TIDMDRIP

RNS Number : 4032Q

Drum Income Plus REIT PLC

18 June 2020

THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.

18 June 2020

Drum Income Plus REIT Plc

(the "Company")

LEI: 213800FG3PJGQ3KQH756

HALF-YEAR RESULTS

Drum Income Plus REIT plc (LSE: DRIP) announces its half-year results for the six months ended 31 March 2020.

Enquiries:

 
 Drum Real Estate Investment Management (Investment 
  Manager) 
  Bryan Sherriff                                         0131 285 0050 
 Cantor Fitzgerald Europe (Financial Adviser and 
  Corporate Broker) 
  Robert Peel (Corporate Finance)                       020 7894 7719 
  Richard Sloss (Sales)                                  0131 257 4626 
                                                      ---------------- 
 Dickson Minto W.S. (Sponsor) 
  Douglas Armstrong                                      020 7649 6823 
                                                      ---------------- 
 Weber Shandwick (Financial PR) 
  Richard Bright                                        0131 556 6649 
  Nick Oborne                                            020 7067 0721 
                                                      ---------------- 
 JTC (UK) Limited (Company Secretary)                  0203 846 9777 
                                                      ---------------- 
 

Chairman's Statement

INTRODUCTION

Drum Income Plus REIT was established in May 2015 to provide investors with a regular dividend income, together with the prospect of income and capital growth over the longer term, by investing in regional real estate assets. I am pleased to present this interim report for the six month period ended 31 March 2020.

Since my Annual Statement a few short months ago, the world has been struck by the global pandemic virus known as COVID-19. Hundreds of thousands of people have died around the world, and the UK has not escaped, with tens of thousands of deaths to date recorded.

Economies have been hard hit, and recessions are inevitable - globally, nationally and locally. Real estate funds will not escape the challenges which the country's lockdown has brought, and, further, which recession will bring, but our initial focus has been to ensure where possible the health and safety of everyone who enters or works in our properties. I would like to thank especially our investment managers and property managers for their sterling efforts in this regard in what have been the most testing of circumstances.

The Net Asset Value has fallen by 6.2% in the 6 months to March 2020, largely due to a fall in the valuation of the retail and shopping centre assets. As announced last month, the quarterly dividend has been suspended for the next two quarters in order to preserve cash, and the position will be reviewed for the September 2020 quarter, which is also the Company's year end.

Inevitably, some of our tenants will be experiencing large losses of revenues, especially those within the retail sector, and as landlords in these unprecedented times we will be as flexible as we can be in negotiating terms with those who request to do so, whilst at the same time optimizing income and protecting the value of our shareholders' assets. At the time of writing we have secured more than 75% of rental income which is payable during the lockdown period with further monthly payments expected, but perhaps bigger challenges lie ahead in the next couple of quarters, as it is likely that rent collections will remain under pressure until trading conditions begin to improve for tenants. The real estate portfolio is of course protected to a certain extent by the quality and length of many of the leases in place.

Hugh Little

Chairman

18 June 2020

Investment Adviser's Report

MARKET VIEW

The impact of Covid-19 and the lockdown on the UK Commercial property market is unprecedented and its effects will continue to shape the market even once we exit lockdown. While the UK did not enter lockdown until the 24th March, social distancing was already shaping footfall, occupier appetite and rents across all sectors from mid-March and is apparent in the data from the quarter to March 2020. Going forward, we expect COVID-19 uncertainty will continue to affect the market and corresponding values over the next six to nine months with some market commentators anticipating that there will be a return to more normal conditions by the end of March 2021 (assuming a vaccine is in place).

The Board and the Manager are taking every precaution to safeguard the health and wellbeing of staff, occupiers and stakeholders. We are continually monitoring our assets in light of the outbreak of Covid-19 and our primary focus through this exceptionally challenging period is to ensure that the portfolio is well positioned to begin its recovery once the COVID-19 "lockdown" restrictions are lifted and our tenants can begin to generate income again. We are focused on preserving the long-term value and financial strength of the Company.

However, Covid-19 has had and will continue to have a material impact upon the trading performance of the Company. In common with all valuations being carried out at this time, the March 2020 valuation report is subject to a material uncertainty clause and further valuation and NAV reductions are likely as rent collections will continue to remain under pressure until trading conditions for tenants begin to improve.

