TIDMEPIC
RNS Number : 7784I
Ediston Property Inv Comp PLC
16 December 2020
Ediston Property Investment Company plc
(the 'Company')
(LEI: 213800JRL87EGX9TUI28)
FULL YEAR RESULTS AND NOTICE OF AGM
Ediston Property Investment Company plc (LSE: EPIC), a UK-listed
Real Estate Investment Trust (REIT) investing in commercial
property throughout the UK, announces its full year results for the
year ended 30 September 2020.
The Company also announces that its 2021 Annual General Meeting
will be held on Tuesday, 23 February 2021 at 2.00 p.m. at the
offices of Ediston Investment Services Limited at 1 St Andrew
Square, Edinburgh, EH2 2BD .
The Company's Annual Report and Financial Statements for the
year ended 30 September 2020 and the formal Notice of the Annual
General Meeting will be posted to shareholders and in accordance
with Listing Rule 9.6.1 copies of the documents have been submitted
to the UK Listing Authority and will shortly be available to view
on the Company's corporate website at
https://www.epic-reit.com/literature/ and have also been submitted
to the UK Listing Authority and will be shortly available for
inspection from the National Storage Mechanism at:
https://data.fca.org.uk/#/nationalstoragemechanism
The Company is required by law to hold an AGM within six months
of its financial year end. Given the unprecedented circumstances,
the Board will host the AGM but with contingency arrangements that
mean that the AGM will not follow its usual format. Only the
statutory, formal business (consisting of voting on the resolutions
proposed in the Notice of AGM) to meet the minimum legal
requirements will be conducted and the AGM.
Given the social distancing measures currently in force and in
light of the latest published government guidance and pursuant to
the Corporate Insolvency and Governance Act 2020, proceeding with a
"technical" AGM is in the best interests not only of the Company,
but also of each of its individual shareholders. If circumstances
change and if social distancing measures are relaxed before the
AGM, the Company will notify shareholders of any changes to the
proposed format for the AGM via RIS and its website
https://www.epic-reit.com Full details of the measures implemented
by the Company to allow for the orderly conduct of the AGM can be
found in the Notice of AGM.
Year to 30 September 2020:
Operational
-- Dividend cover for the year was 118.9%.
-- 12 lease transactions completed with a contracted rent of GBP1.6 million per annum.
-- Asset management activity on 8 out of 10 retail warehouse sites.
-- Started construction of the retail park at Haddington, which
on completion in June 2021, will deliver GBP875,000 of additional
rent per annum.
-- Rent collection, which was affected by COVID-19, has improved
as the year progressed, resulting in 89.3% of the rent billed for
the year being collected, rising to 97.2% when deferred rent is
paid back.
-- Post-period end, two developments were completed securing
GBP232,500 of additional rent per annum.
Financial
2020 2019 2018
--------------------------------- --------- --------- ---------
Total assets GBP294.7m GBP342.2m GBP356.6m
NAV total return -16.6% -0.8% 8.9%
EPRA vacancy rate 5.1% 2.9% 5.7%
Weighted average unexpired lease 5.7 years 6.1 years 6.6 years
term
EPRA NAV per share 86.01p 108.7p 115.3p
Annualised dividend per share 4.88p 5.75p 5.75p
--------------------------------- --------- --------- ---------
Key Performance Indicators
2020 2019 2018
-------------------------------- ------ ------ -----
NAV total return -16.6% -0.8% 8.9%
Annualised dividend per share 4.88p 5.75p 5.75p
Average discount of share price
to NAV -33.2% -11.6% 1.6%
Share price total return -35.3% -17.0% 7.7%
EPRA vacancy rate 5.1% 2.9% 5.7%
Ongoing charges 1.4% 1.4% 1.3%
-------------------------------- ------ ------ -----
William Hill, Chairman of the Company, said:
"My report last year was headed 'challenges and opportunities'.
The challenges are far from over. However, with bigger challenges
come bigger opportunities. We remain confident that our Investment
Manager's active portfolio management style and the positioning of
our current portfolio will enable us to exploit these opportunities
as they arise and will provide a strong investment platform on
which to progress over the medium to longer term."
Calum Bruce, Investment Manager, said:
"Over the period, in the retail warehouse portfolio, 12 lease
transactions with a contracted rent of GBP1.6 million have
completed. The fact that tenants are still committing to new leases
on the Company's retail warehouse assets, despite the challenges in
the wider retail market, shows that the underlying fundamentals of
the retail parks remain sound and are still attractive for
tenants."
Enquiries
Will Barnett Investec Bank plc 0207 597 5873
Ediston Properties
Calum Bruce Limited 0131 225 5599
Ruth Wright JTC 0203 893 1011
Ben Robinson Kaso Legg Communications 0203 995 6672
Stephanie Ross Kaso Legg Communications 0203 995 6676
Chairman's Statement
OVERVIEW
This has been the most challenging year for the Company since
its inception in late 2014. The NAV has declined, the discount to
the NAV has widened and the dividend has been cut in response to
the difficulties of collecting rent from tenants protected by
COVID-19 legislation. The Company and its management have been
fully tested. However, beneath the starkness of the financial
headlines, the Company has demonstrated resilience and there are a
number of positives which augur well for the future.
Within the portfolio the Investment Manager has continued to
deliver asset management initiatives that show ongoing occupational
demand for the assets we hold, manufactured new income from
development activity, achieved rent collection levels above market
averages and has taken significant steps forward with the
sustainability strategy which resulted in the Company winning an
EPRA award.
Good business continuity planning enabled the Company to
maintain full operational integrity during the year. Various
corporate initiatives have been taken forward including a refresh
of the Board and director responsibilities, a review and change of
Company Secretary and Administrator and the acceptance of an
innovative proposal from our Investment Manager following our
annual review of all of our agents. These initiatives are described
more fully in this report.
My report last year was headed 'challenges and opportunities'.
The challenges are far from over. However, with bigger challenges
come bigger opportunities. We remain confident that our Investment
Manager's active portfolio management style and the positioning of
our current portfolio will enable us to exploit these opportunities
as they arise and will provide a strong investment platform on
which to progress over the medium to longer term.
INVESTMENT AND SHARE PRICE PERFORMANCE
Based on the headline numbers the Company's investment
performance over the year can only be regarded as disappointing.
The NAV per share has declined by 20.9%, the discount to NAV
widened to 40.8% at the year end and the monthly dividend rate has
been cut by 30.4%. Yet beneath the headlines a more complex and
encouraging picture emerges.
Most of the value decline took place in the retail warehouse
part of the portfolio. The main factor was a rise in retail
investment yields with investors anticipating increases in vacancy
levels and a permanent diminution in retail rents. Whilst this has
indeed been the case for large parts of the retail market the
Investment Manager has long argued that not all retail is the same.
The evidence can be seen in the Company's portfolio by the strong
trading performance of a number of tenants, for example B&Q,
B&M, Tesco and Halfords, the low levels of vacancy, the
encouraging number of lease transactions completed, the robustness
of the Company's income collection and the strength of the
contracted rent roll.
It is clear the pandemic has accelerated the rate of change in
how and where people shop. Increasing numbers of consumers used
on-line shopping during lockdown and have not returned in numbers
to the high street and shopping centres. However, reinforcing the
point that not all retail is the same, the exception is retail
warehousing where footfall was within 10% of pre-crisis levels
before the second lockdown was implemented. Retail warehousing is
benefitting from the less congested layouts (which suit social
distancing requirements) and is the best placed of all the retail
sub-sectors to support retailers' omnichannel strategies through
online sales and click and collect.
These nuances in the retail market were ignored when the
Company's share price fell by 40.4% in the market turmoil at the
onset of the COVID-19 crisis. The share price reached a low point
of 40.0 pence per share on 14 May 2020. It recovered 27.3% by the
financial year end, reflecting a discount to the 30 September NAV
of 40.8% and an average discount through the year of 33.2%. The
total return, taking into account dividends paid, was therefore
-35.3% based on share price movement and -16.6% on NAV movements.
Since the year end, the share price has continued to recover,
closing at 71.0p on 11 December 2020.
PORTFOLIO ACTIVITY
12 leasing transactions were completed during the year and five
shortly after the year end. Activity has been predominantly in the
retail warehouse portfolio but did include an important office
lease restructure. Perhaps counter intuitively, there was more
activity in the second half of the year, after the COVID-19
pandemic had been declared, than the first. These transactions are
discussed in more detail in the Investment Manager's review.
However, I want to bring out some key points to illustrate the
strength of the retail warehouses parks and other assets owned by
the Company:
- There was asset management activity on eight of the ten retail warehouse parks.
- Six lease transactions were completed at Widnes Shopping Park, all during the pandemic.
- CVAs can be an opportunity. At Widnes, the CVA of Arcadia led
to a letting to JD Sports, through proactive asset management.
- Two developments were completed on the parks generating
GBP232,500 of new income per annum and a return on cost of around
8%.
- The development of the retail park at Haddington commenced. On
completion it will generate GBP875,000 of additional income per
annum, with all except one small unit pre-let, and a projected
return on cost of approximately 8%.
- Jack's, the value fascia for Tesco, signed an Agreement for
lease on a vacant 15,000 sq. ft. unit on Kingston Retail Park in
Hull.
- AXA regeared and restructured its leases at the office, St Philips Point, in Birmingham.
- B&M has expanded its occupation at Sunderland by 10,000 sq. ft.
EPRA defined vacancy levels in the portfolio have risen from the
exceptionally low base of 2.9% last year to 5.1% at the year end.
Whilst this may rise further, this is still well below the typical
reported vacancy rates in portfolios in the sector and
encouragingly is lower than the reported vacancy at the June
quarter.
RENT COLLECTION
The rent collection process has been more challenging following
the onset of the pandemic. By the end of the year 89.3% of the rent
billed had been collected compared to the 99.5% collected in the
previous year. This is a strong result given the exceptional
challenges faced by the Company and the inability to use normal
legal proceedings to recover arrears. Once deferred rent is paid
back via repayment plans, we expect to collect 97.2% of the billed
rent for the year ended 30 September 2020. The Investment Manager
devoted substantial effort and time to rent collection and arrears
recovery, engaging regularly with the Company's tenants to ensure
as much of the contracted rent as possible was collected. Where
rent was not immediately forthcoming, repayment and deferment plans
were agreed.
INVESTMENT STRATEGY
Throughout the year the Board has watched closely the continued
disruption in the retail sector and the negative impact this was
having on the Company's share rating and NAV. The Investment
Manager has consistently argued that bricks and mortar retail is
changing, not dying, and that the Company's retail assets are on
the right side of the changes taking place. The Board remains
supportive of the Investment Manager's strategy to continue
investing in the convenience and bulky goods led part of the retail
warehouse sector and believes that this will pay off in the longer
term. The Board was supportive during the year of increasing the
commitment to the sector by taking advantage of attractive income
returns from undertaking development projects at Coatbridge,
Barnsley and Haddington.
The longer-term investment strategy was reviewed in the Autumn.
We took a step back and reviewed the market more generally and
considered the ongoing impact of COVID-19 and its longer-term
consequences on real estate markets. The Board and Investment
Manager also considered the potential impact of global mega trends
affecting the economy and society, including the growing importance
of sustainability. Our conclusion was that the standout part of the
market, based on current pricing, was the sector in which the
Company is predominantly invested.
The Board also carried out a detailed assessment of the
investment objectives and risk parameters of the Company and
concluded that no changes were required.
GEARING AND CASH RESOURCES
The Company's total debt is unchanged at GBP111.1 million at a
blended 'all-in' fixed rate of 2.86%. The loans do not mature until
2025 and 2027. Gearing at 30 September 2020 was 37.6% of total
assets, a small increase due to the fall in NAV but within
investment policy limits and covenants. Our borrowing covenants, on
both income and capital, are still well covered. As at 30 September
2020, the Company held GBP20.5 million of cash on its balance
sheet, including GBP8.2 million drawn under the debt facility.
The Company had total assets of GBP294.7million and net assets
of GBP181.8 million, as at 30 September 2020. The Company is almost
fully invested with identified uses for existing cash. The Board
considers there are sufficient cash resources to complete the
construction of Haddington, as well as to undertake further asset
management initiatives and meet the operational needs of the
Company.
DIVIDS
The first six of the monthly dividends were maintained at an
annualised rate of 5.75 pence per share. The timing of the lockdown
coincided with the start of the second half of the Company's
financial year. From this point the financial impact of the
pandemic on tenants and the suspension of the rights for landlords
to recover arrears had an adverse effect on the Company's cash
flow. The Board and Investment Manager reviewed cash projections
and financial sensitivities in detail and concluded that it would
be prudent to re-examine the dividend pay-out level.
It was decided to continue to pay monthly dividends, but at a
rate which matched the level of cash received rather than due. The
monthly dividend paid in May was reduced by 30.4% to an annualised
rate of 4.00 pence per share. This rate has been maintained for the
remainder of the financial year and for dividends paid since the
year end.
The total dividends for the year equates to 4.88 pence per
share. Rent collection has exceeded initial expectations with the
dividend being well covered for the year at 118.9%. As at 30
September 2020, the cash dividend cover was 139%. The Board would
like to re-build the dividend and will do so if rent collection
remains at least at current levels and if it is prudent to do so.
The Board will also factor in the REIT distribution requirements to
maintain REIT status.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
The sustainability agenda is moving from a narrative about
minimising harm to one where stakeholders expect their capital to
do good. In addressing the challenges relating to climate change,
the erosion of planetary resources and social injustice, all of
which lie at the heart of the UN Sustainable Development Goals,
this can only be a good thing. In the foreseeable future returns
may well be measured not just in financial terms but also taking
into account environmental and social impact. By reporting against
the GRESB benchmarking the Company is already moving in this
direction.
The Company has made significant progress in its commitment to
sustainability during the year. We established a working group
alongside the Investment Manager, and the Company employed Savills
to help us review and suggest improvements to our policies and to
give us the confidence to 'raise the bar' on our objectives. We
undertook a Materiality Assessment to help guide the setting of our
priorities and an updated sustainability policy and set of
objectives were published on 30 July. The progress that the Company
has made on ESG issues during the period has been recognised
externally, most notably by being awarded the EPRA Sustainability
Best Practice Recommendations Gold Award and receiving its Most
Improved Award for 2020.
CORPORATE MATTERS
Management Engagement Committee
Following the annual review, the Management Engagement Committee
received an innovative and constructive proposal from the
Investment Manager which the Board accepted. It falls into four
parts:
- future investment by the Investment Manager in the ordinary
shares of the Company each quarter, for a period of three years,
equating to 20% of the quarterly management fee;
- a quarterly contribution of GBP10,000 (GBP40,000 per annum)
towards the overall management costs of the Company through a
reduction of the management fee;
- a new tier to the management fee for net assets over GBP500
million, lowering the fee from the previous tiered fee of 0.75% to
0.65%; and
- clarification of management resource to be applied to the
Company, which has resulted in some minor amendments to the
Company's management agreements.
These proposals help align interests, with the closing of the
discount to NAV over the coming periods being a key objective for
the Company, demonstrate ambition for growth and secure a
contribution to the Company's operating costs.
Following a full review process, the Company appointed JTC (UK)
Limited as Company Secretary and Administrator replacing Maitland
Administration Services (Scotland) Limited from 29 January
2020.
I would like to thank our Investment Manager and all the agents
to the Company for their committed efforts during this difficult
year.
Marketing Committee
During the year, the Company reduced its marketing spend as part
of its response to control costs after the onset of the pandemic.
