Ediston Prop Inv - FULL YEAR RESULTS AND NOTICE OF AGM
14/12/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20221214:nRSN6047Ja&default-theme=true
RNS Number : 6047J Ediston Property Inv Comp PLC 14 December 2022
Ediston Property Investment Company plc
(the 'Company')
(LEI: 213800JRL87EGX9TUI28)
FULL YEAR RESULTS AND NOTICE OF AGM
Ediston Property Investment Company plc (LSE: EPIC), a UK-listed Real Estate
Investment Trust (REIT) investing in commercial property throughout the UK,
announces its full year results for the year ended 30 September 2022.
The Company also announces that its 2022 Annual General Meeting will be held
on Friday, 24 February 2023 at 2.00 p.m. at the offices of Ediston Investment
Services Limited at 1 St Andrew Square, Edinburgh, EH2 2BD.
The Company's Annual Report and Financial Statements for the year ended 30
September 2022 and the formal Notice of the Annual General Meeting will be
posted to shareholders and in accordance with Listing Rule 9.6.1 copies of the
documents have been submitted to the UK Listing Authority and will shortly be
available to view on the Company's corporate website
at https://www.epic-reit.com/literature/
(https://www.epic-reit.com/literature/) and have also been submitted to the UK
Listing Authority and will be shortly available for inspection from the
National Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
Year to 30 September 2022:
Operational
- Sold four office assets and two leisure assets for £69.5m.
- 15 lease transactions completed with a contracted rent of £2.5m per
annum.
- 98.2% of rent due was collected.
- Portfolio is now 100% in retail warehousing, in line with the new
investment strategy, with cash available for further investment at the
appropriate time.
Key Performance Indicators and Financial
2022 2021
NAV total return 11.5% 9.6%
Annualised dividend per shares 5.00p 4.42p
Average premium/discount of share price to NAV -17.9% -22.1%
Share price total return -2.3% 54.6%
EPRA vacancy rate 6.5% 8.6%
Ongoing charges 1.4% 1.4%
Total assets £313.7m £303.0m
Weighted average unexpired lease term 4.5 years 5.0 years
EPRA NAV per share 94.9p 89.6p
Rent collected in the year 98.2% 95.7%
Dividend Cover 81.2% 119.0%
Anticipated Financial Calendar 2023
January 2023 Announcement of Net Asset Value as at 31 December 2022
24 February 2023 Annual General Meeting
April 2023 Announcement of Net Asset Value as at 31 March 2023
May 2023 Publication of Half Yearly Report for the six months to 31 March 2023
July 2023 Announcement of Net Asset Value as at 30 June 2023
October 2023 Announcement of Net Asset Value as at 30 September 2023
December 2023 Publication of Annual Report for the year to 30 September 2023
It is the intention of the Board that dividends will continue to be announced
and paid monthly.
Enquiries
Will Barnett Investec Bank plc 0207 597 5873
Calum Bruce Ediston Properties Limited 0131 225 5599
Ruth Wright JTC 0203 893 1011
Ben Robinson Kaso Legg Communications 0203 995 6672
Stephanie Ross Kaso Legg Communications 0203 995 6676
Chairman's Statement
OVERVIEW
The sale of the office and leisure properties has increased the retail
warehouse exposure in the property portfolio from 74.1% to 100% of our
invested assets. At the year end, the Company held £31.0m in the debt
disposal account earmarked specifically for reinvestment, as well as £50.2m
in its operational account.
In my interim statement in May, I commented that, whilst the retail warehouse
market had flourished in the first part of the year, the macro-economic
position was becoming more challenging due to world events and rising
inflation. Behind this caution was the expectation of higher interest rates
and a squeeze on business investment and consumer spending to bring inflation
under control. This has happened against a background of political chaos in
the UK.
The consequent spike in gilt rates has created a wave of fear in real estate
markets as investors grapple with the pricing implications of needing higher
returns on equity to compensate, and much higher borrowing costs than
anticipated. This is reflected in the widened discounts across the
closed-ended sector.
For the Company, the most obvious and immediate impact has been the
deterioration in the share price, which has moved down from 78.8 pence per
share at the half year to 67.6 pence at the year end. Due to a reduction in
property values, the Company has seen a fall in Net Asset Value at 30
September, following five quarters of increases.
There are no doubt more real estate bumps in the road to navigate over coming
months, with a slowing economy and rising interest rates. A sizeable one in
the short term will be the impact of the expected mark down in market
valuations at the end of December, based on transactional evidence over the
quarter. External geopolitical factors will also remain a significant factor
in determining the direction of the economy. The Board will continue to manage
risk proactively and where possible ensure the Company is as resilient as it
can be to whatever lies ahead. Despite the economic and political difficulties
that emerged in 2022, the Company, with its new investment focus and cash to
invest, should emerge from this period of disruption in a strong position.
INVESTMENT AND SHARE PRICE PERFORMANCE
The Company's Net Asset Value (NAV) per share increased by 5.9% with an
annualised NAV total return as at 30 September 2022 of 11.5%. Like-for-like
property values increased by 10.3% over the period.
Despite the increase in NAV, the share price has declined 8.4% over the year
from 73.8 pence to 67.6 pence. Allowing for the payment of the dividend, the
share price total return was -2.3%.
The increase in NAV for the year was driven by the improvement in valuations
in the retail warehouse portfolio due to a combination of yield shift and the
gains from asset management initiatives. Some of this value was lost in the
last quarter due to markets falling back on economic concerns, the general
rise in borrowing costs and the political turmoil. The sale of the office
portfolio was completed below the September 2021 valuation, and was a drag on
performance for the year. However, the sale was prescient as it is highly
likely that, if these assets had not been sold, the current valuation of the
offices would be below the sale value, creating a larger offset to the retail
warehouse gains.
INVESTMENT STRATEGY
Asset Allocation
The completion of the office sales and the disposal of the two leisure assets
during the year has shifted the asset mix from 74.1% to 100% invested in the
retail warehouse sector. Uninvested cash resources will be invested into the
sector, maintaining a 100% exposure for the foreseeable future and in line
with the revised strategy. The Investment Manager had intended for the Company
to be fully invested by the half year. However, due to the uncertainty and
re-pricing of the market, it was decided that it was prudent to hold cash
until the right opportunities were available, and the extent of the correction
was more visible.
In considering retail warehouse investments, it is important to note that the
sector is not one homogenous group of assets. Investment performance can be
influenced by many factors, including planning restrictions on users, tenant
focus, tenant mix, size and layout of units, the size of the overall scheme,
availability of car parking, accessibility, the nature of the catchment,
supply of competing space, property management, sustainability factors, the
affordability of the prevailing rent, opportunities to add space and
alternative use values. The dispersion of returns can be significant across
the sector, accentuating the importance of stock selection and an experienced
Investment Manager.
Given the focus on the sector, the Investment Manager has provided more
information in its review later on in this report. What does come through from
the analysis is the strength of the Company's income stream. The credit rating
of 85.0% of the tenant line-up is rated by Dun & Bradstreet as having a
lower than average risk of business failure. The average rent passing
(including the smaller coffee and kiosk units, which command higher rents but
ignoring vacant units) is £14.72 per sq. ft. The Company is aware that many
of its retailers are making money from this rental base and, with void levels
low, it augurs well for rental growth.
What makes the sector especially interesting is that the investment story is
much more than the attractive levels of rent and capital value as:
1) click-and-collect continues to grow, with out-of-town parks well placed
to provide this function;
2) retailers remain attracted to the better configured space on retail
parks;
3) new revenue opportunities exist from creating new spaces such as
drive-thru units and electrical vehicle (EV) charging points; and
4) densities can be increased with the potential for introducing other uses.
Sustainability
I am delighted that the Company is embracing its sustainability
responsibilities and has made further progress during the year in charting its
way to net zero. The Sustainability Working Group, comprising the team from
the Investment Manager, Savills, Imogen Moss and myself, is proving effective
in maintaining the required momentum. It is satisfying that the Investment
Manager has secured another green star to last year's rating following the
Company's participation in the 2022 GRESB survey.
