TIDMIMPT
RNS Number : 1802I
Industrial Multi Property Trust PLC
26 August 2016
Highlights
-- Adjusted net asset value ("NAV") per ordinary share - 296
pence as at 30 June 2016 (261 pence at 31 December 2015).
-- Adjusted earnings per ordinary share ("EPS") - loss of 6.1
pence for the six months to 30 June 2016 (loss of 7.9 pence for the
six months to 30 June 2015).
-- New lettings - 27 new lettings and 11 lease renewals achieved
during the six months to 30 June 2016 (represents 10.2% of the
estimated rental value ("ERV") of the total portfolio based on the
final achievable annual rent including stepped rent).
-- Additional contracted rent - GBP0.3 million per annum of
additional passing rent is contracted to start during the twelve
months to 30 June 2017, benefitting cash flow.
-- Occupancy improved - the occupancy level by estimated rental
value stood at 90.2% as at 31 July 2016 (compared with 89.9% as at
30 June 2016 and 89.3% as at 31 December 2015).
-- Portfolio valuation increased - the Group's property
portfolio was valued at GBP85.1 million as at 30 June 2016 (GBP81.6
million as at 31 December 2015), an increase of GBP3.5 million
(+4.3%) during the six month period.
13.4%
Adjusted NAV increased by 13.4%
27+11
27 new lettings completed
11 lease renewals
90.2%
Occupancy rate increased to 90.2%
296p
Adjusted NAV of 296 pence per share
GBP85.1 million
Portfolio valuation increase to GBP85.1 million.
Company summary and objectives
Objectives
Industrial Multi Property Trust plc (the "Company" or together
with its subsidiaries the "Group") was incorporated in the Isle of
Man on 10 June 2002 as a closed-ended investment company. The
Company and its subsidiaries invest in higher yielding UK
commercial property.
The key objectives of the Company are:
-- Increase earnings and cash flow - increase occupancy in the portfolio and reduce expenses.
-- Protect and enhance asset values - prudent investment in selected portfolio properties.
-- Strengthen the balance sheet - reduce bank borrowings
progressively, through rental surplus consistent with the
investment programme for the property portfolio
Dividends
The Company paid no dividends during the period and no dividends
are currently proposed (2015: GBPnil).
Listing
The Company is a closed-ended Isle of Man registered investment
company which has been declared under the relevant legislation to
be a closed-ended Collective Investment Scheme. Since 27 October
2014, its shares have been traded on the Specialist Fund Market of
the London Stock Exchange, an EU regulated market following a
transfer of the shares from a listing on the Official List of the
UK Listing Authority. The shares have been traded on the London
Stock Exchange since 4 April 2003. Following shareholders' approval
at the Extraordinary General Meeting, on 26 September 2014 of the
new Articles, the Company's continuation vote has been removed.
Management
The Company's Investment Adviser and Manager is Alpha Real
Capital LLP ("Alpha"). Control of the Company rests with the
non-executive Isle of Man based Board of Directors.
ISA/SIPP status
The Company's shares are eligible for Individual Savings
Accounts (ISAs) and Self Invested Personal Pensions (SIPPs).
Website
www.industrialmultipropertytrust.com
Financial highlights
Half year Year Half
ended ended year
30 June 31 December ended
30 June
2016 2015 2015
NAV (GBP'000) 23,883 21,291 19,352
Adjusted NAV (GBP'000)(1) 24,909 21,916 19,931
NAV per ordinary share 284.0p 253.2p 230.1p
Adjusted NAV per ordinary
share(1) 296.2p 260.6p 237.0p
Earnings per ordinary share
(pence) (basic and diluted) 30.8p 42.8p 19.8p
Adjusted earnings per ordinary
share (2) (6.1p) (18.1p) (7.9p)
(1.) The adjusted net assets are presented to provide what the
Board believes is a more relevant assessment of the Group's net
asset position. The Board has determined that certain fair value
and accounting adjustments may not be realisable in the longer term
(see note 14).
(2.) The adjusted earnings are presented to provide what the
Board believes is a more appropriate assessment of the operational
income accruing to the Group's activities. Hence the Board adjusts
basic earnings for income and costs which are not of a recurrent
nature or which may be more of a capital nature (see note 13).
Chairman's statement
I am pleased to present the half year report and the condensed
consolidated financial statements of Industrial Multi Property
Trust plc for the six months ended 30 June 2016.
Property performance
The active asset management initiatives within the portfolio
have continued to assist in the retention of tenants and the
letting of vacant units. The Group has achieved 27 new lettings and
11 lease renewals increasing the occupancy level across the Group
to 90.2% (by ERV) as at 31 July 2016 compared with 89.9% as at 30
June 2016 and 89.3% as at 31 December 2015, enhancing the Group's
income. Further detail on asset management progress appears in the
Investment Adviser and Manager's report.
On a like-for-like basis, as no properties were bought or sold
in the period, the portfolio valuation increased by GBP3.5 million
during the six month period to GBP85.1 million at 30 June 2016, a
4.3% increase. An evaluation of the Group's property portfolio
performance can be found in the Investment Adviser and Manager's
report.
Financial performance
The adjusted NAV per ordinary share at 30 June 2016 is 296.2
pence (31 December 2015: 260.6 pence). This increase is mainly due
to an increase in the fair value of investment properties which is
partly offset by an operating loss due to finance costs. The
results for the period show an adjusted EPS loss of 6.1 pence (30
June 2015 loss of 7.9 pence). The continuing losses are due to the
Group's high level of finance costs.
Bank borrowings and financing
As previously reported, the Group entered into financing
agreements on 5 December 2013. These loan facilities are for a
period of five years expiring in December 2018. A hedging
arrangement was entered into on 27 January 2014, which has the
effect of fixing the Group's interest rate exposure on GBP25.1
million of debt until 4 December 2018. Further details can be found
in notes 18 and 21. During the period the Group was compliant with
the lenders' covenants.
Going concern
The Board has concluded that the Company and the Group is
considered to be a going concern and as a result of this the
condensed consolidated financial statements for the six month
period ended 30 June 2016 have been prepared on a going concern
basis. Further detail on the basis of preparation is provided in
note 2 to the financial statements.
Outlook
Industrial Multi Property Trust plc continues to focus on making
further progress in preserving and improving the income generated
by its property portfolio and enhancing its asset value.
Anecdotally we understand that regionally multi-let light
industrial properties typically owned by the Fund have been less
affected by the Brexit impact on the commercial property market in
general.
With the current long term financing arrangements in place the
Board believes that the Group's strategy provides a strong platform
from which to rebuild shareholder value over the medium to long
term, recognising that the current financing arrangements have
resulted in increased finance costs. The Board is confident that
the Group will be able to service its debt, and with an improving
secondary commercial property market, the Group and therefore the
shareholders may see an improvement in the net asset value in the
medium to long term.
The Board reiterates its previously announced intention to
target a refinancing of the portfolio in the last quarter of 2016
and if a refinancing is not possible it will continue to review
alternative ways to improve shareholder value.
Jonathan Clague
Chairman
Date: 25 August 2016
Investment Adviser and Manager's report
The Investment Adviser and Manager's strategy to deliver
shareholder value will continue to focus on the following
objectives:
-- To enhance net rental income - the marketing strategy for
vacant units will aim to meet tenant requirements for good quality,
affordable accommodation on flexible lease terms.
-- To selectively deploy capital expenditure when 'value add'
opportunities are identified - a rolling programme of maintenance
will continue to be undertaken, however priority will be given to
refurbishments where a property can be significantly enhanced to
attract additional tenant demand. The Investment Adviser and
Manager is also looking to identify opportunities to extend leases
and or remove tenant breaks where appropriate value can be
unlocked.
