TIDMSIR
RNS Number : 4692A
Secure Income REIT PLC
29 September 2015
29 September 2015
Secure Income REIT Plc
(the "Company" or the "Group")
Interim results for the six months ended 30 June 2015
Introduction of distribution in 2016 following significant
progress with GBP903 million of new financing
and GBP382 million of asset sales
Secure Income REIT Plc (AIM: SIR), the specialist long term
income REIT, today announces its interim results for the six months
ended 30 June 2015 and provides an update on activities since the
period end.
Highlights:
-- New long term financing arrangements in place after 30 June 2015 totalling GBP903 million:
- reducing interest cost by 23% from 6.8% to 5.2% per annum;
- extending term to maturity from less than two years to nine
years on significantly improved terms; and
- facilitating initiation of distribution payments
-- Intention to pay distributions commencing in autumn 2016,
currently expected to reflect a yield exceeding 4% on 30 June 2015
pro forma EPRA NAV with attractive compound growth prospects ahead
of inflation
-- Asset sales in the period of GBP382 million at c. 8% above 31
December 2014 book values, comprising the sales of the freehold of
Madame Tussauds in London for GBP332 million and the New Hall
hospital in Salisbury for GBP50 million
-- Pro forma EPRA NAV of 275.3 pence per share, up 6.5% after
incurring early debt repayment costs amounting to 14% of EPRA NAV
as at 30 June 2015
-- Pro forma loan to value ratio of 62%, down from 70% at 31
December 2014 and 80% at listing in June 2014
-- Portfolio valuation up 6% since 31 December 2014 to GBP1.3
billion; net initial yield 5.3% and equivalent yield 6.4%
-- Weighted average unexpired lease term of 24 years; all rents
subject to annual uplifts either at fixed rates or upwards only RPI
linked terms
-- Passing rent of GBP76 million as at 30 June 2015, secured
entirely against major global multi billion pound quoted
businesses
Change since
30 June 2015 31 December 2014 31 December 2014
--------------------------------- ------------ ---------------- -----------------
EPRA net asset value GBP496.4m GBP466.2m 6.5%
EPRA net asset value per share 275.3p 258.5p 6.5%
Net asset value GBP475.5m GBP344.3m 38%
Adjusted EPRA earnings per share 3.4p 6.7p n/a
--------------------------------- ------------ ---------------- -----------------
pro forma figures are adjusted for completion of the sale of
Madame Tussauds and the refinancing of the Group's entire debt,
which have occurred since the balance sheet date. Pro forma
adjustments amounting to a 41 pence per share EPRA NAV reduction
are shown in the Investment Adviser's Report.
Martin Moore, Independent Non-Executive Chairman of the Company,
commented: "Since the start of the year we have secured over GBP900
million of new financing that, together with proceeds from
selective asset sales, replaces our existing debt in its entirety,
resulting in significantly lower leverage and a debt package with
lower cost and longer maturity. As of autumn next year we will be
in a position to begin making attractive cash distributions,
thereby providing early delivery on our IPO objective. We believe
that in the current environment there is a shortage of investment
opportunities which provide secure and growing income combined with
a good prospect of capital preservation. Our portfolio, let to
multi-billion pound covenants for an average of over 24 years with
annual uplifts in rental, provides a compelling opportunity for
investors and we look to the future with confidence."
ENQUIRIES:
Prestbury Investments LLP Tel: 020 7647 7647
Nick Leslau
Mike Brown
Sandy Gumm
FTI Consulting Tel: 020 3727 1000
Richard Sunderland
Stifel Nicolaus Europe (Nominated Adviser and Broker) Tel: 020 7710 7600
David Arch
Tom Yeadon
Notes to Editors
About Secure Income REIT
Secure Income REIT Plc floated as a Real Estate Investment Trust
on the AIM segment of the London Stock Exchange in June 2014. Upon
Admission, the Company had a share price of 174p, representing a
market capitalisation of GBP293 million, which has subsequently
grown to c. GBP450 million.
The Company specialises in generating long term, inflation
protected, secure income from real estate investments. Its
investment strategy is designed to satisfy investors' growing
requirements for high quality, safe, inflation protected income
flows.
In its unaudited interim results for the six months ended 30
June 2015 the Company reported gross assets of GBP1.3 billion and,
with a weighted average unexpired lease term of 24 years across its
portfolio, all with annual fixed or RPI rental uplifts, the Company
has one of the longest income profiles in the quoted property
sector.
The Company's Board is chaired by Martin Moore and comprises
three further independent Directors in Leslie Ferrar, Jonathan Lane
and Ian Marcus, as well as three members of the Prestbury team in
Nick Leslau, Mike Brown and Sandy Gumm.
The Company is externally managed by Prestbury Investments LLP
which was also external manager to Max Property Group Plc until
August 2014, when it was sold to Blackstone Group.
Forward looking statements
This document includes forward looking statements which are
subject to risks and uncertainties. You are cautioned that forward
looking statements are not guarantees of future performance and
that if risks and uncertainties materialise, or if the assumptions
underlying any of these statements prove incorrect, the actual
results of operations and financial condition of the Group may
differ materially from those made in, or suggested by, the forward
looking statements. Other than in accordance with its legal or
regulatory obligations, the Company undertakes no obligation to
review, update or confirm expectations or estimates or to release
publicly any revisions to any forward looking statements to reflect
events that occur or circumstances that arise after the date of
this document.
Chairman's Statement
Dear shareholder,
During 2015 we have made significant progress at Secure Income
REIT through a combination of selective disposals and a complete
debt refinancing, which have together reduced the Group's leverage
and cost of debt. These two initiatives have helped transform
Secure Income REIT into a company which is in a position to begin
making cash distributions as of autumn next year, thereby
delivering on our objective at listing of creating a company which
offers investors a growing distribution derived from a portfolio of
high quality assets generating long term income from exceptionally
strong tenants.
The two sales during the period were the freehold of Madame
Tussauds in London, which was sold for GBP332.4 million reflecting
a net initial yield of 4.5%, and New Hall hospital in Salisbury,
which was sold for GBP49.8 million reflecting a net initial yield
of 5.3%. The sale prices achieved were 8% above December 2014 book
values and represented an important step on the way to securing new
financing and positioning the Company to become a distribution
paying REIT.
In August and September we secured over GBP900 million of new
financing, completely replacing our original debt, extending our
weighted average term to maturity by over seven years to nine
years, and reducing our annual interest cost by 155 basis points,
or 23%, down to 5.2%.
These initiatives place the Company in a position to begin
making cash distributions commencing with an interim payment in
autumn 2016, and targeting an annual payout which would equate to a
distribution yield in excess of 4% based on our 30 June 2015 pro
forma EPRA NAV of 275.3 pence per share. Given that every property
in our current portfolio has the benefit of an annual RPI review or
fixed increases in rent, distributions should be able to grow above
the currently forecast level of inflation at an attractive
rate.
The Board is now actively engaged with the Company's six major
shareholders to discuss how best to widen the investor base. This
would create more liquidity in the shares, ensure that the Company
is better placed for expansion when the time is right, and enable
it to continue to qualify under UK REIT rules.
Results and financial position
The pro forma EPRA NAV, adjusted for completion of the sale of
Madame Tussauds and the refinancing of all of the Group's debt,
both of which have occurred since the balance sheet date, is 275.3
pence per share, which represents a 6.5% increase since 31 December
2014.
Pence per
GBPm share
----------------------------------------------------- --------- --------------
EPRA NAV at 1 January 2015 466.2 258.5
Investment property revaluation 76.6 42.4
Profit on sale of investment properties 24.0 13.3
Rental income less finance and administrative costs 9.1 5.1
Costs of early repayment of debt facilities on
sale of New Hall (3.7) (2.0)
Currency translation movements (1.9) (1.1)
Tax (0.2) (0.1)
------------------------------------------------------- --------- --------------
EPRA NAV at 30 June 2015 570.1 316.1
(MORE TO FOLLOW) Dow Jones Newswires
September 29, 2015 02:01 ET (06:01 GMT)
Costs of early repayment of debt facilities on
sale of Madame Tussauds and refinancing (73.7) (40.8)
Pro forma EPRA NAV 496.4 275.3
------------------------------------------------------- --------- --------------
Adjusted EPRA EPS for the six months to 30 June 2015 was 3.4
pence per share compared to 6.7 pence per share for the nine months
to 31 December 2014 (with the 2014 comparative period including two
months prior to listing).
In the six months to the end of June 2015, the portfolio
valuation rose by 6% to GBP1.3 billion, showing a net initial yield
of 5.3% and an equivalent yield of 6.4%. The Group enjoys an
exceptional level of income security with financially strong
covenants and a weighted average unexpired lease term of over 24
years. 58% of our rent roll is guaranteed by Ramsay Health Care
Limited, listed on the Australian Stock Exchange with a market
capitalisation of GBP5.6 billion and one of the five largest
private hospital groups in the world. A further 39% of rents are
guaranteed by Merlin Entertainments Plc, a FTSE 100 constituent
with a market capitalisation of GBP3.8 billion, the largest
operator of visitor attractions in Europe and the second largest in
the world. The remainder of our rent roll is guaranteed by Orpea
SA, the European leader in dependency care, listed on Euronext
Paris with a market capitalisation of GBP3.1 billion.
As important as the security of income is its potential to grow.
Two thirds of our rent roll is subject to annual fixed uplifts
(ranging from 2.75% to 3.34%) and the remaining third is subject to
annual RPI upward only reviews. This combination of long and safe
income duration with rising rents is not only well sought after in
the current market but proved highly resilient in difficult
economic circumstances, with the portfolio showing an unlevered
total return some 6.5% per annum higher than the IPD UK Quarterly
Index during its period of private ownership from purchase in
mid-2007 to listing in 2014. Such resilience is a comfort at a time
of increased economic uncertainty.