The ESG activities are more fully described within the report. This is more
detailed disclosure than the previous year and hopefully informative for
shareholders.
PORTFOLIO ACTIVITY
It has been an exceptionally busy year, with the Investment Manager's report
providing full information. The key highlights are:
1) Sales
The four office assets in Bath, Birmingham, Newcastle and Edinburgh,
and the leisure assets at Hartlepool and Telford, were sold. The total capital
raised from the six transactions was £69.5m. The sales achieved one of the
key strategic objectives set last year.
2) Asset Management
The strategic priorities of protecting rent and enhancing NAV were
achieved. Fifteen lease transactions involving £2.5m of rent were completed
during the year, with one further deal concluding post the year end. The void
management target was also achieved with the reduction in the EPRA Vacancy
Rate from 8.6% to 6.5%. This all contributed to the value of the retail
warehouse assets improving during the year.
RENT COLLECTION
In total, 98.2% of rent due was collected at the year end. Contracted rent had
fallen at the year end from 12 months ago due to the loss of income from the
office and leisure property sales and the deferral of the reinvestment of the
sale proceeds. The objective is to replace as much of this income as possible
through reinvestment in suitable retail warehouse assets.
GEARING AND CASH RESOURCES
The Company's total debt is unchanged at £111.1m, at a blended 'all-in' fixed
rate of 2.9%. The loans do not mature until 2025 and 2027. Gearing on 30
September 2022 was 35.41% of total assets, a slight decrease from last year
end. Gearing is within investment policy limits and covenants.
As at 30 September 2022, the Company held £81.2m of cash. Of this sum,
£31.0m is contained within the security pool and consent from the lender is
required where Loan-to-Value (LTV) levels at the time the funds are utilised
is above 35%.
DIVIDENDS
In my report last year, I stated the Board's commitment to a covered dividend
and the prospect of further dividend progress as contracted rental income
continued to improve. I also highlighted that the likely mismatch between
sales and reinvestment could lead to a period of uncovered dividends and
that,if prudent to do so, the shortfall would be made up from reserves.
Delaying the reinvestment of capital from the sales has meant the period of
uncovered dividend has become longer than was anticipated. The Board believes
the way the Company has responded to the changed market conditions is both
responsible and appropriate. The Company is well funded to continue to pay the
current monthly dividend. It is the intention of the Board to maintain the
dividend at 5.0 pence per share. The expectation remains that when the
available capital is invested the dividend will be covered.
LONG-TERM GROWTH STRATEGY
The Board's immediate focus is on NAV per share with the active management of
the current assets and ensuring that capital is invested on an accretive basis
for the medium term. Longer term, the Board would like to grow the equity base
of the Company to improve liquidity, lower the cost base per share and enlarge
the investment opportunity set, but this will depend in no small part on the
recovery of the Company's share price rating.
Although the issue of new equity is unlikely in the short term, due to the
share price being at a discount to NAV, the Board is asking shareholders to
renew our non-pre-emptive authority of 10%, so that we are in a better
position to use 'tap issuance' if we were able to do so. We will consider
other means of raising capital if there are substantial acquisitions to be
financed. In any fund raising, the interests of existing shareholders will be
of paramount importance in how we price and structure any new issuance or take
on any new gearing.
BOARD MATTERS
I would like to thank the Board, Investment Manager and all the agents that
provide services to the Company for their hard work.
We have made some Board changes during the year as part of our succession
plan. I would like to welcome Karyn Lamont, who joined the Board on 1
September, as our new Audit and Risk Committee Chair. She will stand for
election at the AGM in February 2023. Karyn is a chartered accountant, a
former audit partner at PwC and an experienced non-executive director on other
collective funds, including as audit chair. Imogen Moss became the Senior
Independent Director on 1 June this year. These changes result from Robin
Archibald stepping down from both these positions to enable a well-managed
handover and transition to take place before he retires from the Board at the
AGM in 2023.
Robin has been on the Board since the Company floated in October 2014. During
his time of service he has made an immense contribution to the management
oversight of the Company, and I would like to thank him not only for that but
also for all the wise counsel and support he has given me personally. I know
Robin will remain active in the Investment Trust sector with his other board
appointments and we wish him well with these roles.
The end of my tenure is also in sight, having joined the Board at the same
time as Robin. The Board has asked me to continue as Chairman in the coming
year and I will, therefore, stand for election at the forthcoming AGM. It is
my intention to stand down no later than the AGM in 2024 and between now and
then will work with my fellow directors on identifying a new Chair.
The Board has not revised its base remuneration levels in five years. The only
modifications to Board remuneration in that period related to changes in roles
and the introduction of the arrangements relating to Robin Archibald's
remuneration. The Remuneration Committee has concluded that a modest increase
is now justified based on its assessment of market rates following the
recruitment process undertaken this year. The proposed increases are
significantly below the rate of inflation over the last five years.
Shareholders are being asked to approve an increase in the remuneration cap to
£275,000, giving the Board the flexibility it might need over its composition
in future years and to manage succession.
ANNUAL GENERAL MEETING (AGM)
Shareholders are invited to attend the Company's AGM to be held at 1 St Andrew
Square, Edinburgh EH2 2BD on 24 February 2023.
Those shareholders who are unable to attend the AGM in person are encouraged
to raise any questions in advance with the Administrator at
epic.reit@jtcgroup.com (please include 'EPIC AGM' in the subject heading).
Questions must be received by 5.00 p.m. on 10 February 2023. Any questions
received will be replied to by either the Investment Manager or Board, via the
Administrator, before the AGM. A shareholder presentation will be made
available on the Company website following the AGM, updating shareholders on
the activities of the Company.
OUTLOOK
The decision to delay the reinvestment of the sales proceeds from the office
and leisure disposals has undoubtedly put the Company in a better position to
take advantage of the current market uncertainty and setback in asset
valuations. We can expect some interesting and attractive opportunities to
arise over the coming months, given the expected further falls in market
valuations. Real estate markets are now much quicker to adjust than in the
past so these opportunities could come quickly. However, the Investment
Manager has no specific timetable in mind for the reinvestment and will be led
by opportunity and to the extent that the market has re-priced. The timing
will also be driven by the need to ensure the Company remains financially
resilient to the effects of any sustained market downturn.
However, it will mean the payment of an uncovered dividend in the meantime.
The immediate focus is on managing the existing assets to protect the NAV per
share and ensure the income is maximised to reduce the extent of the uncovered
dividend. The Investment Manager did an excellent job in this regard during
the COVID-19 Crisis and is well-positioned to do so during a period of
economic difficulty.
The attractiveness of large parts of the retail warehouse sector was
recognised by investors in the early part of the year and the consequent
increase in buying activity started to drive yields down and prices up. The
general correction in the last quarter has brought this to an end for the
moment. However, the fundamentals remain attractive with many of the tenants
in the sector making money from the rebased rents, void levels are low and the
click-and-collect model continues to grow in popularity.
There is good prospect that investor interest will return when confidence
improves and pressure on asset sales is reduced as open-ended property fund
redemptions normalise. This will not only benefit the Company's NAV but should
also flow through to an improved share price and a reduction in the discount.
Whether this will be evident in the second half of the new financial year will
remain to be seen. Nevertheless, the Board is confident that the Company will
be able to emerge from the current turbulence in a strong position to reap the
benefits of better times ahead.
William Hill
Chairman
Investment Manager's Review
It has been a busy year for the Company, which has seen improvement across
several areas. The NAV has increased, the EPRA Vacancy Rate has fallen, rent
collection has improved further and 15 asset management transactions have been
completed.
The revised strategy to sell office and leisure assets to focus investment on
the retail warehouse sector has been successfully completed. During the
period, all six of the office and leisure assets were sold, meaning the
Company now only holds retail warehouse assets and has cash available for
reinvestment.
The first half of the financial year saw positive momentum build across the
portfolio, driven by the continued recovery of the retail warehouse market.
Yields hardened as investors recognised the attributes of the retail warehouse
sector and tenants continued to lease space.
The Interim Report cautioned that headwinds were building, which they did, and
they are now affecting the Company. Rising inflation, interest rates and
energy costs, coupled with political instability, have reduced consumer
confidence and put a squeeze on household incomes. Reductions in disposable
income could affect the retail market, including retail warehousing.