The overall marketing strategy is to continue to build awareness of
the Company's activities and to improve communication with retail
investors. Retail investors have increased during the year from
3.9% to 8.2% of the Company's register which is encouraging
progress but still lower than we would like.
The Board believes that allocating resources to marketing is in
the interests of shareholders and will resume marketing activities
when efficient to do so. The main focus of activities has been on
effective communication with our existing shareholders and other
stakeholders in the Company. In the last month or so I have met
with shareholders representing 58% of the register, and over the
year the Investment Manager has met with most of the register it
can reach. We will continue to communicate openly with our
shareholders, who have proven loyal to the Company during this
challenging time, and for which we are immensely grateful. We hope
that we can repay this with a more positive total return and
outlook in the future.
Long-term Growth Strategy
Despite the importance during the year of looking after the
short term, the Board and the Investment Manager have not done so
at the expense of planning for the future. We would like to be able
to raise funds for new projects and the Investment Manager is
confident of finding suitable opportunities were this to be the
case. However, the significant reduction in the share rating during
the year is currently a barrier for the Company to continue the
growth in its equity base. Growth remains a strategic objective of
the Company for the reasons of diluting the fixed costs, improving
share liquidity and broadening the investment opportunity.
B oard
Board membership and individual director responsibilities
underwent change during the year. Imogen Moss replaced Robert Dick,
who stood down from the Board on 31 March. Imogen, the former
global head of real estate at Allen & Overy LLP, brings
substantial corporate real estate legal experience to the
Board.
Imogen has become chair of the Management Engagement Committee
and joins me on a newly established Sustainability Working Group,
which is an important part of the Investment and Property Valuation
Committee's activities. Jamie Skinner will continue as chair of the
Marketing Committee and has taken on responsibility for the
Remuneration and Nomination Committees. Robin Archibald, the Senior
Independent Director, has taken on the Audit and Risk Committee
chair, an area where he has considerable experience and
expertise.
Board remuneration was due to be reviewed this year after a
three year freeze. However, given the difficult year, the
Remuneration Committee proposes to extend the freeze in base
director remuneration into a fourth year. After discussions in the
Remuneration Committee, excluding Robin Archibald, it was agreed
that Robin should receive GBP10,000 additional remuneration per
quarter starting in the new financial year. This additional
remuneration, to be reviewed annually, reflects the valuable and
considerable input Robin will continue to provide on all manner of
the Company's corporate affairs. This additional remuneration is
fully supported by all the other Board members and the Investment
Manager. By virtue of the change to the Investment Manager's fee to
reduce the costs of managing the Company, the additional
remuneration will be cost neutral to the Company. Supportive
external advice was received on the remuneration and on Robin's
ability to continue in his existing independent non-executive roles
for the Company. A number of the major shareholders were consulted
on the remuneration proposals generally and no objections were
raised . The full rationale for this is detailed in the
Remuneration Report.
Annual General Meeting
Due to the measures imposed by the UK Government to control the
spread of COVID-19, this year's AGM will be held in a 'restricted
format' on 23 February 2021. It will not be possible under the
current restrictions for shareholders to physically attend the
meeting. Shareholders will be able to submit questions in advance
through the Company Secretary. This year there will be a
presentation by the Investment Manager which can be viewed on the
Company's website in advance of the AGM.
The Board believes that all of the resolutions being proposed
are in the best interests of the Company and its shareholders and
encourages shareholders to vote by proxy in favour of the
resolutions, as the Board intends to do in respect of their own
shareholdings.
OUTLOOK
"It is a bold and possibly foolish chairman that would make an
unequivocal statement about the future direction of markets over
the next 12 months." My words from last year seem just as
appropriate this year given the uncertainties that lie ahead.
Some of the risks from last year remain but one that was not
foreseen 12 months ago was the COVID-19 pandemic. The positive
reporting about progress on vaccines is encouraging but it is
likely that we are going to continue to live with measures to
prevent the spread of the virus for some time to come.
What does this mean? For real estate it is much more than just
economics. COVID-19 is making us rethink how we live, work, shop
and play. Irrespective of whether the economy gets back to where it
was, we will be using real estate in a different way to that
pre-crisis. Some of the change was already in the pipeline. Mega
trends relating to the climate crisis, demographics,
digitalisation, disruption from new technologies (such as
robotics), the emphasis on health and well-being and the circular
economy were all there before. The post COVID-19 'reset' will
accelerate the pace of many of these changes. Other changes will be
new and reflect risk management against future pandemics. As owners
of real estate we want to be on the right side of these changes by
holding assets that are likely to both show resilience to short
term economic volatility and the ability to generate attractive
long term performance from current valuations.
The Board remains positive about the Company's exposure to its
retail warehouse focussed portfolio. It has a high proportion of
essential retail tenants, a defensive convenience led bias, rents
at affordable levels and it fits well into the new retail economy,
including retailers' omnichannel strategies. Our Investment Manager
is a highly experienced and skilled operator who specialises in
asset management and will continue to extract maximum value from
the entire portfolio. I also believe our corporate changes are all
positive and align with shareholder interests.
Despite its difficulties, UK real estate remains competitively
priced on international comparisons, produces an attractive yield
relative to other asset classes and clearly has a place in balanced
portfolios. It has been a very difficult year; it may remain
difficult for a while longer but there is light at the end of the
tunnel.
William Hill
Chairman
Investment Manager's review
The first half of the financial year was influenced by the
political uncertainty of Brexit and the general election, with the
second half dominated by the COVID-19 pandemic.
At the start of the Company's financial year in October 2019,
ongoing political events were causing concern. However, the
decisive general election result in December 2019 and clarity over
Brexit gave the market confidence. Investment volumes, which had
been subdued during Q4 2019, increased.
The Company was also navigating a path through the evolution of
the retail market as tenants grappled with the issues facing their
businesses, particularly in town centre locations. As the wider
retail market changed, it was becoming clear that retail
warehousing, which accounts for 61% of the Company's portfolio, was
emerging as a 'winning' sub-sector of the retail market. Valuation
declines were starting to level off and there was renewed investor
interest, driven by the attractive yields and perceived sustainable
income streams on offer.
The onset of the COVID-19 pandemic halfway through the reporting
period stopped that recovery. The national lockdown and
restrictions on personal movement represented an unprecedented
challenge to all parts of the UK commercial property market, as
occupiers and users of property were forced to change how they
used, or even could use, buildings. It also accelerated the
structural changes that had started to slow in the retail market
and introduced a new set of challenges for the Company, chiefly
with regards to rent collection.
Rent collection
With an enforced national lockdown preventing tenants from
trading, some chose to withhold rental payments from landlords.
This resulted in a significant drop in rent collected by the due
date each quarter. In the first week of the quarter ending 30 June,
just 69% of the rent due had been collected. This figure increased
to 74% for the quarter ending 30 September and, for the quarter
ending 31 December, 88% had been collected. By the end of each
quarter, the rent collection improved to 79% for the quarter ending
30 June and 91% for the quarter ending 30 September. If rent
deferment and repayment plans are considered, the rent collection
numbers will increase to 86% and 94% for the quarters ending on 30
June and 30 September, respectively. For the Company's financial
year, 89.3% of the rent billed was collected.
Rent collection is forecast to reach 94% for the quarter ending
31 December (rising to 97% when deferments are factored in), the
first quarter of the Company's new financial year. This is a
positive, improving picture, but anticipated rent collection for
each quarter is still below pre-COVID levels. The position for
commercial property in the UK was not helped by the Government's
moratorium on the use of rent arrears recovery methods which are
usually available to landlords. This removed any 'teeth' landlords
had to recover arrears.
There were tenants in financial distress and the Company has
worked with them to find a way through the crisis. However, there
were (and still are) several well-funded tenants who are using the
situation to their advantage and are refusing to pay rent.
As a consequence of COVID-19, the second half of the reporting
period was dominated by rent collection. Rent deferment and
repayment plans were agreed with several tenants and regular
contact was made with all tenants to ensure that as much rent as
possible was collected.
Cash collection and cost management became key discussions with
the Board, with the aim of preserving cash for operational purposes
and ensuring any dividend was fully covered by rent collected. This
resulted in the rate of monthly dividends being reduced by 30.4% in
May 2020, to a sustainable annualised rate of 4.00 pence per share.
The dividend, at the new annualised rate of 4.00 pence per share,
has been paid monthly since this date and there is a growing margin
of cover. The Company continues to monitor this closely. As at 30
September 2020, the cash dividend cover was 139%.
Property valuation
The Company's property portfolio is valued by Knight Frank on a
quarterly basis. As at 30 September 2020 it was valued at GBP273m,
a like-for-like decrease of 14.5% over the reporting period.
The decline in property value was principally driven by the
market-wide negative sentiment towards the retail sector, which was
magnified by the COVID-19 pandemic. Valuation declines seen over
the first part of the reporting period were beginning to level off
at the start of 2020 but concerns over rent collection and the
economic impact of the pandemic took hold, resulting in further
reductions in values.
The Company has no exposure to high street or shopping centre
assets which have been the hardest hit. However, its retail
warehouse assets have suffered from the contagion from the wider
retail sector. This was despite retail warehousing demonstrating
greater resilience during lockdown, with many tenants allowed to
remain open for trade. The Company's two leisure assets (1.8% of
the portfolio), which are let to bingo operators, have also seen
valuation declines during the period as the leisure sector
struggled during lockdown and fell out of favour with investors. As
a result, over the year, the NAV per share, which includes the
impact of gearing, has declined by 20.9%, as valuers hit both ERVs
and yields in the retail warehouse and leisure sectors hard.
As the period progressed, the attributes of out-of-town retail
parks, which the Company has been championing for some time,
started to be recognised by the wider market.
The open space, ease of access and flexible units means
out-of-town retail parks can more easily adapt to the requirements
of social distancing and lockdown restrictions. During the first
lockdown, 56% of the Company's retail warehouse income came from
tenants who were classed as 'essential' by the Government, so could
stay open for trade. Shortly after lockdown restrictions were
eased, 97% of the Company's retail warehouse space was fully open
for trade. During the second lockdown 89% of the Company's retail
warehouse floorspace was either open or offered a click and collect
service.
As the initial period of restrictions eased in the summer,
footfall on retail warehouse parks recovered more quickly compared
to the high street and shopping centres. Footfall on retail parks
was approaching 90% of 2019 levels, compared to 65% for the high
street and 68% for shopping centres, before the second lockdown in
England and 'fire-break' in Wales were implemented. These new
restrictions caused a short-term drop in footfall, but it did
recover once restrictions were lifted. It should also be remembered
that during lockdown, retailers deemed to be providing 'essential
services' are permitted to stay open for trade and others are
permitted to operate on a 'click & collect' basis. Many of
these services are provided from out-of-town retail parks so it is
likely that retail warehouse footfall will be more resilient than
that on the high street and in shopping centres.
The Company remains confident that its assets are well-located
and despite the severe tests put on them in the last year, should
remain capable of providing attractive income and capital returns
over the longer term.
Offices
The Company's office portfolio has provided reliable income
during the year, including in the lockdown phase. Whilst this is
positive, the prolonged period of enforced working from home will
undoubtedly cause many office occupiers to question how much space
they need, and where they need it. Unlike the retail sector where
changes are more immediate, the changes in the office market will
be more gradual and could drip feed into the market over the next
few years. Office tenants are less likely to use insolvency
proceedings to shed surplus space and reduce costs in the short
term. They are more likely to review their occupational
requirements when they have lease breaks or expiries. It is at this
time space could be returned to landlords.
The Investment Manager believes that this is not the 'death of
the office', but there will be changes, even when the impact of
COVID-19 recedes. The challenges of commuting, an increase in agile
working and the ability to work from home, will affect how office
space is used in the future.
Going forward, flexibility, both in terms of the structure of
leases offered to tenants and the floorplates of the buildings to
accommodate them, will be key to securing deals. Buildings which
have floorplates which can be split or have floors of different
sizes which can meet changing size requirements will have an
advantage. More than ever, buildings will need to be fit for
purpose with wellness and sustainability factors higher up the list
of occupiers' requirements.
The Investment Manager is confident that the Company's office
assets will be able to accommodate the changing needs of
occupiers.
Engaging early with tenants, fully understanding their needs,
and working with them to deliver a satisfactory solution will be
crucial to successfully managing office assets in the future. This
is an approach the Company has used to its advantage before and
there is a recent example more fully described in the asset
management section below.
Insolvency events
The prolonged period of lockdown accelerated the demise of
several businesses, especially those who were struggling prior to
the pandemic. A number of CVAs have been approved and many
companies have been placed directly into administration.
The Company has not been immune to this. Over the year it has
been negatively affected by six CVAs or administrations. The
expected loss of rent from these insolvency events equates to 6.1%
of the contracted rent roll. All the CVAs have given landlords the
option to break the leases and the Company will seek to exercise
these when suitable alternative tenants to occupy the space have
been identified.
Tenant covenant profile
Dun and Bradstreet risk of business failure rating. Tenant
income as a percentage of the portfolio income.
Property portfolio as at 30 September 2020
Market value
Location Name Sub-sector range (GBPm) Tenure
================ ==================== ===================== ============= =========
Office
================ ==================== ===================== ============= =========
Office - Rest of
Birmingham St Philips Point UK 30-35 Freehold
================ ==================== ===================== ============= =========
Office - Rest of
Newcastle Citygate II UK 20-25 Leasehold
================ ==================== ===================== ============= =========
Office - Rest of
Edinburgh 145 Morrison Street UK 10-15 Heritable
================ ==================== ===================== ============= =========
Office - Rest of
Bath Midland Bridge House UK 5-10 Freehold
================ ==================== ===================== ============= =========
Retail WAREHOUSE
================ ==================== ===================== ============= =========
Prestatyn Prestatyn Shopping Retail Warehouse 50m+ Freehold
Park (48%)
Supermarket (52%)
================ ==================== ===================== ============= =========
Widnes Shopping
Widnes Park Retail Warehouse 30-35 Leasehold
================ ==================== ===================== ============= =========
Kingston Retail
Hull Park Retail Warehouse 20-25 Freehold
================ ==================== ===================== ============= =========
Sunderland Pallion Retail Park Retail Warehouse 15-20 Freehold
================ ==================== ===================== ============= =========
Plas Coch Retail
Wrexham Park Retail Warehouse 15-20 Freehold
================ ==================== ===================== ============= =========
Coatbridge B&Q Retail Warehouse 15-20 Heritable
================ ==================== ===================== ============= =========
Rhyl Clwyd Retail Park Retail Warehouse 10-15 Freehold
================ ==================== ===================== ============= =========
Barnsley East Retail
Barnsley Park Retail Warehouse 5-10 Freehold
================ ==================== ===================== ============= =========
Daventry Abbey Retail Park Retail Warehouse 10-15 Leasehold
================ ==================== ===================== ============= =========
Leisure
================ ==================== ===================== ============= =========
Telford Mecca Bingo Leisure 0-5 Freehold
================ ==================== ===================== ============= =========
Hartlepool Mecca Bingo Leisure 0-5 Freehold
================ ==================== ===================== ============= =========
Development
================ ==================== ===================== ============= =========
Haddington Retail
Haddington Park Development (pre-let) 0-5 Heritable
================ ==================== ===================== ============= =========
It has been an extremely challenging year, but this has not
stopped the Company from delivering multiple asset management
deals. Over the period, in the retail warehouse portfolio, 12 lease
transactions with a contracted rent of GBP1.6 million have
completed.