Outlook
We have seen elevated levels of stock market volatility in
recent weeks with the FTSE 100 now down 7% over the last two years.
Fixed interest investments have fared better overall but offer
meagre levels of income return with yields ranging from 0.6% in
Germany to 2.2% in the US for government bonds of 10 year maturity.
Those seeking inflation protection need to pay heavily with index
linked gilts yielding minus 0.8%. At such historically low levels
of yields, bonds are particularly vulnerable to falls in value
should interest rates normalise, QE programmes unwind or investors
take fright at the growing level of government indebtedness. In the
meantime, UK interest rates have sat for more than six years at
their lowest ever level since the Bank of England's inception in
1694.
This presents a challenging environment for investors with a
shortage of investment opportunities able to provide a reasonable
level of secure and growing income combined with a good prospect of
capital preservation. However, the Group's portfolio provides
exactly this and, following the asset sales and the refinancing,
the Group is now in a strong position to commence distributions
next autumn and the Board views the future with confidence.
Martin Moore
Chairman
29 September 2015
Investment Adviser's Report
Prestbury Investments LLP is the investment adviser to Secure
Income REIT Plc and is pleased to report on the operations of the
Group for the six months ended 30 June 2015.
Given the significance of the asset sales and refinancing
completed after the period end, we have addressed these matters
first before turning to a review of the underlying portfolio.
Pro forma adjustments for Madame Tussauds sale and new
financing
Since 30 June 2015, the sale of Madame Tussauds London has
completed and the Group's entire debt portfolio has been refinanced
with three new long term, fixed rate, non-recourse facilities.
The sale of Madame Tussauds exchanged unconditionally prior to
the balance sheet date so the results for the six months ended 30
June 2015 include the profit realised on sale of GBP20.8 million
over the 31 December 2014 book value. The GBP332.4 million sale
consideration, which was received on 25 August 2015, is shown on
the balance sheet as a receivable.
As the new financing arrangements and the completion of the sale
of Madame Tussauds, together with the associated debt repayment and
interest rate swap termination, occurred after the balance sheet
date, these transactions cannot be reflected in the results for the
six months ended 30 June 2015. As they are material transactions,
however, we have shown below the relevant adjustments to present a
pro forma EPRA NAV in order to provide a better understanding of
the current financial position of the Group.
Completion Completed Committed
of Madame financing financing Pro forma
30 June Tussauds and debt and debt 30 June 31 December
2015 sale repayment repayment 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----------- ---------- ---------- ---------- --------- -----------
Investment properties 1,346.9 - - - 1,346.9 1,625.4
Madame Tussauds
sale proceeds receivable 332.4 (332.4) - - - -
Free cash 10.3 330.4 (284.1) (8.1) 48.5 13.5
Secured cash 25.7 - - - 25.7 25.3
Secured liabilities (1,108.9) - 220.0 (13.7) (902.6) (1,157.3)
Other net liabilities (36.3) 2.0 8.5 4.9 (22.1) (40.7)
--------------------------- ----------- ---------- ---------- ---------- --------- -----------
EPRA NAV 570.1 - (55.6) (18.1) 496.4 466.2
--------------------------- ----------- ---------- ---------- ---------- --------- -----------
EPRA NAV per share 316.1p 275.3p 258.5p
Net LTV 64% 62% 70%
-------------------- ------ ------ ------
The adjustment for the sale of Madame Tussauds reflects receipt
of the cash consideration and payment of the costs of sale. The net
proceeds received were applied in part to debt repayment and
associated interest rate swap breakage costs which are reflected
within the "completed financing and debt repayment" adjustment.
The new financing arrangements comprise three separate
ring-fenced facilities in order to provide a spread of risk and to
achieve improved financing terms. The "completed financing and debt
repayment" adjustment includes the completion of the two new
secured loans announced on 9 September 2015. The "committed
financing and debt repayment" represents a secured loan entered
into on 25 September 2015, which is expected to be drawn on 2
October 2015 subject to satisfaction of customary drawdown
conditions. The impact of these transactions on the Group
includes:
-- weighted average cost of debt reduced from 6.8% to 5.2% per annum;
-- weighted average term to maturity increased from under two years to nine years;
-- term to first debt expiry increased from under two years to seven years; and
-- while there remains some scheduled amortisation there are no
full cash sweeps, freeing up cash flow to service distributions
As noted in the Chairman's Statement in the Group's results
announcement on 12 March 2015, any acceleration of repayment of the
loan facilities previously in place results in costs arising from
the early debt repayment, including on termination of the relevant
interest rate swaps. The sales of New Hall hospital and Madame
Tussauds between them resulted in the early repayment of GBP252.8
million of debt and GBP22.2 million of swap termination costs. The
three new loan facilities will result in the repayment of the
balance of GBP897.3 million of the existing facilities and the
payment of swap break and other loan costs expected to amount to
GBP80.5 million. This includes an estimated GBP22.3 million of
break costs that will not crystallise until the last of the three
facilities is drawn, which is expected to be on 2 October 2015.
However, prior to embarking on the early debt repayments, the Board
first sought agreement with the previous lender, Bank of Scotland
Plc, to share the early termination costs, mindful of the benefits
to the lender of early repayment. Consequently, the early
termination costs have been reduced by a total of GBP27.5 million
to a net GBP75.2 million.
The net early termination costs will be reported within the
Group's financing costs for the year ended 31 December 2015. As the
balance sheet already records interest rate derivatives at their
market values, there is a minimal impact on the reported net asset
value as a result of the swap terminations, but the Group's EPRA
NAV is reduced by GBP77.4 million or 43 pence per share, being
those early termination costs net of deferred tax and other finance
fees written off.
The early repayment of debt and its replacement with lower cost,
longer term financing has transformed the Group's overall cost of
debt, saving an estimated GBP14.0 million in annual interest costs
on the GBP902.6 million of debt in place under the new financing
arrangements.
(MORE TO FOLLOW) Dow Jones Newswires
September 29, 2015 02:01 ET (06:01 GMT)
Each new facility is self-contained, with no cross default
provisions between them, and the key terms are as follows:
Healthcare Healthcare
1 2 Leisure
---------------------------------- ---------- ---------- -------------
Loan principal GBP220.0m GBP315.6m GBP367.0m*
Number of assets securing loan 9 11 6
Fair value of secured properties
at 30 June valuations GBP372.0m GBP462.5m GBP512.4m
Gross LTV at drawdown 59.1% 68.2% 71.6%
Fixed interest rate 4.29% 5.30% 5.72%
September September
First LTV test 2019 2016 July 2018
Amortisation per annum assuming GBP1.0m GBP3.2m GBP3.7m
full covenant compliance (years 6 and
7)
September September
Final repayment date 2025 2025 October 2022
---------------------------------- ---------- ---------- -------------
* comprising a GBP316.8 million sterling loan secured on the UK
assets and a EUR71.8 million Euro denominated loan secured on the
German assets (translated at the actual rate of GBP1: EUR0.6992 at
the date of drawdown) with the two loans cross-collateralised.
Each facility has been designed so that if the breach of any
financial covenant could result in a default or cash trap, there
are currently appropriate levels of headroom over those covenants.
Cure rights, including the injection of cash or acceptable property
assets into the borrowing structure, also exist to allow remedial
action to be taken if possible.
The loans are subject to minimum interest cover levels. The
extent to which financial covenants are tested varies across the
portfolios, with the aim of protecting the Group as far as possible
from movements in investment property valuations which are not
related to changes in the rental cash flows. By value 35% of the
Group's new GBP902.6 million debt is subject to annual LTV tests,
with a further 24% not tested for LTV until September 2019 and the
remaining 41% not subject to any LTV default covenant throughout
the loan term. There are, however, LTV levels which would trigger a
cash trap in 76% of the loans by value.
The portfolio
The portfolio comprises 26 properties with secure, long term
income and contractual uplifts derived from tenants whose
businesses offer global spread and have performed very well over
many years, demonstrating their strong defensive qualities.
Healthcare assets (62% of portfolio value)
The healthcare assets comprise 20 freehold private hospitals
located throughout England, 19 of which are let to a subsidiary of
Ramsay Health Care Limited, the listed Australian healthcare
company, and the other to a subsidiary of Groupe Sinoue, a French
company specialising in mental health. The hospitals let to Ramsay
comprise 96% of the healthcare assets' passing rent and 95% of
their fair value.
The Ramsay hospitals are let on full repairing and insuring
leases with a term to expiry at 30 June 2015 of 21.9 years without
break. The rent increases by a fixed 2.75% per annum throughout the
lease term in May each year, except in 2017 when it is increased to
the higher of a 2.75% uplift and 57.525% of site earnings before
interest, tax, depreciation, amortisation, rent and head office
costs, and every fifth year thereafter when it is increased to the
higher of a 2.75% uplift and open market value. The rent from the
Ramsay hospitals is currently GBP44.4 million per annum.
The leases on the Ramsay hospitals are all guaranteed by Ramsay
Health Care Limited, Australia's largest hospital operator, one of
the top five private hospital operators in the world and a
constituent of the ASX 50 index of Australia's largest companies,
with a market capitalisation at 25 September 2015 of GBP5.6
billion.
The tenant's rental obligations with regard to the central
London psychiatric hospital in Lisson Grove are guaranteed by Orpea
SA, the parent company of the Orpea Group, a leading European
operator of nursing homes, post-acute care and psychiatric care,
listed on Euronext Paris with a market capitalisation at 25
September 2015 of GBP3.1 billion. Orpea owns 45% of Group
Sinoue.