Discretionary spending and the purchasing of 'big-ticket' items will be
particularly affected. The fact that the Company's portfolio is underpinned by
convenience-led tenants, has low average rents and a reduced vacancy rate is
important and should help make the portfolio more defensive to these
reductions in consumer spending.
If retailers are impacted, there is an increased likelihood of them using
Company Voluntary Arrangements (CVAs) and other insolvency processes to reduce
costs. The Company is in a better position to deal with these challenges than
it was during the COVID-19 Crisis, which it weathered well in terms of
sustaining income.
However, the increase in gilt yields has put all property valuations under
downward pressure. The Company's property portfolio reduced in value by 2.5%,
on a like-for-like basis, at 30 September 2022. Further, larger declines are
likely as the property market reprices due to the rise in gilt yields. The
expectation is that the property portfolio will fall in value as at 31
December 2022, with the potential for further volatility thereafter.
Despite the more measured short-term outlook, the fundamentals of the retail
warehouse sector remain robust. Supply of available space is low, tenant
demand is holding up, occupiers are still doing deals and we continue to
identify and complete asset management transactions that secure income.
We expect the retail warehouse sector to be the most resilient and flexible
part of the retail market, which can adapt to the changing needs of tenants
and the integration of their omnichannel strategies. Having sold assets and
with cash in the bank, the Company is well placed to capitalise on any
investment opportunities that are identified in a re-priced market, but only
at the right time and price for the Company.
Property Valuation
The Company's property portfolio is valued by Knight Frank on a quarterly
basis throughout the year. As at 30 September 2022 it was valued at £231.4m,
a like-for-like increase of 10.3% over the reporting period. The increase was
driven by falling yields in the retail warehouse portfolio, albeit there was a
decrease in the property valuation in the final quarter as some of the yield
improvement was reversed.
EPRA Vacancy Rate
During the period the EPRA Vacancy Rate decreased from 8.6% to 6.5%. This was
due to the sale of the office at St. Philips Point in Birmingham, which had
vacant floors, and the letting of vacant units in the retail warehouse
portfolio. Letting the remaining vacant units remains a key focus.
Rent
Over the year, the Company's contracted rent has reduced from £20.8m to
£16.2m. This is principally because of the sale of the office and leisure
properties, and the fact that the sales proceeds have not been reinvested. It
is anticipated that the income will be replaced when suitable assets are
acquired.
Rent collection for the year, as at 30 September 2022, was 98.2%, an
improvement from 95.7% in the prior year.
Implementing the revised strategy
Last year the Company announced its strategy to sell its office and leisure
assets to focus on the retail warehouse sector. During the period, the Company
sold its four office assets in Bath, Birmingham, Edinburgh and Newcastle for a
headline price of £61.9m. This was 3.3% below the property valuations at the
time of the sales. Once deductions for topped up rents and rent-free periods
were factored in, the net receipt to the Company was £60.0m.
The Company also disposed of its two leisure units, both of which were let to
Mecca Bingo. The Lanyard, Hartlepool, was sold for £2.6m. This was 16.4%
above the valuation. The second leisure property, Southwater Square, Telford,
was sold to an owner occupier for £5.0m, which was 67% above the property
valuation.
The next phase of investment activity will be focused on the retail warehouse
sector. Whilst the Company recognises the benefits of being fully invested,
the deterioration in the market, coupled with the economic and political
challenges, means that it is carefully reviewing opportunities to ensure that
the cash is deployed in appropriate assets, at the correct price, at the right
time. Despite the recent challenges, we still believe the prospects are
attractive for retail warehousing, both in absolute terms and relative to
other sectors of the real estate market.
Portfolio activity
The Company has continued to deliver asset management transactions across the
portfolio, which have helped reduce the EPRA Vacancy Rate and secure the
Company's income stream.
During the period the Company completed 15 transactions across the office,
leisure and retail warehouse assets.
Thirteen of the 15 deals were completed in the retail warehouse assets,
securing £1.8m of rent per annum, of which £0.6m was additional rent. These
are summarised as follows:
− at Kingston Retail Park in Hull, The Range signed a 15-year lease on a
14,500 sq. ft. unit;
− also at Hull, Greggs signed a 10-year lease with a five-year tenant
break option on a 2,000 sq. ft. unit;
− at Prestatyn Shopping Park, The Tech Edge leased a vacant unit of 1,300
sq. ft. on a five-year lease;
− at Clwyd Retail Park, Rhyl, Now to Bed leased 8,017 sq. ft. on a
three-year lease;
− at Barnsley, Bensons downsized from a unit of 10,000 sq. ft. into one
of 5,036 sq. ft. and signed a five-year lease;
− Jysk then signed a 10-year lease with a five-year break option on the
unit vacated by Bensons;
− in one other deal at Barnsley, One Below, occupying a 4,996 sq. ft.
unit on a short-term lease, committed to the park for five years;
− at Widnes Shopping Park, Card Factory signed a five-year lease, without
break, on a 1,590 sq. ft. unit;
− at Stirling, Harry Corry signed a five-year lease extension on its
9,968 sq. ft. unit, meaning its lease will now expire in February 2027;
− also at Stirling, Pets at Home agreed to remove its break option, due
in 2024, meaning the lease now expires in June 2029; and
− in a third deal at Stirling, existing tenant Bensons signed an
agreement for lease on a 9,977 sq. ft. unit. On completion of landlord works
it will sign a 10-year lease.
At Prestatyn Shopping Park, JD Sports signed a 10-year lease with breaks at
years four and seven on a 7,623 sq. ft. unit, which was previously occupied by
New Look. New Look was occupying the unit on a turnover rent basis following
the approval of its CVA. Under the terms of the CVA landlords were entitled to
break the leases.
We considered that the terms of the CVA were below market, so we took the
opportunity to exercise the break clause and identified JD Sports as a more
suitable tenant for the space. The rent received from JD Sports is 44.0%
higher than the rent being paid by New Look.
At Coatbridge, Glasgow, we completed an AFL with existing tenant B&Q, to
secure them on the park for a further 10 years. B&Q had a lease expiry in
December 2022. As part of the transaction, B&Q will downsize from 102,000
sq. ft. to 79,960 sq. ft. Aldi has signed an AFL for a 20,000 sq. ft. unit
which will be created in the space vacated by B&Q. Planning permission has
been obtained for the change to food use. On completion of the landlord works,
Aldi will enter into a 20-year lease without break, subject to five-yearly
rent reviews linked to RPI.
One asset management transaction completed in each of the office and leisure
portfolio. Both properties were then sold during the period.
At the office in Newcastle, Citygate II, UNW LLP signed an extension to its
leases, to expire in March 2032, with a tenant break option in March 2027.
At Hartlepool, Mecca Bingo signed a 10-year reversionary lease with a
seven-year tenant break option on its 31,284 sq. ft unit. The lease expiry
date was extended to September 2032, with a break option in September 2029.
Post period end activity
Post period end, at Wombwell Lane Retail Park, Barnsley, B&M agreed to
extend its occupation at the park by 10 years.
The lease now expires in September 2037 and the passing rent increased by
6.0%. To facilitate the deal, B&M was granted a 15-month rent-free period.
This underscores B&M's commitment to the location.
Outlook
Despite the growing economic and property market headwinds, there is still
occupational demand for the Company's properties. There is interest in not
only the Company's vacant units, but also in let units where we are trying to
accommodate the demand by right sizing tenants to secure their ongoing
occupation. The fact that we can modify units to match tenant requirements
demonstrates the flexibility offered by retail warehouse parks.
Protecting income and growing it where possible remains a key focus. There
will be challenges to contend with, but with a reshaped portfolio (with no
office or leisure exposure), a good tenant line up, a low vacancy rate (6.5%)
an attractive WAULT (4.5 years) and ongoing asset management opportunities,
the Company has a robust platform on which to build. Further, the Company has
cash available for investment into a re-priced market, at the appropriate
time.