Interestingly, 75% of these deals completed during the COVID-19
pandemic. This underscores the solid fundamentals of the property
portfolio and proves that the right assets in the right locations
do have a future. As ever, affordability of rent is important for
tenants and helps secure new deals. The average rent of the
Company's retail warehouse portfolio is GBP15.17 per sq. ft., a
level from which tenants, with business models relevant to today's
market, can trade profitably. However, the average rent per sq. ft.
of the deals completed in the year was GBP16.87 per sq. ft.
During the year, ten lease events where existing tenants
recommitted to our retail parks were completed. This secured GBP1.3
million of income per annum across the retail parks at Hull, Rhyl,
Prestatyn, Widnes and Wrexham. Deals were completed with national
tenants Boots, Curry's (twice), Costa Coffee (twice), KFC, Mamas
& Papas, Next, River Island and SportsDirect. This shows that
demand is coming from all different types of retailer. The weighted
average unexpired lease term (WAULT) of these deals is 5.6 years,
which is in line with the WAULT of the Company.
Tenants for vacant units have also been secured. The Company
completed a new letting to JD Sports at Widnes Shopping Park and
signed an Agreement for Lease (AFL) with Jack's, Tesco's value
fascia, at Kingston Retail Park in Hull. These secure GBP0.3
million of income per annum across 21,792 sq. ft. of vacant
space.
Jack's will enter a 10-year lease with a five-year break option
on the 15,000 sq. ft. unit which was vacated by Mothercare earlier
this year. The AFL is conditional on Jack's obtaining a liquor
licence and planning consent for minor works to the unit.
JD Sports signed a ten-year lease with a five-year break option
on a newly created unit of 6,792 sq. ft. The Company exercised its
break option in the lease to Arcadia and divided its unit in two,
to facilitate the JD Sports letting. The construction works were
completed during lockdown, ahead of schedule, allowing the lease to
JD Sports to complete. The rent being received from this tenant is
75% of the rent which was being paid by Arcadia on the whole unit,
meaning the combined rent roll of the two units, when the remaining
6,006 sq. ft. is let, will be greater than the rent being paid by
Arcadia under the CVA. The Company is working to identify a
suitable tenant who will enhance the tenant line up on the
park.
The fact that tenants are still committing to new leases on the
Company's retail warehouse assets, despite the challenges in the
wider retail market, shows that the underlying fundamentals of the
retail parks remain sound and are still attractive for tenants.
Post period end, at Pallion Retail Park in Sunderland, the
Company completed a transaction with B&M. B&M has agreed to
upsize from its current unit of 20,000 sq. ft. into a vacant unit
of 30,000 sq. ft. B&M will pay an annual rent of GBP400,000 and
the lease will expire in 2032. This is the third time the Company
has been able to accommodate B&M's expansion on its retail
parks, having completed similar deals at Hull and Barnsley in prior
years.
In its office portfolio, at St Philips Point in Birmingham, the
Company completed a lease restructure with existing tenant AXA
Insurance UK plc. AXA has committed to 27,990 sq. ft. of space
across three floors, including the refurbished first floor which
extends to 14,208 sq. ft. AXA now occupies three floors instead of
five and has reduced the amount of floorspace it leases by 5,005
sq. ft. One floor has a break option in 2022, one has a break
option in 2023, but the largest floor is leased for a term certain
of five years. The Company had to work with the tenant to identify
a solution which offered flexibility to deal with the challenges
posed by COVID-19. This transaction secures GBP687,696 of rental
income per annum.
In addition to these deals, the Company has progressed its
development programme, including the commencement of the
construction of a retail park in Haddington.
Summary and outlook
This has been an extremely challenging year for the Company and
the UK commercial property market. There will be further obstacles
to navigate as the COVID-19 pandemic evolves, and other
uncertainties to overcome, such as Brexit. It will be important to
be on the right side of the structural changes that have been
accelerated in both retail and office markets.
It is likely that localised restrictions and lockdowns will be
in place for at least the short term, and it remains to be seen how
tenants react to these and how it will affect rent collection,
particularly in the retail sector. Offices will not be immune to
change and it will be interesting to see how office occupiers
interact with their space, and how that affects their size
requirements when they have lease breaks or expiries. It will be as
important as ever to maintain a regular dialogue with all tenants
to ensure that solutions can be provided for their changing
needs.
There are signs that the investment market, which shunned retail
earlier in the period, is again looking at retail warehousing as an
asset class worth investing in. The market is starting to
appreciate the attributes of convenience led, out-of-town retail
warehouse parks and the fact that it should not be lumped together
with the high street and shopping centre sub-sectors. If this
continues, there is a prospect of some recovery starting in 2021
for retail warehousing.
The focus remains on income, not just in terms of rent
collection which has improved each quarter since its decline in
quarter 2, but also through active asset management of the
portfolio. The Company has again demonstrated that despite the
challenges being faced by the property market it is still able to
complete asset management initiatives which help to minimise
vacancy, mitigate valuation declines, and importantly secure income
for the Company. It is not the time to batten down the hatches and
wait for the recovery to occur. COVID-19 has changed the
perspective and every effort is being made to ensure the Company is
on the front foot and able to move quickly to make things
happen.
Calum Bruce
Investment Manager
Finance review
The past financial year was, as a result of COVID-19, split into
two distinct halves, the latter half being a testing period for the
Company. The focus on intensive asset and cash flow management has
been crucial in these challenging circumstances. The majority of
the Company's income has proved to be resilient which is
demonstrated by the rent collection statistics for the year.
This report summarises the financial performance for the year
and provides statistics which illustrate how the Company has
performed during the year.
Income statement
The increased focus on asset management and letting activity in
the year resulted in GBP1.6 million of rental income being secured.
This contributed to rental income for the year of GBP19.8 million
(2019: GBP20.8 million). This decrease of GBP1.0 million was
largely as a result of lease expiries, tenant administrations and
CVAs in the year. Revenue expenditure in the period was GBP4.0
million, including GBP0.5 million of property specific expenditure,
GBP0.7 million of bad debts and GBP1.9 million relating to the
Investment Manager's fee. Net interest costs were GBP3.2 million,
all similar to the prior year. As a result, revenue profit
decreased to GBP12.6 million (2019: GBP14.1 million), a fall of
10.6% from 2019.
The value of our investment properties decreased by GBP50.0
million in the year, which resulted in the Company reporting a
total loss of GBP37.4 million. A decline in the valuation of the
retail warehouse properties, as a result of negative sentiment
towards the retail sector, was the principal reason for the
valuation decline. Asset management over the period (which saw 12
lease transactions complete) helped to minimise the impact on the
Company. Net financing costs remained at the same level for the
year and the covenants on income and capital remained well-covered.
There was a modest reduction in administration costs, and this was
despite a change of administrative agents during the year and
increased activity with all the external advisers.
2020 2019
(GBPm) (GBPm)
=============================== ======== =======
Rental income 19.8 20.8
------------------------------- -------- -------
Property expenditure (1.2) (0.4)
=============================== ======== =======
Net rental income 18.6 20.4
------------------------------- -------- -------
Administration expenses (2.8) (3.2)
------------------------------- -------- -------
Net financing costs (3.2) (3.1)
=============================== ======== =======
Revenue profit 12.6 14.1
------------------------------- -------- -------
(Loss)/Gain on revaluation
of investment properties (50.0) (15.8)
=============================== ======== =======
Accounting (loss)/profit after
tax (37.4) (1.7)
=============================== ======== =======
EPRA and diluted EPRA earnings
per share 5.90p 6.66p
------------------------------- -------- -------
Dividends per share 4.88p 5.75p
------------------------------- -------- -------
Basic and diluted earnings
per share (17.70p) (0.83p)
=============================== ======== =======
Rent
Contracted rent was GBP20.2 million (2019: GBP21.4 million) per
annum at the year-end and was negatively impacted by a number of
CVAs and administrations. The primary focus since the onset of
COVID-19 has been on rent collection and providing assistance to
tenants in financial difficulty.
During the year, 89.3% (2019: 99.5%) of rent billed in the year
was collected. Of the 10.7% of rent outstanding at the year-end,
52.6% is expected to be collected shortly. Payment plans have been
agreed for 21.6%, with the remaining 25.8% due from tenants in
administration or CVAs, the majority of which has been provided for
as bad debts at the year end. Once deferred and expected rent is
paid, the rent collected for the year will rise to 97.2%.
Rent free periods as a percentage of contracted rent at the
year-end was 1.6%. 85.5% of the Company's income was from tenants
classed by Dun & Bradstreet as having a minimal or lower than
average chance of business failure, highlighting further the
strength of the portfolio's income.
The portfolio continues to provide long term stability to the
Company's income. The EPRA vacancy rate has increased to 5.1% from
2.9% in 2019 due to the expiry of leases and the surrender of units
from tenants in administration. The WAULT in the year was 5.7 years
(2019: 6.1 years) and the decrease can be explained by the passing
of another year, offset by the asset management activity.
COVID-19 has challenged rent collection this year. However, the
diversification of tenants, the number of 'essential retailers',
office tenants who managed to trade throughout lockdown measures,
the relatively low vacancy levels and the cash collected from
tenants, all provide comfort with regard to the resilience of the
income.
EPRA performance measures
As a member of EPRA, we support EPRA's drive to bring
consistency to the comparability and quality of information
provided to investors and other key stakeholders of this report. We
therefore continue to include a number of performance measures
which are based on EPRA methodology.
It should be noted that there is no difference between the
Company's IFRS and EPRA NAV in this year's accounts, or in any of
our accounts to date.
2020 2019
=========================== ======== ========
EPRA earnings GBP12.5m GBP14.1m
--------------------------- -------- --------
EPRA earnings per share 5.90p 6.66p
--------------------------- -------- --------
Diluted EPRA earnings
per share 5.90p 6.66p
--------------------------- -------- --------
EPRA NAV per share 86.01p 108.72p
--------------------------- -------- --------
EPRA cost ratio (including
direct vacancy costs) 20.8% 17.7%
--------------------------- -------- --------
EPRA cost ratio (excluding
direct vacancy costs) 20.4% 17.3%
--------------------------- -------- --------
EPRA net initial yield 6.9% 6.0%
--------------------------- -------- --------
EPRA topped up net initial
yield 7.0% 6.3%
--------------------------- -------- --------
EPRA vacancy rate 5.1% 2.9%
=========================== ======== ========
Net Asset Value (NAV)
At 30 September 2020 our net assets were GBP181.8 million,
equating to net assets per share of 86.01 pence (2019: 108.72p) a
fall of 20.9%. This is primarily due to a decrease in the valuation
of the investment properties in the year.
The decrease in net assets to GBP181.8 million is summarised in
the table below:
Pence
GBP per
million share
================================ ======== =======
NAV at 30 September 2019 229.76 108.72
-------------------------------- -------- -------
Decrease in value of investment
properties (net of capital
expenditure and transaction
costs) (49.99) (23.65)
-------------------------------- -------- -------
Net earnings in the year 12.61 5.96
-------------------------------- -------- -------
Less: dividends paid in the
year (10.61) (5.02)
-------------------------------- -------- -------
NAV at 30 September 2020 181.77 86.01
================================ ======== =======
The NAV is predominantly represented by our investment
properties, which have a fair value of GBP273.0 million at the year
end. This is included in the financial statements as Investment
Properties at GBP268.2 million with the difference relating to
lease incentives. The remaining GBP86.5 million of net liabilities
is made up of: i) (GBP110.1 million) of debt; ii) GBP12.3 million
of cash and cash equivalents; and iii) GBP11.3 million of net
current assets.
Debt
The Company has two debt facilities with Aviva Commercial
Finance Limited for the sum of GBP111.1 million in aggregate. One
facility of GBP56.9 million will mature in 2025 and the other of
GBP54.2 million will mature in 2027. The facilities have an all-in
blended interest rate of 2.86%. The Company is fully compliant with
all debt covenants and has significant headroom against income and
asset cover breach covenants. Property values in the two facilities
would need to drop by more than 27% and 20% respectively, from the
30 September valuations, for the loan-to-value covenant to be
breached.
Gearing (debt to total assets) was 37.6% at the year-end (2019:
32.5%). Whilst this is higher than the Board's target range of
30-35%, it does not breach the Company's Investment Policy as no
new gearing has been taken on. As noted above, there is headroom
against the loan-to-value breach covenants of the debt
facilities.
Further details are included in Note 13 of the financial
statements.
Cash
As at 30 September 2020 the Company had cash and cash
equivalents of GBP12.3 million with a further GBP8.2 million drawn
under the debt facility which will be drawn down to assist with
future asset management or investment opportunities.
Dividends
The Board continued to pay a dividend at the annual rate of 5.75
pence for the first half of the financial year, which was fully
covered at that time.
However, due to the impact of COVID-19 which resulted in some
tenants withholding rent, the Board took the decision in April 2020
to reduce the monthly dividend payments to an annualised rate of
4.00 pence for the May payment onwards. This meant that the
dividend would be fully covered from a cash and accounting
perspective, in line with the rent collected from tenants. The
Company has provided a fully covered dividend since early 2016 and
dividend cover for the year was 118.9%.
The Board declared a dividend of 0.33 pence per share for the
month of September which was paid in October 2020. Taking this last
dividend with dividends paid to September 2020, dividends for the
year amounted to 4.88 pence, equating to a dividend yield of 9.6%,
based on a share price of 50.9 pence at the year end. The Company
continues to monitor cash collection in reviewing the dividend
level and also the aggregate distributions made to ensure
compliance with REIT regulations, which, with some flexibility on
timing, requires a REIT to distribute 90% of tax exempt rental
income as Property Income Distributions (PIDs): a condition that
the Company has met since inception.
Tax
Owing to the Company's REIT status, income and capital gains
from our property rental business are exempt from corporation tax,
therefore, the tax charge for the year is nil. The Company is able
to recover all of its VAT.
We continue to pass all the REIT tests to ensure our REIT status
is maintained and as mentioned above, the amount to be distributed
as PIDs is kept under review.
Summary and outlook
The Company has faced extraordinary challenges in the year,
principally around valuation declines (which negatively affected
the NAV) and reduced rent collection. That said, positive progress
was made with rent collection as the year progressed, with 89.3% of
rent collected by the year-end, which is anticipated to rise to
97.2% once deferred and expected rents are paid.
In the short term it is difficult to predict how COVID-19 and
any future lockdown restrictions will affect the Company,
particularly on future rent collections. Notwithstanding this, the
focus will again be on completing additional asset management
initiatives to protect and secure income. The development at
Haddington completes in June 2021 and will assist with this as it
will deliver GBP875,000 of new income per annum.
The Board remains committed to fully covered monthly dividend
payments and the Company's rental income receipts have been
sufficient for the Company to hold the reduced dividend with a
growing margin of cover. As we navigate our way through the
COVID-19 pandemic, the Board is looking for an opportunity to start
the process of building the dividend back up again as soon as it is
prudent to do so, ensuring that it meets the REIT distribution
requirements in the meantime.
Neelum Yousaf
Director of Finance, Ediston Investment Services Limited
Principal and emerging risks
The Board and its advisers have identified the following
categories of risk:
- investment strategy and performance;
- premium/discount level and share price volatility;
- financial, which includes the impact of gearing;
- regulatory;
- operational; and
- economic, governmental and exogenous risks outside the Company's control.
During the year the final category has been heightened
considerably with direct impact being felt of the COVID-19
pandemic, how the UK Government is responding to it, directly and
indirectly, and the continuing uncertain risks over Brexit which
has been overshadowed by the direct impact of COVID-19.