With a current rent of GBP1.9 million per annum, the Lisson
Grove hospital accounts for 2% of the Group's passing rent, and
represents 3% of the gross property assets. The rent increases in
May each year by 3%. A reversionary lease will take effect on
expiry of the existing lease in May 2037 and extend the term by a
further seven years, with fixed rental increases of 3% per annum
throughout this extended term.
Total healthcare passing rent is currently GBP46.3 million per
annum and will rise to GBP47.6 million on 3 May 2016.
Leisure assets (38% of portfolio value)
The leisure assets comprise four well known visitor attractions
and two hotels, located in England and Germany. The properties are
all let to subsidiaries of Merlin Entertainments Plc, the guarantor
of the leases. Merlin is a FTSE 100 company with a market
capitalisation at 25 September 2015 of GBP3.8 billion. Measured by
the number of visitors, it is Europe's largest and the world's
second largest operator of leisure attractions.
The UK leisure assets are:
-- Alton Towers theme park and the Alton Towers hotel
-- Thorpe Park theme park
-- Warwick Castle
In addition the leisure portfolio includes two German assets:
Heide Park theme park and the Heide Park hotel, both located in
Soltau, Saxony. The German assets, which generate Euro denominated
rents, make up 15% of the leisure portfolio passing rent and 6% of
the total Group rent.
Across the leisure portfolio the visitor attractions account for
83% of the passing rent and fair value, with hotels making up the
balance.
The average unexpired lease term of the leisure assets as at 30
June 2015 is 27.0 years and the tenants have the right to renew
these leases for 35 years at the end of the current and next term.
The leases are full repairing and insuring leases and there are no
break options. There are upwards only uncapped RPI-linked rent
reviews every June throughout the term for the UK leisure portfolio
and fixed annual increases of 3.34% every July throughout the term
for the German properties. The 2015 rent reviews resulted in an
increase of 0.9% in the RPI-linked rents of the UK leisure assets,
meaning the total rent as at 30 June 2015 was GBP29.7 million per
annum including GBP4.6 million of Euro denominated German rents
(translated at the 30 June 2015 rate of GBP1: EUR0.7083), which
increased to GBP4.7 million in July 2015. The next UK rent reviews
will be on 24 June 2016 and the German rents will rise to GBP4.9
million on 29 July 2016 (translated at the 30 June 2015 rate).
Portfolio valuation yields at 30 June 2015
UK Germany Total
---------------------------------- ---------- ---------- ----------
Healthcare:
Net initial
yield 5.2% n/a 5.2%
Equivalent
yield 6.3% n/a 6.3%
Reversionary
yield 5.4% n/a 5.4%
Leisure:
Net initial
yield 5.4% 6.0% 5.5%
Equivalent
yield 6.3% 7.8% 6.5%
Reversionary
yield 4.5% 6.3% 5.6%
Total portfolio:
Net initial
yield 5.3% 6.0% 5.3%
Equivalent
yield 6.3% 7.8% 6.4%
Reversionary
yield 5.0% 6.3% 5.5%
Weighted average unexpired lease
term 23.9 years 27.1 years 24.1 years
------------------------------------- ---------- ---------- ----------
Portfolio valuation by location
Healthcare Leisure Total
-------------------- -------------------- ------------------------------------
30 June 31 December 30 June 31 December 30 June 31 December Fair value
2015 2014* 2015 2014* 2015 2014* change over
GBPm GBPm GBPm GBPm GBPm GBPm six months
---------------- ------- ----------- ------- ----------- --------- ----------- ------------
UK 834.4 767.0 441.6 431.0 1,276.0 1,198.0 6.5%
Germany at
constant Euro
exchange rate - - 77.4 72.1 77.4 72.1 7.4%
Movement in
Euro exchange
rate - - (6.5) n/a (6.5) n/a (9.0)%
---------------- ------- ----------- ------- ----------- --------- ----------- ------------
834.4 767.0 512.5 503.1 1,346.9 1,270.1 6.0%
---------------- ------- ----------- ------- ----------- --------- ----------- ------------
* adjusted for sales in the period to exclude sold assets from
comparative figures.
(MORE TO FOLLOW) Dow Jones Newswires
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Portfolio valuation uplift in the period
Percentage
change in
GBPm the period
------------------------------------------------ ------ -------------
Healthcare assets 67.5 8.8%
UK leisure assets 10.5 2.4%
German leisure assets at constant Euro exchange
rate 5.3 7.4%
Movement in Euro exchange rate (6.5) (9.0)%
------------------------------------------------ ------ -------------
76.8 6.0%
------------------------------------------------ ------ -------------
The healthcare valuation yields include the effect of the fixed
rental uplifts in May 2015 and reflect a weighted average net
initial yield of 5.2% compared to 5.5% at 31 December 2014.
The UK leisure valuation yields include the effect of the 0.9%
RPI linked rental uplifts in June 2015 and reflect a weighted
average net initial yield of 5.4% compared to 5.5% at 31 December
2014.
The German leisure valuation yields include the effect of the
fixed rental uplifts in July 2015 in the weighted average net
initial yield, which was 6.0% at 30 June 2015 compared to 6.5% at
31 December 2014, but reduces to 6.3% once the impact of the fixed
rental uplift which took effect in July is taken into account.
Adverse currency translation movements in the period to 30 June
2015, reflecting the strength of Sterling against the Euro, have
more than offset the resulting uplift in the German assets.
Property sales in the period
Ramsay's New Hall Hospital in Salisbury was sold in March 2015
for GBP49.8 million, which represented a net initial yield of 5.3%
and a sale price GBP3.8 million (8.3%) above its 31 December 2014
valuation. The sale completed in May 2015 and the net proceeds of
GBP48.8 million were used in part repayment of secured bank loans
and hedging break costs. The impact of this sale and the associated
debt repayment is fully reflected in the results and balance sheet
reported in these financial statements.
Madame Tussauds London was sold in May 2015 for GBP332.4
million, which represented a net initial yield of 4.5% and a sale
price GBP23.0 million (7.4%) above its 31 December 2014 valuation.
The sale completed in August 2015, with the net cash proceeds
applied in partial repayment of the secured bank debt, with surplus
cash adding to the Group's cash resources. The profit on disposal
is reflected in the income statement in these financial statements,
while the completion of the sale and associated debt repayment is
included in the pro forma adjustments shown at the start of this
report.
Financial review
EPRA NAV per share
The principal financial outcome that the Board seeks to achieve
is attractive growth in shareholder returns. Progress towards this
objective is specifically measured through growth in EPRA NAV plus
any distributions paid. EPRA NAV is a measure of the fair value of
a property company on a long term basis, ignoring the impact of
hedging valuations and any deferred tax.
The refinancing, which became fully committed on 25 September
2015, has had a material and positive effect on the Group's capital
structure and a transformational effect on its cash flows. As
reported in the Chairman's Statement, the various new loan
agreements were entered into after the balance sheet date, and it
is therefore not permitted to reflect the impact of the refinancing
in the financial statements themselves. However, so as to present a
more up to date representation of the financial position of the
Group, we focus in this Investment Adviser's report on pro forma
results and net assets, adjusted for the impact of the refinancing
and completion of the sale of Madame Tussauds, details of which are
more fully explained at the start of the report.
The pro forma EPRA NAV is 275.3 pence per share, which
represents a 6.5% increase since 31 December 2014.
Pence per
GBPm share
----------------------------------------------------- --------- --------------
EPRA NAV at 1 January 2015 466.2 258.5
Investment property revaluation 76.6 42.4
Profit on sale of investment properties 24.0 13.3
Rental income less finance and administrative costs 9.1 5.1
Costs of early repayment of debt facilities on
sale of New Hall (3.7) (2.0)
Currency translation movements (1.9) (1.1)
Tax (0.2) (0.1)
------------------------------------------------------- --------- --------------
EPRA NAV at 30 June 2015 570.1 316.1
Costs of early repayment of debt facilities on
sale of Madame Tussauds and refinancing (73.7) (40.8)
Pro forma EPRA NAV 496.4 275.3
------------------------------------------------------- --------- --------------
Adjusted EPRA earnings per share
In order to monitor the Group's recurring profitability and its
ability to make distributions, the Board uses the Group's adjusted
EPRA earnings per share ("EPRA EPS") as a key performance
indicator. EPRA EPS excludes investment property revaluations, fair
value movements and early termination costs in interest rate
derivatives, and the relevant deferred tax to give a measure of
underlying earnings from core operating activities.
An adjusted EPRA EPS is also presented, excluding any
performance fee as that is largely derived from investment property
revaluations, and non-recurring costs including the reorganisation
and listing costs incurred in 2014, as the Board believes this
enables a more consistent comparison of underlying recurring
earnings.