As announced in the March 2020 NAV statement our rental collection statistics were solid and a clearer picture of the impact of Covid-19 will emerge as we monitor rent collections for the 28 May Scottish quarter and the 25 June English quarter in the coming weeks.

The political issues last year of Brexit and a General Election have for the minute been forgotten as we deal with the impact of Covid-19. Whilst the General Election is behind us and we now have a Government with a majority the transition facing the UK as we deal with Brexit is yet to be understood. The latest data confirms that investment transaction levels across all sectors in the UK are showing a downward trajectory. With the impact of Covid-19, rents are also under pressure as tenants try to secure Government assistance, however, unemployment is rising and this will undoubtedly have an impact on the affordability of rents in due course.

Social distancing is a new phenomenon, however, it is one we all need to adapt to in order for the lockdown restrictions to be removed safely. Occupiers and Landlords will have to alter how buildings and occupied space are operated.

Aside from many potential occupiers now taking a 'wait-and-see' approach to acquiring space, the more physical aspect of not being able to undertake viewings has put the majority of requirements on hold.

We envisage the majority of these requirements being deferred by at least a quarter, if not more. However, the situation is constantly evolving, and encouragingly, we are now starting to see more 'virtual' viewings, enabling occupiers to shortlist buildings ready to make a decision post-lockdown.

While some companies will use technology to enable employees to work from home post-Covid-19, it is our belief that the office is more important to people than ever for face-to-face meetings, collaboration and knowledge sharing. An office with an attractive design and culture is also an important component for the attraction and retention of staff.

Homeworking will continue, but we are sociable creatures, so office life will, too. Many employees will look forward to getting back to the sense of community and the increased social interaction. The challenge lies in how to adapt workplaces. There is going to be substantially more awareness and interest on the part of employees, in terms of the quality of the spaces that they are occupying.

Landlords and occupiers alike, are likely to invest in new contactless technologies to reduce disease transmission, resulting in employees rarely needing to touch the building with their hands. Office doors will open automatically using motion sensors and facial recognition, while lifts - and even a coffee - can be ordered from a smartphone.

Some requirements may start to shrink as businesses realise that a percentage of their staff can now work from home, but the converse is that other requirements may increase as social distancing may require office occupational densities to be reduced. Office desks have shrunk over the years, but we may see a reversal of that, as people may not want to sit so close together.

Ultimately, occupiers will demand more flexibility, some occupiers will require shorter leases and maybe we will see core space on a more traditional lease whilst occupiers add extra floor space on more flexible arrangements. Nothing is certain yet, and it is only as we start to come out of lockdown and employees start to return to the office, that we will really know to what extent things have changed.

Below are some highlights of the portfolio performance:

-- Following the refurbishment of one terrace at Burnside Industrial Estate we have successfully concluded 3 lettings, with one unit out of 6 remaining vacant.

-- Significant work has been undertaken over the last 2 years to secure a new 10 year lease to SDS at Monteith House although the start date has been delayed due to Covid-19

   --      We have appealed the planning refusal at Eastern Avenue Retail Park, Gloucester. 
   --      3 Lochside Way continues to be a strong performing asset and remains fully let 

-- Gosforth Shopping Centre continues to produce a strong rental income for the Company but the value has been reduced due to the market sentiment and lack of transactional evidence for Shopping Centres, albeit almost 50% of the income at Gosforth is payable by Sainsbury's.

DIFFERENTIATED INVESTMENT STRATEGY

In terms of investment focus the Company will continue to invest when funds are available in well located regional property where the basic fundamentals of supply and demand are favourable. The Company is stock selection driven, although the macro top down analysis will always be a feature of the investment process.

The Investment Adviser believes that income will remain a large component of market return over the next few years.

INVESTMENT STRATEGY

The strategy continues to remain focussed on constructing and managing a quality diversified portfolio of real estate assets which offer the opportunity to increase rental value, income security and capital value via the Investment Adviser's expertise in entrepreneurial asset management and risk-controlled development. The Investment Adviser targets commercial real estate assets with the following characteristics:

   --      sector agnostic - opportunity driven; 
   --      lot sizes of between GBP2 million and GBP15 million, in regional locations; 
   --      offer the opportunity to add value via the Investment Adviser's proactive asset management; 

-- situated in significant regional conurbations that have scope for physical improvement or improved asset management; and

-- which the Investment Adviser considers to be mispriced and/or properties which are subject to substandard lease lengths and voids.