These categories of risk are broken into individual key risks
with an assessment of potential impact controls and mitigation in
place and changes in that environment since the previous year end
and any other comments on the risk. Emerging risks have been
identified as new.
Controls and mitigation
Risk Impact in place Change in the year
=================== ============================ =================================== ==============================
INVESTMENT STRATEGY & PERFORMANCE
================================================= =================================== ==============================
Strategic Deployment of The Board formally reviews Increased
direction the Company's the Company's investment This increase is due
of the Company capital in areas objectives and strategies to the current direct
and how and of the market for achieving them on impact of the COVID-19
where it which are poorer an annual basis, or more pandemic on UK commercial
invests. in their return regularly if appropriate. property and the accelerated
prospects or more During its strategy sessions impact on ongoing
affected by structural the Board considers how structural changes
changes and exogenous the assets are positioned for particular commercial
risks than other and might be better positioned sectors.
investment areas, for the longer term.
with an adverse There has been increased
impact on income focus on sustainability
and capital values, during the year as evidenced
as well as opportunity by the reports on this
cost. Sustainability subject and the establishment
is a key part of a specific working
of the investment group as part of the
review process investment committee.
in making and
retaining investments
and how they are
developed.
Impact if occurred: Probability of occurring:
High Medium
=================== ============================ =================================== ==============================
Significant Downturn in an Although the Company Increased
exposure area to which is not invested in accordance The Company's portfolio
to a specific the Company has with any property benchmark, includes 60.6% investment
property, significant exposure the investment policy in retail warehouse
tenant, geographic resulting in a and its restrictions/limits assets. The retail
location reduction in the are set by the Board warehouse assets are
or to lease capital value and reviewed quarterly. in good locations,
expiries of investment The limits are monitored with strong covenants,
in a given properties. at all times by the Investment at affordable rent
year. Significant tenant Manager. The Board and levels, have low voids
Heightened failure causing Investment Manager also and a WAULT of 6.1
by recent a material reduction review at least quarterly years.
exogenous in revenue profits, other key metrics, such The Investment Manager
events which impacting on cash as principal property is proactive in monitoring
have accelerated flow and dividends. sector weightings, to closely developments
the impact ensure these remain appropriate in the retail industry,
on certain even where there may anticipating issues,
property be no formal limits on and where appropriate
sectors and exposure. replacing struggling
how they Board approval memorandums tenants with those
are used. state whether there are with stronger covenants.
any concentration issues, 56% of the Company's
which links in with overall tenants were deemed
strategic imperatives. 'essential' retailers
The Company's AIFM and during the lockdown
Depositary monitor compliance period.
with the investment policy Share price performance
and will highlight any has been impacted negatively
breaches of concentration by market sentiment
limits. affecting all retail
property, but particularly
high street shops and
shopping centres to
which the Company is
not exposed.
==============================
Impact if occurred: Probability of occurring:
Medium Medium
=================== ============================ =================================== ==============================
Lack of investment An inappropriate Thorough due diligence No Change
opportunities use of capital and investment process. All available cash
reducing which hinders Regular review of property resources are currently
the ability investors' long-term performance against acquisition identified against
to acquire returns. plan. asset management and
properties Reduction in revenue Experienced Investment development activities.
at the required profits, impacting Manager who sources assets
return. on cash flow and which meet agreed investment
Poor investment dividends. criteria. Linkage with
decisions, overall strategic objectives
incomplete for the Company.
due diligence The Investment Committee
and mistimed scrutinises and approves
investment all proposed acquisitions.
of capital. The Board reviews the
portfolio performance
at each quarterly meeting
and, through the Management
Engagement Committee,
conducts a formal annual
review of the performance
of the Investment Manager.
Comprehensive profit
and cash flow forecasting
which models the impact
of property transactions
at Group level.
Impact if occurred: Probability of occurring:
Medium Medium
=================== ============================ =================================== ==============================
Ineffective High vacancy levels, The Investment Manager Increased
active asset low tenant retention, is experienced in active The Investment Manager
management sub-optimal rental asset management. Detailed has undertaken various
of properties. levels and break asset management plans active asset management
clauses exercised are maintained for all activities on the portfolio
resulting in a properties and details during the year and
deterioration of asset management activities has others identified
of income earned to be undertaken are for the short and medium
and a fall in presented to the Board term. These initiatives
the capital value on at least a quarterly have helped maintain
of investment basis. Asset management the income stream of
properties. activity involving significant the Company against
Reduction in revenue capital expenditure requires a difficult climate
profits impacting the approval of the Investment for tenants, particularly
on cash flow and Committee. in parts of the retail
dividends. Proactive approach to sector.
key lease events. Third
party letting and managing
agents are employed.
Management of unexpected
events and proactive
approach to maintaining
and restoring income
and capital values from
any properties under
threat of erosion of
value.
Impact if occurred: Probability of occurring:
High Medium
=================== ============================ =================================== ==============================
Poor execution Poor management The Investment Manager New
of development of development has an experienced development The assessment of this
projects. could result in team and has appropriate risk takes into consideration
delays and overrun PI cover. The Investment that Haddington is
of costs. If development Manager also uses several the Group's only current
is speculative consultants to help execute development and that
(which the Company the project. there are restrictions
is unlikely to Experienced members of on the Group's total
undertake) letting staff are allocated to development exposure.
the space could each development project
be difficult which to ensure the process
could impact on is monitored closely
cash flow. and forecasts adhered
Developments produce to. The Company engages
unsatisfactory experienced
total returns contractors/consultants.
from the completed All development is subject
development, relative to Board review and authorisation
to the risk and for major capital expenditure.
capital deployed The investment policy
on the projects. has restrictions on the
amount of development
that can be embarked
on.
Impact if occurred: Probability of occurring:
Medium Low
=================== ============================ =================================== ==============================
PREMIUM/DISCOUNT LEVEL
================================================= =================================== ==============================
Share price The Company's The Board monitors closely Increased
volatility. share price could the market in the Company's In common with other
be impacted by shares, including significant property investment
a range of factors purchases and sales. companies, market sentiment
causing it to Through the Investment towards the UK commercial
be higher than Manager and the Company's property sector has
(at a premium) stockbroker, institutional deteriorated, resulting
or lower than investors are kept in in a marked deterioration
(at a discount) regular touch directly in the share price.
the underlying with developments in This deterioration
net asset value the Company, positive in rating has been
per share. Fluctuations and negative. The Company accelerated by the
in the share price announces portfolio and advent of COVID-19,
can cause volatility any other significant Government restrictions
which may not activity between its imposed and has not
be reflective quarterly net asset value been helped by general
of the underlying announcements and publication political and economic
investment portfolio of its interim and final uncertainty either.
and depend on accounts. The Board and Investment
supply and demand The Company has the ability Manager continue to
for the shares, to allot shares, and work with shareholders
market conditions, has done so, where there to reinforce the value
general investor has been demand in the approach taken to investing
sentiment and secondary market and in UK commercial properties
other factors, issuance has not been and not least the resilience
including political dilutive to existing of the income from
and economic uncertainties. shareholders' interests. the portfolio.
The Company does The Company also takes
not have a significant the annual authority
free float of to buy back shares. However,
shares and as the Company's intention
has been apparent is to be fully invested
in the last twelve and geared, so the use
months, relatively of share buybacks would
small sales or require a change in the
purchases of shares strategic direction of
can produce volatile the Company, not least
pricing. In common in having liquidity in
with many generalist the portfolio which could
UK property vehicles, only be found through
the rating of realising longer-term
the Company's assets.
shares has been The Board reviews the
dramatically impacted strategic direction of
since the advent the Company regularly
of the COVID-19 to ensure that application
crisis in the of the investment policy,
second quarter the returns generated
of 2020. from it and the objectives
of the shareholders are
being met. The Company
has a Marketing Committee
that focuses on trade
in the Company's shares
and how the corporate
message is being communicated
to existing and prospective
new investors.
Impact if occurred: Probability of occurring:
High High
=================== ============================ =================================== ==============================
FINANCIAL
======================================================================================================================
Gearing. Gearing will accentuate The Board reviews the Increased
returns if the level of gearing on a The Board will continue
cost of debt is regular basis. to monitor the level
less than the The borrowing facilities of gearing closely.
equity returns have prescribed covenants Gearing has recently
or the reverse and the Board signs off had a negative drag
effect if equity quarterly returns to on performance whereas
returns are less the debt provider on in the past it was
than the cost asset and income cover. a positive contributor
of debt. The Investment Manager to performance.
presents for Board review The Board is closely
quarterly cash flow forecasts appraised of the level
prepared from the level of cover over debt
of detail of individual covenants on net income
properties, tenants and and asset levels.
future rental projections.
The Company has its portfolio
reviewed and reported
on by an external valuer
each quarter.
The Board intends to
maintain gearing at 30%
of Company gross assets
at drawdown but will
not exceed 35%, at the
time of drawdown. In
the current circumstances,
the level of gearing
has exceeded 35% but
the covenants, which
are based on loan to
value, remain well-covered.
Impact if occurred: Probability of occurring:
Medium Medium
=================== ============================ =================================== ==============================
Non-compliance A substantial Covenants are reviewed Increased
with debt fall in the property on a regular basis. Compliance There was an increase
facilities. asset values or certificates and reports in the Company's loan
rental income for the lender are prepared to value ratio at year
levels could lead on a quarterly basis end, as defined for
to a breach of by the Investment Manager the purpose of debt
financial covenants then reviewed and signed funding covenants,
within the Group's by a Director. from 32.5% to 37.7%,
debt funding arrangements. It was stated in the compared with the covenant
This could lead Annual Report that the limit of 50%. The increase
to a cancellation Board intends to maintain was due mainly to the
of debt funding, gearing at 30% but will fall in the valuation
if the Company not exceed 35% of Company of the portfolio. Going
is unable to service gross assets at drawdown. forward further falls
the debt, leaving In the current circumstances in the valuation would
the Company without the level of gearing have a negative impact
sufficient long-term has exceeded 35% but on the ratio although
resources to meet the covenants, which the headroom remains
its commitments. are based on loan to strong and the covenant
value, remain well-covered. is not considered to
be at risk.
The size and diversification
of the property portfolio
reduces the risk that
an asset specific event
would significantly
impact on the Group's
debt covenants.
==============================
Impact if occurred: Probability of occurring:
High Low
=================== ============================ =================================== ==============================
Insufficient Insufficient funds The Investment Manager New
Working Capital. to meet liabilities, has a comprehensive 10-year In common with most
operating cash cash flow forecast that property investment
requirements and aims to have sufficient companies the resilience
dividends. cash balances, taking of cash receipts from
into account projected tenants has been tested
receipts for rental income in the last financial
and property sales, to year and the asset
meet its obligations cover for covenants
for a period of at least has also reduced.
12 months.
The forecast model allows
the Investment Manager
to monitor the cash position
and plan in advance.
It is reviewed by the
Board quarterly. The
cash flow model works
to a minimum cash balance
of GBP2 million and no
lower.
The Board monitors operating
cash in connection with
each monthly dividend
announcement and quarterly
when the NAV is announced.
The Board monitors expense
projections and with
the Investment Manager,
identifies areas of saving
where cash can be preserved.
Impact if occurred: Probability of occurring:
High Medium
=================== ============================ =================================== ==============================
Protection Loss of income Focus on rent collection, Increased
of income and/or deterioration protection of future
and asset in capital values. income and reporting
value in to the Board on a regular
light of basis in connection with
the COVID-19 dividend payments, cash
crisis. management and debt covenant
review. Review on strategic
allocation in the invested
portfolio for development
and divestment opportunities
in light of significant
changes to market conditions
for UK commercial property.
Impact if occurred: Probability of occurring:
Medium Medium
=================== ============================ =================================== ==============================
regulatory
======================================================================================================================
Non-compliance The Company is The Company uses an experienced No Change
with laws required to comply tax adviser, auditor, Changes in the regulatory
and regulations. with REIT rules, Investment Manager, broker, environment over the
the Listing Rules, property managing agent, year have not had
Disclosure Guidance property valuation agent, a significant impact
and Transparency Company Secretary, Administrator on the risk profile
Rules, the UK and firm of solicitors of the Company.
Code, IFRS accounting to provide advice and
standards and support throughout the
UK legislation year.
(including the Strong compliance culture
UK Bribery Act, with regular risk reviews
Modern Slavery undertaken by the Audit
Act, The Criminal and Risk Committee.
Finances Act 2017, The resilience of the
Market Abuse Regulations all of the Company agents
and GDPR). was reviewed and tested
during the year. No failings
have arisen despite the
more difficult operating
conditions.
Impact if occurred: Probability of occurring:
High Low
OPERATIONAL
================================================================================================================
Health and Serious incident The Board receives and No Change
Safety. occurring at one reviews a quarterly report No significant changes
of the Company's from the managing agent have occurred in relation
properties resulting detailing any relevant to Health and Safety
in material financial matters. The managing matters over the year.
or reputational agent ensures all matters
damage to the raised are dealt with
Company and/or promptly.
criminal prosecution. Appropriate insurance
cover is in place. Insurers
visit each property at
least every two years
and undertake a risk
assessment.
The Company ensured its
managing agent implemented
suitable processes and
procedures, in accordance
with available guidelines
for dealing with COVID-19,
in all the Company's
retail parks and offices,
where it had responsibility
for shared or public
areas.
Impact if occurred: Probability of occurring:
Medium Low
Lack or failure Inadequate segregation Significant segregation No change
of internal of duties or other of duties within the No significant changes
controls internal controls Investment Manager and have occurred in the
of the Investment could result in Administrator as well internal control environment
Manager or a higher probability as between them both, over the year. However,
Administrator. of error, or fraud with oversight from the distanced working
not being prevented, Depositary. does put increased
resulting in financial Constancy of review and strain over internal
loss to the Company. periodic reporting on controls which has
compliance controls being required greater testing
met. of resilience of reporting
and controls more
generally.
Impact if occurred: Probability of occurring:
Medium Low
================== ========================= ================================= ==============================
Failure to ESG is becoming Sustainability Policy New
manage ESG increasingly important has been implemented Sustainability has
issues. for investors along with targets and always been part of
and featuring objectives following the Company's operating
in their decision-making the completion of a materiality review, however, due
processes. If assessment which involved to the escalation
the Company has engagement with the Company's of market sensitivity,
not adequately key stakeholders to identify it has been introduced
addressed ESG issues which were important as a principal risk
matters, new investors to them. this year.
may choose to A Sustainability Working
not invest and Group has been formed
existing investors to monitor performance
could disinvest against objectives and
if the Company Savills has been appointed
does not meet to provide guidance to
their required the Company on Sustainability
ESG standards. matters.
At a property At property level suitable
level, if ESG due diligence is undertaken
matters are not when assets are acquired
addressed, it and when refurbishment,
could lead to asset management or development
properties being take place.
unlettable or The Company is better
unsellable, or placed to address shifting
could impact on consumer and investor
their rental value. preferences, which could
Failure to manage lead to increased revenues
climate-related and capital availability.
risks including The Company's Sustainability
both physical Policy and its annual
and transition ESG objectives includes
risks, could lead implementation of energy
to increased operational efficiency measures,
costs, business which is in turn expected
disruption, reduced to reduce the energy
occupier demand demand and operating
and asset value costs at property level.
impairment.