Six months to Nine months to
30 June 2015 31 December 2014
------------------------- -------------------------
Pence per Pence per
GBPm share GBPm share
--------------------------------------- --------- -------------- --------- --------------
Rental income net of property
outgoings 52.8 30.5 80.9 48.7
Net finance costs (42.6) (24.6) (66.3) (39.9)
Performance fee - - (35.2) (21.1)
Administrative expenses and corporate
costs (4.0) (2.3) (6.6) (4.0)
Tax (0.2) (0.1) (1.2) (0.7)
Unwinding discount on shareholder
loans net of deferred tax - - 1.4 0.8
--------------------------------------- --------- -------------- --------- --------------
EPRA EPS 6.0 3.4 (27.0) (16.2)
Performance fee - - 35.2 21.1
One-off costs of reorganisation
and listing - - 2.9 1.8
--------------------------------------- --------- -------------- --------- --------------
Adjusted EPRA EPS 6.0 3.4 11.1 6.7
--------------------------------------- --------- -------------- --------- --------------
The net finance costs for the period to 30 June 2015 reflect the
debt structure in place prior to the new financing arrangements
which were committed in August and September 2015. The impact of
the refinancing includes a reduction in the weighted average cost
of debt from 6.8% per annum to 5.2% per annum. The annualised
reduction in the net finance costs of the Group from the GBP902.6
million of debt in place following drawing of all the new
facilities would be GBP14.0 million, adding 7.7 pence per share in
adjusted EPRA EPS. This would, however, be partially offset by a
reduction in net contribution (rental income less interest, also on
an annualised basis) from the sold properties of GBP0.9 million or
0.5 pence per share.
Income statement
The rental income profile and the credit strengths of the
businesses paying the rent are disclosed in the Portfolio section
of this report, along with details of the investment property
revaluations and the profit on sale of investment properties.
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Rental income includes accounting adjustments for the
"smoothing" of rents arising from fixed uplifts so as to record the
income arising on a straight line basis. The impact of this
accounting treatment is to reflect a receivable, included in the
book value of investment properties, for the amount of rent
included in the income statement in advance of actual cash
receipts. This receivable increases over the first half of each
lease term then unwinds, reducing to zero over the second half of
each lease term. The impact over time for each of the rental income
flows subject to smoothing is as follows:
Maximum
-----------------
Receivable receivable Midway
-----------------
at 30 June at midway point
2015 point in lease
GBPm GBPm term
----------------- ------------ ------------ -------------
Healthcare 128.7 172.8 May 2022
German leisure* 25.0 37.8 Jan 2025
----------------- ------------ ------------ -------------
Total 153.7 210.6
----------------- ------------ ------------ -------------
* at the period end Euro conversion rate of GBP1 : EUR0.7083
So that the rent smoothing receivable does not, in combination
with the book value of the investment properties, overstate the
value of the property portfolio, any movement in the rent smoothing
receivable is offset against property revaluation movements. As a
result, this adjustment affects only the income statement
presentation and does not change the Group's net assets. The amount
of rent receivable included in the income statement for the period
in advance of cash receipt as a result of this adjustment amounted
to GBP6.8 million or 3.7 pence per share.
Administrative expenses charged to the income statement for the
period comprise advisory fees of GBP3.3 million, other
administrative expenses of GBP0.4 million and corporate costs of
GBP0.3 million.
Advisory fees are payable to the Investment Adviser under an
agreement entered into prior to listing by which it is entitled to
receive cash fees based on a sliding scale relative to the Group's
EPRA NAV, payable at 1.25% per annum on EPRA NAV up to GBP500
million, 1.0% per annum on EPRA NAV from GBP500 million to GBP1,000
million and 0.75% thereafter. Until July 2016, cash required to
satisfy this advisory fee is recovered from the pre-listing
shareholders of the Company up to a maximum of GBP5.3 million per
annum. During the period the GBP2.5 million cash required to fund
advisory fee payments was met by those shareholders.
Corporate costs are those costs necessarily incurred as a result
of the Company being listed and comprise:
-- the cost of the board of seven Directors, four of whom
received fees totalling GBP0.1 million in the period. The other
three Directors are partners in the Investment Adviser and receive
no remuneration from the Company; and
-- other costs of being listed, including broker/nominated
adviser fees and registrar fees, which amounted to GBP0.2 million
in the period.
Tax
The Group operates under the UK REIT regime, so its UK rental
operations are exempt from UK corporation tax, subject to the
Group's continuing compliance with the UK REIT rules. The Group is
otherwise subject to UK corporation tax.
In the event that a UK REIT has financing costs arising on its
UK rental business that are not covered at least 1.25 times by
profits, tax is payable at the UK corporation tax rate on the
interest over that level, up to a cap of 20% of taxable profit. In
the period the Group incurred a current tax charge of GBP0.3
million on such excess interest. The drawdown of all of the new
financing facilities is expected to result in this interest cover
test being met from the date of closing the last of the three new
loan agreements, so this tax cost is expected to reduce to zero
from the 2016 financial year.
Realised profits from the Group's German rental operations are
taxable in Germany, in respect of which a tax credit of GBP0.1
million arose in the period following the conclusion of a tax audit
relating to the years between 2007 and 2012. This will result in a
net repayment of tax to the Group totalling GBP0.2 million, of
which GBP0.1 million had been received by 30 June 2015.
As the Group's German operations are subject to tax, the results
include a deferred tax liability of GBP5.4 million relating to
unrealised German capital gains tax on the investment properties
and a deferred tax asset of GBP0.5 million relating to the Group's
Euro interest rate swaps. Following the refinancing of the Euro
loan facility and the termination of the relevant swaps after the
balance sheet date, this deferred tax asset has been written off
and is therefore adjusted in calculating the pro forma EPRA
NAV.
Cash flow
The movement in cash over the period comprises:
Six months to Nine months to
30 June 2015 31 December 2014
---------------------- -------------------
Pence per Pence per
GBPm share GBPm share
-------------------------------------- ----------- --------- ------- ----------
Cash from operating activities 39.3 21.6 66.1 39.2
Sale of investment property 49.0 27.2 - -
Net interest and finance costs
paid (45.4) (25.2) (60.9) (36.8)
Repayment of secured debt - proceeds
of sale of investment property (44.7) (24.8) - -
Repayment of secured debt - loan
amortisation (3.3) (1.9) (6.1) (3.7)
Amounts received in respect of
advisory fee recovery 2.5 1.4 2.2 1.3
Proceeds of the share issue on
listing net of expenses - - 11.9 7.0
Cash flow in the period (2.6) (1.7) 13.2 7.0
Cash at the start of the period 38.8 23.0 25.4 15.9
Effect of exchange rate movements (0.2) (0.1) 0.2 0.1
Dilution from share issues - (1.5) - -
-------------------------------------- ----------- --------- ------- ----------
Cash at 30 June 2015 36.0 19.7 38.8 23.0
-------------------------------------- ----------- --------- ------- ----------
Pence per Pence per
Comprising: GBPm share GBPm share
-------------------------------------- ----------- --------- ------- ----------
Free cash 10.3 5.4 13.0 7.7
Cash reserved for regulatory capital 0.5 0.2 0.5 0.3
Cash secured under lending facilities 25.2 14.1 25.3 15.0
-------------------------------------- ----------- --------- ------- ----------
36.0 19.7 38.8 23.0
-------------------------------------- ----------- --------- ------- ----------
All investment properties are let on full repairing and insuring
terms, with each tenant obliged to keep the premises in good and
substantial repair and condition, including rebuilding,
reinstating, renewing or replacing the premises where necessary.
Consequently it is not expected that material capital expenditure
will be required for the current portfolio.
Secured cash is held in bank accounts under the control of the
lenders. Free cash held within the secured portfolio structures is
available to be applied for general corporate purposes for as long
as there is no default under the relevant loan agreement. Free cash
held outside the secured portfolio structures would not be at risk
in the event of any default and amounted to GBP10.3 million at 30
June 2015 and GBP48.5 million on a pro forma basis adjusted for the
completion of the Madame Tussauds sale and the new financing
arrangements.
Nick Leslau
Chairman, Prestbury Investments LLP
29 September 2015
Group Income Statement
Unaudited Audited
six months nine months Unaudited
to to three months
30 June 31 December to 30 June
2015 2014 2014
Notes GBP000 GBP000 GBP000
-------------------------------- ----- ------------ ------------- --------------
Gross rental income 52,886 80,946 26,732
Property outgoings (24) (19) (8)
-------------------------------- ----- ------------ ------------- --------------
Gross profit 52,862 80,927 26,724
-------------------------------- ----- ------------ ------------- --------------
Administrative expenses (3,766) (38,568) (1,412)
Corporate costs (272) (294) (37)
Costs of the reorganisation
and listing - (2,888) (2,957)
-------------------------------- ----- ------------ ------------- --------------
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Total administrative expenses (4,038) (41,750) (4,406)
Investment property revaluation 8 76,551 160,608 12,627
Profit on sale of investment
properties 5 23,967 - -
-------------------------------- ----- ------------ ------------- --------------
Operating profit 149,342 199,785 34,945
Finance income 24 36 9
Finance costs 4 (46,251) (66,366) (22,808)
-------------------------------- ----- ------------ ------------- --------------
Profit before tax 103,115 133,455 12,146
Tax (charge) / credit 6 (1,196) 114,291 116,319
-------------------------------- ----- ------------ ------------- --------------
Profit for the period 101,919 247,746 128,465
-------------------------------- ----- ------------ ------------- --------------
Pence Pence per Pence per
Earnings per share per share share share
-------------------------------- ----- ------------ ------------- --------------
Basic 7 58.7 149.7 80.0
Diluted 7 56.5 139.7 80.0
-------------------------------- ----- ------------ ------------- --------------
All amounts relate to continuing activities.
The notes form part of this interim report.
Group Statement of Other Comprehensive Income
Unaudited Audited
six months nine months Unaudited
to to three months
30 June 31 December to 30 June
2015 2014 2014
Notes GBP000 GBP000 GBP000
--------------------------------- ----- ------------ ------------- --------------
Profit for the period 101,919 247,746 128,465
Items that may subsequently
be reclassified to profit
or loss:
Fair value adjustment of
interest rate derivatives
in effective hedges 24,823 21,837 19,310
Reclassification of fair
value adjustment to the income
statement 3,627 - -
Deferred tax on interest
rate derivative valuation
adjustment 11 (161) (26,918) (26,809)
Currency translation differences (1,433) (370) (240)
--------------------------------- ----- ------------ ------------- --------------
Total comprehensive income
for the period, net of tax 128,775 242,295 120,726
--------------------------------- ----- ------------ ------------- --------------
The notes form part of this interim report.