-- To reduce borrowings through rental surplus and to reduce the
loan-to-value ("LTV") ratio. Limited strategic sales or disposals
will be considered where it is believed that the net sale proceeds
will benefit shareholder returns.
-- To actively review the potential refinancing options, at an
optimum time to mitigate the effects of the loan facilities' early
repayment penalties (see note 21 for further details).
-- To actively review the potential to resume payment of dividends.
The strategy to concentrate on active asset management
initiatives within the portfolio offers tangible opportunities to
generate strong positive cash flows in the future.
Property Portfolio overview
Property Portfolio by region Total as a Total as a
percentage percentage
of Market of Market
Value Value
June December
2016 2015
% %
Midlands 30 30
East of England 20 20
North East 2 2
North West 7 7
South East 11 11
South West 20 20
Wales 1 1
Yorkshire & Humberside 9 9
Total 100 100
Portfolio by sector Total as a Total as a
percentage percentage
of Market of Market
Value Value
June December
2016 2015
% %
Light industrial properties 86 86
Office properties 14 14
Total 100 100
Investment Adviser and Manager's report (continued)
Property Portfolio overview (continued)
The portfolio comprises a well-diversified portfolio of 52
multi-let properties offering 488 leasable units with a total floor
area of approximately 156,100 square metres (approximately 1.7
million square feet) all of which are located in the UK. The
properties offer attractively priced accommodation for local and
regional occupiers.
Of the total portfolio (by area), approximately 92% is invested
in light industrial property and 8% in offices.
Tenants have continued to favour shorter term flexible leases
and against this background the weighted average lease length is
4.1 years to expiry and 2.4 years to the next tenant break.
Asset management review
The occupational market is continuing to improve, and the
Group's flexible approach to meeting tenant demand has been
successful in reducing the number of vacant units: 27 new lettings
and 11 lease renewals were completed during the period, with a
further 10 units under offer for new leases as at 30 June 2016.
Many of the leases incorporate stepped increases in rents and there
is an additional GBP0.3 million per annum of contracted rent due to
start during the next twelve months which will benefit the Group's
cash flow.
The numbers of new lettings and tenant retentions are
encouraging, and accordingly notable progress has been made in
increasing occupancy. Based on ERV, the occupancy level stood at
90.2% as at 31 July 2016 (compared with 89.9% on 30 June 2016 and
89.3% as at 31 December 2015).
Tenant insolvency has increased marginally with 4 tenants,
accounting for 0.6% of ERV, becoming insolvent compared with 2
tenants (0.4% of ERV) in the same period last year.
Activity during Number Rent GBP'000 As % of Estimated
the period of Tenants pa Rental Value
Tenant lease breaks
exercised 1 55 0.6
Tenant vacated
at lease end 18 209 2.3
Tenant insolvency 4 54 0.6
New lettings completed 27 398* 4.4
Tenant leases renewed 11 529* 5.8
*Final achievable annual rent including stepped rents.
Based on the current total portfolio ERV, there is also the
potential for additional rent of GBP1.5 million per annum assuming
the portfolio were to become fully let and income producing.
Property Sales
In keeping with the Board's strategy to undertake limited
strategic sales, the portfolio continues to be reviewed to identify
potential disposals where it is believed that the net sales
proceeds will benefit shareholder returns.
Valuation
The Group's property portfolio was valued as at 30 June 2016 by
Cushman & Wakefield (formerly DTZ Debenham Tie Leung Limited)
at GBP85.1 million (GBP81.6 million as at 31 December 2015) an
increase of GBP3.5 million (4.3%) during the six month period. The
average capital value of the portfolio is GBP543 per square metre
(GBP51 per square foot).
Valuation uncertainty following the EU Referendum
At the Referendum held on 23 June 2016 concerning the UK's
membership of the EU, a decision was taken to exit.
We are now in a period of uncertainty in relation to many
factors that impact the property investment and letting markets.
Most economists have reduced UK growth forecasts for the next 2 or
3 years. Government
Investment Adviser and Manager's report (continued)
stimulatory action can be expected, whether through official
rate cuts, a resumption of quantitative easing, increased spending,
or other business friendly measures.
Given the Referendum date, it is still too early to gauge the
full effect of this decision on the Fund's property valuation by
reference to relevant transactions in the market place.
Financing
As previously reported the Group entered into new financing
agreements on 5 December 2013 as follows:
-- A GBP33.5 million (loan balance GBP32.5 million as at 30 June
2016) senior facility with a five-year term expiring in December
2018 and an initial margin of 3% per annum over 3 month LIBOR, with
Royal Bank of Scotland ("RBS").
-- A GBP20.0 million (loan balance GBP19.9 million as at 30 June
2016) mezzanine loan facility with a five-year term expiring in
December 2018 and a coupon of 11% per annum, with Europa Mezzanine
Finance Sarl ("Europa").
-- A GBP11.5 million (loan balance GBP10 million as at 30 June
2016) unsecured subordinated loan facility with a five-year term
expiring in December 2018 and a coupon of 15% per annum with Alpha
Real Trust Limited ("ART").
On 27 January 2014, the Group entered into an interest rate swap
for the amount of GBP25.1 million with RBS. The interest rate swap
has the effect of fixing the Group's interest rate exposure on
GBP25.1 million of these borrowings from 27 January 2014 until 4
December 2018 at 2.0225% per annum, before the margin of 3% per
annum.
The overall LTV ratio on total borrowings was 73.3% as at 30
June 2016 (76.3% on total borrowings as at 31 December 2015).
UK economy
Economic commentary
According to the Office for National Statistics (ONS), the gross
domestic product (GDP) of the UK was estimated to have increased by
0.6% in the second quarter of 2016 (April to June) compared with
growth of 0.4% in the first quarter of 2016 (January to March).
The UK's GDP was 2.2% higher in the second quarter of 2016
compared with the same quarter a year ago.
The ONS also reported that the UK's Consumer Prices Index (CPI)
rose by 0.5% in the year to June 2016, compared with a 0.3% rise in
the year to May. The June rate is slightly higher than the rates
seen for most of 2016, though it is still relatively low
historically.
As at the end of May, the unemployment rate was 4.9%, down from
5.6% for a year earlier. The last time it was lower was in
September 2005.
On 4 August 2016, UK interest rates were cut from 0.5% to 0.25%
- a record low and the first cut since 2009. The Bank of England
has also signalled that rates could go lower if the economy
worsens.
The effects on the economy of the Referendum result remain
unclear.
Property commentary
Investment volumes in the UK reached over GBP20 billion in the
first six months of 2016. However, since the Referendum date,
market sentiment has been impacted by the closure of redemptions in
several UK retail funds and falls in the share prices of UK REITs
despite the fact that the underlying fundamentals of the market are
healthier than when the global financial crisis occurred in
2007.
Following strong investor appetite for UK industrial assets in
the first quarter of 2016, total investment volumes fell for a
third straight quarter. Second-tier and the best secondary markets
attracted more interest
Investment Adviser and Manager's report (continued)
as the supply of Grade A stock remains low. Capital value growth
has slowed over the year hitting 7% per annum in June 2016 (June
2015 was 16% per annum).
The Brexit vote has increased economic uncertainty. However, it
has been reported that industrial and logistics occupier markets
remain robust and resilient as is the Group's experience in the
limited period.
Anecdotally we understand that regionally multi-let light
industrial properties typically owned by the Fund have been less
affected by the Brexit impact on the commercial property market in
general.