Calum Bruce
Investment Manager
Property Portfolio as at 30 September 2022
Location Name Sub-sector Market value range (£m) Tenure
Widnes Widnes Shopping Park Retail Warehouse 35-40 Leasehold
Prestatyn Prestatyn Shopping Park Retail Warehouse 25-30 Freehold
Stirling Springkerse Retail Park Retail Warehouse 25-30 Heritable
Hull Kingston Retail Park Retail Warehouse 20-25 Freehold
Rhyl Clwyd Retail Park Retail Warehouse 15-20 Freehold
Sunderland Pallion Retail Park Retail Warehouse 15-20 Freehold
Wrexham Plas Coch Retail Park Retail Warehouse 15-20 Freehold
Coatbridge B&Q Retail Warehouse 15-20 Heritable
Haddington Haddington Retail Park Retail Warehouse 15-20 Heritable
Daventry Abbey Retail Park Retail Warehouse 10-15 Leasehold
Barnsley Wombwell Lane Retail Park Retail Warehouse 10-15 Freehold
Finance Report
The positive net asset value performance this year has been driven by general
yield improvement in the retail warehouse portfolio, combined with the effect
of the 15 asset management transactions completed. The strategic decision to
sell the remaining office and leisure properties has provided significant cash
reserves. This gives the Company funds to deploy at the right time and at the
right level, as well as retaining sufficient cash to manage operationally
through current economic uncertainty.
Rental Income
During the year, 98.2% of contracted income was collected (2021: 95.7%), of
which 86.9% was collected within seven days. The remaining 1.8% is expected to
be collected. This is an improvement on prior years and is also better than
the collection rates pre-pandemic. The focus on rent collection continues to
contribute to the improvement in payment rates.
The Company's contracted rent at the year end was £16.2m (2021: £20.8m).
The decrease in the year can be largely explained by the sale of the office
and leisure properties which contributed £5.1m to the contracted rent, offset
by the asset management initiatives completed in the year.
Rent free periods as a percentage of contracted rent at the year end was 3.1%
(2021: 9.3%) which equates to £0.5m (2021: £1.9m). This has fallen due to
tenants coming out of their rent-free periods and the effect of the office
disposals where there were a number of rent-free periods in place.
The portfolio continues to provide long-term stability to the Company's
income. This is demonstrated by 85.0% of our tenants having a lower than
average risk of business failure, according to Dun & Bradstreet. The EPRA
Vacancy Rate has fallen from 8.6% to 6.5% due to the letting of vacant units
in the period and the sale of the office in Birmingham which had some vacant
space. The WAULT at year end was 4.5 years (2021: 5.0 years). The decrease was
due to the passing of another year offset by the 15 asset management
transactions completed in the year. The disposals also impacted on the ability
to show a like-for-like comparison.
Income Statement
Rental income for the year was £16.4m (2021: £17.4m). This decrease of
£1.0m was due to the disposal of several assets in the year, which have yet
to be replaced, offset partially by asset management transactions.
Revenue expenditure in the year was £4.8m (2021: £3.0m), including £2.1m
property specific expenditure and £1.7m relating to the Investment Manager's
fee. Net financing costs were £3.0m (2021: £3.1m), a decrease on the prior
year due to the sale proceeds earning some interest in the year. Revenue
profit decreased to £8.6m (2021: £11.3m). This decrease of 23.9% is largely
due to the fall in rental income following the sale of all the office and
leisure assets, plus the increase in property expenditure which relates to
£1.1m of voids paid in the year and for costs relating to transactions which
have not concluded. Administration expenses are £0.6m higher due to the
increases in investment manager fees and other operational costs in the year,
such as auditors' fees.
The positive movement in the value of our investment properties of £15.9m,
combined with a loss of £3.0m on the properties sold, has enabled the Company
to report a total profit of £21.5m. The sale proceeds received for the office
and leisure assets sold during the year was £3.1m higher than their
acquisition costs.
2022 (£m) 2021 (£m)
Rental and other income 16.4 17.4
Property expenditure (2.1) (1.0)
Net rental income 14.3 16.4
Administration expenses (2.7) (2.0)
Net financing costs (3.0) (3.1)
Revenue profit 8.6 11.3
Gain on revaluation of investment properties 15.9 4.6
Loss on sale of investment properties (3.0) 1.2
Accounting profit after tax 21.5 17.1
EPRA and diluted EPRA earnings per share 4.06p 5.34p
Dividend per share 5.00p 4.42p
Basic and diluted earnings per share 10.17p 8.10p
EPRA performance measures
As a member of EPRA, we support EPRA's drive to bring consistency to the
comparability and quality of information provided to investors and other key
stakeholders of property company reports. We therefore continue to include
performance measures, which are based on EPRA methodology.
It should be noted that there is no difference between the Company's IFRS and
EPRA NAV in this year's accounts, or in any of our accounts to date.
2022 2021
EPRA earnings £8.6m £11.3m
EPRA earnings per share 4.06p 5.34p
Diluted EPRA earnings per share 4.06p 5.34p
EPRA NAV per share 94.86p 89.69p
EPRA cost ratio (including direct vacancy costs) 29.6% 18.4%
EPRA cost ratio (excluding direct vacancy costs) 23.6% 18.0%
EPRA net initial yield 5.9% 6.2%
EPRA topped up net initial yield 6.1% 6.9%
EPRA Vacancy Rate 6.5% 8.6%
Net Asset Value (NAV)
At 30 September 2022 our net assets were £200.5m, equating to net assets per
share of 94.86 pence (2021: 89.69 pence). This is summarised in the table
below:
£ million Pence per share
NAV at 30 September 2021 189.6 89.69
Increase in value of investment properties (net of capital expenditure plus 12.9 6.11
gain on sale and transaction costs)
Net earnings in the year 8.6 4.06
Less: dividends paid in the year (10.6) (5.00)
NAV at 30 September 2022 200.5 94.86
The NAV is predominantly represented by our investment properties, which have
a fair value of £231.4m at the year end. This is included in the financial
statements as Investment Properties at £227.5m with the difference relating
to lease incentives. The remaining £27.0m of net liabilities is made up of:
i) (£110.4m) of debt; ii) £50.2m of cash and cash equivalents; and iii)
£33.2m of net current assets.
Debt
The Company has two debt facilities with Aviva Commercial Finance Limited,
totalling £111.1m, less amortised costs of £0.7m. One facility, of £56.9m,
will mature in 2025 and the other, of £54.2m, will mature in 2027. The
facilities have an all-in blended, fixed interest rate of 2.86%. The Company
is fully compliant with all debt covenants and has significant headroom
against income and asset cover breach covenants. Property values covering the
two facilities would need to drop by more than 23% and 35% respectively, from
the 30 September 2022 valuations, for the LTV covenant to be breached.
Gearing (debt to total assets) was 35.4% at the year end (2021: 36.7%). Whilst
this is higher than the Board's target range of 30-35%, it is in conformity
with the Company's Investment Policy as it lay within these boundaries when
drawn down.
Further details are included in Note 13 of the financial statements.
Cash
As at 30 September 2022, the Company had cash and cash equivalents of £50.2m
with a further £31.0m drawn and held in a disposals account under the debt
facility. Cash held is significantly higher than usual due to the sales
proceeds collected in the year, from the sale of the office and leisure
assets, which will be used to assist with future asset management and
investment opportunities.
Dividends
The Company has paid monthly dividends at an annual rate of 5.00p per share.
Historically, the Company has had covered dividends but at year ended 30
September 2022, dividend cover was 81.2% (2021: 119.0%). Using the annual
dividend of 5.00p per share and the share price of 67.15p as at 30 September
2022, the Company's dividend yield is 7.4%.
The Board declared a dividend of 0.4167 pence per share for the month of
September which was paid in October 2022 and expects to continue with this
consistent monthly rate in the near term.
The Company continues to monitor the aggregate distributions made to ensure
compliance with REIT regulations, which, with some flexibility on timing,
require a REIT to distribute 90% of tax-exempt rental income as Property
Income Distributions (PIDs): a condition that the Company has met since
inception.
Tax
As a REIT, income and capital gains from the property rental business are
exempt from corporation tax and the tax charge for the year is, therefore,
nil. The Company recovers all of its VAT cost.
