividend. A breakdown
of the dividends paid in relation to the year ended 30 September
2019 is set out below.
Ex-dividend Payment PID Non-pid Total
Distribution date date (per share) (per share) (per share)
First interim 7 February 2019 22 February 2019 1.5p - 1.5p
----------------- ------------------ ------------- ------------- -------------
Second interim 9 May 2019 24 May 2019 1.5p - 1.5p
----------------- ------------------ ------------- ------------- -------------
Third interim 8 August 2019 23 August 2019 1.5p - 1.5p
----------------- ------------------ ------------- ------------- -------------
Fourth interim 7 November 2019 22 November 2019 1.5p - 1.5p
----------------- ------------------ ------------- ------------- -------------
Total 6.0p - 6.0p
------------- ------------- -------------
UK TAXATION OF PIDS
A PID is, together with any property income distribution from
any other REIT company, treated as taxable income from a UK
property business. No dividend tax credit will be available in
respect of PIDs. However, the basic rate of income tax (currently
20%) will be withheld by the Company (where required) on the PID
unless the shareholder is entitled to receive PIDs without income
tax being deducted at source and they have notified the Registrar
of this entitlement sufficiently in advance of a PID being
paid.
Shareholders who are individuals may, depending on their
particular circumstances, either be liable to further UK income tax
on their PID at their applicable marginal income tax rate, incur no
further UK tax liability on their PID, or be entitled to claim
repayment of some or all of the UK income tax withheld on their
PID.
Corporate shareholders who are resident for tax purposes in the
UK will generally be liable to pay UK corporation tax on their PID
and if income tax is withheld at source, the tax withheld can be
set against their liability to UK corporation tax or against any
income tax which they themselves are required to withhold in the
accounting period in which the PID is received.
Shareholder Information
UK TAXATION OF NON-PID DIVIDS
Under current UK legislation, most individual shareholders who
are resident in the UK for taxation purposes receive a tax-free
dividend allowance of GBP5,000 per annum and any dividend income
(including Non-PID Dividends) in excess of this allowance is
subject to income tax.
UK resident corporate shareholders (other than dealers and
certain insurance companies) are not liable to corporation tax or
income tax in respect of UK dividends provided that the dividends
are exempt under Part 9A of the Corporation Tax Act 2009.
UK TAXATION OF CHARGEABLE GAINS IN RESPECT OF ORDINARY SHARES IN
THE COMPANY
Any gain on disposal (by sale, transfer or redemption) of
Ordinary Shares by shareholders resident in the UK for taxation
purposes will be subject to capital gains tax in the case of an
individual shareholder, or UK corporation tax on chargeable gains
in the case of a corporate shareholder.
For the purposes of calculating chargeable gains, the following
table sets out the price at which the Company has issued shares
since launch:
Date of Issuance Share price
(per share)
29 May 2015 100.0p
-------------
24 March 2016 100.0p
-------------
18 August 2016 100.0p
-------------
24 February 2017 100.0p
-------------
The statements on taxation above are intended to be a general
summary of certain tax consequences that may arise in relation to
the Company and shareholders. This is not a comprehensive summary
of all technical aspects of the taxation of the Company and its
Shareholders and is not intended to constitute legal or tax advice
to investors.
The statements relate to the UK tax implications of a UK
resident individual investing in the Company (unless expressly
stated otherwise). The tax consequences may differ for investors
who are not resident in the UK for tax purposes. The statements are
based on current tax legislation and HMRC practice, both of which
are subject to change at any time, possibly with retrospective
effect.
Prospective investors should familiarise themselves with, and
where appropriate should consult their own professional advisers
on, the overall tax consequences of investing in the Company.
AIFMD DISCLOSURES
A number of disclosures are required to be made under the AIFMD
as follows:
-- Information in relation to the leverage of the Company is provided in the Strategic Report.
-- Details of the Company's principal risks and their management
are provided in the Strategic Report.