Conclusion
The 13.4% increase in adjusted net asset value for the six
months to 30 June 2016 is encouraging. This increase has been
achieved through a combination of improved valuations, increased
occupancy and reducing void costs. Following the refinancing in
December 2013 the mezzanine and sub-ordinated loan facilities carry
a comparatively high interest charge which continues to have a
negative impact on current earnings. The Investment Adviser and
Manager and the Board will target a refinancing of the portfolio in
the last quarter of 2016. For the property portfolio the goal
continues to be to increase the level of rent and occupancy
throughout the portfolio and to build on the asset management
success delivered during the previous six months.
Tom Pissarro
Alpha Real Capital LLP
Investment Adviser and Manager
Date: 25 August 2016
Statement of Directors' Responsibilities in respect of the
Directors' Report and the condensed consolidated financial
statements
The Directors are responsible for preparing the Directors'
Report and the condensed consolidated financial statements in
accordance with applicable law and regulations. In addition, the
Directors have elected to prepare the condensed consolidated
financial statements in accordance with International Financial
Reporting Standards as adopted by the EU.
The condensed consolidated financial statements are required to
give a true and fair view of the state of affairs and of the
comprehensive income of the Group for that period.
In preparing these condensed consolidated financial statements,
the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
International Financial Reporting Standards as adopted by the EU;
and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time its
financial position. They have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other
irregularities.
Each of the Directors confirms that to the best of each person's
knowledge and belief:
(a) the condensed consolidated financial statements comprising
the condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated
statement of changes in equity, the condensed consolidated
statement of cash flows and related notes which have been prepared
in accordance with IAS 34 Interim Financial Reporting, give a true
and fair view of the assets, liabilities, financial position and
profit and loss of the Group.
(b) the interim management commentary includes a fair review of
the information required by:
(i) DTR 4.2.7R the Disclosure & Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the
year;
(ii) DTR 4.2.8R of the Disclosure & Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
the period; and any changes in the related party transactions
described in the last annual report that could do so.
On behalf of the Board,
Donald Lake Philip Scales
Director Director
Date: 25 August 2016 Date: 25 August 2016
Independent review report to Industrial Multi Property Trust
plc
Introduction
We have been engaged by Industrial Multi Property Trust Plc
("the Company") and its subsidiaries ("the Group") to review the
condensed consolidated financial statements in the half-yearly
financial report for the six months ended 30 June 2016, which
comprises the condensed consolidated statement of comprehensive
income, the condensed consolidated balance sheet, the condensed
consolidated statement of changes in equity, the condensed
consolidated statement of cash flows and related notes. We have
read the other information contained in the half-yearly financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated set of financial statements.
This report is made solely to the Group in accordance with the
International Standard on Review Engagements (UK and Ireland) 2410
Review of Interim Financial Information Performed by the
Independent Auditor of the Entity issued by the Auditing Practices
Board and the Disclosure and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA"). Our review has
been undertaken so that we might state to the Group those matters
we are required to state to it in an independent review report and
for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Group,
for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2, the condensed consolidated set of
financial statements of the Group are prepared in accordance with
IFRSs as adopted by the European Union. The condensed consolidated
set of financial statements included in this half-yearly financial
report have been prepared in accordance with International
Accounting Standard 34 Interim Financial Reporting as adopted by
the European Union.
Auditors' responsibility
Our responsibility is to express to the Group a conclusion on
the condensed consolidated set of financial statements in the
half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with the International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2016 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the DTR of the UK FCA.
KPMG Audit LLC
Chartered Accountants
Douglas, Isle of Man
25 August 2016
Condensed consolidated statement of comprehensive income
For the six For the six
months ended months ended
30 June 2016 30 June 2015
unaudited unaudited
Notes GBP'000 GBP'000
Income
Rental income from investment
properties 3 3,779 3,810
Other income 17 109
3,796 3,919
Expenditure
Investment Adviser and Manager's
fee 5 (547) (535)
Property expenses 5 (718) (921)
Other expenses 5 (206) (170)
(1,471) (1,626)
Gains/(losses) from investments
Unrealised gain on revaluation
of investment properties 15 3,509 1,630
Realised gain on sale of
investment property - 476
Net operating profit for
the period before finance
costs 5,834 4,399
Finance income 6 1 3
Finance costs 9,10 (2,842) (2,962)
(Loss)/gain on derivative
instrument 8,9 (401) 224
Net profit from ordinary
activities before taxation 2,592 1,664
Taxation on ordinary activities 11 - -
Net profit from ordinary
activities after taxation 2,592 1,664
Total comprehensive profit
for the period attributable
to members 2,592 1,664
Earnings per share (pence)
Profit for the period attributable
to ordinary equity holders
of the parent (pence per
share) (basic and diluted) 13 30.8 19.8
Adjusted loss per share (pence)
(basic and diluted) 13 (6.1) (7.9)
There are no other items that require disclosure in the
condensed consolidated statement of comprehensive income.
The Directors consider all activities to be continuing.
The accompanying notes on pages 14 to 33 are an integral part of
this statement.
Condensed consolidated balance sheet
As at As at
30 June 2016 31 December
2015
unaudited audited
Notes GBP'000 GBP'000
Assets
Non-current assets
Investment properties 15 85,130 81,630
85,130 81,630
Current assets
Trade and other receivables 16,21 1,657 1,666
Cash and cash equivalents 17 2,187 2,165
Restricted cash 17 1,255 1,608
5,099 5,439
Total assets 90,229 87,069
Current liabilities
Interest rate derivative
instruments 18 1,026 625
Trade and other payables 19 3,930 4,074
4,956 4,699
Non-current liabilities
Long term borrowings 21 61,390 61,079
Total liabilities 66,346 65,778
Net assets 23,883 21,291
Equity
Share capital 22 841 841
Distributable capital
reserve 22 93,623 93,623
Capital redemption
reserve 22 254 254
Revenue reserves (70,835) (73,427)
Total equity 23,883 21,291
Net asset value per
ordinary share (pence) 14 284.0 253.2
Adjusted net asset
value per ordinary
share (pence) 14 296.2 260.6
The accompanying notes on pages 14 to 33 are an integral part of
this statement
These financial statements were approved by the Board of
Directors on 25 August 2016 and signed on its behalf by:
Donald Lake Philip Scales
Director Director
Condensed consolidated statement of changes in equity
Share Distributable Capital Retained Total
Capital Capital Redemption losses
Reserve Reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the six months
ended 30 June 2015
(unaudited)
1 January 2015 841 93,623 254 (77,030) 17,688
Total comprehensive
profit for the
period - - - 1,664 1,664
At 30 June 2015 841 93,623 254 (75,366) 19,352
For the six months
ended 31 December
2015 (unaudited)
At 1 July 2015 841 93,623 254 (75,366) 19,352
Total comprehensive
profit for the
period - - - 1,939 1,939
At 31 December
2015 841 93,623 254 (73,427) 21,291
For the six months
ended 30 June 2016
(unaudited)
At 1 January 2016 841 93,623 254 (73,427) 21,291
Total comprehensive
profit for the
period - - - 2,592 2,592
At 30 June 2016 841 93,623 254 (70,835) 23,883
The accompanying notes on pages 14 to 33 are an integral part of
this statement.