RISK MANAGEMENT AND SUSTAINABILITY

The Investment Adviser considers and monitors risk through all aspects of the investment process. Risks identified prior to the acquisition of an asset are highlighted to the Board and considered by the Directors prior to approval of the purchase. These risks are then monitored by the Investment Adviser and reviewed at each quarterly Board meeting of the Company.

Sustainable investment is relevant in considering suitable investments for the Company and is a factor considered by the Investment Adviser when analysing risk. The Investment Adviser seeks to avoid depreciation in valuation caused by external environmental factors and also seeks to be aware of the need for buildings to deliver the future requirements of occupiers.

Bryan Sherriff

Investment Manager

18 June 2020

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 31 March 2020

 
                                     Six months ended              Six months ended                   Year ended 
                                       31 March 2020                 31 March 2019               30 September 2019 
                                         (unaudited)                   (unaudited)                     (audited) 
                                     Revenue Capital Total              Revenue Capital                Revenue Capital 
                                                                                  Total                          Total 
                             Notes GBP'000 GBP'000 GBP'000              GBP'000 GBP'000                GBP'000 GBP'000 
                                                                                GBP'000                        GBP'000 
==========================================================  ===========================  ============================= 
Capital gains/(losses) 
 on investments 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Held at fair value                    (2,093)      (2,093)          -     (714)   (714)         -     (3,133)  (3,133) 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Revenue 
Rental income                               -        2,088      2,205         -   2,205     4,249           -    4,249 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Total Income/ expense 
 2,088                                (2,093)          (5)      2,205     (714)   1,491     4,249     (3,133)    1,116 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
 
Expenditure 
Investment 
Adviser's fees 2 
 (114)                                      -        (114)      (192)         -   (192)     (335)           -    (335) 
Property expenses 
 (360)                                      -        (360)          -         -       -         -           -        - 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Other expenses (220)                        -        (220)      (668)         -   (668)   (1,193)           -  (1,193) 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Total expenditure 
 (694)                                      -        (694)      (860)         -   (860)   (1,528)           -  (1,528) 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Profit / (loss) before 
 finance 
 costs and taxation 
 1,394                                (2,093)        (699)      1,345     (714)     631     2,721     (3,133)    (412) 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Net finance costs 
 Interest receivable                        -            -          -         -       -         -           -        - 
 - 
Interest payable 
 (335)                                      -        (335)      (298)         -   (298)     (657)           -    (657) 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Profit / (loss) before 
 taxation 1,059                       (2,093)      (1,034)      1,047     (714)     333     2,064     (3,133)  (1,069) 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Taxation -                                  -            -          -         -       -         -           -        - 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Profit / (loss) 
 for the period 1,059                 (2,093)      (1,034)      1,047     (714)     333     2,064     (3,133)  (1,069) 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Total comprehensive 
 profit / (loss) 
 for the period 1,059                 (2,093)      (1,034)      1,047     (714)     333     2,064     (3,133)  (1,069) 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
Basic and diluted 
 earnings per 
 ordinary share 
 2.77p                                (5.48)p      (2.71)p      2.74p   (1.87)p   0.87p     5.40p     (8.02)p  (2.80)p 
===============================  ============  ===========  =========  ========  ======  ========  ==========  ======= 
 

The total column of this statement represents the Group's Condensed Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS. There are no other gains or losses for the period other than the total comprehensive profit reported above.

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

No operations were acquired or discontinued during the period. All revenue and capital items in the above statement are derived from continuing operations.