Impact if occurred: Probability of occurring:
Medium Low
================== ========================= ================================= ==============================
Resilience Failure of the The Investment Manager New
of sub-agents. sub-agents could and Board are in regular Since the first quarter
result in financial contact with each sub-agent, of 2020 and the introduction
loss, reputational with most of them reporting of Government restrictions
damage or potentially to the Board directly on movement, the Board
litigation. in some capacity. Performance has worked closely
is monitored on an ongoing with all the agents
basis and an annual review to the Company to ensure
is completed and shared that they can function
with the Board. This under the social distancing
includes a recommendation conditions.
from the Investment Manager
if the sub-agent should
be retained or not. This
regular contact will
help to identify any
issues with the service
being provided.
The services of each
sub agent are secured
via an appointment document
with suitable termination
provisions included.
Impact if occurred: Probability of occurring:
Medium Low
ECONOMIC, GOVERNMENTAL & EXOGENOUS
================================================================================================================
Weak economic Lower occupational To a large extent out Increased
and/or political demand impacting of the Company's control. As last year, the
environment, on income, cash Brexit is nearing its economic and political
including flow, rental growth conclusions which may environment in the
the potential and capital performance. be a disorderly exit UK remains uncertain.
impacts of from the EU, the impact This may result in
Brexit. of which is impossible lower occupational
to factor into the Company's demand and, although
direct situation. partially mitigated
Asset management remains by the Company's good-quality
a high priority and cash assets, low vacancy
control continues to rate, long WAULT and
be a strong focus. strong covenants,
Sensitivity analysis the continuing uncertainty
of the portfolio is undertaken arising from Brexit
regularly via a comprehensive increases the risk
cash flow model which to returns from the
includes stress testing UK Commercial property
of cash flows and capital market as a whole.
values against loan covenants
and the operational requirements
of the business, including
the payment of monthly
dividends.
Impact if occurred: Probability of occurring:
High High
================== ========================= ================================= ==============================
Exogenous Reduced rent collection To a large extent this New
factors outside and impact on is out with the control The impact of COVID-19
the Company's capital values, of the Company as Government first emerged in the
control, as well as overall guidance on restrictions UK towards the end
including economic impact. and social distancing of March 2020.
the impact A number of the will dictate the pace
of the COVID-19 Company's retail of recovery.
pandemic. and leisure tenants The COVID-19 health crisis
could be prohibited has plunged the UK into
from operating economic and social crisis
from their premises which has had a dramatic
and office occupiers impact on the use of
encouraged to commercial property in
implement home all sectors and the operation
working for their of all commercial concerns
employees. in the UK, with no immediate
Tenants should prospect of an improved
remain liable situation.
to pay their rent The Coronavirus Act 2020,
but not all will also inhibits landlords
be able to and from taking action to
some will choose recover rent arrears.
to not pay. As The Investment Manager
lockdown restrictions has been in contact with
are eased nationally, all tenants who have
there could be not paid rent to understand
local restrictions why and, where practical,
put in place which to agree deferments and
could impact specific repayment plans where
properties. it can.
Proactive asset management
will ensure that lease
and investment transactions
are undertaken when appropriate
to do so. However, challenges
will persist until the
Government legislation
on rent arrears recovery
reverts to pre-pandemic
methods.
Impact if occurred: Probability of occurring:
High High
================== ========================= ================================= ==============================
Directors' Responsibilities Statement
The Directors are responsible for preparing the Strategic
Report, the Directors' Report, the Directors' Remuneration Report
and the Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have to prepare the Consolidated Financial Statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted
by the European Union and have elected to prepare the parent
company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice, including FRS 101 'Reduced
Disclosure Framework' (UK Accounting Standards and applicable law).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs and profit or loss of the Company and
Group for that period. In preparing these Financial Statements, the
Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable IFRSs have been followed, subject to
any material departures disclosed and explained in the Financial
Statements; and
- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements and the Directors' Remuneration Report
comply with the Companies Act 2006 and Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
DIRECTORS' RESPONSIBILITY STATEMENT IN RESPECT OF THE ANNUAL
REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report in
accordance with applicable law and regulations. The Directors
consider the Annual Report and the Financial Statements, taken as a
whole, provide the information necessary to assess the Company's
performance, business model and strategy and are fair, balanced and
understandable.
DIRECTORS' RESPONSIBILITY STATEMENT UNDER THE DISCLOSURE
GUIDANCE AND TRANSPARENCY RULES
To the best of our knowledge:
- the Group Financial Statements, prepared in accordance with
IFRSs as adopted by the European Union, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
- the Annual Report, including the Strategic Report and the
Directors' Report, includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
DISCLOSURE OF INFORMATION TO THE AUDITOR
The Directors confirm that:
- so far as each Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
- the Directors have taken all the steps that they ought to have
taken as Directors in order to make themselves aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
William Hill
Chairman
15 December 2020
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2020
Year ended 30 September Year ended 30 September
2020 2019
============================ ================================
Revenue Capital Total Revenue Capital
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 TotalGBP'000
====================================== ===== ======== ======== ======== ======== ======== ============
Revenue
Rental income 19,857 - 19,857 20,847 - 20,847
====================================== ===== ======== ======== ======== ======== ======== ============
Total revenue 19,857 - 19,857 20,847 - 20,847
Unrealised loss on revaluation
of investment properties 9 - (49,991) (49,991) - (15,732) (15,732)
Loss on sale of investment properties
realised 9 - - - - (94) (94)
====================================== ===== ======== ======== ======== ======== ======== ============
Total income 19,857 (49,991) (30,134) 20,847 (15,826) 5,021
====================================== ===== ======== ======== ======== ======== ======== ============
Expenditure
Investment management fee 2 (1,882) - (1,882) (2,239) - (2,239)
Other expenses 3 (2,160) - (2,160) (1,377) - (1,377)
====================================== ===== ======== ======== ======== ======== ======== ============
Total expenditure (4,042) - (4,042) (3,616) - (3,616)
====================================== ===== ======== ======== ======== ======== ======== ============
Profit/(loss) before finance
costs and taxation 15,815 (49,991) (34,176) 17,231 (15,826) 1,405
Net finance costs
Interest receivable 4 58 - 58 101 - 101
Interest payable 5 (3,258) - (3,258) (3,263) - (3,263)
====================================== ===== ======== ======== ======== ======== ======== ============
Profit/(loss) before taxation 12,615 (49,991) (37,376) 14,069 (15,826) (1,757)
Taxation 6 - - - - - -
====================================== ===== ======== ======== ======== ======== ======== ============
Profit/(loss) and total comprehensive
income for the year 12,615 (49,991) (37,376) 14,069 (15,826) (1,757)
====================================== ===== ======== ======== ======== ======== ======== ============
Basic and diluted earnings per
share 8 5.97p (23.66)p (17.69)p 6.66p (7.49)p (0.83)p
====================================== ===== ======== ======== ======== ======== ======== ============
The total column of this statement represents the Group's
Consolidated Statement of Comprehensive Income, prepared in
accordance with IFRS.
The supplementary revenue return and capital return columns are
prepared under guidance published by the Association of Investment
Companies.
All revenue and capital items in the above statement are derived
from continuing operations.
No operations were acquired or discontinued in the year.
The accompanying notes are an integral part of these Financial
Statements.
Consolidated Statement of Financial Position
As at 30 September 2020
As at 30 As at 30
September September
2020 2019
Notes GBP'000 GBP'000
=================================== ===== ========== ==========
Non-current assets
Investment properties 9 268,246 315,143
=================================== ===== ========== ==========
268,246 315,143
=================================== ===== ========== ==========
Current assets
Trade and other receivables 11 14,164 15,091
Cash and cash equivalents 12 12,308 11,976
=================================== ===== ========== ==========
26,472 27,067
=================================== ===== ========== ==========
Total assets 294,718 342,210
=================================== ===== ========== ==========
Non-current liabilities
Loans 13 (110,112) (109,946)
=================================== ===== ========== ==========
(110,112) (109,946)
=================================== ===== ========== ==========
Current liabilities
Trade and other payables 14 (2,833) (2,504)
=================================== ===== ========== ==========
Total liabilities (112,945) (112,450)
=================================== ===== ========== ==========
Net assets 181,773 229,760
=================================== ===== ========== ==========
Equity and reserves
Called-up equity share capital 16 2,113 2,113
Share premium 125,559 125,559
Capital reserve - investments held (47,365) 2,626
Capital reserve - investments sold 2,382 2,382
Special distributable reserve 83,162 83,639
Revenue reserve 15,922 13,441
=================================== ===== ========== ==========
Equity shareholders' funds 181,773 229,760
=================================== ===== ========== ==========
Net asset value per Ordinary Share 15 86.01p 108.72p
=================================== ===== ========== ==========
The accompanying notes are an integral part of these Financial
Statements.
Company number: 09090446.
The Financial Statements were approved by the Board of Directors
on 15 December 2020 and signed on its behalf by:
William Hill
Chairman
Consolidated Statement of Changes in Equity
For the year ended 30 September 2020
Capital Capital
reserve reserve
Share - - Special
capital Share investments investments distributable Revenue Total
account premium held sold reserve reserve equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ===== ======== ======== ============ ============ ============== ======== ========
As at 30 September 2019 2,113 125,559 2,626 2,382 83,639 13,441 229,760
Loss and total
comprehensive
income for the year - - (49,991) - - 12,615 (37,376)
Transactions with owners
recognised
in equity:
Dividends paid 7 - - - - - (10,611) (10,611)
Transfer from special
reserve - - - - (477) 477 -
=========================== ===== ======== ======== ============ ============ ============== ======== ========
As at 30 September 2020 2,113 125,559 (47,365) 2,382 83,162 15,922 181,773
=========================== ===== ======== ======== ============ ============ ============== ======== ========
For the year ended 30 September 2019
Capital Capital
reserve reserve
Share - - Special
capital Share investments investments distributable Revenue Total
account premium held sold reserve reserve equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ===== ======== ======== ============ ============ ============== ======== ========
As at 30 September 2018 2,113 125,559 18,149 2,685 84,158 11,006 243,670
Loss and total
comprehensive
income for the year - - (15,732) (94) - 14,069 (1,757)
Transfer of prior year's
revaluations
to realised reserve - - 209 (209) - - -
Transactions with owners
recognised
in equity:
Dividends paid 7 - - - - - (12,153) (12,153)
Transfer from special
reserve - - - - (519) 519 -
=========================== ===== ======== ======== ============ ============ ============== ======== ========
As at 30 September 2019 2,113 125,559 2,626 2,382 83,639 13,441 229,760
=========================== ===== ======== ======== ============ ============ ============== ======== ========
The accompanying notes are an integral part of these Financial
Statements.
Consolidated Statement of Cash Flow
For the year ended 30 September 2020
Year ended Year ended
30 September 30 September
Notes 2020 GBP'000 2019 GBP'000
=================================================== ===== ============= =============
Cash flows from operating activities
Loss before tax (37,376) (1,757)
Adjustments for:
Interest receivable (58) (101)
Interest payable 3,258 3,263
Unrealised revaluation loss on property portfolio 49,991 15,732
Loss on sale of investment property realised - 94
=================================================== ===== ============= =============
Operating cash flows before working capital
changes 15,815 17,231
Decrease/(increase) in trade and other receivables 620 (731)
Increase/(decrease) in trade and other payables 1,169 (592)
=================================================== ===== ============= =============
Net cash inflow from operating activities 17,604 15,908
=================================================== ===== ============= =============
Cash flows from investing activities
Capital expenditure (3,355) (3,413)
Sale of investment properties - 2,906
=================================================== ===== ============= =============
Net cash outflow from investing activities (3,355) (507)
=================================================== ===== ============= =============
Cash flows from financing activities
Dividends paid (10,803) (12,147)
Interest received 58 101
Interest paid (3,172) (3,114)
=================================================== ===== ============= =============
Net cash outflow from financing activities (13,917) (15,160)
=================================================== ===== ============= =============
Net increase in cash and cash equivalents 332 241
Opening cash and cash equivalents 11,976 11,735
=================================================== ===== ============= =============
Closing cash and cash equivalents 12 12,308 11,976
=================================================== ===== ============= =============
The accompanying notes are an integral part of these Financial
Statements.
Notes to the Consolidated Financial Statements
1. ACCOUNTING POLICIES
(A) BASIS OF PREPARATION
BASIS OF ACCOUNTING
These Consolidated Financial Statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union, applicable legal and regulatory
requirements of the Companies Act 2006 and the Disclosure Guidance
and Transparency Rules and Article 4 of the IAS Regulation. The
accounts have been prepared on a historical cost basis, except for
investment property valuations that have been measured at fair
value.
The Notes and Financial Statements are presented in pounds
sterling (being the functional currency and presentational currency
for the Company) and are rounded to the nearest thousand except
where otherwise indicated.
GOING CONCERN
Under the AIC Code, the Board needs to report whether the
business is a going concern. In considering this requirement, the
Directors have taken the following into account:
- the Group's projections for the next three years, in
particular the cash flows, borrowings and occupancy rate;
- the ongoing ability to comply comfortably with the Group's
financial covenants (details of the loan covenants are included in
Note 13);
- the risks included on the Group's risk register that could
impact on the Group's liquidity and solvency over the next 12
months (details of risks are included in the Strategic Report);
and
- the risks on the Group's risk register that could be a
potential threat to the Group's business model (details of risks
are included in the Strategic Report).
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report. The Strategic Report also
includes the Group's risks and risk management processes.
The Directors made an assessment of Going Concern, under the
guidelines of the AIC. Details of this assessment is included in
the Directors' Report.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of Financial Statements requires management to
make estimates and assumptions that affect the amounts reported for
assets and liabilities as at the year end date and the amounts
reported for revenue and expenses during the period. The nature of
the estimation means that actual outcomes could differ from those
estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis.
KEY ESTIMATES
The only significant source of estimation uncertainty relates to
the investment property valuations. The fair value of investment
properties is determined by independent real estate valuation
experts using recognised valuation techniques. The properties have
been valued on the basis of 'Fair Value' in accordance with the
current editions of RICS Valuation - Global Standards, which
incorporate the International Valuation Standards, and the RICS UK
National Supplement. Investment property under construction is
subject to a higher estimation uncertainty than that of investment
property due to the estimation required for future expenditure,
which is factored into the valuation models for these properties.
In line with the recommendation of the European Public Real Estate
Association, all properties have been deemed to be Level 3 under
the fair value hierarchy classification set out below. This is
described in more detail in Note 9. Revisions to accounting
estimates are recognised in the year in which the estimate is
revised if the revision affects only that year, or in the year of
the revision and future years if the revision affects both current
and future years. During the period, the external valuers reported
on the March and June portfolio values with a material uncertainty
provision, in common with most of the UK commercial property
sector. This reporting provision was removed for the 30 September
valuations.
The fair value measurement for the assets and liabilities are
categorised into different levels in the fair value hierarchy based
on the inputs to valuation techniques used. The different levels
have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Group can access at the
measurement date.
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly.
Level 3: unobservable inputs for the asset or liability. Value
is the Directors' best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and
on assumptions as to what inputs other market participants would
apply in pricing the same or a similar instrument. As explained in
more detail in Note 9, all investment properties are included in
Level 3.
The Group recognises transfers between levels of the fair value
hierarchy as of the end of the reporting period during which the
transfer has occurred.
KEY JUDGEMENTS
Key judgements relate to property acquisitions where different
accounting policies could be applied and operating lease contracts.
These are described in more detail below, or in the relevant notes
to the financial statements.
PROPERTY ACQUISITIONS AND BUSINESS COMBINATIONS
The Group acquires real estate either as individual properties
or as the acquisition of a portfolio of properties either directly
or through the acquisition of a corporate entity. At the time of
acquisition, judgement is applied in determining whether the
acquisition represents the acquisition of a business or a property.