Condensed consolidated statement of cash flows
For the For the
six months six months
ended ended
30 June 30 June
2016 2015
unaudited unaudited
GBP'000 GBP'000
Operating activities
Profit before tax 2,592 1,664
Adjustment to reconcile profit
before tax to net cash flows
Unrealised gain in revaluation
of investment properties (3,509) (1,630)
Realised gain on disposal of
investment properties - (476)
Other income - (109)
Finance income (1) (3)
Finance costs 2,842 2,962
Unrealised loss/(gain) on derivative
instrument 401 (224)
Operating cash flows before
movements in working capital 2,325 2,184
Movements in working capital:
Decrease/(increase) in trade
and other receivables 18 (263)
Decrease in trade and other
payables (142) (37)
Net cash flows from operating
activities 2,201 1,884
Investing activities
Interest received 1 3
Net proceeds on sale of investment
properties - 1,526
Net cash flows from investing
activities 1 1,529
Financing activities
Interest paid (2,533) (2,583)
Bank borrowings repaid - (1,050)
Third party arrangement fee - -
paid
Net cash flows used in financing
activities (2,533) (3,633)
Net decrease in cash and cash
equivalents (331) (220)
Cash and cash equivalents at
beginning of period 3,773 3,918
Cash and cash equivalents at
end of period 3,442 3,698
Which is disclosed on the consolidated
balance sheet as:
Cash and cash equivalents 2,187 2,443
Restricted cash 1,255 1,255
The accompanying notes on pages 14 to 33 are an integral part of
this statement.
Notes to the condensed consolidated financial statements
For the six months ended 30 June 2016
1 General information
The Company
The Company was incorporated in the Isle of Man on 10 June 2002.
It is a closed-ended investment company and was formed primarily
for investment in UK commercial property. The registered office of
the Company is IOMA House, Hope Street, Douglas, Isle of Man, IM1
1AP. The aim of the Company and its subsidiaries (together "the
Group") is to seek to improve income, reduce debt and provide the
prospect of long-term capital growth. The Group has no
employees.
Balance Sheet presentation
The format of the condensed consolidated balance sheet has
continued to be presented on the same basis as the last annual
consolidated financial statements.
Adjusted earnings per share and adjusted net asset value
The adjusted earnings per share and adjusted net assets are
presented in the half year financial statements to provide what the
Board believes is a more relevant assessment of the Group's
earnings and net asset position.
2 Summary of significant accounting policies
Basis of preparation
The unaudited condensed consolidated financial statements
included in the half year report for the six months ended 30 June
2016, have been prepared in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority and International Accounting Standard (IAS) 34, 'Interim
Financial Reporting'. The half year report should be read in
conjunction with the Group's annual report and consolidated
financial statements for the year ended 31 December 2015, which
have been prepared in accordance with International Financial
Reporting Standards (IFRS) and Isle of Man law.
The same accounting policies and methods of computation are
followed in these condensed consolidated financial statements as
were applied in the preparation of the Group's consolidated
financial statements for the year ended 31 December 2015, which are
available on the Company's website
(www.industrialmultipropertytrust.com). The Group's financial
performance does not suffer materially from seasonal
fluctuations.
The condensed consolidated financial statements are made up from
1 January 2016 to 30 June 2016, and have been prepared under the
historical cost convention except for investment property and
derivative instruments that have been measured at fair value.
The condensed consolidated financial statements are presented in
pounds sterling and rounded to the nearest thousand unless
otherwise stated. The functional and presentation currency of the
Company is pounds sterling and there are no foreign exchange
transactions.
The Directors considered all relevant new standards, amendments
and interpretations to existing standards effective for the half
year report for the six months ended 30 June 2016.
The Directors have assessed the impact of IFRS 15 Revenue from
Contracts with Customers and IFRS 16 Leases, effective 1 January
2018 and 1 January 2019, respectively, and have determined that
they will not have a material impact on the recognition or
measurement of the financial information.
The adoption of the amendments and improvements to the standards
and interpretations has had no effect on the accounting policies,
financial position or performance of the Group.
The preparation of the condensed consolidated financial
statements requires directors to make judgements, estimates and
assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities, and the disclosure of contingent
liabilities at the date of the condensed consolidated financial
statements. If
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
2 Summary of significant accounting policies (continued)
in future such estimates and assumptions, which were based on
the Directors' best judgement at the date of
the condensed consolidated financial statements, deviate from
actual circumstances, the original estimates and assumptions will
be modified as appropriate in the period in which the circumstances
change.
Going concern
The Group's borrowing facilities with Royal Bank of Scotland,
Europa Mezzanine Finance SÃ rl and Alpha Real Trust Limited
terminate on 4 December 2018. Based on the business plan and budget
assumptions, current occupancy and the removal of shareholders'
continuation vote, the Board is confident that the loan covenants
will be met up to the maturity of the existing long term
borrowings.
These long-term borrowings have given the Group time to continue
the asset management initiatives which improve shareholder value of
the Company.
The Board therefore considers it is appropriate to prepare the
condensed consolidated financial statements on a going concern
basis.
Basis of consolidation
The condensed consolidated financial statements comprise the
financial statements of the Company and its subsidiaries as at 30
June each period. Subsidiaries are fully consolidated from the date
of acquisition, being the date on which the Group obtains control,
and continue to be consolidated until the date when such control
ceases. The financial statements of the subsidiaries are prepared
for the same reporting period as the parent company, using
consistent accounting policies.
All intra-group balances, transactions and unrealised gains and
losses resulting from intra-group transactions are eliminated in
full.
Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured. Revenue is measured as the fair value of the
consideration received, excluding discounts, rebates and sales
taxes and duty. Specific income is recognised as follows:
-- Rental income receivable under operating leases is recognised
on a straight-line basis over the term of the lease.
-- Lease incentives granted are recognised as an integral part
of the net consideration for the use of the property and are
therefore also recognised on the same straight line basis.
-- Interest income is recognised as it accrues using the effective interest rate method.
-- Income arising from expenses recharged to tenants is
recognised in the period in which the expense can be contractually
recovered. Service charges and other such receipts are included
gross of the related costs in revenue as the directors consider
that the Group acts as principal in this respect.
-- A property is regarded as sold when the significant risks and
returns have been transferred to the buyer, which is normally on
unconditional exchange of contracts. For conditional exchanges,
sales are recognised only when all the significant conditions are
satisfied.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
2 Summary of significant accounting policies (continued)
Investment properties
Investment properties are measured initially at cost including
transaction costs. Transaction costs include stamp duty,
professional fees and legal services incurred to bring the property
to the condition necessary for it to be capable of operating. Lease
incentive receivables are treated as a component of the investment
property carrying value.
Subsequent to initial recognition, investment properties are
stated at fair value. Gains or losses arising from changes in fair
values are included in the consolidated statement of comprehensive
income in the year in which they arise.
Investment properties are derecognised when they have been
disposed of or permanently withdrawn from use and no future
economic benefit is expected from their disposal. Any gains or
losses on the retirement or disposal of investment properties are
recognised in the consolidated statement of comprehensive income in
the year of retirement or disposal.
Gains or losses on the disposal of investment properties are
determined as the difference between net disposal proceeds received
and the latest valuation of the investment properties.
Cash and cash equivalents
Cash and short-term deposits in the condensed consolidated
balance sheet comprises cash at bank and short term deposits with
an original maturity of three months or less. For the purposes of
the condensed consolidated statement of cash flows, cash and cash
equivalents consist of cash and short term deposits as defined
above.