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Condensed Consolidated Statement of Financial Position

As at 31 March 2020

 
 
                                                             As at                As at 31                   As at 30 
                                                             31                   March                      September 
                                                             March 
                                                              2020              2019                              2019 
                                                       (unaudited)               (unaudited)                 (audited) 
                             Notes                         GBP'000               GBP'000                       GBP'000 
==========================  ======  ==============================  ========================  ======================== 
Non-current assets 
 Investment properties           5                          52,870                    56,771                    54,880 
==========================  ======  ==============================  ========================  ======================== 
                                                            52,870                    56,771                    54,880 
==========================  ======  ==============================  ========================  ======================== 
Current assets 
Trade and other 
 receivables                                                 2,282                     2,378                     2,643 
==========================  ======  ==============================  ========================  ======================== 
Cash and cash equivalents                                      542                     1,060                       510 
==========================  ======  ==============================  ========================  ======================== 
                                                             2,824                     3,438                     3,153 
==========================  ======  ==============================  ========================  ======================== 
Total assets                                                55,695                    60,209                    58,033 
==========================  ======  ==============================  ========================  ======================== 
Non-current liabilities 
 Bank loan                       6                        (22,592)                         -                  (22,559) 
==========================  ======  ==============================  ========================  ======================== 
                                                          (22,592)                         -                  (22,559) 
==========================  ======  ==============================  ========================  ======================== 
Current liabilities 
Trade and other 
 payables                                                  (2,822)                   (2,463)                   (3,014) 
==========================  ======  ==============================  ========================  ======================== 
Bank loan                                                        -                  (22,731)                         - 
==========================  ======  ==============================  ========================  ======================== 
Total liabilities                                         (25,414)                  (25,194)                  (25,573) 
==========================  ======  ==============================  ========================  ======================== 
Net assets                                                  30,280                    35,015                    32,460 
==========================  ======  ==============================  ========================  ======================== 
 
  Equity and reserves 
  Called up equity 
  share capital                  8                           3,820                     3,820                     3,820 
Share premium                                                5,335                     5,335                     5,335 
Special distributable 
 reserve                                                    21,840                    21,840                    21,840 
Capital reserve                                            (7,806)                   (3,294)                   (5,713) 
Revenue reserve                                              7,091                     7,314                     7,178 
==========================  ======  ==============================  ========================  ======================== 
Equity shareholders' 
 funds                                                      30,280                    35,015                    32,460 
==========================  ======  ==============================  ========================  ======================== 
 
  Net asset value 
  per ordinary share             7                          79.26p                    91.66p                    84.97p 
==========================  ======  ==============================  ========================  ======================== 
 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Company number: 9511797

The condensed consolidated interim financial statements on pages 12 to 21 were approved by the Board of Directors on 18 June 2020 and were signed on its behalf by:

Hugh Little

Chairman

Condensed Consolidated Statement of Changes in Equity

For the six months to 31 March 2020 (unaudited)

 
 
 
                               Share                              Special 
                               capital          Share             distributable     Capital       Revenue       Total 
                               account          premium           reserve           reserve       reserve       equity 
                               GBP'000          GBP'000                 GBP'000     GBP'000       GBP'000      GBP'000 
=======================  =============  ===============  ======================  ==========  ============  =========== 
As at 30 September 2019          3,820            5,335                  21,840     (5,713)         7,178       32,460 
=======================  =============  ===============  ======================  ==========  ============  =========== 
Profit and total 
 comprehensive 
 profit for the period:              -                -                       -     (2,093)         1,059      (1,034) 
=======================  =============  ===============  ======================  ==========  ============  =========== 
Transactions with 
owners 
recognised in equity:                -                -                       -           -             -            - 
Issue of ordinary share 
capital 
Issue costs                          -                -                       -           -             -            - 
Dividends paid                       -                -                       -           -       (1,146)      (1,146) 
=======================  =============  ===============  ======================  ==========  ============  =========== 
As at 31 March 2020              3,820            5,335                  21,840     (7,806)         7,091       30,280 
=======================  =============  ===============  ======================  ==========  ============  =========== 
 
 For the six months to 
 31 
 March 2019 (unaudited) 
                             Share                             Special 
                              capital             Share         distributable       Capital       Revenue        Total 
                               account          premium                 reserve     reserve       reserve       equity 
                               GBP'000          GBP'000                 GBP'000     GBP'000       GBP'000      GBP'000 
=======================  =============  ===============  ======================  ==========  ============  =========== 
As at 30 September 2018          3,820            5,335                  21,840     (2,580)         7,406       35,821 
=======================  =============  ===============  ======================  ==========  ============  =========== 
Profit and total 
 comprehensive 
 profit for the period:              -                -                       -       (714)         1,047          333 
=======================  =============  ===============  ======================  ==========  ============  =========== 
Transactions with 
owners 
recognised in equity:                -                -                       -           -             -            - 
Issue of ordinary share 
capital 
Issue costs                          -                -                       -           -             -            - 
Dividends paid                       -                -                       -           -       (1,139)      (1,139) 
=======================  =============  ===============  ======================  ==========  ============  =========== 
As at 31 March 2019              3,820            5,335                  21,840     (3,294)         7,314       35,015 
=======================  =============  ===============  ======================  ==========  ============  =========== 
 