-- Details of the monitoring undertaken of the liquidity of the
portfolio is provided in note 19 in the notes to the financial
statements.
-- The Investment Manager requires prior Board approval to:
(i). enter into any stock lending agreements;
(ii). to borrow money against the security of the Company's
investments; or
(iii). create any charges over any of the Company's
investments
-- Details of the Company's strategy and policies,
administration arrangements and risk management and monitoring,
required to be made available to investors in the Company before
they invest, are available at www.dripreit.co.uk.
WARNING TO SHAREHOLDERS - BEWARE OF SHARE FRAUD
Fraudsters use persuasive and high-pressure tactics to lure
investors into scams. They may offer to sell shares that turn out
to be worthless or non-existent, or to buy shares at an inflated
price in return for an upfront payment.
If you are approached by fraudsters please tell the Financial
Conduct Authority (FCA) by using the share fraud reporting form at
www.fca.org.uk/scams where you can find out more about investment
scams. You can also call the FCA Consumer Helpline on 0800 111
6768. If you have already paid money to share fraudsters you should
contact Action Fraud on 0300 123 2040.
CONTACTS
Investor relations
Registrar:
Computershare Investor Services
PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
T: 0370 707 1079
E: www.investorcentre.co.uk/contactus
Information on Drum Income Plus REIT plc, including the latest
share price: www.dripreit.co.uk
Enquiries about the following administrative matters should be
addressed to the Company's registrar:
-- Change of address notification.
-- Lost share certificates.
-- Dividend payment enquiries.
-- Dividend mandate instructions. Shareholders may have their
dividends paid directly into their bank or building society
accounts by completing a dividend mandate form. Tax vouchers, where
applicable, are sent directly to shareholders' registered
addresses.
-- Amalgamation of shareholdings. Shareholders who receive more
than one copy of the Annual Report are invited to amalgamate their
accounts on the share register.
Shareholders can view and manage their shareholdings online at
www.investorcentre.co.uk, including updating address records,
making dividend payment enquiries, updating dividend mandates and
viewing the latest share price. Shareholders will need their
Shareholder Reference Number (SRN), which can be found on their
share certificate or a recent dividend tax voucher, to access this
site. Once signed up to Investor Centre, an activation code will be
sent to the shareholder's registered address to enable the
shareholder to manage their holding.
FINANCIAL CALAR 2019/20
January 2020 Publication of Annual Report for the year
to 30 September 2019
January 2020 Announcement of Net Asset Value as at
31 December 2019
March 2020 Annual General Meeting
April 2020 Announcement of Net Asset Value as at
31 March 2020
May 2020 Publication of Half Yearly Report for
the six months to 31 March 2020
July 2020 Announcement of Net Asset Value as at
30 June 2020
October 2020 Announcement of Net Asset Value as at
30 September 2020
December 2020 Publication of Annual Report for the year
to 30 September 2020
January 2021 Announcement of Net Asset Value as at
31 December 2020
It is the intention of the Board that dividends will continue to
be announced and paid quarterly.
Selective Glossary
The terms and performance measures below are those commonly used
by property investment companies to assess values, investment
performance and operating costs.
The Group's Key Performance
Indicators are defined
as follows:
Annual Rent Roll the rent that is due to be received on
all properties in the portfolio in the
following year as at 30 September 2019.
Current Yield (Gross Contracted the gross income from the property portfolio
Rent) expressed as a percentage of the value
of the property portfolio.
Dividends per share: the dividends declared by the Company
for the financial year attributable to
each ordinary share of the Company.
Earnings/ (loss) per share: total profit/ (loss) after taxation divided
by the weighted average number of ordinary
shares in issue over the financial year.
Loan to Value ("LTV") : debt outstanding and drawn down at the
year end expressed as a percentage of
the fair value of all property assets.