Restricted Cash
Where cash is in the Group's bank accounts, but not under the
Group's sole control at the balance sheet date, these amounts are
disclosed as restricted cash.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
3 Segmental analysis
Rental income - segmental analysis*
Sector 30 June 30 June
2016 2015
GBP'000 GBP'000
Industrial properties 3,233 3,151
Office properties 569 613
Total as presented to the Board 3,802 3,764
Adjustments (*) (23) 46
Total rental income 3,779 3,810
Region 30 June 30 June
2016 2015
GBP'000 GBP'000
Midlands 1,144 1,124
East of England 823 707
North East 74 66
North West 284 244
South East 446 413
South West 611 786
Wales 45 28
Yorkshire & Humberside 375 396
Total as presented to the Board 3,802 3,764
Adjustments (*) (23) 46
Total 3,779 3,810
(*) The rental information presented by the Investment Adviser
and Manager to the Board is in the form of the annual rent passing
at the period end rather than being the rent spread on a straight
line basis over the term of the lease in the way prescribed by IAS
17. Consequently the rent passing information presented by the
Investment Adviser and Manager to the Board is adjusted here to
agree with the rental income in the condensed consolidated
statement of comprehensive income.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
3 Segmental analysis (continued)
Property valuation - segmental analysis
Sector 30 June 31 December
2016 2015
GBP'000 GBP'000
Light industrial properties 73,470 70,425
Office properties 11,660 11,205
Total property valuation 85,130 81,630
Region 30 June 31 December
2016 2015
GBP'000 GBP'000
Midlands 25,460 24,735
East of England 17,380 16,145
North East 1,700 1,620
North West 5,470 5,365
South East 9,490 9,040
South West 17,245 16,580
Wales 825 770
Yorkshire & Humberside 7,560 7,375
Total property valuation 85,130 81,630
The Board considers the sector and region analysis above to be
the significant segmental basis for the Group. The Board believes
that the information is presented more clearly to investors in
respect of key segmental information.
Expenses are reviewed on a total basis split between property
expenses and other expenses. The Board of Directors do not believe
it is cost beneficial for the Group to consider the allocation of
these costs between the operating segments mentioned above.
Trade and other receivables and trade and other payables are
reviewed on a total basis. Long term borrowings are reviewed on a
facility basis as per note 21. The Board of Directors do not
believe it is cost effective for the Group to consider the
allocation of these assets and liabilities between the operating
segments mentioned above.
4 Income
The Group leases out all of its investment property under
operating leases. Leases are typically for terms of 3 to 5
years.
5 Expenditure
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
GBP'000 GBP'000
Investment Adviser and Manager's
fee 547 535
The Group pays a quarterly fee of 1.25% per annum
of gross asset value to the Investment Adviser
and Manager.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
5 Expenditure (continued)
Property expenses
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
GBP'000 GBP'000
Void rates and void service charges 304 148
Repairs, maintenance and utilities 270 321
Property insurance costs 16 22
Bad debt (recovery)/expense (36) 70
Lease renewal costs & other 164 360
Total property expenses 718 921
Other expenses
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
GBP'000 GBP'000
Administration fees 43 42
Audit fees 37 35
Directors' fees 40 40
Other 86 53
Total other expenses 206 170
6 Finance Income
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
GBP'000 GBP'000
Bank interest income (note 7
& note 10) 1 3
Total 1 3
The above interest income arises from cash and cash
equivalents.
7 Net gains and losses on loans and receivables
1 January 1 January
2015 to 2015 to
30 June 30 June
2016 2015
GBP'000 GBP'000
Bank interest income (note 6) 1 3
Bad debt reversal/(expense) (note
5) 36 (70)
Total 37 (67)
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
8 Net gains and losses on financial assets and liabilities at
fair value through profit and loss
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
GBP'000 GBP'000
Net change in unrealised gains
and losses on financial assets
and liabilities held at fair value
through profit or loss
Interest rate swap (401) 224
Net realised gains and losses on
financial assets and liabilities
held at fair value through profit
or loss
Interest rate swap - interest receivable 72 71
Interest rate swap - interest payable (253) (252)
Net expense of interest rate swap
(notes 9 & 10) (181) (181)
Net (loss)/gain on financial assets
and liabilities held at fair value
through profit or loss (582) 43
Disclosed as:
Finance costs (note 9) (181) (181)
Unrealised (loss)/gain on derivative
instrument (note 9) (401) 224
Net (loss)/gain on financial assets
and liabilities held at fair value
through profit or loss (582) 43
9 Finance costs
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
GBP'000 GBP'000
Interest on bank borrowings (note
10) (2,430) (2,548)
Loan fee amortisation (note 10) (211) (210)
Net losses/gains on financial liabilities
held at fair value through profit
or loss (note 8) (401) 224
Interest rate swaps (notes 8 &
10) (181) (181)
Alpha Real Trust Limited loan exit
fee accrual (note 10) (20) (23)
Total (3,243) (2,738)
The above interest costs arise on financial liabilities measured
at amortised cost using the effective interest rate method. No
other losses have been recognised in respect of financial
liabilities at amortised cost other than those disclosed above.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
10 Total interest income and total interest expense on financial
assets and financial liabilities not at fair
value through profit and loss
1 January 1 January
2016 to 2015 to
30 June 30 June
2016 2015
GBP'000 GBP'000
Bank interest income (note 6) 1 3
Interest on bank borrowings (note
9) (2,430) (2,548)
Interest rate swap (notes 8 & 9) (181) (181)
Loan fee amortisation (note 9) (211) (210)
Alpha Real Trust Limited loan exit
fee accrual (note 9) (20) (23)
Total net interest expense (2,841) (2,959)
11 Taxation
The Group's tax expense for the year comprises:
June 2016 June 2015
Current taxation GBP'000 GBP'000
Isle of Man tax at standard rate - -
of 0%
UK non resident landlord tax for - -
the period at 20%
Tax charge - -
The Group is resident in the Isle of Man for income tax
purposes. The standard rate of tax on company profits in the Isle
of Man is 0% except where profits are derived from Isle of Man land
and property or banking business, where the standard rate is 10%.
The Group is subject to Isle of Man income tax at a rate of 0% on
its profits.
The Group's subsidiary companies are subject to UK non-resident
landlord tax at a rate of 20% on their rental profits from UK
property. The Group calculates its tax in respect of UK
non-resident landlord tax on a subsidiary by subsidiary basis; no
group reliefs are available for non-resident landlords.
Deferred taxation
The Company has not recognised a deferred tax asset in relation
to the losses carried forward due to the uncertain nature of future
taxable profits.
As at 30 June 2016 the Group had unused tax losses and capital
allowances of GBP11.0 million (31 December 2015: GBP11.1
million).
12 Dividends
The Company paid no dividends during the six month period (2015:
GBPnil).
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
13 Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
1 January 1 January 1 January
2016 2015 to 2015 to
to 30 31 December 30 June
June 2015 2015
2016
GBP'000 GBP'000 GBP'000
Profit after tax 2,592 3,603 1,664
Profit per share (pence)
(basic and diluted) 30.8 42.8 19.8
Adjusted earnings/(loss)
Profit after tax 2,592 3,603 1,664
Unrealised gain on revaluation
of investment properties (3,509) (3,910) (1,630)
Realised gain on sale of
investment properties - (1,037) (476)
Net loss/(gain) on interest
rate derivative instrument
(note 8) 401 (178) (224)
Total adjusted loss (516) (1,522) (666)
Total adjusted loss per share
(pence) (basic and diluted) (6.1) (18.1) (7.9)
Weighted average number of
ordinary shares ('000) 8,410 8,410 8,410
The adjusted earnings are presented to provide what the Board
believes is a more appropriate assessment of the operational income
accruing to the Group's activities. Hence, the Board adjusts basic
earnings for income and costs which are not of a recurrent nature
or which may be more of a capital nature.
The mark-to-market movement of the interest rate derivative
instruments are adjusted where the hedged facilities are currently
in compliance with their banking covenants and are therefore
unlikely to break prior to the expiry of the instruments.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
14 Net asset value per share
30 June 31 December
2016 2015
GBP'000 GBP'000
Net asset value 23,883 21,291
Net asset value per share (pence) 284.0 253.2
Net asset value 23,883 21,291
Fair value of interest rate
swaps liability (note 18) 1,026 625
Adjusted net asset value 24,909 21,916
Net asset value per share (adjusted)
(in pence) 296.2 260.6
Number of ordinary shares ('000) 8,410 8,410
The adjusted net assets are presented to provide what the Board
believes is a more relevant assessment of the Group's net asset
position. The Board has determined that certain fair value and
accounting adjustments may not be realisable in the longer
term.