Group Statement of Changes in Equity
Share Capital Cash flow
Share premium Merger contribution Other hedging Retained
capital reserve reserve reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Period ended 30 June 2015 (unaudited)
At 1 January 2015 16,844 16,156 - - 33,929 (119,201) 396,577 344,305
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Profit for the
period - - - - - - 101,919 101,919
Other comprehensive
income - - - - (1,433) 28,289 - 26,856
Total comprehensive
income, net of tax - - - - (1,433) 28,289 101,919 128,775
Issue of shares 1,190 33,579 - - (32,378) - - 2,391
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
At 30 June 2015 18,034 49,735 - - 118 (90,912) 498,496 475,471
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Period ended 31 December 2014 (audited)
At 1 April 2014 - - - 23,530 1,921 (114,120) 17,387 (71,282)
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Profit for the
period - - - - - - 247,746 247,746
Other comprehensive
income - - - - (370) (5,081) - (5,451)
Total comprehensive
income, net of tax - - - - (370) (5,081) 247,746 242,295
Issue of shares on
capitalisation of
shareholder loans 7,791 70,123 - (17,492) - - - 60,422
Issue of shares on
acquisition of the
Healthcare group 8,191 - 73,718 (18,435) - - - 63,474
Capital reduction
and cancellation - (70,123) (73,718) - - - 143,841 -
Reclassification
on capitalisation
of shareholder
loans - - - 12,397 - - (12,397) -
Issue of shares net
of capitalised
expenses 862 16,156 - - - - - 17,018
Shares to be issued - - - - 32,378 - - 32,378
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
At 31 December 2014 16,844 16,156 - - 33,929 (119,201) 396,577 344,305
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Period ended 30 June 2014 (unaudited)
At 1 April 2014 - - - 23,530 1,921 (114,120) 17,387 (71,282)
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Profit for the
period - - - - - - 128,465 128,465
Other comprehensive
income - - - - (240) (7,499) - (7,739)
Total comprehensive
income, net of tax - - - - (240) (7,499) 128,465 120,726
Issue of shares on
capitalisation of
shareholder loans 7,791 70,123 - (17,492) - - - 60,422
Issue of shares on
acquisition of the
Healthcare group 8,191 - 73,718 (18,435) - - - 63,474
Capital reduction
and cancellation - (70,123) (73,718) - - - 143,841 -
Reclassification
on capitalisation
of shareholder
loans - - - 12,397 - - (12,397) -
Issue of shares net
of capitalised
expenses 862 13,928 - - - - - 14,790
Shares to be issued - - - - 1,073 - - 1,073
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
At 30 June 2014 16,844 13,928 - - 2,754 (121,619) 277,296 189,203
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
The notes form part of this interim report.
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Group Balance Sheet
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
Notes GBP000 GBP000 GBP000
----------------------------- ----- ------------- ------------- -------------
Non-current assets
Investment properties 8 1,346,867 1,625,435 1,471,775
Deferred tax asset 11 467 627 735
----------------------------- ----- ------------- ------------- -------------
1,347,334 1,626,062 1,472,510
Current assets
Trade and other receivables 9 152 103 57
Investment property sale
proceeds receivable 5 332,361 - -
Current tax asset 275 401 44
Cash and cash equivalents 10 36,043 38,771 39,510
----------------------------- ----- ------------- ------------- -------------
368,831 39,275 39,611
----------------------------- ----- ------------- ------------- -------------
Total assets 1,716,165 1,665,337 1,512,121
----------------------------- ----- ------------- ------------- -------------
Current liabilities
Trade and other payables 12 (39,310) (41,035) (40,110)
Bank borrowings 13 (213,246) (4,908) (4,908)
Interest rate derivatives 14 (18,501) - -
Current tax payable (328) (166) (221)
----------------------------- ----- ------------- ------------- -------------
(271,385) (46,109) (45,239)
Non-current liabilities
Bank borrowings 13 (892,732) (1,152,407) (1,154,761)
Interest rate derivatives 14 (71,170) (117,578) (119,631)
Deferred tax liability 11 (5,407) (4,938) (3,287)
----------------------------- ----- ------------- ------------- -------------
(969,309) (1,274,923) (1,277,679)
Total liabilities (1,240,694) (1,321,032) (1,322,918)
----------------------------- ----- ------------- ------------- -------------
Net assets 475,471 344,305 189,203
----------------------------- ----- ------------- ------------- -------------
Share capital 15 18,034 16,844 16,844
Share premium reserve 16 49,735 16,156 13,928
Retained earnings 16 498,496 396,577 277,296
Cash flow hedging reserve 16 (90,912) (119,201) (121,619)
Other reserve 16 118 33,929 2,754
----------------------------- ----- ------------- ------------- -------------
Total equity 475,471 344,305 189,203
----------------------------- ----- ------------- ------------- -------------
Pence per Pence per Pence per
share share share
----------------------------- ----- ------------- ------------- -------------
Adjusted basic NAV per share 17 263.7 204.4 112.3
Diluted NAV per share 17 263.7 190.9 112.1
EPRA NAV per share 17 316.1 258.5 184.5
----------------------------- ----- ------------- ------------- -------------
The notes form part of this interim report.
Group Cash Flow Statement
Unaudited Audited
six months nine months Unaudited
to to three months
30 June 31 December to 30 June
2015 2014 2014
Notes GBP000 GBP000 GBP000
---------------------------------- ----- ------------ ------------- --------------
Cash flows from operating
activities
Profit before tax 103,115 133,455 12,146
Adjustments for non-cash
items:
Investment property revaluation 8 (76,551) (160,608) (12,627)
Profit on sale of investment
properties 5 (23,967) - -
Movement in rent smoothing
adjustment 8 (6,756) (11,287) (3,855)
Administrative expenses settled
in shares 18 - 32,378 816
Finance income (24) (36) (9)
Finance costs 4 46,251 66,366 22,808
---------------------------------- ----- ------------ ------------- --------------
Cash flows from operating
activities before changes
in working capital 42,068 60,268 19,279
Changes in working capital:
Trade and other receivables (2,510) (194) (26)
Trade and other payables (143) 6,770 2,468
---------------------------------- ----- ------------ ------------- --------------
Cash generated from operations 39,415 66,844 21,721
German tax received / (paid) 7 (743) (83)
---------------------------------- ----- ------------ ------------- --------------
Cash flows from operating
activities 39,422 66,101 21,638
---------------------------------- ----- ------------ ------------- --------------
Investing activities
Proceeds from sale of investment
property 48,994 - -
Interest received 24 36 9
---------------------------------- ----- ------------ ------------- --------------
Cash flows from interest
received 49,018 36 9
---------------------------------- ----- ------------ ------------- --------------
Financing activities
Repayment of secured debt (48,082) (6,166) (2,942)
Interest and finance costs
paid (45,432) (60,882) (19,558)
Net proceeds of share issues 2,526 14,131 14,790
---------------------------------- ----- ------------ ------------- --------------
Cash flows from financing
activities (90,988) (52,917) (7,453)
---------------------------------- ----- ------------ ------------- --------------
(Decrease) / increase in
cash and cash equivalents (2,548) 13,220 14,194
Cash and cash equivalents
at the beginning of the period 38,771 25,367 25,367
Effect of currency translation
movements (180) 184 (51)
---------------------------------- ----- ------------ ------------- --------------
Cash and cash equivalents
at the end of the period 36,043 38,771 39,510
---------------------------------- ----- ------------ ------------- --------------
The notes form part of this interim report.
Notes to the Interim Report
1. General information about the Group
The financial information set out in this report covers the six
month period to 30 June 2015, with comparative amounts relating to
the nine month period to 31 December 2014 and the three month
period to 30 June 2014, and includes the results and net assets of
the Company and its subsidiaries, together referred to as the
Group.
The Company is incorporated in the United Kingdom. The address
of the registered office and principal place of business is
Cavendish House, 18 Cavendish Square, London, W1G 0PJ.
The Company was listed on AIM on 5 June 2014. Further
information about the Group can be found on its website,
www.SecureIncomeREIT.co.uk.
2. Basis of preparation and accounting policies
Prior to 21 May 2014, the Company and SIR Hospital Holdings
Limited (the holding company of the Group that owns the healthcare
assets) were entities under common control but did not form a
single legal group. On 21 May 2014, by virtue of a reorganisation,
the groups headed by these two companies became a legal group
headed by the Company. This reorganisation was deemed to be a
"combination under common control" and as a result is outside the
scope of IFRS 3 "Business Combinations". As such it was considered
appropriate that the principles of merger accounting, as set out
under UK GAAP, were used to account for the reorganisation and
these entities are treated as if they had always been part of a
single group. No fair value adjustments were required.
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Accordingly, although these entities did not form a legal group
for the whole of the comparative period reported herein, the
comparative figures comprise the net assets of all entities as if
the subsequently formed legal group had been in existence
throughout all of the periods reported on. In particular:
-- earnings per share figures (including diluted, EPRA and
adjusted EPRA EPS) have been calculated on the assumption that the
capitalisation of shareholder loans which occurred in May 2014 had
been in place throughout the whole period from 1 April 2014, with a
corresponding effect on earnings and number of shares used in the
EPS calculations (see note 7); and
-- NAV per share figures (including adjusted basic, diluted and
EPRA NAV) have been calculated on the assumption that the
capitalisation of shareholder loans had been in place throughout
the whole period from 1 April 2014 with a corresponding effect on
the number of shares used in the NAV per share calculations (see
note 17).