Net Asset Value ("NAV") the net assets of the Group as calculated
per share: under its accounting policies divided
by the number of shares in issue at the
balance sheet date.
Net Dividend Yield the dividend per share declared by the
Company expressed as a percentage of the
price per share.
Occupancy Rate the ratio of rented space total floor
area ( let and unlet space) relative to
the amount of space available for rent
expressed as a percentage.
Premium/ discount at which the difference between the Company's share
the Company's shares trade price and its NAV per share, expressed
to NAV: as a percentage of NAV. If the share price
is greater than the NAV per share, the
shares are trading at a premium. If the
share price is less than the NAV per share,
the shares are trading at a discount.
Other property related terms
used in the Financial Statements
include:
Equivalent Yield: 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.
ERV (Estimated Rental Value): the estimated annual market rental value
of a property as determined by the Company's
external property valuers.
Net Income: the net income from a property after deducting
ground rent and
non-recoverable expenditure.
Net Initial Yield: the initial Net Income from a property
at the date of purchase, expressed as
a percentage of the gross purchase price
including the costs of purchase.
WAULT (Weighted Average the average lease term remaining to first
Unexpired Lease Term): break, or expiry, across the portfolio
weighted by contracted rental income (including
rent free periods).
Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that the fourth Annual General Meeting of
Drum Income Plus REIT plc will be held at 16 Charlotte Square,
Edinburgh EH2 4DF on 19 March 2020 at 12.00 p.m. for the purposes
of considering and, if thought fit, passing the following
resolutions, of which resolutions 1 to 8 inclusive will be proposed
as ordinary resolutions, and resolutions 9 to 11 inclusive will be
proposed as special resolutions:
ORDINARY RESOLUTIONS
1. That the Annual Report and Financial Statements for the year
ended 30 September 2019 be received.
2. That the Directors' Remuneration Report for the year ended 30 September 2019 be approved.
3. That the Company's dividend policy be approved.
4. That Hugh Little be re-elected as a Director of the Company.
5. That Andrew Laing be elected as a Director of the Company.
6. That PricewaterhouseCoopers LLP be re-appointed as the
Company's independent auditors and that the Directors be authorised
to determine its remuneration.
7. That Alan Robertson be re-elected as a Director of the Company.
8. That, in accordance with section 551 of the Companies Act
2006, the Directors be generally and unconditionally authorised to
exercise all powers of the Company to allot shares in the capital
of the Company and to grant rights to subscribe for or to convert
any security into shares in the Company (Securities) up to an
aggregate nominal amount of GBP764,040 (being 20% of the Company's
issued share capital, as at ---- December 2019), provided that this
authority shall, unless renewed, varied or revoked by the Company,
expire at the conclusion of the next Annual General Meeting of the
Company after the passing of the resolution or on 15 months from
the passing of this resolution, whichever is the earlier, save that
the Company may, before such expiry, make offers or agreements
which would or might require Securities to be allotted and the
Directors may allot Securities in pursuance of such offer or
agreement notwithstanding that the authority conferred by this
resolution has expired.
SPECIAL RESOLUTIONS
9. That, subject to the passing of resolution 8, the Directors
be given the general power, pursuant to section 570 of the
Companies Act 2006 (the 'Act'), to allot equity securities (as
defined in section 560 of the Act) for cash pursuant to the
authority under section 551 of the Act either conferred by
resolution 8 or by way of a sale of treasury shares as if section
561 of the Act did not apply to any such allotment, provided that
this power:
(a) expires at the conclusion of the next Annual General Meeting
of the Company after the passing of this resolution or on expiry of
15 months from the passing of this resolution, whichever is the
earlier, unless renewed, varied or revoked by the Company prior to
or on such date, and save that the Company may, before such expiry,
make offers or agreements which would or might require equity
securities to be allotted after such expiry and the Directors may
allot equity securities in pursuance of any such offer or agreement
notwithstanding that the power conferred by this resolution has
expired; and
(b) shall be limited to the allotment of equity securities for
cash up to an aggregate nominal amount of GBP764,040 (being 20% of
the nominal value of the issued share capital of the Company as at
5 December 2019).
10. To authorise the Company generally and unconditionally to
make market purchases (within the meaning of section 693(4) of the
Companies Act 2006) of Ordinary Shares of GBP0.10 each and to
cancel or hold in treasury such shares provided that:
(a) the maximum aggregate number of Ordinary Shares that may be
purchased is 5,726,478 Ordinary Shares, or if less, 14.99% of the
issued Ordinary Share capital of the Company immediately prior to
passing of this resolution (excluding treasury shares);
(b) the minimum price (excluding expenses) which may be paid for each Ordinary Share is GBP0.10;
(c) the maximum price (excluding expenses) which may be paid for
each Ordinary Share is the higher of:
(i). 105% of the average market value of an Ordinary Share in
the Company for the five business days prior to the day the
purchase is made; and
(ii). the higher of the last independent trade and the highest
current independent bid on the London Stock Exchange.
(d) unless previously varied, revoked or renewed, the authority
hereby conferred shall expire at the conclusion of the Company's
next Annual General Meeting or on 15 months from the passing of
this resolution, whichever is the earlier, save that the Company
may, before the expiry of the authority granted by this resolution,
enter into a contract to purchase Ordinary Shares which will or may
be executed wholly or partly after the expiry of such
authority.
11. That, the Group be and is hereby generally and
unconditionally authorised to hold general meetings (other than
Annual General Meetings) on 14 clear days' notice, such authority
to expire at the conclusion of the next Annual General Meeting of
the Company or 15 months from the passing of this resolution,
whichever is the earlier.
By order of the Board
Maitland Administration Services (Scotland) Limited
Company Secretary
Registered office:
Level 13, Broadgate Tower
20 Primrose Street
London
EC2A 2EW
28 January 2020
Notes
1. Only those shareholders registered in the Company's register
of members at 6.00 p.m. on 17 March 2020 or, if the meeting is
adjourned, 6.00 p.m. on the day two working days prior to the
adjourned meeting, shall be entitled to attend and vote at the
meeting.
Changes to the register of members after the relevant deadline
shall be disregarded in determining the rights of any person to
attend and vote at the meeting.
2. Information regarding the meeting, including the information
required by section 311A of the Companies Act 2006 (the 'Act'), can
be found at www.dripreit.co.uk
3. As a member you are entitled to appoint a proxy to exercise
all or any of your rights to attend, speak and vote at the meeting
and you should have received a proxy form with this notice of
meeting. A proxy does not need to be a shareholder of the Company
but must attend the meeting to represent you. You may appoint more
than one proxy provided each proxy is appointed to exercise rights
attached to different shares. You can only appoint a proxy using
the procedures set out in these notes and the notes to the proxy
form. You may not use any electronic address provided either in
this notice or any related documents (including the financial
statements and proxy form) to communicate with the Company for any
purpose other than those expressly stated.
4. Shareholders can:
(a) appoint a proxy and give proxy instructions by returning the
enclosed proxy form by post (see Note 5); or
(b) if a CREST member, register their proxy appointment by
utilising the CREST electronic proxy appointment service (see Note
6).
Appointment of a proxy does not preclude you from attending the
meeting and voting in person. If you have appointed a proxy and
attend the meeting and vote in person, your proxy appointment will
automatically be terminated.
5. The notes to the proxy form explain how to direct your proxy
how to vote on each resolution or withhold their vote. To appoint a
proxy using the proxy form, the form must be:
(a) completed and signed;
(b) sent or delivered to Computershare Investor Services PLC at
The Pavilions, Bridgwater Road, Bristol BS99 6ZY; and
(c) received by Computershare Investor Services PLC no later
than 12.00 p.m. on 17 March 2020, or, in the event of an
adjournment of the meeting, 48 hours before the adjourned
meeting.