The Company continues to meet all the REIT requirements, ensuring that REIT
status is maintained.
Neelum Yousaf
Director of Finance, Ediston Investment Services Limited
Principal and Emerging Risks
The principal risks and emerging risks have all been reviewed in detail,
including the significant economic risks that might impact the Company and the
attainment of its investment objectives. The Board recognises that there are
risks and uncertainties that could have a material effect on the Company's
financial results. Under the 2019 AIC Code of Corporate Governance (the 'AIC
Code'), directors of listed companies are required to confirm in the annual
report that they have performed a robust assessment of the Company's emerging
and principal risks, including those that would threaten its business model,
future income and asset value performance, solvency or liquidity and pricing
of the Company's shares.
The Group's risk register is the core element of the risk management process.
The register is prepared, in conjunction with the Board, by the Investment
Manager and Administrator, is updated regularly and is the assessment of all
the detailed operational, performance and other risks that might impact on the
Company, and how these risks are potentially mitigated by Board or third-party
service provider controls.
The Directors review and challenge the risk register on a regular basis,
assessing the likelihood of each risk, including identifying emerging risks
and significant changes to recognised risks, the potential impact on the Group
and the strength of controls operating over each risk.
The Board tries to identify emerging risks, defined as potential trends,
sudden events or changing risks, which are characterised by a high degree of
uncertainty in terms of probability of occurrence and possible effects on the
Company - the COVID-19 pandemic, ESG and events in Ukraine, with their
economic impact being examples. Once emerging risks become sufficiently clear,
they may be treated as specific risks and added to the Company's matrix of
significant risks.
The Board works closely with the Investment Manager and advisers to the
Company to try and manage the risks, including emerging risks, as best as it
can. The central aims remain to preserve net income for the Company, maintain
resilience in the Company's day-to-day operations (including the Company
meeting its regulatory obligations and obligations to its stakeholders),
preservation of capital values and the price at which shares are traded where
it can, whilst looking to the longer term to try and find strategic direction
for positive rather than simply protective returns.
The impact of exposure to a particular sector, for example retail, the impact
of share price volatility on shareholder returns, the effects of gearing (when
returns are negative) and the continuing risks of an uncertain economic and
political environment in the UK have all resulted in challenges, and emerging
opportunities, during the financial year. In particular, the change in
strategic direction has resulted in the disposal of the office and leisure
parts of the portfolio, meaning that the Company is now focused on retail
warehousing which proved more resilient during the COVID-19 Crisis than other
UK commercial property categories.
Recent events in Ukraine and their impact on European economies, coinciding
with inflation and cost of living issues in most developed economies, are
presenting new challenges post the pandemic lock downs, as is the prospect of
increasing interest rates to how returns might be earned.
For the purposes of reporting, the concentration is on the medium to longer
term for the significant changes that are impacting on the UK commercial
property sector. The eventual outcomes are difficult to assess or predict with
any accuracy but are as challenging as most commercial property companies in
UK will have faced in recent decades and are likely to transform the way in
which office, retail and industrial property is used.
The Board, identifies risk under the following categories:
− investment strategy (including sustainability considerations) and
performance;
− premium/discount level and share price volatility;
− financial, which includes the impact of gearing;
− regulatory;
− operational; and
− economic, governmental and exogenous risks outside the Company's
control.
These categories of risk are broken into individual key risks with an
assessment of potential impact, controls and mitigation in place and changes
in that environment since the previous year end and any other comments on the
risk. The risks include those that may be more remote but, should they arise,
would have an impact, given the nature of a property investment company with
tangible assets compared to a widely diversified listed equity portfolio,
health and safety being an example.
Details of the principal and emerging risks facing the Company are set out in
the following table.
Investment strategy and performance
Risk
Strategic direction of the Company and how and where it invests.
Impact Controls and mitigation in place Change in the year
Deployment of the Company's capital in areas of the market that are poorer in The Board formally reviews the Company's investment objectives, policy and Increased
their return prospects or more affected by structural changes and exogenous strategies for achieving them on an annual basis, or more regularly, if
risks than other investment areas, with an adverse impact on income and appropriate. This includes an examination of the Company's current situation, Following a strategic review, the Company has changed the focus of its
capital values, as well as opportunity cost. strengths and weaknesses, and how this compares with a wider UK commercial investment to retail warehouse assets, which included the disposal of office
property peer group. and other assets and re-deployment of resultant cash.
Sustainability is a key part of the investment review process in making and
retaining investments and how they are developed. During its strategy sessions the Board considers how the assets are positioned Exogenous risk has increased with inflation at highest level for decades,
and might be better positioned for the longer term. rising interest rates and the geopolitical events in Eastern Europe impacting
on supply, including energy and political security.
There has been increased focus on sustainability as evidenced by the reports
on this subject and the establishment of a specific working group as part of
the investment committee.
Each quarterly Board meeting includes a detailed discussion on asset and
income performance and changes in the portfolio as well as an assessment of
property market trends, which is reported on by the Investment Manager, the
Company's broker and with input from the valuer.
Risk
Significant exposure to a specific property sector, tenant, and geographic
location or to lease expiries.
Poor asset allocation.
Impact Controls and mitigation in place Change in the year
Downturn in an area to which the Company has significant exposure resulting in The investment policy and its restrictions/limits are set by the Board and are
a reduction inthe capital value of investment properties and a reduction in reviewed quarterly.
Increased (by focusing on particular property sub-sector)
NAV.
The limits are monitored by the Investment Manager. The Board and Investment Heightened by recent exogenous events that have accelerated the impact on
Significant tenant failure causing a material reduction in revenue profits, Manager also review, at least quarterly, other key metrics, such as principal certain property sectors - some more than others - but with an impact on all
impacting on cash flow and dividends. property sector weightings, to ensure these remain appropriate even where UK commercial property.
there may be no formal limits on exposure.
The Company's portfolio has moved to a position where it is now 100% invested
Board approval memorandums state whether there are any concentration issues, in retail warehouse assets. The retail warehouse assets are in good locations,
which links in with overall strategic imperatives. with strong covenants, at affordable rent levels and have low voids. The
portfolio WAULT (30 September 2022) is 4.5 years.
The AIFM and Depositary monitor compliance with the investment policy and will
highlight any breaches of concentration limits. In adopting changes in strategic direction, there is exposure to more retail
tenants than was previously the case, as the office and leisure assets have
The Investment Manager is proactive in monitoring developments in the retail been sold. The Company is now focused, for the foreseeable future, in a
industry, anticipating issues, and where appropriate replacing struggling specific property sector, whilst retaining some capacity to apply more
tenants with those with stronger covenants. Retail warehousing proved to be generalist exposure at a future date.
the most resilient of the retail sub-sectors, and has seen increased
investment demand, which has led to an increase in property valuations during
the year.
Risk
Lack of investment opportunities reducing the ability to acquire properties at
the required return.
Poor investment decisions, incomplete due diligence and mistimed investment of
capital.
Impact Controls and mitigation in place Change in the year
Inappropriate use of capital that hinders investors' long-term returns. Regular review of property performance against acquisition and disposal plans.
Increased (by focusing on single sector)
Reduction in revenue profits, impacting on cash flow and dividends. Experienced Investment Manager who sources assets that meet agreed investment
criteria. Linkage with overall strategic objectives for the Company. Following changes in strategic direction, the Investment Manager is tasked
Cash drag from uninvested cash and interest cost on drawn down debt.
with investing the available cash from asset sales to achieve the Company's
The Investment Committee scrutinises and approves all proposed acquisitions. investment objective. Re-deployment of capital is made more difficult by the
The Board reviews the portfolio performance at each quarterly meeting and, significant economic risks affecting property and markets generally.
through the Management Engagement Committee, conducts a formal annual review
of the performance of the Investment Manager.
Comprehensive profit and cash flow forecasting is undertaken, which models the
impact of property transactions at Group level and over the medium to longer
term.
The Investment Manager has recognised expertise in the retail warehouse sector
and good connections to assist investment in that sub-sector.
There is a reduced fee paid to the Investment Manager for cash held available
for investment.