Condensed Consolidated Cash Flow Statement

For the six months ended 31 March 2020

 
 
                                                             Six months                Six months      Year ended 
                                                             ended 31 March            ended 31        30 September 
                                                                                       March 
                                                                       2020                  2019              2019 
                                                                (unaudited)           (unaudited)         (audited) 
                                                                    GBP'000               GBP'000           GBP'000 
========================================  =================================  ====================  ================ 
Cash flows from operating activities 
Profit/(Loss) before tax                                            (1,034)                   333           (1,069) 
Adjustments for: 
Interest payable                                                        291                   306               657 
Amortised loan costs                                                     32                     -                16 
Unrealised revaluation (loss) 
 / gain on property portfolio                                         2,053                   714             3,133 
========================================  =================================  ====================  ================ 
Operating cash flows before working 
 capital changes                                                      1,342                 1,353             2,737 
Increase / (decrease) in trade 
 and other receivables                                                  361                   320                 6 
Increase/ (decrease) in trade 
 and other payables                                                   (192)                 (155)                60 
========================================  =================================  ====================  ================ 
Net cash inflow from operating 
 activities                                                           1,511                 1,518             2,803 
========================================  =================================  ====================  ================ 
 
  Cash flows from investing activities 
Rent free debtor movement                                                40                    20                 - 
Property capitalised costs                                             (83)                 (171)             (489) 
========================================  =================================  ====================  ================ 
Net cash outflow from investing 
 activities                                                            (43)                 (151)             (489) 
========================================  =================================  ====================  ================ 
 
  Cash flows from financing activities 
Bank loan drawn down net of arrangement                                   -                     -                 - 
 fees 
Issue of ordinary share capital                                           -                     -                 - 
Interest received                                                         -                     -                 - 
Interest paid                                                         (291)                 (306)             (651) 
Equity dividends paid                                               (1,145)               (1,140)           (2,292) 
========================================  =================================  ====================  ================ 
Net cash (outflow) / inflow from 
 financing activities                                               (1,436)               (1,446)           (2,943) 
========================================  =================================  ====================  ================ 
Net increase / (decrease) in cash 
 and cash equivalents                                                    32                  (79)             (629) 
Opening cash and cash equivalents                                       510                 1,139             1,139 
========================================  =================================  ====================  ================ 
Closing cash and cash equivalents                                       542                 1,060               510 
========================================  =================================  ====================  ================ 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

Notes to the Condensed Consolidated Financial Statements

   1.   INTERIM RESULTS 

The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and IAS 34 'Interim Financial Reporting' as adopted by the European Union and the accounting policies set out in the statutory accounts of the Group for the year ended 30 September 2019. The condensed consolidated financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the financial statements of the Group for the year ended 30 September 2019, which were prepared under IFRS as adopted by the European Union. There have been no significant changes to management judgements and estimates.

The condensed consolidated financial statements have been prepared on the going concern basis. In assessing the going concern of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. After making enquiries, and bearing in mind the nature of the Group's business and assets, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

   2.   INVESTMENT ADVISER'S FEE 
 
                       Six months  Six months          Year 
                            ended       ended         ended 
                         31 March    31 March  30 September 
                             2020        2019          2019 
                          GBP'000     GBP'000       GBP'000 
=====================  ==========  ==========  ============ 
Investment Adviser's 
 fee                          114         192           335 
=====================  ==========  ==========  ============ 
Total                         114         192           335 
=====================  ==========  ==========  ============ 
 

The Investment Management fee is calculated as 0.7% per annum of the net assets of the Group. The Investment Management Agreement may be terminated by either party by giving not less than 12 months' notice.