Except for the above EPS and NAV matters, the financial
information contained in this report has been prepared in
accordance with IAS 34 "Interim Financial Reporting" as adopted by
the European Union, and on a going concern basis. The accounting
policies adopted in this report are consistent with those applied
in the Group's statutory accounts for the period ended 31 December
2014 and are expected to be consistently applied in the year to 31
December 2015.
Euro denominated results for the German assets have been
converted to Sterling at an average exchange rate for the period of
GBP1: EUR0.7326 and period end balances converted to Sterling at
the 30 June 2015 exchange rate of GBP1: EUR0.7083.
The condensed financial statements for the period are unaudited
and do not constitute statutory accounts for the purposes of the
Companies Act 2006. The annual report and financial statements for
2014 have been filed with Companies House. The independent
auditor's report on the annual report and financial statements for
2014 was unqualified, did not draw attention to any matters by way
of emphasis, and did not contain a statement under sections 498 (2)
or 498 (3) of the Companies Act 2006.
The Group's financial performance is not subject to material
seasonal fluctuations.
3. Operating segments
IFRS 8 "Operating Segments" requires operating segments to be
identified on the basis of internal reports about components of the
Group that are reviewed by the chief operating decision maker to
make decisions about resources to be allocated between segments and
assess their performance. The Group's chief operating decision
maker is considered to be the Board as a whole.
The Group owns two property portfolios. Although these are
described individually within the Investment Adviser's report, the
Board receives quarterly management accounts prepared on a basis
which aggregates the performance of the portfolios and focuses on
total returns on shareholders' equity. The Board has therefore
concluded that the Group has operated in and was managed as one
business segment, being property investment, in both the current
and prior periods.
The geographical split of revenue and applicable non-current
assets required by IFRS 8 was as follows:
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
----------------------- ------------- -------------- ------------
Revenue
UK 49,414 75,251 24,759
Germany 3,472 5,695 1,973
----------------------- ------------- -------------- ------------
52,886 80,946 26,732
----------------------- ------------- -------------- ------------
Investment properties
UK 1,275,997 1,553,365 1,407,179
Germany 70,870 72,071 64,596
----------------------- ------------- -------------- ------------
1,346,867 1,625,435 1,471,775
----------------------- ------------- -------------- ------------
Revenue, which reflects the impact of rent smoothing
adjustments, includes GBP28.1 million (nine months to 31 December
2014: GBP42.9 million; three months to 30 June 2014: GBP14.4
million) relating to the Group's largest tenant, and GBP23.6
million (nine months to 31 December 2014: GBP35.8 million; three
months to 30 June 2014: GBP11.8 million) relating to the Group's
second largest tenant. No other single tenant or guarantor
contributed more than 10% of the Group's revenue in any reporting
period.
4. Finance costs
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
---------------------------------------- ------------- -------------- ------------
Interest on secured debt 42,624 64,690 21,132
Reclassification of fair value
adjustment of interest rate
derivatives from the cash flow
hedging reserve 3,627 - -
Shareholder loans: unwinding
of discount to date of capitalisation
(non-cash) - 1,676 1,676
---------------------------------------- ------------- -------------- ------------
Total finance costs recognised
in the income statement 46,251 66,366 22,808
---------------------------------------- ------------- -------------- ------------
On issue in 2007, interest free shareholder loans were measured
at fair value using imputed interest rates of between 11.2% and
11.7%. The difference between the fair value of the loans on
inception and their face values at that date was being unwound over
the minimum term of the loans prior to their capitalisation in May
2014.
5. Profit on sale of investment properties
The profit on sale of investment properties arose as
follows:
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
------------------------------- ------------- -------------- ------------
Sale proceeds 382,136 - -
Sale costs (2,815) - -
Book value of sold properties (355,354) - -
------------------------------- ------------- -------------- ------------
23,967 - -
------------------------------- ------------- -------------- ------------
As described in note 19, GBP332.4 million of sale proceeds,
shown as investment property sale proceeds receivable on the
balance sheet, were received after the balance sheet date in August
2015.
6. Tax
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
Analysis of tax charge / (credit)
in the period GBP000 GBP000 GBP000
----------------------------------- ------------- -------------- ------------
UK tax
Current tax charge: UK REIT
excess interest charge 328 665 221
Adjustments in respect of prior
periods 25 - -
German tax
Current tax charge / (credit):
corporation tax 122 (130) 77
Adjustments in respect of prior
periods (227) - -
Deferred tax charge/ (credit)
(see note 11) 948 (114,826) (116,617)
----------------------------------- ------------- -------------- ------------
1,196 (114,291) (116,319)
----------------------------------- ------------- -------------- ------------
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The tax assessed for the period varies from the standard rate of
corporation tax in the UK applied to the profit before tax. The
differences are explained below:
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
------------------------------------- ------------- -------------- ------------
Profit before tax 103,115 133,455 12,146
------------------------------------- ------------- -------------- ------------
Profit before tax at the standard
rate of corporation tax in the
UK of 20.25% (31 December 2014
and 30 June 2014: 21%) 20,881 28,026 2,551
Effects of:
Investment property revaluation
not taxable (15,922) (34,275) (3,429)
Profit on sale of investment
properties not taxable (4,853) - -
Movement in previously unrecognised
tax losses 2,392 3,231 1,141
Qualifying property rental business
not taxable (1,537) 4,908 (195)
Expenses and financing costs
not deductible 413 - -
UK REIT excess interest charge 328 665 221
Transfer pricing adjustments (305) - -
Adjustments in respect of prior
period (202) - -
German corporation tax charge
/ (credit) 122 (130) 77
Double tax relief (121) (58) (58)
Other items - 12 28
Costs of the reorganisation
and listing not deductible - 606 621
UK deferred tax released on
conversion to UK REIT - (117,276) (117,276)
Tax charge / (credit) for the
period 1,196 (114,291) (116,319)
------------------------------------- ------------- -------------- ------------
The Group elected into the UK REIT regime with effect from 5
June 2014. Subject to continuing compliance with certain rules, the
UK REIT rules exempt the profits of the Group's UK property rental
business from corporation tax. Gains on the Group's UK properties
are also exempt from tax, provided they are not held for trading or
sold in the three years after completion of development.
To remain a UK REIT, there are a number of conditions to be met
in respect of the Group's principal company, Secure Income REIT
Plc, the Group's qualifying activity and the Group's balance of
business. Since entering the UK REIT regime the Group has continued
to meet these conditions with the exception of one condition where
a grace period of three years from entry into the UK REIT regime
applies. The relevant rule requires that the company must not be a
close company. The Company was a close company when it entered the
UK REIT regime, and continues to be so but has until 4 June 2017 to
comply. The Board intends, in the course of implementing its
investment strategy, to issue new shares or to place sufficient of
the existing shares to new investors (or a combination of both) so
that the shares of the Company are widely enough held to meet this
requirement by 4 June 2017 and hence avoid expulsion from the UK
REIT regime at that time.
Furthermore, one of the ongoing REIT tests is an interest cover
test requires the profits of the tax exempt business of the Group
to be at least 1.25 times its cost of financing. If this condition
is not met, the Company remains within the UK REIT regime but is
required to pay UK corporation tax on an amount equivalent to the
excess interest costs or 20% of the tax exempt business profits if
that is less. The Group has not met this test throughout the
period, so tax of GBP0.3 million (nine months to 31 December 2014:
GBP0.7 million; three months to 30 June 2014: GBP0.2 million) is
payable. Following the refinancing described in note 19, the
interest cover test is expected to be met and therefore no such tax
is expected to be payable commencing from the 2016 financial
year.
The Group is subject to German corporation tax on its German
property rental business at an effective rate of 21%. During the
period, however, a net German tax credit of GBP0.1 million has
arisen following the conclusion of a tax audit relating to the
years between 2007 and 2012, which is expected to result in a net
repayment of tax totalling GBP0.4 million to the Group of which
GBP0.3 million had been received by 30 June 2015. In addition, a
deferred tax liability is recognised for the German capital gains
tax that would potentially be payable on the sale of the relevant
investment properties, and a deferred tax asset is recognised
against the interest rate derivatives hedging the loan facility
secured on those properties (see note 11).
7. Earnings per share
Earnings per share is calculated as profit attributable to
ordinary shareholders of the Company for each period divided by the
weighted average number of ordinary shares in issue throughout the
relevant period.
On 21 May 2014, by virtue of a reorganisation, the Company and
SIR Hospital Holdings Limited (the "Combined Companies") became a
legal group. Until 20 May 2014, the Combined Companies were
entities under common control. It is considered that the use of the
actual number of shares of the Combined Companies in issue prior to
21 May 2014 as a denominator in the EPS calculation would not
provide meaningful information. Instead, the weighted average
number of shares in issue has been determined based on the number
of shares that would have been in issue in those comparative
periods had the shareholder loans been capitalised on the basis of
one share for each GBP1 of shareholder loans at the time they were
advanced. The profit attributable to the shareholders of the
Combined Companies prior to 20 May 2014 has also been adjusted to
remove the impact of the amount included in finance costs in
respect of shareholder loans together with the related deferred
tax.
Diluted EPS reflects shares to be issued in settlement of any
performance fees that arose in the relevant period.