In the case of a shareholder which is a company, the proxy form
must be executed under its common seal or signed on its behalf by
an officer of the company or an attorney for the company. Any power
of attorney or any other authority under which the proxy form is
signed (or a duly certified copy of such power or authority) must
be included with the proxy form. If you have not received a proxy
form and believe that you should have one, or if you require
additional proxy forms, please contact Computershare Investor
Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY
(Tel. No. 0370 7071222).
6. CREST members who wish to appoint a proxy or proxies by
utilising the CREST electronic proxy appointment service may do so
for the meeting and any adjournment(s) of it by using the
procedures described in the CREST manual (available via
www.euroclear.com). CREST personal members or other CREST sponsored
members, and those CREST members who have appointed a voting
service provider(s), should refer to their CREST sponsor or voting
service provider(s), who will be able to take the appropriate
action on their behalf.
In order for a proxy appointment made using the CREST service to
be valid, the appropriate CREST message (a 'CREST Proxy
Instruction') must be properly authenticated in accordance with
Euroclear UK & Ireland Limited's (EUI) specifications and must
contain the information required for such instructions, as
described in the CREST Manual. The message, regardless of whether
it constitutes the appointment of a proxy or is an amendment to the
instruction given to a previously appointed proxy, must, in order
to be valid, be transmitted so as to be received by Computershare
Investor Services PLC (ID 3RA50) no later than 12.00 p.m. on 17
March 2020, or, in the event of an adjournment of the meeting, 48
hours before the adjourned meeting. For this purpose, the time of
receipt will be taken to be the time (as determined by the
timestamp applied to the message by the CREST applications host)
from which the issuer's agent is able to retrieve the message by
enquiry to CREST in the manner prescribed by CREST. After this
time, any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or
voting service providers should note that EUI does not make
available special procedures in CREST for any particular message.
Normal system timings and limitations will therefore apply in
relation to the input of CREST proxy instructions. It is the
responsibility of the CREST member concerned to take (or, if the
CREST member is a CREST personal member or sponsored member, or has
appointed a voting service provider(s), to procure that his/her
CREST sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted by means
of the CREST system by any particular time. In this connection,
CREST members and, where applicable, their CREST sponsors or voting
service providers are referred, in particular, to those sections of
the CREST manual concerning practical limitations of the CREST
system and timings.
The Company may treat as invalid a CREST proxy instruction in
the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
7. A corporation which is a shareholder can appoint one or more
corporate representatives who may exercise, on its behalf, all its
powers as a member provided that no more than one corporate
representative exercises powers over the same share.
8. As at 6.00 p.m. on 5 December 2019, the Company's issued
share capital comprised 38,201,990 Ordinary Shares of GBP0.10 each.
Each Ordinary Share carries the right to one vote at a General
Meeting of the Company and, therefore, the total number of voting
rights in the Company as at 6.00 p.m. on 5 December 2019 2018 was
38,201,990.
The website referred to in Note 2 will include information on
the number of shares and voting rights.
9. Under section 319A of the Act, any member attending the
meeting has a right to ask questions. The Company must answer any
question you ask relating to the business being dealt with at the
meeting unless:
(a) answering the question would interfere unduly with the
preparation for the meeting or involve the disclosure of
confidential information;
(b) the answer has already been given on a website in the form of an answer to a question; or
(c) it is undesirable in the interests of the Company or the
good order of the meeting that the question be answered.
10. Under section 527 of the Act, a member or members meeting
the qualification criteria set out at Note 12 below may have the
right to request the Company to publish on its website a statement
setting out any matter that such members propose to raise at the
meeting relating to the audit of the Company's Annual Report and
financial statements (including the auditor's report and the
conduct of the audit) that are to be laid before the meeting. Where
the Company is required to publish such a statement on its
website:
(a) it may not require the shareholders making the request to
pay any expenses incurred by the Company in complying with the
request;
(b) it must forward the statement to the Company's auditors no
later than the time the statement is made available on the
Company's website; and
(c) the statement may be dealt with as part of the business of the meeting.