15 Investment properties
30 June 31 December
2016 2015
GBP'000 GBP'000
Fair value of properties at
1 January 81,630 79,925
Disposal of properties - (2,224)
Movement in lease incentives (9) 19
Unrealised gains on revaluation
of investment properties 3,509 3,910
Fair value of properties at
30 June 2016/31 December 2015 85,130 81,630
IFRS 13 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.
The fair value of the Group's investment properties at 30 June
2016 and 31 December 2015 have been arrived at on the basis of the
valuation carried out at that date by Cushman & Wakefield
(formerly DTZ Debenham Tie Leung Limited), independent valuers not
connected with the Group. The valuation, which was carried out in
accordance with the Royal Institution of Chartered Surveyors ("The
Red Book") Appraisal and Valuation Standards (9th Edition 31
January 2014), was arrived at by reference to market evidence of
transaction prices for similar properties, together with valuation
techniques consistent with those used in the 31 December 2015
valuation. The valuation model is based on comparable market
evidence derived from observable market data, derived from an
active and transparent market adjusted with certain unobservable
inputs as disclosed below. The properties were valued individually.
These valuation methods are consistent with the principles in IFRS
13.
Valuations are based on what is determined to be the highest and
best use. When considering the highest and best use a valuer will
consider, on a property by property basis, the highest value which
will include its actual and potential uses given current market
conditions. Where the highest and best use differs from the
existing use, the valuer will consider the cost and the likelihood
of achieving and implementing this change in arriving at its
valuation.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
15 Investment properties (continued)
Property pledged as security
The Group has pledged investment properties valued at GBP85.1
million as at 30 June 2016 (31 December 2015: GBP81.6 million) to
secure borrowings (note 21).
The table below presents the sensitivity of the valuation to
changes in the most significant assumptions underlying the
valuation of investment properties:
30 June 31 December
2016 2015
GBP'000 GBP'000
Increase in underlying property
yield of 0.25% (2,326) (2,151)
Decrease in rental rates of 5% (4,257) (4,082)
Market value is based on active market information, adjusted for
any difference related to the nature, location and condition of the
specific asset. Where information is not available, alternative
valuation methods are used, such as recent prices of similar
properties in less active markets, with adjustments to reflect any
changes in economic conditions since the date of the transactions
that occurred at those prices, or discounted cash flow projections.
The principal assumptions underlying the estimation of market value
are those related to the receipt of contracted rental income,
expected future market rental income, void periods, lease
incentives, maintenance requirements and appropriate
yields/discount rates of previous quarters. These valuations are
regularly compared to actual market yield data and actual
transactions by the Group and those reported by the market. The
valuer looks at each property on its merits. The valuation reports
produced by the valuers are based on information provided by the
Group such as current rents, terms and conditions of lease
agreements, service charges and capital expenditure. In addition,
the valuation reports are based on assumptions and valuation
methods used by the valuers. The assumptions are typically market
related, such as yields and discount rates, and are based on their
professional judgement and market observation.
Valuation process
The Investment Adviser and Manager verifies all major inputs to
the valuation reports, assesses the individual property valuation
changes from the prior valuation report and holds discussions with
the valuers.
When this process is complete, the valuation report is
communicated to the Board, which considers it as part of its
overall responsibilities.
The valuers hold meetings with the Audit Committee to discuss
the valuation processes and outcome at each year end and half year
end.
In categorising which level of the fair value hierarchy applies
to the Group's investment properties, consideration is given to the
inputs used by the Group's valuer in determining the fair value. As
mentioned above observable market data such as transactions
involving similar properties and the information provided by the
Group is used in determining the fair value. In addition there are
also a number of unobservable inputs including the estimated rental
value, net initial yield, net reversionary yield, state and
condition, void periods and the related void rate charges, letting
incentives and related letting charges such as marketing and legal
costs which are considered by the valuer.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
15 Investment properties (continued)
Impact on fair value to changes in significant unobservable
inputs
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
of the Group's property portfolio, together with the impact of
significant movements in these inputs on the fair value
measurement, are shown below:
Unobservable input Impact on fair value
of increase in input
Estimated rental value Increase
Net initial yield Decrease
Net reversionary yield Decrease
The table below shows the observable inputs of weighted average
passing rent per square foot and weighted average lease length plus
the quantifiable unobservable inputs of weighted average estimated
rental value per square foot, weighted average net initial yield
and weighted average reversionary yield which have been split based
on the appropriate sector and region:
30 June Weighted Weighted Weighted Weighted Weighted
2016 average average average average average
passing estimated net initial net reversionary lease
rent per rental yield yield length
sq ft value (%) (%)
(GBP) market
rent per
sq ft
(GBP)
(by sector) (years)
Light
industrial 4.2 5.0 8.3 10.5 4.1
Office 8.5 10.3 9.2 11.8 4.2
31 December Weighted Weighted Weighted Weighted Weighted
2015 average average average average average
passing estimated net initial net reversionary lease
rent per rental yield yield length
sq ft value (%) (%)
(GBP) market
rent per
sq ft
(GBP)
(by sector) (years)
Light
industrial 4.1 4.9 8.5 11.7 3.4
Office 8.4 10.1 9.7 11.4 3.9
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
15 Investment properties (continued)
30 June Weighted Weighted Weighted Weighted Weighted
2016 average average average average average
passing estimated net initial net reversionary lease
rent per rental yield yield length
sq ft value (%) (%)
(GBP) market
rent per
sq ft
(GBP)
(by region) (years)
Midlands 4.9 5.7 8.5 10.3 4.5
East of
England 4.5 4.8 9.0 10.2 4.7
North
East 3.7 4.7 8.3 11.0 3.5
North
West 4.2 5.6 9.8 13.8 3.0
South
East 6.5 6.8 8.9 9.8 3.7
South
West 3.2 5.5 6.7 11.0 4.5
Wales 4.0 4.3 10.4 11.6 4.0
Yorkshire
& Humberside 4.4 4.9 9.4 11.0 2.8
31 December Weighted Weighted Weighted Weighted Weighted
2015 average average average average average
passing estimated net initial net reversionary lease
rent per rental yield yield length
sq ft value (%) (%)
(GBP) market
rent per
sq ft
(GBP)
(by region) (years)
Midlands 4.9 5.7 8.7 10.6 4.5
East of
England 3.3 4.2 7.9 10.7 4.2
North
East 3.6 4.3 8.4 10.7 3.9
North
West 3.9 5.6 9.2 13.8 3.3
South
East 7.5 7.0 9.1 10.5 3.8
South
West 4.2 5.4 8.2 11.1 2.9
Wales 4.3 4.0 11.8 11.6 4.4
Yorkshire
& Humberside 4.5 4.8 9.9 11.2 3.1
16 Trade and other receivables
Group 30 June 31 December
2016 2015
GBP'000 GBP'000
Rental income receivable 816 657
Other debtors receivable 841 1,009
Total 1,657 1,666
Payment terms for rental debtors are typically quarterly in
advance.
As at 30 June 2016, receivables with a value of GBP0.03 million
(31 December 2015: GBP0.1 million) were impaired and fully
provided. During 2016, GBPnil was written off in the period (31
December 2015: GBPnil)
Other debtors receivable includes GBP0.5million (2015:
GBP0.5million) in a covenant cure account over which Europa has
sole signing rights
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
17 Cash and cash equivalents and restricted cash
30 June 31 December
2016 2015
GBP'000 GBP'000
Cash and cash equivalents 2,187 2,165
Restricted cash 1,255 1,608
Cash at bank in the condensed
consolidated balance sheet 3,442 3,773
The cash paid into the rent accounts is restricted until the
periodic interest payment date.