Where an integrated set of activities, capable of being
independently conducted and managed for the purpose of generating a
return, is acquired in addition to the property, the Group accounts
for the acquisition as a business combination.
Goodwill on business combinations is measured as the fair value
of the consideration transferred less the net recognised amount
(fair value) of the identifiable assets acquired and liabilities
assumed, all measured as of the acquisition date. When the excess
is negative, this is recognised immediately in the Consolidated
Statement of Comprehensive Income. Transaction costs, other than
those associated with the issue of debt or equity securities, that
the Group incurs in connection with a business combination are
expensed as incurred.
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.
OPERATING LEASE CONTRACTS - THE GROUP AS LESSOR
The Group has determined, based on an evaluation of the terms
and conditions of the arrangements, particularly the duration of
the lease terms and minimum lease payments, that it retains all the
significant risks and rewards of ownership of these properties and
so accounts for the leases as operating leases. Management has
applied judgement in determining that the terms and conditions of
the arrangements do not result in a transfer of significant risks
and rewards of ownership of these properties and that these should
therefore be accounted for as operating leases.
The leases when signed, are for between 5 and 15 years. At the
inception of the lease, management do not consider any extension of
the leases to be reasonably certain and, as such do not factor any
lease extensions into their considerations of lease incentives and
the treatment of rental income.
BASIS OF CONSOLIDATION
The Consolidated Financial Statements comprise the financial
statements of the Company and its two subsidiaries drawn up to 30
September 2020. Subsidiaries are those entities, including special
purpose entities, controlled by the Company and are detailed in
Note 10. Control exists when the Company is exposed, or has rights,
to variable returns from its investment with the investee and has
the ability to affect those returns through its power over the
investee. In assessing control, potential voting rights that
presently are exercisable are taken into account. The financial
statements of subsidiaries are included in the Consolidated
Financial Statements from the date that control commences until the
date that control ceases.
In preparing the Consolidated Financial Statements, intra-Group
balances, transactions and unrealised gains or losses have been
eliminated in full. Uniform accounting policies are adopted for all
companies within the Group.
(B) REVENUE RECOGNITION
RENTAL INCOME
Rental income, excluding VAT, arising on investment properties
is accounted for in the Statement of Comprehensive Income on a
straight-line basis over the terms of the individual leases.
Lease incentives including rent-free periods and payments to
tenants, are allocated to the Statement of Comprehensive Income on
a straight-line basis over the lease term or on another systematic
basis, if applicable. Where income is recognised in advance of the
related cash flows, an adjustment is made to ensure that the
carrying value of the relevant property, including accrued rent
disclosed separately within 'trade and other receivables', does not
exceed the external valuation.
The Group may from time to time receive surrender premiums from
tenants who break their leases early. To the extent they are deemed
capital receipts to compensate the Group for loss in value of
property to which they relate, they are credited through the
capital column of the Statement of Comprehensive Income to capital
reserves. All other surrender premiums are recognised within rental
income in the Statement of Comprehensive Income.
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.
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. All of the dividends are paid as interim dividends and the
dividend policy is put to shareholders for approval.
1. ACCOUNTING POLICIES continued
(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 follows:
- at the start of each accounting period, the assets of the
tax-exempt business must be at least 75% of the total value of the
Group's assets;
- at least 75% of the Group's total profits must arise from the tax-exempt business;
- at least 90% of the tax-exempt rental business profits must be
distributed in the form of a Property Income Distribution; and
- the Group must hold a minimum of three properties with no
single property exceeding 40% of the portfolio value.
The Directors intend that the Group should continue as a REIT
for the foreseeable future, with the result that deferred tax is
not recognised on temporary differences relating to the property
rental business which is within the REIT structure.
Taxation on any profit or loss for the period not exempt under
UK-REIT regulations comprises current and deferred tax. Taxation is
recognised in the Statement of Comprehensive Income except to the
extent that it relates to items recognised as direct movements in
equity, in which case it is also recognised as a direct movement in
equity.
Current tax is the expected tax payable on the taxable income
for the period, using tax rates and laws enacted or substantively
enacted at the year-end date.
Deferred tax is provided using the liability method on all
temporary differences at the reporting date between the tax bases
of assets and liabilities and their carrying amounts for financial
reporting purposes calculated using rates and laws enacted or
substantively enacted by the end of the period expected to apply.
Deferred tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which
deductible temporary differences, carried forward tax credits or
tax losses can be utilised. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities. In determining the
expected manner of realisation of an asset the Directors consider
that the Group will recover the value of investment property
through sale. Deferred tax relating to items recognised directly in
equity is recognised in equity and not in profit or loss.
(F) INVESTMENT PROPERTIES
Investment properties consist of land and buildings which are
not occupied for use by or in the operations of the Group or for
sale in the ordinary course of business but are held to earn rental
income together with the potential for capital and income
growth.
Investment properties are initially recognised at the fair value
of consideration given, including transaction costs associated with
the investment property. Any subsequent capital expenditure
incurred in improving investment properties is capitalised in the
period incurred and included within the book cost of the
property.
After initial recognition, investment properties are measured at
fair value, with gains and losses recognised in the Statement of
Comprehensive Income. Fair value is based on an open market
valuation provided by Knight Frank LLP, Chartered Surveyors at the
year-end date using recognised valuation techniques appropriately
adjusted for unamortised lease incentives, lease surrender premiums
and rental adjustments.
The determination of the fair value of investment properties
requires the use of estimates such as future cash flows from assets
(including lettings, tenants' profiles, future revenue streams,
capital values of fixtures and fittings, plant and machinery, any
environmental matters and the overall repair and condition of the
property) and discount rates applicable to those assets. These
estimates are based on local market conditions existing at the
reporting date.
In terms of IAS 40, investments property under construction is
measured at fair value, with gains and losses recognised in the
Statement of Comprehensive Income. Fair value is based on an open
market valuation provided by Knight Frank LLP, Chartered Surveyors
at the year-end date. The determination of the fair value of
investment property under construction requires the use of
estimates such as future cash flows from assets (including
lettings, tenants' profiles, future revenue streams, capital values
of fixtures and fittings, plant and machinery, any environmental
matters and the overall repair and condition of the property) and
discount rates applicable to those assets. These estimates are
based on local market conditions existing at the reporting
date.
Investment property is derecognised when it has been disposed of
or permanently withdrawn from use and no future economic benefit is
expected from its disposal. On derecognition, gains and losses on
disposals of investment properties are recognised in the Statement
of Comprehensive Income and transferred to the capital reserve -
investments sold. Recognition and derecognition occurs on the
completion of a sale.
(G) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand and short-term
deposits in banks with an original maturity of three months or
less.
(H) TRADE AND OTHER RECEIVABLES
Rents receivable, which are generally due for settlement at the
relevant quarter end, are recognised and carried at the original
invoice amount less an allowance for any uncollectable amounts. An
expected credit loss methodology is applied to applicable trade and
other receivables. Expected credit losses are recognised in the
Statement of Comprehensive Income as part of the ongoing
assessment. Any incurred losses are written off when
identified.
The Group applies the IFRS 9 simplified approach to measuring
the expected credit losses ('ECLs') for trade receivables whereby
the allowance or provision for all trade receivables are based on
the lifetime ECLs. The key estimation techniques including key
inputs and assumptions regarding the Group's ECL provision for
trade and other receivables are included as part of the Group's
assessment of credit risk as set out in Note 19.
(I) INTEREST-BEARING LOANS AND BORROWINGS
All loans and borrowings are initially recognised at the fair
value of the consideration received net of arrangement costs
associated with the borrowing. After initial recognition, all
interest-bearing loans and borrowings are subsequently measured at
amortised cost; any difference is recognised in the Statement of
Comprehensive Income over the period of the borrowing using the
effective interest method. Amortised cost is calculated by taking
into account any loan arrangement costs and any discount or premium
on settlement.
The Company discloses the bases and impact of early repayment of
debt and also the fair value of the loans but includes the creditor
amounts on the accounting policy above.
(J) PROPERTY ACQUISITIONS
Where property is acquired, via corporate acquisitions or
otherwise, management considers the substance of the assets and
activities of the acquired entity in determining whether the
acquisition represents the acquisition of a business or the
acquisition of an asset.
Where such acquisitions are not judged to be an acquisition of a
business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based on their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred taxation arises. Otherwise,
acquisitions are accounted for as business combinations.
(K) RESERVES
SHARE PREMIUM
The surplus of net proceeds received from the issuance of new
shares over their par value is credited to this account and the
related issue costs are deducted from this account. The reserve is
non-distributable. The initial share premium account, on the launch
of the Company in 2014, was transferred to the special
distributable reserve, following shareholder approval and
successful application to court.
CAPITAL RESERVES
The following are accounted for in the capital reserve -
investments sold:
- realised gains and losses arising on the disposal of investment properties.
The following are accounted for in the capital reserve -
investments held:
- increases and decreases in the fair value of investment properties held at the period end.
REVENUE RESERVE
The net profit arising in the revenue column of the Statement of
Comprehensive Income is added to or deducted from this reserve
which is available for paying dividends. Where the Company's
revenue reserve is insufficient to fund the dividends paid, a
transfer can be made to this reserve from the special distributable
reserve.
SPECIAL DISTRIBUTABLE RESERVE
Shortly after the launch of the Company, an application to Court
was successfully made for the cancellation of the initial share
premium account which allowed the balance of the share premium
account at that date to be transferred to the special distributable
reserve. This reserve is available for paying dividends and buying
back the Company's shares.
CAPITAL MANAGEMENT
The Group's capital is represented by the Ordinary Shares, share
premium, capital reserves, revenue reserve and special
distributable reserve. The Group is not subject to any
externally-imposed capital requirements.
The capital of the Group is managed in accordance with its
investment policy, in pursuit of its investment objective. Capital
management activities may include the allotment of new shares, the
buy back or re-issuance of shares from treasury, the management of
the Group's discount to net asset value and consideration of the
Group's net gearing level.
There have been no changes in the capital management objectives
and policies or the nature of the capital managed during the
year.
(L) CHANGES IN ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the
previous financial year, except that the following new standards
have become effective in the current year:
- IFRS 16 'Leases'
In January 2016, the IASB published the final version of IFRS 16
'Leases' and it was endorsed by the EU on 31 October 2017. IFRS 16
specifies how an IFRS reporter will recognise, measure, present and
disclose leasing arrangements. 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.
This standard has not had any impact on the Group's Financial
Statements as presented for the current year as there has been no
change in the accounting principles applicable to the lessor.
STANDARDS ISSUED BUT NOT YET EFFECTIVE
The following standard has been issued but is not effective for
this accounting period and has not been adopted early:
- IFRS 16 'Leases'
IFRS 16 'Leases' - COVID-19 related rent concessions.
As a result of the coronavirus (COVID-19) pandemic, rent
concessions have been granted to lessees. Such concessions might
take a variety of forms, including payment holidays and deferral of
lease payments. Lessees can elect to account for such rent
concessions in the same way as they would if they were not lease
modifications. In many cases, this will result in accounting for
the concession as variable lease payments in the period(s) in which
the event or condition that triggers the reduced payment
occurs.
The standard is not expected to have a material impact on the
financial statements or performance of the Group as it is
applicable to lessees. The effective date is for annual periods
beginning on or after June 2020.
The standard is not expected to have a material impact on the
financial statements or performance of the Group and was endorsed
by the EU in October 2020.
The Group does not consider the adoption of any new standards or
amendments, other than those noted above to be applicable to the
Group.
2. INVESTMENT MANAGEMENT FEE
Year ended Year ended
30 September 30 September
2020 GBP'000 2019 GBP'000
========================== ============= =============
Investment management fee 1,882 2,239
========================== ============= =============
Total 1,882 2,239
========================== ============= =============
Ediston Investment Services Limited has been appointed as the
Company's alternative investment fund manager (AIFM) and investment
manager, with the property management arrangements of the Group
being delegated to Ediston Properties Limited. Ediston Investment
Services Limited is entitled to a fee calculated as 0.95% per annum
of the net assets of the Group up to GBP250 million and 0.75% per
annum of the net assets of the Group over GBP250 million. The
management fee on any cash available for investment (being all cash
held by the Group except cash required for working capital and
capital expenditure) is reduced to 0.475% per annum while such cash
remains uninvested.
The Management Agreement may be terminated by either party by
giving not less than 12 months' notice. The agreement may be
terminated earlier by the Group provided that a payment in lieu of
notice, equivalent to the amount the Manager would otherwise have
received during the notice period, is made. The Management
Agreement may be terminated immediately without compensation if the
Manager: is in material breach of the agreement; is guilty of
negligence, wilful default or fraud; is the subject of insolvency
proceedings; or with a restricted notice period if there occurs a
change of the key manager contact to which the Board has not given
its prior consent.
3. OTHER EXPENSES
Year ended Year ended
30 September 30 September
2020 GBP'000 2019 GBP'000
============================================================ ============= =============
Direct operating expenses for investment properties:
* from which income is received 512 356
* from which income is not received - -
Administration fee 231 193
Valuation and other professional fees 235 220
Directors' fees 175 176
Public relations and marketing 111 199
Auditor's remuneration for:
Audit services:
* fees payable for the audit of the consolidation and
the parent company accounts 39 36
* fees payable for the audit of subsidiaries, pursuant
to legislation 38 35
Listing and registrar fees 47 46
Other 72 116
============================================================ ============= =============
1,460 1,377
============================================================ ============= =============
Allowance for expected credit losses 700 -
============================================================ ============= =============
Total 2,160 1,377
============================================================ ============= =============
4. INTEREST RECEIVABLE
Year ended Year ended
30 September 30 September
2020 GBP'000 2019 GBP'000
================= ============= =============
Deposit interest 58 101
================= ============= =============
Total 58 101
================= ============= =============
5. INTEREST PAYABLE
Year ended Year ended
30 September 30 September
2020 GBP'000 2019 GBP'000
================================== ============= =============
Loan interest 3,092 3,097
Amortisation of loan set-up costs 166 166
================================== ============= =============
Total 3,258 3,263
================================== ============= =============
6. TAXATION
Year ended Year ended
30 September 30 September
2020 GBP'000 2019 GBP'000
================ ============= =============
Total tax charge - -
================ ============= =============
A reconciliation of the corporation tax charge applicable to the
results at the statutory corporation tax rate to the charge for the
year is as follows:
Year ended Year ended
30 September 30 September
2020 GBP'000 2019 GBP'000
================================================ ============= =============
Loss before taxation (37,376) (1,757)
================================================ ============= =============
UK tax at a rate of 19.0% (2019: 19.0%) (7,101) (334)
Effects of:
REIT exempt profits (2,488) (2,771)
REIT exempt losses 9,498 3,007
Excess management expenses of residual business 91 98
================================================ ============= =============
Total tax charge - -
================================================ ============= =============
The Company served notice to HM Revenue & Customs that the
Company, and its subsidiaries, qualified as a Real Estate
Investment Trust with effect from 31 October 2014. Subject to
continuing relevant UK-REIT criteria being met, the profits from
the Group's property rental business, arising from both income and
capital gains, are exempt from corporation tax.
The Group has unutilised tax losses carried forward in its
residual business of GBP2,044,000 at 30 September 2020 (2019:
GBP1,693,000). No deferred tax asset has been recognised on this
amount as the Group cannot be certain that there will be taxable
revenue profits arising within its residual business from which the
future reversal of the deferred tax asset could be deducted.
Although the Group anticipates sufficient capital profits, these
cannot be offset against losses which are revenue in nature.