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
-------------------------------------- ------------- -------------- ------------
Profit for the period 101,919 247,746 128,465
Adjusted for:
Unwinding of discount on shareholder
loans (note 4) - 1,676 1,676
Deferred tax included in the
income statement in respect
of the above (note 11) - (335) (335)
-------------------------------------- ------------- -------------- ------------
Adjusted profit for EPS 101,919 249,087 129,806
-------------------------------------- ------------- -------------- ------------
Weighted average number of shares
in issue Number Number Number
-------------------------------------- ------------- -------------- ------------
Basic 173,506,390 166,406,143 162,286,114
Diluted 180,344,216 178,306,575 162,379,544
-------------------------------------- ------------- -------------- ------------
Pence Pence per Pence per
per share share share
------------- ---------- --------- ---------
Basic EPS 58.7 149.7 80.0
Diluted EPS 56.5 139.7 79.9
------------- ---------- --------- ---------
The European Public Real Estate Association ("EPRA") publishes
guidelines for calculating adjusted earnings designed to represent
core operational activities. As well as the standard EPRA earnings
figure, an adjusted EPRA earnings calculation has also been
presented, excluding any performance fee, which is largely derived
from investment property revaluations, and the non-recurring costs
of the reorganisation and listing. The Directors consider this
enables a more consistent comparison of underlying earnings. Since
no performance fee has arisen in the period, no adjustment is
required as at 30 June 2015.
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
----------------------------------- ------------- -------------- ------------
Basic earnings attributable
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to shareholders 101,919 249,087 129,806
EPRA adjustments:
Investment property revaluation (76,551) (160,608) (12,627)
Profit on sale of investment
properties net of swap break
costs (20,340) - -
UK deferred tax released on
REIT conversion - (117,276) (117,276)
German deferred tax on investment
property revaluations 948 1,823 33
----------------------------------- ------------- -------------- ------------
EPRA earnings 5,976 (26,974) (64)
Other adjustments:
Performance fee - 35,186 -
Costs of the reorganisation
and listing - 2,888 2,957
----------------------------------- ------------- -------------- ------------
Adjusted EPRA earnings 5,976 11,100 2,893
----------------------------------- ------------- -------------- ------------
Pence per Pence per
Pence per share share share
--------------------------- ---------------- --------- ---------
EPRA EPS 3.4 (16.2) -
Diluted EPRA EPS 3.4 (15.1) -
Adjusted EPRA EPS 3.4 6.7 1.8
Adjusted diluted EPRA EPS 3.4 6.2 1.8
--------------------------- ---------------- --------- ---------
8. Investment properties
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
Freehold investment properties GBP000 GBP000 GBP000
--------------------------------------- ------------- -------------- ------------
At the start of the period 1,625,435 1,457,374 1,457,374
Sales during the period (355,354) - -
Revaluation uplift 76,551 160,608 12,627
Movement in rent smoothing adjustment 6,756 11,287 3,855
Currency translation movement (6,521) (3,834) (2,081)
--------------------------------------- ------------- -------------- ------------
At the end of the period 1,346,867 1,625,435 1,471,775
--------------------------------------- ------------- -------------- ------------
The properties were independently valued at GBP1,346.9 million
as at 30 June 2015 (31 December 2014: GBP1,625.4 million; 30 June
2014: GBP1,471.8 million) by CBRE Limited, Commercial Real Estate
Advisors, in their capacity as external valuers. The valuation was
prepared on a fixed fee basis, independent of the portfolio value
and was undertaken in accordance with RICS Valuation - Professional
Standards January 2014 on the basis of fair value, supported by
reference to market evidence of transaction prices for similar
properties.
Included within the carrying value of investment properties at
30 June 2015 is GBP153.7 million (31 December 2014: GBP154.4
million; 30 June 2014: GBP146.5 million) in respect of the
smoothing of fixed contractual rental uplifts. This balance arises
through the Group's accounting policy in respect of leases, which
requires the recognition of rental income on a straight line basis
over the lease term in certain circumstances, including for the 67%
of passing rent which increases by a fixed percentage each year.
The difference between rents on a straight line basis and rents
actually receivable are included within, but do not increase, the
carrying value of investment properties.
All of the investment properties are held as security under
fixed charges in respect of secured bank borrowings. The historic
cost of the Group's investment properties as at 30 June 2015 was
GBP1,053.9 million (31 December 2014 and 30 June 2014: GBP1,315.1
million).
The Board determines the Group's valuation policies and
procedures, and is responsible for overseeing the valuations.
Valuations are based on information provided from the Group's
financial and property reporting systems, such as current rents and
the terms and conditions of lease agreements, and assumptions used
by the valuer (based on market observation and their professional
judgement) in the valuation model.
At each reporting date, certain partners and employees of the
Investment Adviser, who have recognised professional qualifications
and are experienced in valuing the types of property owned by the
Group, initially analyse movements in the property valuations from
the prior reporting date. Fair value changes (positive or negative)
over a certain threshold are considered. Changes in fair value are
also compared to appropriate external sources for reasonableness.
Once the Investment Adviser has considered the valuations, the
results are discussed with the Group's independent auditors,
focusing on properties with unexpected fair value changes and, if
applicable, properties undergoing significant refurbishment. The
Audit Committee also considers the valuation process as part of its
overall responsibilities.
The fair value of the investment property portfolio has been
determined using an income capitalisation technique, whereby
contracted and market rental values are capitalised with a market
capitalisation rate. This technique is consistent with the
principles in IFRS 13 and uses significant unobservable inputs,
such that the fair value measurement of each property within the
portfolio has been classified as level 3 in the fair value
hierarchy as defined in IFRS 13. There have been no transfers to or
from other levels of the fair value hierarchy during the year.
The key inputs for the level 3 valuations were as follows:
Inputs
----------------------------------
Fair value
Portfolio GBP000 Key unobservable input Range Weighted average
---------------------- ----------- ----------------------- ---------------- ----------------
At 30 June 2015:
Healthcare 834,437 Net initial yield 4.5% - 5.8% 5.2%
Reversionary yield 4.6% - 5.9% 5.4%
Leisure - UK 441,560 Net initial yield 5.2% - 6.1% 5.4%
Reversionary yield 5.3% - 6.2% 5.5%
Future RPI assumption 2.0% 2.0%
Leisure - Germany 70,870 Net initial yield 6.1% 6.1%
Reversionary yield 6.3% 6.3%
---------------------- ----------- ----------------------- ---------------- ----------------
At 31 December 2014:
Healthcare 812,981 Net initial yield 4.4% - 5.8% 5.6%
Reversionary yield 4.5% - 6.0% 5.7%
Leisure - UK 740,383 Net initial yield 4.8% - 6.5% 5.2%
Reversionary yield 4.9% - 6.6% 5.3%
Future RPI assumption 2.2% for 2015, 2.2% for 2015,
3.5% thereafter 3.5% thereafter
Leisure - Germany 72,071 Net initial yield 6.5% 6.5%
Reversionary yield 6.8% 6.8%
---------------------- ----------- ----------------------- ---------------- ----------------
At 30 June 2014:
Healthcare 727,458 Net initial yield 5.3% - 6.5% 6.2%
Reversionary yield 5.4% - 6.7% 6.4%
Leisure - UK 679,721 Net initial yield 5.0% - 7.0% 5.6%
Reversionary yield 5.2% - 7.2% 5.8%
Future RPI assumption 3.1% for 2015, 3.1% for 2015,
3.5% thereafter 3.5% thereafter
Leisure - Germany 64,596 Net initial yield 7.3% 7.3%
Reversionary yield 7.8% 7.8%
---------------------- ----------- ----------------------- ---------------- ----------------
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The principal sensitivity of measurement to variations in the
significant unobservable outputs is that decreases in net initial
yield, decreases in reversionary yield and increases in RPI will
increase the fair value.
9. Trade and other receivables
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
-------------------------------- ---------- ----------- ---------
Prepayments and accrued income 152 103 57
-------------------------------- ---------- ----------- ---------
10. Cash and cash equivalents
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
-------------------- ---------- ----------- ---------
Secured cash 25,207 25,335 25,356
Regulatory capital 479 450 450
Free cash 10,357 12,986 13,704
-------------------- ---------- ----------- ---------
36,043 38,771 39,510
-------------------- ---------- ----------- ---------
Secured cash is held in accounts over which the providers of
secured bank debt have fixed security. As the Company is considered
to be an internally managed Alternative Investment Fund, it is also
required by the Financial Conduct Authority to hold a balance of
regulatory capital in liquid funds, which is maintained in
cash.