Risk
Sustainability of dividend payments.
Impact Controls and mitigation in place Change in the year
The Company should, as far as practical, maintain dividend payments at a Dividend level (and any prospective adjustments) is reviewed regularly by the Increased
sustainable level, with adjustments upwards when it is financially appropriate Board.
to do so.
The holding of cash post asset sales has created an uncovered dividend. There
The Board aims to have a sustainable dividend and tries to only make changes are sufficient reserves and cash to maintain the dividend until the cash is
Dividend cuts have a dramatic impact on the Company where sustainable dividend if they can be sustained for the long term. reinvested. There is a risk that this position could change if there was a
is a substantial proportion of the total return package to shareholders.
long delay or replacement assets provided insufficient income. Consistent
In times of market volatility, dividend level is reviewed at least monthly, as monthly dividend at 5.00p annualised (increased in the previous year from
was the case during the COVID-19 Crisis when income receipts appeared under 4.00p annualised but still down from a peak of 5.75p annualised in 2019).
pressure for the commercial property sector as a whole.
Premium/Discount level and share price volatility
Risk
Secondary market share price volatility and insufficient secondary market
liquidity to cope with secondary market selling.
Impact Controls and mitigation in place Change in the year
The Company's share price could be impacted by a range of factors, causing it The Board monitors closely the market in the Company's shares, including Increased
to be higher than (at a premium) or lower than (at a discount) the underlying significant purchases and sales.
net asset value per share. Fluctuations in the share price may not be
The Board and Investment Manager continue to communicate with shareholders to
reflective of the underlying investment portfolio and depend on supply and Through the Investment Manager and the Company's broker, institutional reinforce the value approach taken to investing in UK commercial properties
demand for the shares, market conditions, general investor sentiment and other investors are kept in regular touch directly with developments in the Company, and not least the resilience of the income from the portfolio.
factors, including political and economic uncertainties. positive and negative. The broker and Investment Manager are in regular
contact with existing shareholders and prospective shareholders to try and Having recovered following the COVID-19 pandemic, recent market uncertainty
The Company does not have a significant free float of shares and as has been maintain an active market in the Company's shares. has caused the discount to widen materially, in common with many other
apparent in the past, relatively small sales or purchases of shares can
closed-ended property investment funds.
produce volatile pricing. In common with many generalist UK property vehicles, The Company announces portfolio and any other significant activity between its
the rating of the Company's shares has been dramatically impacted since the quarterly net asset value announcements and publication of its interim and
advent of the COVID-19 Crisis in the second quarter of 2020 and more recently final accounts.
by the geopolitical and economic crisis.
The Company can allot shares, and has done so, where there has been demand in
the secondary market and issuance has not been dilutive to existing
shareholders' interests.
The Company also takes the annual authority to buy back shares. However, the
Company's intention is to be fully invested and geared, so the use of share
buybacks would require a change in the strategic direction of the Company, not
least in having liquidity in the portfolio that could only be found through
realising longer-term assets.
The Board reviews the strategic direction of the Company regularly to ensure
that application of the investment policy, the returns generated from it and
the objectives of the shareholders are being met. The Company has a Marketing
Committee that focuses on trade in the Company's shares and how the corporate
message is being communicated to existing and prospective new investors.
The Marketing Committee, in consultation with the PR consultant, undertakes
advertising (if appropriate) and engages media (print and online) where it
can, to try and raise awareness of the Company to retail investors who could
buy the Company's shares via the platforms.
Financial
Risk
Gearing and non-compliance with debt facility terms.
Impact Controls and mitigation in place Change in the year
Gearing will accentuate returns if the cost of debt is less than the equity The Board reviews the level of gearing on a regular basis. Increased
returns or have the reverse effect if equity returns are less than the cost of
debt. The borrowing facilities have prescribed covenants and the Board signs off Higher levels of cash reduce the impact of falling values. However, it weakens
quarterly returns to the debt provider on asset and income cover. the income cover until investment is made in income returning assets.
A substantial fall in the property asset values or rental income levels could
lead to a breach of financial covenants within the Group's debt funding The Investment Manager presents for Board review quarterly cash flow forecasts The Board will continue to monitor the level of gearing closely.
arrangements. This could lead to a modification in the costs of funding or in prepared from the level of detail of individual properties, tenants and future
extremis cancellation of debt funding, if the Company is unable to service the rental projections. The Board is closely appraised of the level of cover over debt covenants on
debt.
net income and asset levels.
The Company has its portfolio reviewed and reported on by an external valuer
each quarter. There is no immediate need to re-finance debt, with the first tranche not
repayable until 2025. However, the Board is monitoring the debt market closely
The Board intends to maintain gearing at 30% of Company gross assets at as it will need to plan appropriately if re-financing terms are likely to be
drawdown but will not exceed 35%, at the time of drawdown. materially adverse to those in place.
In the current circumstances, the level of gearing has exceeded 35% but the
covenants, which are based on Loan-to-Value and income cover, remain well
covered.
Covenants are reviewed on a regular basis. Compliance certificates and reports
for the lender are prepared on a quarterly basis by the Investment Manager
then reviewed and signed by a Director.
Regulatory
Risk
Non-compliance with laws, regulations and governance codes.
Impact Controls and mitigation in place Change in the year
The Company is required to comply with REIT rules, the Listing Rules, The Company uses an experienced tax adviser, auditor, investment manager, No change
Disclosure Guidance and Transparency Rules, the UK and AIC Corporate broker, property managing agent, property valuation agent, depositary,
Governance Code, IFRS accounting standards and UK legislation (including the administrator and firm of solicitors to provide advice and support throughout Changes in the regulatory environment over the year have not had a significant
UK Bribery Act, Modern Slavery Act, The Criminal Finances Act 2017, Market the year. impact on the risk profile of the Company.
Abuse Regulations, GDPR and Health & Safety regulations).
The Company and its agents have a strong compliance culture, with regular risk
reviews undertaken by the Audit and Risk Committee.
The resilience of the key Company agents was reviewed during the year. No
failings have arisen, despite the more difficult operating conditions for many
businesses.
Risk
REIT status and structure of the Company.
Impact Controls and mitigation in place Change in the year
The Company and its two operating subsidiaries must be managed in the context A REIT compliance schedule is produced quarterly by the Administrator to No change
of both REIT regulations in relation to the property assets held and income ensure compliance.
distributed and the structure of the Group, with income and costs allocated
between the subsidiaries and the Company. REIT compliance is covered by external tax advisers, including when major
acquisitions are being considered.
Operational
Risk
The Company is reliant on third-party service providers, including Ediston as
Investment Manager and AIFM and JTC (UK) Ltd as Administrator, and key teams
and individuals at these service providers. Failure of the operational
activities or internal controls at these service providers, or exposure to
cyber risk through them, could result in adverse consequences for the Company.
Impact Controls and mitigation in place Change in the year
Risk of failure in third-party providers of services resulting in a material The Board is ultimately responsible for any actions taken by the Company but No change
adverse effect to the Company's financial position, through operational relies on external agents to perform their duties competently. The Audit and
inefficiency, compliance breach or reporting inadequacies, with reputational Risk Committee reviews the services provided for purposes of accurate and
or governance impacts as potential consequences to the Company as well. timely financial and risk reporting; the Board for any compliance or
operational breaches; and there is an annual review by the Management
Engagement Committee of all service providers.
Any significant failings or breaches are brought to the attention of the Board
when they occur and are followed up for rectification accordingly, rather than
having to wait for the periodic Board meeting cycle.
Economic, governmental & exogenous
Risk
Weak economic and/or political environment, including the impacts of
geo-political events, rising inflation and interest rates.
Impact Controls and mitigation in place Change in the year
Lower occupational demand impacting on income, cash flow, rental growth, Out of the Company's control to a large extent. Increased
property valuations and capital performance.
Executing asset management initiatives remains a high priority, and cash Whilst the impacts of the COVID-19 Crisis and economic consequences of it are
Reduced consumer spending, particularly on discretionary items and/ or control continues to be a strong focus. This ensures that the income is better understood, there are new headwinds that means the economic and
'big-ticket' items, could impact tenants and their ability to pay rent. maximised, and voids are minimised across the property portfolio. political environment in the UK and beyond remains uncertain.