18 Interest rate derivative instruments
The Group uses interest rate hedging arrangements to mitigate
its exposure to interest rate changes.
The Directors have elected not to apply hedge accounting rules
under IAS 39 on the hedging arrangements. Any gains or losses in
the fair value of these derivatives are recognised immediately in
the condensed consolidated statement of comprehensive income.
Interest rate swap agreements 30 June 2016 31 December
2015
GBP'000 GBP'000
Fair value at 1 January (625) (803)
Unrealised (loss)/gain on
interest rate swaps (401) 178
Fair value at 30 June 2016
/31 December 2015 (1,026) (625)
The exposure of the Group to movements in interest rates was
mitigated by the Group's subsidiaries entering into an interest
rate swap as detailed below.
The Royal Bank of Scotland
On 27 January 2014, CHIP (One) Limited (on behalf of CHIP (Two)
Limited, CHIP (Three) Limited and its subsidiaries, CHIP (Four)
Limited and CHIP (Five) Limited) entered into an interest rate swap
for the amount of GBP25.1 million with the Royal Bank of Scotland.
The interest rate swap has the effect of fixing the Group's
exposure on these borrowings from 27 January 2014 until 5 December
2018 at 2.0225%, per annum, before the margin of 3.0% per
annum.
19 Trade and other payables
Group 30 June 2016 31 December
2015
GBP'000 GBP'000
Rental income in advance 1,740 1,613
Creditors and accruals 2,190 2,461
Total 3,930 4,074
Trade payables are non-interest bearing and are settled within
normal business terms.
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
20 Investment Adviser and Manager's incentive fee
No incentive arrangement is currently in place and therefore no
incentive fee is provided for at 30 June 2016 (31 December 2015:
GBPnil).
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
21 Long term borrowings
30 June 31 December
2016 2015
GBP'000 GBP'000
Borrowings at 1 January 61,079 63,006
Amortisation of fees during
the period/year 211 423
Europa PIK interest 100 199
Repayment of long term borrowing - (2,549)
Long term borrowings at 30 June/31
December 61,390 61,079
Long term borrowings 62,419 62,319
Unamortised arrangement fees (1,029) (1,240)
Long term borrowings at 30 June/31
December 61,390 61,079
Current - -
Non-current 61,390 61,079
Long-term borrowings at 30 June/31
December 61,390 61,079
Royal Europa Alpha Total
Bank of Mezzanine Real
Scotland Finance Trust
SÃ rl Limited
GBP'000 GBP'000 GBP'000 GBP'000
Long term borrowings
at 1 January 2016 32,002 19,404 9,673 61,079
Component of Europa
interest payment capitalised - 100 - 100
Amortisation of financing
fees during the period 67 66 78 211
Long term borrowings
at 30 June 2016 32,069 19,570 9,751 61,390
The Directors consider that the carrying amount of long term
borrowings approximates to their fair value.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
21 Long term borrowings (continued)
Royal Europa Alpha Total
Bank of Mezzanine Real
Scotland Finance Trust
SÃ rl Limited
GBP'000 GBP'000 GBP'000 GBP'000
Long term borrowings
at 1 January 2015 32,550 19,440 11,016 63,006
Component of Europa
interest payment capitalised - 199 - 199
Repayment of long-term
borrowings (682) (367) (1,500) (2,549)
Transfer of exit fees - - - -
Amortisation of financing
fees during the year 134 132 157 423
Long term borrowings
at 31 December 2015 32,002 19,404 9,673 61,079
(a) Royal Bank of Scotland loan
This facility is between the bank and subsidiaries, CHIP (One)
Limited, CHIP (Two) Limited, CHIP (Three) Limited (and its
subsidiaries), CHIP (Four) Limited and CHIP (Five) Limited for an
amount of GBP33.5 million.
Interest is payable at a rate equal to 3 month LIBOR plus a
margin of 3.00% per annum. The facility is repayable on 4 December
2018. An event of default (as defined in the facility agreement) is
triggered, if, inter alia, the amount of the loan facility exceeds
65% before 4 December 2016 and 60% thereafter of the value of the
properties over which RBS has security by reference to the bank's
own valuation, performed at the time of financing. For the purpose
of the test the valuation, which at the bank's discretion can be
requested annually at the Group's cost or at any time at the bank's
expense and will explicitly exclude the Wareham property and any
properties subsequently sold.
Additional covenants dictate that: the minimum net rent should
not be less than GBP4.5 million per annum and the net rental income
of the secured properties shall not be lower than 225% of the
interest for any test period, net rental income from any single
tenant shall not exceed 12.5% of the total net rental income of all
properties and at no time shall a single property constitute more
than 20% of the aggregate market value of the properties.
Should any of the covenants be breached then the default margin
would increase by a further 2.0% per annum and will remain at this
rate until such time that the breach is remedied.
During the period the Group was compliant with these
covenants.
An early repayment, greater than GBP5 million on the RBS
facility, would incur for the Group a variable penalty depending on
when the repayment is made. The penalty rates are as follows: if a
repayment is made 12-24 months after facility agreement date
(December 2013), 1.0%; 24-36 months, 0.75%; 36-48 months, 0.5%. At
30 June 2016 the penalty would have been GBP206,000 (31 December
2015: GBP213,750). There is no current intention to incur this
penalty.
The facility is secured by a debenture over all the assets and
legal charge over the property assets of CHIP (One) Limited, CHIP
(Two) Limited, CHIP (Three) Limited (and its subsidiaries), CHIP
(Four) Limited and CHIP (Five) Limited. In addition CHIP (One)
Limited, CHIP (Two) Limited, CHIP (Three) Limited (and its
subsidiaries), CHIP (Four) Limited and CHIP (Five) Limited were
required to open a rent account with The Royal Bank of Scotland.
The cash paid into the rent accounts is restricted until the
periodic interest payment date. At 30 June 2016 GBP1.3 million was
held within the rent account, which was released at the subsequent
interest payment date (31 December 2015: GBP1.6 million).
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
21 Long term borrowings (continued)
(b) Europa Mezzanine Finance SÃ rl loan
This facility is between Europa and subsidiaries, CHIP (One)
Limited, CHIP (Two) Limited, CHIP (Three) Limited (and its
subsidiaries), CHIP (Four) Limited and CHIP (Five) Limited for an
amount of GBP20 million. Interest is payable at a rate equal to
10.0% interest plus 1.0% that may be cash paid or accrued. The
facility is repayable on 4 December 2018. An event of default (as
defined in the facility agreement) is triggered, if, inter alia,
the amount of RBS and Europa loan facilities exceeds 85% of the
value of the properties (based currently on the same valuation used
by RBS in the covenant referred to previously). For the purpose of
the test Europa, at their discretion, can request a valuation
annually at the Group's cost or at any time at Europa's expense. At
the time of finance Europa and RBS used the same valuer and
valuations.
Other financial covenants require that the net rental income of
the secured properties shall not be lower than 110% of the interest
(being the total interest charged by RBS and Europa) for any test
period. In addition, net rental income from any single tenant shall
not exceed 12.5% of the total net rental income of all properties
and at no time shall a single property constitute more than 20% of
the aggregate market value of the properties.
In addition, Europa required the Group to deposit GBP0.5 million
in a covenant cure account over which Europa has sole signing
rights. The funds placed in this account have been included under
"trade and other receivables" in the condensed consolidated balance
sheet.
During the period the Group was compliant with these
covenants.