   3.   EARNINGS PER SHARE 
 
                               Six months             Six months              Year ended 
                                 ended 31               ended 31            30 September 
                               March 2020             March 2020                    2019 
                                Pence per              Pence per               Pence per 
                    GBP'000         share  GBP'000         share  GBP'000          share 
Revenue earnings      1,060          2.77    1,047          2.74    2,064           5.40 
Capital earnings    (2,093)        (5.48)    (714)        (1.87)  (3,133)         (8.20) 
Total earnings      (1,034)        (2.71)      333          0.87  (1,069)         (2.80) 
Weighted average 
 number of shares 
 in issue                      38,201,990             38,201,990              38,201,990 
 

Earnings for the period to 31 March 2020 should not be taken as a guide to the results for the period to 30 September 2020.

   4.   DIVIDS 

A first interim dividend of 1.5p in respect of the quarter ended 31 December 2019 was paid on 18 February 2020 to shareholders on the register on 7 February 2020.

   5.   INVESTMENT PROPERTIES 
 
 
                                                                As at         As at 
                                                             31 March  30 September 
                                                              2020             2019 
                                                              GBP'000       GBP'000 
=========================================  ==========================  ============ 
Opening fair value                                             54,880        57,351 
Purchases                                                           -             - 
Capitalised costs                                                 129           678 
Amortisation of lease costs                                      (21)          (16) 
Revaluation movement                                          (2,118)       (3,133) 
=========================================  ==========================  ============ 
Closing fair value                                             52,870        54,880 
=========================================  ==========================  ============ 
 
  Changes in the valuation of investment 
  properties                                                    As at         As at 
                                                             31 March  30 September 
                                                              2019             2019 
                                                              GBP'000       GBP'000 
=========================================  ==========================  ============ 
Unrealised gain / (loss) on revaluation 
 of investment properties                                     (2,093)       (3,133) 
=========================================  ==========================  ============ 
 

The properties were valued at GBP53,300,000 as at 31 March 2020 (31 March 2019: GBP57,300,000; 30 September 2019:

GBP55,350,000) by Savills (UK) Limited ('Savills'), in their capacity as external valuers.

The valuation report was undertaken in accordance with the RICS Valuation - Professional Standards VPS4 (1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements, which adopt the definition of Fair Value adopted by the International Accounting Standards Board.

Fair value is based on an open market valuation (the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date), provided by Savills on a quarterly basis, using recognised valuation techniques as set out in the accounting policies and note 9 of the consolidated financial statements of the Group for the year ended 30 September 2019. There were no significant changes to the valuation process, assumptions or techniques used during the period.

In common with all valuations being carried out at this time, the quarterly valuation report is subject to a material uncertainty clause.

   6.   BANK LOAN 
 
                                                           As at                 As at         As at 
                                                        31 March              31 March  30 September 
                                                        2020                  2019              2019 
                                                         GBP'000               GBP'000       GBP'000 
=============================  =================================  ====================  ============ 
Principal amount outstanding                              22,760                22,760        22,760 
=============================  =================================  ====================  ============ 
Set up costs                                               (168)                  (29)         (201) 
=============================  =================================  ====================  ============ 
Total                                                     22,592                22,731        22,559 
=============================  =================================  ====================  ============ 
 

On 30 September 2019 the Group entered into a GBP25 million secured 3 year revolving credit facility agreement with the Royal Bank of Scotland ("the Bank"). The interest rate on the facility is 1.75% plus LIBOR per annum.

As part of the loan agreement the Bank has a standard security over properties currently held by the Group, with an aggregate value of GBP53,300,000 at 31 March 2020. The fair value of investments held as security adjusted for lease incentives of GBP429,987 was GBP52,870,013.

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 to repayment earlier than the final maturity date stated above. The Group has complied with all the loan covenants during the period.

   7.   NET ASSET VALUE 

The Group's net unit value per ordinary share of 79.26 pence (31 March 2019 91.66 pence; 30 September 2019 84.97 pence) is based on equity shareholders' funds of GBP30,280,000 (31 March 2019 GBP35,015,000; 30 September 2019 GBP32,460,000) and on 38,201,990 ordinary shares being the number of shares in issue at the period end.