11. Deferred tax
The movements in deferred tax balances in each period were as
follows:
Unrealised Interest
gains on Tax losses rate derivatives
investment carried Shareholder at fair
properties forward loans value Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------ -------------------- ----------
Unaudited:
Balance at 1 January
2015 (4,938) - - 627 (4,311)
Charge to the income
statement (948) - - - (948)
Charge to other comprehensive
income - - - (161) (161)
Currency translation
differences 479 - - 1 480
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 30 June 2015 (5,407) - - 467 (4,940)
------------------------------- ------------ ------------ ------------ -------------------- ----------
Unrealised Interest
gains on Tax losses rate derivatives
investment carried Shareholder at fair
properties forward loans value Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------ -------------------- ----------
Audited:
Balance at 1 April 2014 (120,636) 962 (9,317) 27,544 (101,447)
Credit / (charge) to
the income statement 115,453 (962) 335 - 114,826
Charge to other comprehensive
income - - - (26,918) (26,918)
Deferred tax released
on capitalisation of
shareholder loans - - 8,982 - 8,982
Currency translation
differences 245 - - 1 246
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 31 December
2014 (4,938) - - 627 (4,311)
------------------------------- ------------ ------------ ------------ -------------------- ----------
Unrealised Interest
gains on Tax losses rate derivatives
investment carried Shareholder at fair
properties forward loans value Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------ -------------------- ----------
Unaudited:
Balance at 1 April 2014 (120,636) 962 (9,317) 27,544 (101,447)
Credit / (charge) to
the income statement 117,243 (962) 335 - 116,616
Charge to other comprehensive
income - - - (26,809) (26,809)
Deferred tax released
on capitalisation of
shareholder loans - - 8,982 - 8,982
Currency translation
differences 106 - - - 106
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 30 June 2014 (3,287) - - 735 (2,552)
------------------------------- ------------ ------------ ------------ -------------------- ----------
12. Trade and other payables
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
------------------------------ ---------- ----------- ---------
Taxation and social security 2,116 5,163 2,242
Accruals and deferred income 37,194 35,872 37,868
------------------------------ ---------- ----------- ---------
39,310 41,035 40,110
------------------------------ ---------- ----------- ---------
13. Bank borrowings
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
-------------------------------- ---------- ----------- ---------
Amounts falling due within one
year
Secured bank loans 215,116 6,853 6,853
Unamortised finance costs (1,870) (1,945) (1,945)
-------------------------------- ---------- ----------- ---------
213,246 4,908 4,908
-------------------------------- ---------- ----------- ---------
Amounts falling due in more
than one year
Secured bank loans 889,712 1,150,712 1,154,989
Exit fee 4,095 3,978 3,529
Unamortised finance costs (1,075) (2,283) (3,757)
-------------------------------- ---------- ----------- ---------
892,732 1,152,407 1,154,761
-------------------------------- ---------- ----------- ---------
As described in note 19, all balances shown above have been
refinanced since the balance sheet date.
There was no material difference between the fair value of the
secured debt and its carrying value at any balance sheet date, and
the Group had no undrawn, committed borrowing facilities at any
balance sheet date. The debt was secured by charges over the
Group's investment properties and by fixed and floating charges
over the other assets of certain Group companies but not including
the Company itself. There have been no defaults or breaches of any
loan covenants during the current or prior periods.
A covenant release fee relating to one of the loans, payable in
quarterly instalments, was being charged to the income statement
over the remaining term of the loan and as at 30 June 2015, GBP8.2
million (31 December 2014: GBP9.5 million; 30 June 2014: GBP11.6
million) remained outstanding. The remaining fee was committed to
be repaid in full after the balance sheet date as part of the
refinancing described in note 19.
14. Interest rate derivatives
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The fair values of the Group's interest rate derivatives at each
balance sheet date were as follows:
Notional amount Fair value
----------------- ------------------------------------- ------------------------------------
Unaudited Audited Unaudited Unaudited Audited Unaudited
30 June 31 December 30 June 30 June 31 December 30 June
2015 2014 2014 2015 2014 2014
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- ----------- ----------- ----------- ---------- ----------- -----------
5.1% swap 564,179 608,920 611,200 (41,387) (56,849) (57,681)
5.4% amortising
swap 301,728 304,008 305,968 (26,336) (32,955) (33,155)
5.4% swaps 196,622 196,622 196,622 (17,505) (21,804) (21,794)
4.4% amortising
swap* 29,888 33,091 34,359 (2,658) (3,579) (4,207)
4.4% swaps* 19,581 21,529 22,130 (1,785) (2,391) (2,794)
----------------- ----------- ----------- ----------- ---------- ----------- -----------
1,111,998 1,164,170 1,170,329 (89,671) (117,578) (119,631)
----------------- ----------- ----------- ----------- ---------- ----------- -----------
* denominated in Euros, converted at the period end rate.
All of the above instruments had expiry dates between April and
July 2017 and are included in non-current liabilities, apart from
the proportion hedging the loan principal that was subsequently
repaid following the sale of Madame Tussauds which is shown as a
current liability.
The interest rate derivatives are shown at fair value and have
been valued in accordance with IFRS 13 by reference to interbank
bid market rates as at the close of business on the last working
day prior to each balance sheet date by JC Rathbone Associates
Limited. All interest rate derivatives are classified as "level 2"
as defined in IFRS 13 and their fair values are calculated using
the present values of future cash flows, based on market forecasts
of interest rates and adjusted for the credit risk of the
counterparties. There were no transfers to or from other levels of
the fair value hierarchy during the current or prior periods.
The Group uses all of its interest rate derivatives in risk
management as cash flow hedges to protect against exposures to
variability in future interest cash flows on secured bank loans
which bear interest at variable rates. The amounts and timing of
future cash flows are projected on the basis of their contractual
terms.
As described in note 19, since the balance sheet date three new
fixed rate secured loan facilities have been committed, to replace
the loan finance in place at 30 June 2015. As a result of repaying
existing loans from the proceeds of two of the new loans and the
sale of Madame Tussauds, GBP266.0 million of the notional amount on
the 5.1% swap has been terminated since the balance sheet date, as
have all of the other swaps listed above. Irrevocable notice to
draw the third loan has been served on the lender and drawing is
due to occur on 2 October 2015 (subject to completion of customary
drawdown conditions), when the remaining GBP298.2 million notional
amount of the 5.1% swap will be terminated.
15. Share capital
Share capital represents the aggregate nominal value of shares
issued. At 30 June 2015, the Company had an issued and fully paid
share capital of 180,344,216 ordinary shares of GBP0.10 each (31
December 2014: 168,443,772 shares; 30 June 2014: 168,443,754
shares).
Under the terms of the Commitment Agreement described in note
18, the Company's shareholders prior to listing have each agreed to
subscribe in cash for one ordinary share per quarter to cover the
fees payable to the Investment Adviser. During the period, 12
ordinary shares of GBP0.10 each were issued under this arrangement
for total proceeds of GBP2.5 million (nine months to 31 December
2014: 18 shares for total proceeds of GBP2.2 million; three months
to 30 June 2014: nil shares). The excess over nominal value in each
case was credited to the share premium account.
Under the terms of the Investment Advisory Agreement described
in note 18, during the period the Company has also issued
11,900,432 ordinary shares of GBP0.10 each in settlement of
performance fees payable to the Investment Adviser.
As a result of these transactions, the movement in the number of
shares in issue over the period was as follows:
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
Number Number Number
---------------------------------------- ----------- ----------- -----------
At the start of the period 168,443,772 1 1
Subdivision of ordinary share - 9 9
Capitalisation of shareholder loans - 77,914,338 77,914,338
Issue of ordinary shares prior
to listing - 81,908,717 81,908,717
Issue of ordinary shares on listing - 8,620,689 8,620,689
Issue of ordinary shares under
Commitment Agreement 12 18 -
Issue of ordinary shares in settlement
of performance fee 11,900,432 -
---------------------------------------- ----------- ----------- -----------
180,344,216 168,443,772 168,443,754
---------------------------------------- ----------- ----------- -----------
16. Reserves
The nature and purpose of each of the reserves included within
equity is as follows:
Share premium reserve: represents the surplus of the gross
proceeds of share issues over the nominal value of the shares, net
of the direct costs of equity issues.
Capital contribution reserve: represents the difference between
the face value and fair value of shareholder loans. Amounts were
reclassified to retained earnings evenly over the term of the loans
until their capitalisation on 20 May 2014, when all remaining
balances in the capital contribution reserve were transferred to
retained earnings.
Other reserve: represents the cumulative exchange gains and
losses on the translation of the Group's net investment in its
German operations, as well as the impact on equity of shares
issued, as described in note 18, under the terms of both the
Commitment Agreement and the performance fee arrangements.
Cash flow hedging reserve: represents the cumulative gains or
losses, net of tax, arising on effective cash flow hedging
instruments.
Retained earnings: represent the cumulative profits and losses
recognised in the income statement.
17. Net asset value per share
Net asset value per share is calculated as the net assets of the
Group attributable to shareholders at each balance sheet date,
divided by the number of shares in issue at that date as
follows:
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
Number Number Number
----------------------------- ----------- ----------- -----------
Number of shares in issue -
basic NAV per share 180,344,216 168,443,772 168,443,754
Shares to be issued - 11,900,432 327,004
----------------------------- ----------- ----------- -----------
Number of shares in issue -
diluted NAV per share 180,344,216 180,344,204 168,770,758
----------------------------- ----------- ----------- -----------
Diluted NAV per share is adjusted for shares that it is
estimated would need to be issued in settlement of any performance
fees earned. The diluted NAV per share at 30 June 2015 was the same
as the basic NAV at 263.4 pence per share (31 December 2014: 190.9
pence per share; 30 June 2014: 112.1 pence per share).
The European Public Real Estate Association has issued
guidelines aimed at providing a measure of net asset value on the
basis of long term fair values. The EPRA measure excludes items
that are considered to have no impact in the long term, such as the
fair value of derivative instruments and deferred tax balances. The
Group's EPRA NAV is calculated as follows:
Unaudited 30 June Audited 31 December Unaudited 30 June
2015 2014 2014
------------------- -------------------- --------------------- --------------------
Pence per Pence per Pence per
GBP000 share GBP000 share GBP000 share
------------------- --------- --------- ---------- --------- --------- ---------
Basic NAV 475,471 263.7 344,305 204.4 189,203 112.3
EPRA adjustments:
Deferred tax
on property
revaluations 5,407 3.0 4,938 2.7 3,287 1.9
Fair value
of financial
instruments 89,671 49.7 117,578 65.2 119,631 70.9
Deferred tax
on financial
instruments (467) (0.3) (627) (0.3) (735) (0.4)
Dilution from
shares issued - - - (13.5) - (0.2)
------------------- --------- --------- ---------- --------- --------- ---------
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