Any early loan repayments by the Group greater than GBP2
million, within the first three years of the facility will incur a
break penalty equal to the interest which would have been earned on
the principal from that early repayment date to the third year
anniversary of the facility. If all of the aggregate of the
outstanding Europa principal loan amount and accrued PIK interest
had been repaid at 30 June 2016, this would have incurred a break
penalty for the Group of GBP850,000 (31 December 2015:
GBP1,844,000). This liability has not been included in the
condensed consolidated balance sheet, as under IFRS this can only
be accrued if there is an intention to incur this penalty. There is
no current intention to incur this penalty.
(c) Alpha Real Trust Limited loan
On 5 December 2013, the Company entered into a new loan
agreement in which Alpha Real Trust Limited provided an unsecured
loan to the Company for GBP11.5 million for a period of five years
to 4 December 2018. The coupon of the loan agreement is 15% per
annum, compounded quarterly. No covenant tests apply and Alpha Real
Trust Limited has no security over the assets of the Company or the
Group.
An exit fee of 2% is payable on repayment of the entire loan
amount, this amount is being accrued over the five year life of the
loan.
Additionally any early loan repayments by the Group greater than
GBP2 million, within the first three years of the facility will
incur a break penalty equal to the interest which would have been
earned on the principal from that early repayment date to the third
year anniversary of the facility. If the entire outstanding Alpha
Real Trust Limited principal loan amount had been repaid at 30 June
2016, this would have incurred a break penalty of GBP516,000 (31
December 2015: GBP1,327,000). There is no current intention to
incur this penalty.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
22 Share capital and related reserves
Authorised share capital: 30 June 31 December
2016 2015
GBP'000 GBP'000
13,400,000 Ordinary Shares of
GBP0.10 each 1,340 1,340
66,000,000,000 Deferred Shares
of GBP0.00001 each 660 660
2,000 2,000
Issued share capital:
GBP'000 GBP'000
8,409,520 Ordinary Shares of GBP0.10
each fully paid 841 841
841 841
Ordinary Deferred Total
shares shares
of GBP0.10 of GBP0.00001
each each
Number Number Number
of shares of shares of shares
'000 '000 '000
As at 1 January
2016 8,410 - 8,410
As at 30 June
2016 8,410 - 8,410
As at 1 January
2015 8,410 - 8,410
As at 31 December
2015 8,410 - 8,410
Voting and other rights
Holders of Ordinary shares are entitled to one vote for each
share held.
Dividends
Holders of Ordinary shares are entitled to receive dividends as
and when declared by the Company.
Winding up
On a winding-up, the surplus assets remaining after payment of
all creditors, including payment of bank borrowings shall be
divided pari passu among the holders of Ordinary shares in
proportion to the capital paid up on the shares held at the
commencement of the winding-up.
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
22 Share capital and related reserves (continued)
Distributable capital reserve
This is a distributable reserve out of which distributions can
be made to the shareholders and arose on the cancellation of the
share premium account.
Capital redemption reserve
This is a non-distributable reserve that is required under the
Isle of Man Companies Act 1931 and arises on cancellation of issued
share capital.
23 Related party transactions
Mr Philip Scales, a director of the Company, is also a director
and an employee of FIM Capital Limited (formerly IOMA Fund and
Investment Management Limited) - the Administrator and Registrar.
During the period net fees of GBP0.04 million (30 June 2015:
GBP0.04 million) were payable to FIM Capital Limited. As at 30 June
2016 a total amount of GBP0.02 million (31 December 2015: GBP0.02
million) was outstanding
Mr Mark Rattigan, a director of the Company, is also Chief
Operating Officer and a Member of Alpha Real Capital LLP (the
Investment Adviser and Manager). During the period net fees of
GBP0.5 million (30 June 2015: GBP0.5 million) were payable to Alpha
Real Capital LLP. As at 30 June 2016 a total amount of GBP0.3
million, (31 December 2015: GBP0.3 million) was outstanding.
Under IAS 24, Alpha Real Trust Limited is considered a related
party. Alpha Real Capital LLP (the Investment Adviser and Manager
of the Group) is also the Investment Adviser and Manager of Alpha
Real Trust Limited. On 5 December 2013, the Group entered into a
new related party loan facility agreement in which Alpha Real Trust
Limited provided an unsecured loan to the Company for GBP11.5
million. During the period, interest costs of GBP0.7 million were
charged (31 December 2015: GBP1.7 million). As at 30 June 2016, a
total amount of GBP0.3 million (31 December 2015: GBP0.2 million)
was outstanding.
Antler Investment Holdings Limited ("AIH") is considered a
related party. AIH is a sister company to Rockmount Ventures
Limited and ARRCO Limited both of which are members of Alpha Real
Capital LLP (the Investment Adviser and Manager). At 30 June 2016
AIH held 531,568 shares (31 December 2015: 531,568). At the report
date AIH held 531,568 shares.
The Directors of the Company received total fees as follows:
Six months ended Six months ended
30 June 2016 30 June 2015
Jonathan David Clague GBP10,000 GBP10,000
Geoffrey Paul Raineri Black GBP7,500 GBP7,500
Donald Lake* GBP9,000 GBP9,000
Peter Philip Scales GBP7,500 GBP7,500
Mark Rattigan GBP7,500 GBP7,500
*fees are inclusive of VAT
Notes to the condensed consolidated financial statements
(continued)
For the six months ended 30 June 2016
23 Related party transactions (continued)
The Directors' interests in the shares of the Company are
detailed below:
30 June 2016 31 Dec 2015
shares held shares held
Jonathan David Clague 15,500 15,500
Geoffrey Paul Raineri Black 7,000 7,000
Donald Lake 47,900 47,900
Philip Peter Scales - -
Mark Rattigan - -
24 Events after the balance sheet date
There were no significant events after the balance sheet
date.
Directors and Advisers
Directors
Registered office
Jonathan David Clague (Chairman) IOMA House
Geoffrey Paul Raineri Black Hope Street
Donald Lake Douglas
Philip Peter Scales Isle of Man
Mark Rattigan IM1 1AP
Company secretary Independent auditor
Martin Katz KPMG Audit LLC
Middleton Katz Chartered Heritage Court
Secretaries LLC 41 Athol Street
12 Hope Street Douglas
Douglas Isle of Man
Isle of Man IM1 1LA
IM1 1AQ
Investment Adviser and Taxation adviser
Manager
Alpha Real Capital LLP Mazars LLP
338 Euston Road The Pinnacle
London 160 Midsummer Boulevard
NW1 3BG Milton Keynes
MK9 1FF
Financial adviser and broker Property solicitor to the
Company
Stockdale Securities Limited Pinsent Masons
Beaufort House 1 Park Row
15 St. Botolph Street Leeds
London LS1 5AB
EC3A 7BB
UK Transfer and paying Legal adviser as to Isle
agent of Man Law
Capita Registrars Limited Cains Advocates Limited
Northern House Fort Anne
Woodsome Park Douglas
Fenay Bridge Isle of Man
Huddersfield IM1 5PD
HD8 0LA
Administrator and registrar Legal adviser as to UK
Law
FIM Capital Limited Osborne Clarke LLP
IOMA House 1 London Wall
Hope Street London
Douglas EC2Y 5EB
Isle of Man
IM1 1AP Fladgate LLP
16 Great Queen Street
Principal bankers London
Royal Bank of Scotland WC2B 5DG
3rd floor
5-10 Great Tower Street
London Independent property valuer
EC3P 3HX Cushman & Wakefield
1 Colmore Square
Europa Capital Mezzanine Birmingham
Limited B4 6AJ
67/68 Grosvenor Street
London
W1K 3JN
Shareholder information
Financial calendar
Financial reporting Reporting dates
Trading statement (Third quarter 18 November
2016) 2016
Annual Financial Report 2016 24 February
announcement 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BUGDICBDBGLU
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