Rising inflation is causing the price of goods and materials used in Sensitivity analysis of the portfolio is undertaken regularly via a War in Ukraine, rising inflation, increasing interest rates, and the cost of
construction to increase. Costs to refurbish or develop are increasing and comprehensive cash flow model, which includes stress testing of cash flows and living crisis are all risks that have emerged during the period, and which
many contractors will only hold tender prices for two weeks, as opposed to the capital values against loan covenants and the operational requirements of the could have a negative effect on the property portfolio.
usual four. business, including the payment of monthly dividends.
This may result in lower occupational demand and lower rent collection levels.
The economic landscape in most developed markets is looking increasingly The Company carefully considers the budgets and timing of developments/ It could also affect the terms on which debt is obtained. Although partially
challenged despite relaxation of many of the COVID-19 restrictions, causing refurbishment projects to ensure that there is enough contingency to allow for mitigated by the Company's good-quality assets, low vacancy rate, long WAULT
heightened uncertainty in listed and unlisted markets and for UK commercial unexpected cost increases and/or delays. and strong covenants, the continuing uncertainty increases the risk to returns
property.
from the UK commercial property market as a whole.
The Board and Investment Manager regularly review the economic backdrop and
strategic implications on the portfolio as regards investment and
disinvestment, holding of cash, gearing levels and operational costs to try
and protect the Company, its net income and its asset value against external
challenges.
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report, including the
Director's Remuneration Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have to prepare the Group
Financial Statements in accordance with UK-adopted international accounting
standards and have elected to prepare the parent company financial statements
in accordance with United Kingdom Generally Accepted Accounting Practice,
including FRS 101 'Reduced Disclosure Framework' (UK Accounting Standards and
applicable law).
Under company law the Directors must not approve the Group and Company
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs and profit or loss of the Group and the Company
for that period. In preparing these Financial Statements, the Directors are
required to:
− select suitable accounting policies and then apply them consistently;
− make judgements and accounting estimates that are reasonable and
prudent;
− state whether applicable UK-adopted international accounting standards
have been followed for the Group financial statements and United Kingdom
Accounting Standards, comprising FRS 101 have been followed for the Company
financial statements,, subject to any material departures disclosed and
explained in the Financial Statements; and
− prepare the Financial Statements on the going concern basis unless it
is inappropriate to presume that the Group and Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's and Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and the Company and enable them to ensure that the Financial Statements
and the Directors' Remuneration Report comply with the Companies Act 2006 and
Article 4 of the IAS Regulation. They are also responsible for safeguarding
the assets of the Group and the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
The Directors consider the Annual Report and the Financial Statements, taken
as a whole, provide the information necessary to assess the Group and
Company's performance, business model and strategy and are fair, balanced and
understandable.
DIRECTORS' RESPONSIBILITY STATEMENT UNDER THE DISCLOSURE GUIDANCE AND
TRANSPARENCY RULES
To the best of our knowledge:
− the Group Financial Statements, prepared in accordance with UK-adopted
international accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group and the
undertakings included in the consolidation taken as a whole;
− the Company Financial Statements, prepared in accordance with United
Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of
the assets, liabilities and financial position of the Company; and
− the Annual Report, including the Strategic Report and the Directors'
Report, includes a fair review of the development and performance of the
business and the position of the Group and Company, together with a
description of the principal risks and uncertainties that they face.
DISCLOSURE OF INFORMATION TO THE AUDITOR
The Directors confirm that:
− so far as each Director is aware, there is no relevant audit
information of which the Group and Company's auditor is unaware; and
− the Directors have taken all the steps that they ought to have taken as
Directors in order to make themselves aware of any relevant audit information
and to establish that the Group and Company's Auditor is aware of that
information.
William Hill
Chairman
13 December 2022
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2022
Year ended 30 September 2022 Year ended 30 September 2021
Notes Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue
Rental income 16,426 - 16,426 17,371 - 17,371
Total revenue 16,426 - 16,426 17,371 - 17,371
Unrealised gain on revaluation of investment properties 9 - 15,920 15,920 - 4,655 4,655
(Loss)/gain on sale of investment properties realised during the year 9 - (3,014) (3,014) - 1,179 1,179
Total income 16,426 12,906 29,332 17,371 5,834 23,205
Expenditure
Investment management fee 2 (1,703) - (1,703) (1,687) - (1,687)
Other expenses 3 (3,212) - (3,212) (1,914) - (1,914)
Total expenditure (4,915) - (4,915) (3,601) - (3,601)
Movement in expected credit losses 11 51 - 51 615 - 615
Profit before finance costs and taxation 11,562 12,906 24,468 14,385 5,834 20,219
Net finance costs
Interest receivable 4 22 - 22 - - -
Interest payable 5 (3,003) - (3,003) (3,109) - (3,109)
Profit before taxation 8,581 12,906 21,487 11,276 5,834 17,110
Taxation 6 - - - - - -
Profit and total comprehensive income for the year 8,581 12,906 21,487 11,276 5,834 17,110
Basic and diluted earnings per share 8 4.06p 6.11p 10.17p 5.34p 2.76p 8.10p
The total column of this statement represents the Group's Consolidated
Statement of Comprehensive Income, prepared in accordance with IFRS.
The supplementary revenue return and capital return columns are prepared under
guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement are derived from
continuing operations.
No operations were acquired or discontinued in the year.
The accompanying notes are an integral part of these Financial Statements.
Consolidated Statement of Financial Position
As at 30 September 2022
Notes As at 30 September 2022 As at 30 September 2021
£'000 £'000
Non-current assets
Investment properties 9 227,465 277,984
227,465 277,984
Current assets
Trade and other receivables 11 35,978 13,390
Cash and cash equivalents 12 50,235 11,642
86,213 25,032
Total assets 313,678 303,016
Non-current liabilities
Loans 13 (110,443) (110,277)
(110,443) (110,277)
Current liabilities
Trade and other payables 14 (2,767) (3,190)
Total liabilities (113,210) (113,467)
Net assets 200,468 189,549
Equity and reserves
Called-up equity share capital 16 2,113 2,113
Share premium 125,559 125,559
Capital reserve - investments held (32,957) (42,710)
Capital reserve - investments sold 6,714 3,561
Special distributable reserve 82,075 82,711
Revenue reserve 16,964 18,315
Equity shareholders' funds 200,468 189,549
Net asset value per Ordinary Share 15 94.86p 89.69p
The accompanying notes are an integral part of these Financial Statements.
Company number: 09090446.
The Financial Statements were approved by the Board of Directors on 13
December 2022 and signed on its behalf by:
William Hill
Chairman
Consolidated Statement of Changes in Equity
For the year ended 30 September 2022
Notes Share capital account Share premium Capital Capital Special distributable reserve Revenue reserve Total equity
£'000 £'000 reserve - reserve - £'000 £'000 £'000
investments held investments sold
£'000 £'000
As at 30 September 2021 2,113 125,559 (42,710) 3,561 82,711 18,315 189,549
Profit and total comprehensive income for the year - - 15,920 (3,014) - 8,581 21,487
Transfer between unrealised and realised reserves - - (6,167) 6,167 - - -
Transactions with owners recognised in equity:
Dividends paid 7 - - - - - (10,568) (10,568)
Transfer from special reserve - - - - (636) 636 -
As at 30 September 2022 2,113 125,559 (32,957) 6,714 82,075 16,964 200,468
For the year ended 30 September 2021
Notes Share capital account Share premium Capital Capital Special distributable reserve Revenue reserve Total equity
£'000 £'000 reserve - reserve - £'000 £'000 £'000
investments held investments sold
£'000 £'000
As at 30 September 2020 2,113 125,559 (47,365) 2,382 83,162 15,922 181,773
Loss and total comprehensive income for the year - - 4,655 1,179 - 11,276 17,110
Transactions with owners recognised in equity:
Dividends paid 7 - - - - - (9,334) (9,334)
Transfer from special reserve - - - - (451) 451 -
As at 30 September 2021 2,113 125,559 (42,710) 3,561 82,711 18,315 189,549
The accompanying notes are an integral part of these Financial Statements.