   8.   SHARE CAPITAL 
 
                                  Six                      Year to                   Six                       Year to 
                                  months                   30                        months                         30 
                                  to 31                    September                 to 31                   September 
                                  March                    2019                      March                        2019 
                                  2020                                               2020 
                                  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                      -                           -                      -                          - 
 period 
===================  ===================  ==========================  =====================  ========================= 
Closing total 
issued 
ordinary shares               38,201,990                  38,201,990                  3,820                      3,820 
===================  ===================  ==========================  =====================  ========================= 
 

There is one class of share.

   9.   INVESTMENT IN SUBSIDIARY 

The Group's results consolidate those of Drum Income Plus Limited, a wholly owned subsidiary of Drum Income Plus REIT plc, 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 transferred in 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.

10. RELATED PARTY TRANSACTIONS AND FEES PAID TO DRUM REAL ESTATE INVESTMENT MANAGERS

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 six months ended 31 March 2020 were GBP35,000 (six months ended 31 March 2019: GBP42,000; twelve months ended 30 September 2019: GBP75,000) of which GBPnil (31 March 2019: GBPnil; 30 September 2019: GBPnil) remained payable at the period end.

Under the terms of the agreements amongst the Group, R&H Fund Services (Jersey) Limited (the "AIFM"), Drum Real Estate Investment Management Limited (the "Investment Adviser"), the Group paid to the AIFM a fixed fee of GBP15,000 per annum plus annual portfolio management fee of 0.7% per annum of the net assets of the Group. The AIFM agreed that the annual portfolio management fee would be paid to the Investment Adviser, in accordance with the terms of the agreements.

The AIFM and the Investment Advisors are considered to be related parties.

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 AIRM 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 ration being 2.0% of net assets.

R&H Fund Services (Jersey) Limited received GBP8,000 in relation to the six months ended 31 March 2020 (six months ended 31 March 2019: GBP8,000; twelve months ended 30 September 2019: GBP15,000) of which GBP32,000 (31 March 2019: GBP24,000; 30 September 2019: GBP32,000) remained payable at the period end.

11. 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 31 March 2020 (31 March 2019: nil, 30 September 2019: nil).

12. 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 IFRS net asset value per share 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.

13. FAIR VALUE MEASUREMENTS

The fair value measurements for assets and liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. These 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. All investment properties are included in Level 3.

There were no transfers between levels of the fair value hierarchy during the six months ended 31 March 2020.

14. INTERIM REPORT STATEMENT

The Company's auditor has not audited or reviewed the Interim Report to 31 March 2020 pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information'. These are not full statutory accounts in terms of Section 434 of the Companies Act 2006 and are unaudited. Statutory accounts for the year ended 30 September 2019, which received an unqualified audit report and which did not contain a statement under Section 498 of the Companies Act 2006, have been lodged with the Registrar of Companies. No full statutory accounts in respect of any period after 30 September 2019 have been reported on by the Company's auditor or delivered to the Registrar of Companies.

Statement of Principal Risks and Uncertainties

The risks, and the way in which they are managed, are described in more detail under the heading 'Principal risks' within the Strategic Report in the Group's Annual Report and Accounts for the year ended 30 September 2019. The Group's principal risks and uncertainties have changed materially since the date of that report as a direct result of the global health crisis and the attendant economic, social, financial and market crises and are expected to remain heightened for a considerable period, including the rest of the Group's financial year. This is having a significant impact on capital values and income from the portfolio, as well as an impact on the regulatory environment in which the Company operates. The operational risks of the Company have also been exacerbated by the health crisis and resilience is being examined on an ongoing basis but has been sound to date both in the management of the portfolio and of the Company.

Statement of Directors' Responsibilities in Respect of the Interim Report

We confirm that to the best of our knowledge:

-- the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union and gives a true and fair view of the assets, liabilities, financial position and profit of the Group;

-- the Chairman's Statement and Investment Adviser's Review (together constituting the Interim Management Report) include a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements;

-- the Statement of Principal Risks and Uncertainties above is a fair review of the information required by DTR 4.2.7R; and

-- the Chairman's Statement and Investment Adviser's Review together with the condensed set of consolidated financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

Hugh Little

Chairman

18 June 2020

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

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June 18, 2020 07:21 ET (11:21 GMT)

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