7. DIVIDS
Dividends paid as distributions to equity shareholders during
the year were:
Year ended 30 September Year ended 30 September
2020 2019
========================= =========================
Pence per Pence per
share GBP'000 share GBP'000
================================ ============= ========== ============= ==========
In respect of the prior year:
Twelfth interim dividend 0.4792 1,013 0.4792 1,012
In respect of the current year:
First interim dividend 0.4792 1,013 0.4792 1,012
Second interim dividend 0.4792 1,013 0.4792 1,013
Third interim dividend 0.4792 1,013 0.4792 1,013
Fourth interim dividend 0.4792 1,013 0.4792 1,013
Fifth interim dividend 0.4792 1,013 0.4792 1,013
Sixth interim dividend 0.4792 1,013 0.4792 1,012
Seventh interim dividend 0.3333 704 0.4792 1,013
Eighth interim dividend 0.3333 704 0.4792 1,013
Ninth interim dividend 0.3333 704 0.4792 1,013
Tenth interim dividend 0.3333 704 0.4792 1,013
Eleventh interim dividend 0.3333 704 0.4792 1,013
================================ ============= ========== ============= ==========
Total 5.0209 10,611 5.7504 12,153
================================ ============= ========== ============= ==========
Since the year end, interim dividends, each of 0.3333 pence per
share, have been paid on 30 October 2020 and 27 November 2020. A
further interim dividend, of 0.3333 pence per share, will be paid
on 31 December 2020.
It is the policy of the Directors to declare and pay dividends
as interim dividends. A non-binding resolution to approve the
Company's dividend policy will be proposed at the Annual General
Meeting (see resolution 9).
In light of the exceptional circumstances affecting global
economies and markets, the Board will continue to monitor the
Company's cash receipts and net income each month, as well as its
ongoing expenses and cash commitments and consider the future
payment of monthly dividends accordingly.
8. EARNINGS PER SHARE
Basic and diluted earnings per share.
Year ended 30 September Year ended 30 September
2020 2019
========================= =========================
Pence per Pence per
GBP'000 share GBP'000 share
================================== ========== ============= ========== =============
Revenue earnings 12,615 5.97 14,069 6.66
Capital earnings (49,991) (23.66) (15,826) (7.49)
Total earnings (37,376) (17.69) (1,757) (0.83)
================================== ========== ============= ========== =============
Average number of shares in issue 211,333,737 211,333,737
================================== ========== ============= ========== =============
9. INVESTMENT PROPERTIES
As at 30 As at 30
September September
2020 2019
Freehold and leasehold properties GBP'000 GBP'000
=============================================== ========== ==========
Opening book cost 312,517 312,676
Opening unrealised appreciation 2,626 18,149
=============================================== ========== ==========
Opening fair value 315,143 330,825
=============================================== ========== ==========
Movements for the period
Purchases - -
Sales - proceeds - (2,906)
- loss on sales - (303)
Capital expenditure 3,094 3,050
=============================================== ========== ==========
Movement in book cost 3,094 (159)
=============================================== ========== ==========
Unrealised loss realised during the year - 209
Unrealised gains on investment properties - 1,400
Unrealised losses on investment properties (49,991) (17,132)
=============================================== ========== ==========
Movement in fair value (49,991) (15,682)
=============================================== ========== ==========
Closing book cost 315,611 312,517
Closing unrealised (depreciation)/appreciation (47,365) 2,626
=============================================== ========== ==========
Closing fair value 268,246 315,143
=============================================== ========== ==========
No investments were sold during the year under review.
The Group received GBP2,906,000 from investments sold in the
prior year, the book cost of this investment was GBP3,080,200 at
date of purchase. This investment has been revalued over time and
until it was sold any unrealised gains/losses were included in the
fair value of the investments.
During the period, expenditure totalling GBP3,094,000 (2019:
GBP3,050,000), incurred in improving investment properties, has
been capitalised to the book cost of the property.
The fair value of the investment properties reconciled to the
appraised value as follows:
As at 30 As at 30
September September
2020 2019
GBP'000 GBP'000
=========================================== ========== ==========
Closing fair value 268,246 315,143
Lease incentives held as debtors (Note 11) 4,729 4,032
=========================================== ========== ==========
Appraised market value per Knight Frank 272,975 319,175
=========================================== ========== ==========
Changes in the valuation of investment properties:
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
=================================================== ============= =============
Loss on sale of investment properties - (303)
Unrealised profit realised during the year - 209
=================================================== ============= =============
Loss on sale of investment properties realised* - (94)
Unrealised gains on investment properties - 1,400
Unrealised losses on investment properties (49,991) (17,132)
=================================================== ============= =============
Total loss on revaluation of investment properties (49,991) (15,826)
=================================================== ============= =============
* Represents the difference between the sales proceeds, net of
costs, and the property valuation at the end of the prior year.
The loss on revaluation of investment properties reconciles to
the movement in appraised market value as follows:
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
=================================================== ============= =============
Total loss on revaluation of investment properties (49,991) (15,826)
Purchases - -
Capital expenditure 3,094 3,050
Sales - proceeds - (2,906)
=================================================== ============= =============
Movement in fair value (46,897) (15,682)
=================================================== ============= =============
Movement in lease incentives held as debtors 697 1,007
=================================================== ============= =============
Movement in appraised market value (46,200) (14,675)
=================================================== ============= =============
At 30 September 2020, the investment properties were valued at
GBP272,975,000 (2019: GBP319,175,000, 2018: GBP333,850,000) by
Knight Frank LLP (Knight Frank), in their capacity as external
valuers. This includes investment property under construction
valued at GBP3,150,000 (2019: GBP2,750,000). The valuation was
undertaken in accordance with the current editions of RICS
Valuation - Global Standards, which incorporate the International
Valuation Standards, and the RICS UK National Supplement. Fair
value is based on an open market valuation (the price that would be
received to sell an asset, or paid to transfer a liability, in an
orderly transaction between market participants at the measurement
date), provided by Knight Frank on a quarterly basis, using
recognised valuation techniques as set out in the Group's
accounting policies.
The Group is required to classify fair value measurements of its
investment properties using a fair value hierarchy, in accordance
with IFRS 13 'Fair Value Measurement'. In determining what level of
the fair value hierarchy to classify the Group's investments
within, the Directors have considered the content and conclusion of
the position paper on IFRS 13 prepared by the European Public Real
Estate Association (EPRA), the representative body of the publicly
listed real estate industry in Europe. This paper concludes that,
even in the most transparent and liquid markets, it is likely that
valuers of investment property will use one or more significant
unobservable inputs or make at least one significant adjustment to
an observable input, resulting in the vast majority of investment
properties being classified as Level 3.
Observable market data is considered to be that which is readily
available, regularly distributed or updated, reliable and
verifiable, not proprietary and provided by independent sources
that are actively involved in the relevant market. In arriving at
the valuation Knight Frank will have to make adjustments to
observable data of similar properties and transactions to determine
the fair value of a property and this will involve the use of
considerable judgement.
Considering the Group's specific valuation process, industry
guidance, and the level of judgement required in the valuation
process, the Directors believe it appropriate to classify the
Group's assets within Level 3 of the fair value hierarchy.
All leasehold properties are carried at fair value rather than
amortised over the term of the lease. The same valuation criteria
are therefore applied to leasehold as freehold properties. All
leasehold properties have more than 100 years remaining on the
lease term. The Group is not currently a lessee of any of its
properties.
The Group's investment properties, which are all commercial
properties, are considered to be a single class of assets. There
have been no changes to the valuation technique used through the
period, nor have there been any transfers between levels.
The key unobservable inputs made in determining the fair values
are:
- estimated rental value (ERV): the rent at which space could be
let in the market conditions prevailing at the date of valuation;
and
- net equivalent yield: the equivalent yield is defined as the
internal rate of return of the cash flow from the property,
assuming a rise to ERV at the next review, but with no further
rental growth.
Information on these significant unobservable inputs is
disclosed below:
30 September 2020 30 September 2019
======================= ======================
Weighted Weighted
Significant unobservable input Range average Range average
=============================== ============= ======== ============ ========
Estimated rental value per sq.
ft. per annum GBP5 - GBP43 GBP13 GBP5 - GBP38 GBP16
Net equivalent yield 5.1% - 9.5% 6.8% 5.0% - 9.0% 6.3%
=============================== ============= ======== ============ ========
The Estimated Rental Value (ERV) for the total portfolio is not
materially different from the contracted rent which is
disclosed.
A decrease in the net equivalent yield applied to the portfolio
by 0.25% will increase the fair value of the portfolio by
GBP10,400,000 (2019: GBP13,100,000), and consequently increase the
Group's reported income from unrealised gains on investments. An
increase in yield by 0.25% will decrease the fair value of the
portfolio by GBP9,700,000 (2019: GBP12,100,000) and reduce the
Group's income.
10. INVESTMENT IN SUBSIDIARIES
EPIC (No.1) Limited is a wholly-owned subsidiary of Ediston
Property Investment Company plc and is incorporated in England and
Wales (Company number: 09106328). EPIC (No.1) Limited was
incorporated on 27 June 2014 and began trading on 5 May 2015. On 5
May 2015, the ownership of the property portfolio held by the
Company at that date was transferred to EPIC (No.1) Limited. The
net asset value of EPIC (No.1) Limited as at 30 September 2020 was
GBP103,379,000 (2019: GBP127,100,000). The loss of EPIC (No.1)
Limited for the year to 30 September 2020 was GBP17,852,000 (2019:
profit of GBP3,400,000).
EPIC (No.2) Limited is a wholly-owned subsidiary of Ediston
Property Investment Company plc and is incorporated in England and
Wales (Company number: 10978359). EPIC (No.2) Limited was
incorporated on 23 September 2017, having been established to hold
the five properties acquired by the Group during the prior year and
to enter into the Group's additional loan facility. The net asset
value of EPIC (No.2) Limited as at 30 September 2020 was
GBP72,576,000 (2019: GBP96,400,000). The loss of EPIC (No.2)
Limited for the period to 30 September 2020 was GBP19,046,000
(2019: GBP4,600,000).
11. TRADE AND OTHER RECEIVABLES
As at 30 As at 30
September September
2020 2019
GBP'000 GBP'000
====================================================== ========== ==========
Secured balance held with loan provider 8,297 10,767
Capital and rental lease incentives 4,729 4,032
Rent receivable (net of allowance for expected credit
losses) 1,121 281
Other debtors and prepayments 17 11
====================================================== ========== ==========
Total 14,164 15,091
====================================================== ========== ==========
The secured balance held with the loan provider represents
monies that have been drawn under the Group's loan facilities,
which are not currently invested in properties and which have been
placed in a secured account with Aviva until required. These monies
are available for reinvestment in the Group's investment property
portfolio or, if necessary, could be used to partially repay the
Group's borrowings. In August 2020, the Company utilised
GBP2,500,000 from the secured account.
Capital and rental lease incentives consist of GBP3,434,000
(2019: GBP3,132,000) being the prepayments for rent-free periods
recognised over the life of the lease and GBP1,295,000 (2019:
GBP900,000) relating to capital incentives paid to tenants. As set
out in the accounting policy for rental income, an adjustment is
made for these amounts to the fair value of the investment
properties (see Note 9) to prevent double counting.
Rent receivable is shown net of an allowance for expected credit
losses of GBP700,000 (2019: GBPnil). Refer to Note 19 for further
detail.
12. CASH AND CASH EQUIVALENTS
All cash balances at the year end were held in cash, current
accounts or deposit accounts.
As at 30 As at 30
September September
2020 2019
GBP'000 GBP'000
========================== ========== ==========
Cash and cash equivalents 12,308 11,976
========================== ========== ==========
Total 12,308 11,976
========================== ========== ==========
13. LOANS
As at 30 As at 30
September September
2020 2019
GBP'000 GBP'000
================================== ========== ==========
Principal amount outstanding 111,076 111,076
Set-up costs (1,612) (1,612)
Amortisation of loan set-up costs 648 482
================================== ========== ==========
Total 110,112 109,946
================================== ========== ==========
The Group's loan arrangements are with Aviva Commercial Finance
Limited.
The Group has loans totalling GBP56,920,000 which carry a
blended fixed interest rate of 2.99% and mature in May 2025. This
rate is fixed for the period of the loan as long as the
loan-to-value is maintained below 40%, increasing by ten basis
points if the loan-to-value is 40% or higher. These loans are
secured over EPIC (No.1) Limited's property portfolio.
The Group also has a loan totalling GBP54,156,000 which carries
a fixed interest rate of 2.73% and matures in December 2027. This
rate is fixed for the period of the loan as long as the
loan-to-value is maintained below 40%, increasing by ten basis
points if the loan-to-value is 40% or higher. This loan is secured
over EPIC (No.2) Limited's property portfolio. At year end the
covenants were both below 40 per cent LTV.
The Group's weighted average cost of borrowings was 2.86% at 30
September 2020 (2019: 2.86%).
Under the financial covenants relating to the loans the Group
has to ensure that for each of EPIC (No.1) Limited and EPIC (No.2)
Limited:
- the Historic Interest Cover and Projected Interest Cover, each
being the passing rental income as a percentage of finance costs
and generally calculated over a period of 12 months to/from the
calculation date, is at least 300%; and
- the Loan-to-Value Ratio, being the adjusted value of the loan
as a percentage of the aggregate market value of the relevant
properties, must not exceed 50%.
Breach of the financial covenants, subject to various cure
rights, may lead to the loans falling due for repayment earlier
than the final maturity dates stated above. The Group has complied
with all the loan covenants during the year. Under the terms of
early repayment relating to the loans, the cost of repaying the
loans on 30 September 2020, based on the yield on the Treasury 5%
2025 and Treasury 4.25% 2027 plus a margin of 0.5%, would have been
approximately GBP126,362,000 (2019: GBP122,890,000), including
repayment of the principal of GBP111,076,000 (2019:
GBP111,076,000).
The fair value of the loans based on a marked-to-market basis,
being the yield on the relevant Treasury plus the appropriate
margin, was GBP119,668,000 as at 30 September 2020 (2019:
GBP115,445,000). This includes the principal amount borrowed.
Analysis of net debt:
Cash and Cash and
cash equivalents Borrowing Net debt cash equivalents Borrowing Net debt
2020 2020 2020 2019 2019 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ ================= ========= ======== ================= ========= ========
Opening balance 11,976 (109,946) (97,970) 11,735 (109,780) (98,045)
Cash flows 332 - 332 241 - 241
Non-cash flows - (166) (166) - (166) (166)
================ ================= ========= ======== ================= ========= ========
Closing balance 12,308 (110,112) (97,804) 11,976 (109,946) (97,970)
================ ================= ========= ======== ================= ========= ========
14. TRADE AND OTHER PAYABLES
As at 30 As at 30
September September
2020 2019
GBP'000 GBP'000
================================== ========== ==========
Rental income received in advance 1,441 944
VAT payable to HMRC 224 37
Investment management fee payable 430 547
Loan interest payable 444 427
Capital expenditure payable 59 88
Other payables 235 461
================================== ========== ==========
Total 2,833 2,504
================================== ========== ==========
The Group's payment policy is to ensure settlement of supplier
invoices in accordance with stated terms.
15. NET ASSET VALUE
The Group's net asset value per Ordinary Share of 86.01 pence
(2019: 108.72 pence) is based on equity shareholders' funds of
GBP181,773,000 (2019: GBP229,770,000) and on 211,333,737 (2019:
211,333,737) Ordinary Shares, being the number of shares in issue
at the year end.