The request:
(a) must be in writing to Maitland Administration Services
Limited at Hamilton Centre, Rodney Way, Chelmsford, Essex, CM1
3BY;
(b) either set out the statement in full or, if supporting a
statement sent by another shareholder, clearly identify the
statement which is being supported;
(c) must be authenticated by the person or persons making it; and
(d) be received by the Company at least one week before the meeting.
11. In order to be able to exercise the members' rights in Note
10, the relevant request must be made by:
(a) a member or members having a right to vote at the meeting
and holding at least 5% of total voting rights of the Company;
or
(b) at least 100 members having a right to vote at the meeting
and holding, on average, at least GBP100 of paid up share
capital.
12. If you are a person who has been nominated under section 146
of the Companies Act 2006 to enjoy information rights (Nominated
Person), you may have a right under an agreement between you and
the shareholder of the Company who has nominated you to have
information rights (Relevant Shareholder) to be appointed or to
have someone else appointed as a proxy for the meeting. If you
either do not have such a right or if you have such a right but do
not wish to exercise it, you may have a right under an agreement
between you and the Relevant Shareholder to give instructions to
the Relevant Shareholder as to the exercise of voting rights. Your
main point of contact in terms of your investment in the Company
remains the Relevant Shareholder (or, perhaps, your custodian or
broker) and you should continue to contact them (and not the
Company) regarding any changes or queries relating to your personal
details and your interest in the Company (including any
administrative matters). The only exception to this is where the
Company expressly requests a response from you. The statement of
the rights of members in relation to the appointment of proxies in
Notes 3 and 4 above does not apply to a Nominated Person.
13. Any person holding 3% or more of the total voting rights of
the Company who appoints a person other than the Chairman of the
meeting as his proxy will need to ensure that both he and his proxy
comply with their respective disclosure obligations under the UK
Disclosure Guidance and Transparency Rules.
14. Copies of the Directors' letters of appointment are
available for inspection at the Company's registered office during
normal business hours and at the place of the meeting from at least
15 minutes prior to the meeting until the end of the meeting.
Corporate Information
DIRECTORS
Mr Hugh Little (Chairman)
Mr Andrew Laing
Mr Alan Robertson
REGISTERED OFFICE
Level 13
Broadgate Tower
20 Primrose Street
London
United Kingdom
EC2A 2EW
REGISTERED NUMBER
09511797
AIFM AND MANAGER
R&H Fund Services (Jersey) Limited
Ordnance House
31 Pier Road
St. Helier
Jersey
United Kingdom
JE4 8PW
INVESTMENT ADVISER
Drum Real Estate Investment Management Limited
115 George Street
Edinburgh
United Kingdom
EH2 4JN
ADMINISTRATOR
Drum Real Estate Investment Management Limited
115 George Street
Edinburgh
United Kingdom
EH2 4JN
COMPANY SECRETARY
Maitland Administration Services (Scotland) Limited
6th Floor
Labs House
15-19 Bloomsbury Way
London
United Kingdom
WC1A 2TH
LEGAL ADVISER
Dickson Minto W.S.
Broadgate Tower
20 Primrose Street
London
United Kingdom
EC2A 2EW
PROPERTY VALUERS
Savills (UK) Limited
8 Wemyss Place
Edinburgh
United Kingdom
EH3 6DH
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
Atria One
144 Morrison Street
Edinburgh
United Kingdom
EH3 8EX
REGISTRARS
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
United Kingdom
BS13 8AE
WEBSITE
www.dripreit.co.uk
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEUFMUESSEEF
(END) Dow Jones Newswires
January 29, 2020 11:43 ET (16:43 GMT)
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