The net asset value calculated under IFRS above is the same as
the EPRA net asset value at 30 September 2020 and 30 September
2019.
16. CALLED-UP EQUITY SHARE CAPITAL
Allotted, called-up and fully paid Ordinary Shares Number of
of 1 pence par value shares GBP'000
=================================================== =========== =======
Opening balance as at 30 September 2019 211,333,737 2,113
Issue of Ordinary Shares - -
=================================================== =========== =======
Closing balance as at 30 September 2020 211,333,737 2,113
=================================================== =========== =======
The Company did not issue any Ordinary Shares in the last two
financial years. The Company did not hold any shares in treasury
during the previous two years. Under the Company's Articles of
Association, the Company may issue an unlimited number of Ordinary
Shares but issuance is subject to shareholder approval.
Ordinary shareholders are entitled to all dividends declared by
the Company and to all of the Company's assets after repayment of
its borrowings and ordinary creditors. Ordinary shareholders have
the right to vote at meetings of the Company. All Ordinary Shares
carry equal voting rights.
17. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE
INVESTMENT MANAGER AND AIFM
The Directors are considered to be related parties. No Director
has an interest in any transactions which are, or were, unusual in
their nature or significant to the nature of the Group. There are
no other key management personnel, as the entity has no employees
except for the Directors.
The Directors of the Group received fees for their services.
Total fees for the year were GBP175,000 (2019: GBP176,000) of which
GBPnil (2019: GBPnil) remained payable at the year end.
Ediston Investment Services Limited, being the AIFM, received
investment management fees of GBP1,882,000 in relation to the year
(2019: GBP2,239,000) of which GBP430,000 (2019: GBP547,000)
remained payable at the year end. Ediston Properties Limited, being
Investment Manager received development management fees of
GBP44,000 in relation to the year (2019: GBP92,000) of which GBPnil
(2019: GBPnil) remained payable at the year end.
18. OPERATING SEGMENTS
The Board has considered the requirements of IFRS 8 'Operating
Segments'. The Board is of the view that the Group is engaged in a
single unified business, being property investment, and in one
geographical area, the United Kingdom, and that therefore the Group
has no segments. The Board of Directors, as a whole, has been
identified as constituting the chief operating decision maker of
the Group. The key measure of performance used by the Board to
assess the Group's performance is the total return on the Group's
net asset value. As the total return on the Group's net asset value
is calculated based on the net asset value per share calculated
under IFRSs as shown at the foot of the Consolidated Statement of
Financial Position, the key performance measure is that prepared
under IFRSs. Therefore, no reconciliation is required between the
measure of profit or loss used by the Board and that contained in
the Financial Statements.
The view that the Group is engaged in a single unified business
is based on the following considerations:
- one of the key financial indicators received and reviewed by
the Board is the total return from the property portfolio taken as
a whole;
- there is no active allocation of resources to particular types
or groups of properties in order to try to match the asset
allocation of an index or benchmark; and
- the management of the portfolio is ultimately delegated to a
single property manager, Ediston Properties Limited.
19. FINANCIAL INSTRUMENTS
Consistent with its objective, the Group holds UK commercial
property investments. In addition, the Group's financial
instruments comprise cash and receivables and payables that arise
directly from its operations. The Group does not have exposure to
any derivative instruments.
The Group is exposed to various types of risk that are
associated with financial instruments. The most important types are
credit risk, liquidity risk, 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 and have
remained unchanged for the period under review. These disclosures
include, where appropriate, consideration of the Group's investment
properties which, whilst not constituting financial instruments as
de ned by IFRSs, are considered by the Board to be integral to the
Group's overall risk exposure.
SECURITIES FINANCING TRANSACTIONS (SFT)
The Company has not, during the year to 30 September 2020 (2019:
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 2020 As at 30 September 2019
============================= =============================
Financial Financial
Held at fair assets and Held at fair assets and
value through liabilities value through liabilities
profit or at amortised profit or at amortised
loss GBP'000 cost GBP'000 loss GBP'000 cost GBP'000
============================ ============== ============= ============== =============
Financial assets
Trade and other receivables - 9,418 - 11,048
Cash and cash equivalents - 12,308 - 11,976
============================ ============== ============= ============== =============
- 21,726 - 23,024
============================ ============== ============= ============== =============
Financial liabilities
Loan - (110,112) - (109,946)
Trade and other payables - (1,168) - (1,523)
============================ ============== ============= ============== =============
- (111,280) - (111,469)
============================ ============== ============= ============== =============
Apart from the Aviva loans, as disclosed in Note 13, the fair
value of financial assets and liabilities is not materially
different from their carrying value in the financial
statements.
CREDIT RISK
Credit risk is the risk that a counterparty will be unable or
unwilling to meet a commitment that it has entered into with the
Group. At the reporting date, the Group's financial assets exposed
to credit risk amounted to GBP21,726,000 (2019: GBP23,024,000),
consisting of cash of GBP12,308,000 (2019: GBP11,976,000), the
secured balance held with the loan provider of GBP8,297,000 (2019:
GBP10,767,000) and rent receivable of GBP1,121,000 (2019:
GBP281,000).
In the event of default by a tenant, if it is in financial
difficulty or otherwise unable to meet its obligations under the
lease, the Group will suffer a rental shortfall and incur
additional expenses until the property is re-let. These expenses
could include legal and surveyor's costs in re-letting, maintenance
costs, insurances, rates and marketing costs and may have an
adverse impact on the financial condition and performance of the
Group. The Board receives regular reports on concentrations of risk
and any tenants in arrears. The Investment Manager monitors such
reports in order to anticipate, and minimise the impact of,
defaults by occupational tenants. In assessing the probability of
default of the individual debtor. The directors have considered a
number of factors including history of default, past experience,
future expectations as well as the support the debtor receives from
its parent company and the ability to settle the amount receivable
when due.
Where there are concerns over the recoverability of rental
income, the Group monitors creditworthiness of the tenants and
makes provision for potential bad debts based on the ECL model. As
at 30 September 2020, collection plans are in place to recover any
outstanding amounts. A provision of GBP700,000 (2019: GBPnil) was
made in respect of doubtful debts. There were no other financial
assets which were either past due or considered impaired at 30
September 2020 or at 30 September 2019.
At 30 September 2020, the Group held GBP8,239,000 (2019:
GBP6,400,000) with RBS and GBP4,069,000 (2019: GBP5,500,000) with
Bank of Scotland plc. Bankruptcy or insolvency of the bank holding
cash balances may cause the Group's ability to access cash placed
with them to be delayed, limited or lost. Both RBS and Bank of
Scotland plc are rated by all the main rating agencies. Should the
credit quality or the financial position of the banks currently
employed significantly deteriorate, cash holdings would be moved to
another bank. As at 30 September 2020, Standard & Poor's credit
rating for RBS was A-1 and Moody's was P-1. The equivalent credit
ratings for Bank of Scotland plc were A-1 and P-1, respectively.
There has been no change in the fair values of cash or receivables
as a result of changes in credit risk in the current or prior
periods.
LIQUIDITY RISK
Liquidity risk is the risk that the Group will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. The Group's investments comprise commercial
properties.
Property and property-related assets in which the Group invests
are not traded in an organised public market and are relatively
illiquid assets, requiring individual attention to sell in an
orderly way. As a result, the Group may not be able to liquidate
quickly its investments in these properties at an amount close to
their fair value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the
Investment Manager and monitored on a quarterly basis by the Board.
In order to mitigate liquidity risk the Group has a comprehensive
ten-year cash flow forecast that aims to have sufficient cash
balances, taking into account projected receipts for rental income
and property sales, to meet its obligations for a period of at
least 12 months. At the reporting date, the maturity of the
financial assets was:
FINANCIAL ASSETS AS AT 30 SEPTEMBER 2020
More than
three months More than
but less one year
Three months than one but less More than
or less year than three three years Total
GBP'000 GBP'000 years GBP'000 GBP'000 GBP'000
========================== ============ ============= ============== ============ ========
Cash and cash equivalents 12,308 - - - 12,308
Secured balance held
with loan provider 8,297 - - - 8,297
Rent receivable 1,121 - - - 1,121
========================== ============ ============= ============== ============ ========
Total 21,726 - - - 21,726
========================== ============ ============= ============== ============ ========
FINANCIAL ASSETS AS AT 30 SEPTEMBER 2019
More than More than
three months one year
but less but less More than
Three months than one thanthree three years
or less GBP'000 year GBP'000 years GBP'000 GBP'000 Total GBP'000
========================== ================ ============= ============== ============ =============
Cash and cash equivalents 11,976 - - - 11,976
Secured balance held
with loan provider 10,767 - - - 10,767
Rent receivable 281 - - - 281
========================== ================ ============= ============== ============ =============
Total 23,024 - - - 23,024
========================== ================ ============= ============== ============ =============
At the reporting date, the financial liabilities on a
contractual maturity basis were:
FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2020
More than More than
three months one year
but less but less More than
Three months than one than three three years
or less GBP'000 year GBP'000 years GBP'000 GBP'000 Total GBP'000
==================== ================ ============= ============== ============ =============
Loan - - - 111,076 111,076
Interest payable on
loan 802 2,379 6,361 9,367 18,909
Other payables 724 - - - 724
==================== ================ ============= ============== ============ =============
Total 1,526 2,379 6,361 120,443 130,709
==================== ================ ============= ============== ============ =============
FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2019
More than More than
three months one year
but less but less More than
Three months than one than three three years
or less GBP'000 year GBP'000 years GBP'000 GBP'000 Total GBP'000
==================== ================ ============= ============== ============ =============
Loan - - - 111,076 111,076
Interest payable on
loan 793 2,379 6,361 12,548 22,081
Other payables 1,096 - - - 1,096
==================== ================ ============= ============== ============ =============
Total 1,889 2,379 6,361 123,624 134,253
==================== ================ ============= ============== ============ =============
Included in the tables above are payments due to Aviva,
including interest payable, in connection with the loans as
detailed in Note 13.
INTEREST RATE RISK
Some of the Group's financial instruments will be
interest-bearing. They are a mix of both fixed and variable rate
instruments with differing maturities. As a consequence, the Group
is exposed to interest rate risk due to fluctuations in the
prevailing market rate. The Group's exposure to floating interest
rates gives cash flow interest rate risk and its exposure to fixed
interest rates gives fair value interest rate risk.
The following table sets out the carrying amount of the Group's
financial instruments that are exposed to interest rate risk:
As at 30 September 2020 As at 30 September 2019
========================= =========================
Fixed rate Variable Fixed rate Variable
GBP'000 rate GBP'000 GBP'000 rate GBP'000
=============================== ========== ============= ========== =============
Cash and cash equivalents - 12,038 - 11,976
Secured balance held with loan
provider - 8,297 - 10,767
Loan (110,112) - (109,946) -
=============================== ========== ============= ========== =============
VARIABLE RATE
An increase of 0.50% in interest rates would have decreased the
reported loss for the year and decreased the net assets at 30
September 2020 by GBP102,000 (2019: GBP114,000), a decrease of
0.50% in interest rates would have had an equal and opposite
effect. These calculations are based on the variable rate balances
at the respective balance sheet date and are not representative of
the year as a whole, nor reflective of actual future
conditions.
FIXED RATE
Considering the effect on the loan balance, it is estimated that
an increase of 0.50% in interest rates as at the balance sheet date
would have decreased its fair value by approximately GBP3,200,000
(2019: GBP3,500,000) and a decrease of 0.50% would have increased
its fair value by approximately GBP3,600,000 (2019: GBP3,300,000).
As the loan balance is recognised in the Consolidated Financial
Statements at amortised cost, this change in fair value would not
have resulted in a change in the reported loss for the year, nor
the net assets of the Group at the year end.
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 2020
would have increased net assets available to shareholders and
increased the net income for the year by GBP27,000,000 (2019:
GBP31,500,000); an equal and opposite movement would have decreased
net assets and decreased the net income by an equivalent
amount.
The calculations are based on the investment property valuations
at the respective balance sheet date and are not representative of
the year as a whole, nor reflective of future market
conditions.
20. CAPITAL COMMITMENTS
The Group had contractual commitments totalling GBP4,666,000 in
relation to capital works at Coatbridge Pods, Barnsley and
Haddington, as at 30 September 2020 (30 September 2019: GBPnil).
The Group did not have any material contractual commitments to
refurbish, construct or develop any investment property, or for
repair, maintenance or enhancements as at 30 September 2020 (2019:
nil).
21. OPERATING LEASES
The Group leases out its investment properties under operating
leases. These properties are measured under the fair value model as
the properties are held to earn rentals. All leases are
non-cancellable with a weighted average unexpired lease term of 5.7
years (2019: 6.1 years).
The Group's investment properties are leased to tenants under
the terms of property leases that include rent reviews as
determined at the inception of the lease. These reviews can be
linked to RPI, fixed rate or stepped rent increases
The following table sets out the maturity analysis of leases
receivables, showing the undiscounted lease payments under
non-cancellable operating leases receivable by the Group:
As at 30 As at 30
September September
2020 GBP'000 2019 GBP'000
=================== ============= =============
Year 1 18,646 20,146
Year 2 17,210 19,294
Year 3 13,727 17,605
Year 4 12,111 13,910
Year 5 11,033 11,908
Year 6 and onwards 39,881 48,835
=================== ============= =============
Total 112,608 131,698
=================== ============= =============
The largest single tenant at the year end accounted for 6.59%
(2019: 8.6%) of the contracted rent.
22. ALTERNATIVE INVESTMENT FUND MANAGERS (AIFM) DIRECTIVE
Ediston Investment Services Limited (EISL) has been authorised
as an AIFM by the FCA under the AIFMD regulations and became the
Group's AIFM with effect from 24 February 2016. In accordance with
the AIFM Directive, information in relation to the Group's leverage
and the remuneration of the Company's AIFM is required to be made
available to investors. EISL has provided disclosures on its
website,
https://www.ediston.com/about-us-ediston-investment-services-limited/
incorporating the requirements of the AIFMD regulations regarding
remuneration.
The Group's maximum and actual leverage levels at 30 September
2020 are shown below:
Commitment
Leverage exposure Gross method method
================== ============ ==========
Maximum limit 3.00 3.00
================== ============ ==========
Actual 1.58 1.60
================== ============ ==========
For the purposes of the AIFM Directive, leverage is any method
which increases the Group's exposure, including the borrowing of
cash and the use of derivatives. It is expressed as a percentage of
the Group's exposure to its net asset value and is calculated on
both a gross and commitment method.
Under the gross method, exposure represents the sum of the
Group's positions after deduction of cash balances, without taking
account of any hedging or netting arrangements. Under the
commitment method, exposure is calculated without the deduction of
cash balances and after certain hedging and netting positions are
offset against each other.
The leverage limits are set by the AIFM and approved by the
Board and are in line with the maximum leverage levels permitted in
the Company's Articles of Association. The AIFM is also required to
comply with the gearing parameters set by the Board in relation to
borrowings.
Detailed regulatory disclosures to investors in accordance with
the AIFM Directive are contained on the Company's website.
23. SUBSEQUENT EVENTS
No significant events have occurred between the statement of
financial position date and the date when the financial statements
have been approved, which would require adjustments to, or
disclosure in the financial statements.
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.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR UVUURRVUUAUA
(END) Dow Jones Newswires
December 16, 2020 02:00 ET (07:00 GMT)
Ediston Property Investm... (LSE:EPIC)
Historical Stock Chart
From Mar 2024 to Apr 2024
Ediston Property Investm... (LSE:EPIC)
Historical Stock Chart
From Apr 2023 to Apr 2024