Consolidated Statement of Cash Flow
For the year ended 30 September 2022
Notes Year ended 30 September 2022 Year ended
£'000 30 September 2021
£'000
Cash flows from operating activities
Profit before tax 21,487 17,110
Adjustments for:
Interest payable 3,003 3,109
Unrealised revaluation gain on property portfolio (15,920) (4,655)
Loss/(gain) on sale of investment property realised 3,014 (1,179)
Operating cash flows before working capital changes 11,584 14,385
Decrease in trade and other receivables 547 1,823
Decrease in trade and other payables (420) (492)
Net cash inflow from operating activities 11,711 15,716
Cash flows from investing activities
Capital expenditure (3,207) (10,345)
Acquisition of investment properties - (21,640)
Sale of investment properties 67,704 27,953
Deposits with Aviva (24,210) -
Net cash inflow/(outflow) from investing activities 40,287 (4,032)
Cash flows from financing activities
Dividends paid (10,568) (9,334)
Interest paid (2,837) (3,016)
Net cash outflow from financing activities (13,405) (12,350)
Net increase/(decrease) in cash and cash equivalents 38,593 (666)
Opening cash and cash equivalents 11,642 12,308
Closing cash and cash equivalents 12 50,235 11,642
The accompanying notes are an integral part of these Financial Statements.
Notes to the Consolidated Financial Statements
1. ACCOUNTING POLICIES
(A) BASIS OF PREPARATION
BASIS OF ACCOUNTING
These Consolidated Financial Statements have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and in accordance with IFRS adopted pursuant to UK adopted
international accounting standards. The accounts have been prepared on a
historical cost basis, except for investment property valuations that have
been measured at fair value.
The Notes and Financial Statements are presented in pounds sterling (being the
functional currency and presentational currency for the Company) and are
rounded to the nearest thousand except where otherwise indicated.
GOING CONCERN
Under the AIC Code, the Board needs to report whether the business is a going
concern. In considering this requirement, the Directors have taken the
following into account:
− the Group's projections for the next three years, in particular the
cash flows, borrowings and occupancy rate;
− the ongoing ability to comply comfortably with the Group's financial
covenants (details of the loan covenants are included in Note 13);
− the risks included on the Group's risk register that could impact on
the Group's liquidity and solvency over the next 12 months (details of risks
are included in the Strategic Report); and
− the risks on the Group's risk register that could be a potential threat
to the Group's business model (details of risks are included in the Strategic
Report).
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Strategic
Report. The Strategic Report also includes the Group's risks and risk
management processes.
The Directors made an assessment of going concern, under the guidelines of the
AIC. Details of this assessment is included in the Directors' Report.
Furthermore, the Company and Investment Manager have assessed that values
would need to drop by 23% in EPIC No.1 and 35% in EPIC No.2 respectively,
based on the 30 September 2022 valuations, for the Loan-to-Value covenant to
be breached. This would be a dramatic decline and considered to be remote.
Beyond these drops, cure rights are available under the facility agreement to
rectify any breach.
With this information and bearing in mind the nature of the Group's business
and assets, the Directors consider that the Group has adequate resources to
continue in operational existence over the medium term and believe that the
Company has the ability to meet its financial commitments for a period of at
least twelve months from the date of approval of the accounts. For these
reasons, the Directors continue to adopt the going concern basis in preparing
the accounts.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of Financial Statements requires management to make estimates
and assumptions that affect the amounts reported for assets and liabilities as
at the year-end date and the amounts reported for revenue and expenses during
the period. The nature of the estimation means that actual outcomes could
differ from those estimates. Estimates and underlying assumptions are reviewed
on an ongoing basis.
KEY ESTIMATES
The only significant source of estimation uncertainty relates to the
investment property valuations. The fair value of investment properties is
determined by independent real estate valuation experts using recognised
valuation techniques. The properties have been valued on the basis of 'Fair
Value' in accordance with the current editions of Royal Institution of
Chartered Surveyors (RICS) Valuation - Global Standards, which incorporate the
International Valuation Standards, and the RICS UK National Supplement.
Investment property under construction is subject to a higher estimation
uncertainty than that of investment property due to the estimation required
for future expenditure, which is factored into the valuation models for any
such properties. In line with the recommendation of the European Public Real
Estate Association, all properties have been deemed to be Level 3 under the
fair value hierarchy classification set out below. This is described in more
detail in Note 9. Revisions to accounting estimates are recognised in the year
in which the estimate is revised if the revision affects only that year, or in
the year of the revision and future years if the revision affects both current
and future years.
The fair value measurement for the assets and liabilities are categorised into
different levels in the fair value hierarchy based on the inputs to valuation
techniques used. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Group can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3: unobservable inputs for the asset or liability. Value is the
Directors' best estimate, based on advice from relevant knowledgeable experts,
use of recognised valuation techniques and on assumptions as to what inputs
other market participants would apply in pricing the same or a similar
instrument. As explained in more detail in Note 9, all investment properties
are included in Level 3.
The Group recognises transfers between levels of the fair value hierarchy as
of the end of the reporting period during which the transfer has occurred.
KEY JUDGEMENTS
Key judgements relate to property acquisitions where different accounting
policies could be applied and operating lease contracts. These are described
in more detail below, or in the relevant notes to the Financial Statements.
PROPERTY ACQUISITIONS AND BUSINESS COMBINATIONS
The Group acquires real estate either as individual properties or as the
acquisition of a portfolio of properties either directly or through the
acquisition of a corporate entity.
OPERATING LEASE CONTRACTS - THE GROUP AS LESSOR
The Group has determined, based on an evaluation of the terms and conditions
of the arrangements, particularly the duration of the lease terms and minimum
lease payments, that it retains all the significant risks and rewards of
ownership of these properties and so accounts for the leases as operating
leases. Management has applied judgement by considering key new leases this
year and have assessed that no lease exceeds a term of 40 years and as such
determined that the terms and conditions of the arrangements do not result in
a transfer of significant risks and rewards of ownership of these properties
and that these should therefore be accounted for as operating leases.
The leases, when signed, are for between 5 and 35 years. At the inception of
the lease, management do not consider any extension of the leases to be
reasonably certain and, as such do not factor any lease extensions into their
considerations of lease incentives and the treatment of rental income.
BASIS OF CONSOLIDATION
The Consolidated Financial Statements comprise the Financial Statements of the
Company and its two subsidiaries drawn up to 30 September 2022. Subsidiaries
are those entities, including special purpose entities, controlled by the
Company and are detailed in Note 10. Control exists when the Company is
exposed, or has rights, to variable returns from its investment with the
investee and has the ability to affect those returns through its power over
the investee. In assessing control, potential voting rights that presently are
exercisable are taken into account. The financial statements of subsidiaries
are included in the Consolidated Financial Statements from the date that
control commences until the date that control ceases.
In preparing the Consolidated Financial Statements, intra-Group balances,
transactions and unrealised gains or losses have been eliminated in full.
Uniform accounting policies are adopted for all companies within the Group.
(B) REVENUE RECOGNITION
RENTAL INCOME
Rental income, excluding VAT, arising on investment properties is accounted
for in the Statement of Comprehensive Income on a straight-line basis over the
terms of the individual leases.
Lease incentives, including rent-free periods and payments to tenants, are
allocated to the Statement of Comprehensive Income on a straight-line basis
over the lease term or on another systematic basis, if applicable. Where
income is recognised in advance of the related cash flows, an adjustment is
made to ensure that the carrying value of the relevant property, including
accrued rent disclosed separately within 'trade and other receivables', does
not exceed the external valuation.
The Group may from time to time receive surrender premiums from tenants who
break their leases early. To the extent they are deemed capital receipts to
compensate the Group for loss in value of property to which they relate, they
are credited through the capital column of the Statement of Comprehensive
Income to capital reserves. All other surrender premiums are recognised within
rental income in the Statement of Comprehensive Income.
INTEREST INCOME
Interest income is accounted for on an accruals basis.
SERVICE CHARGES AND EXPENSES RECOVERABLE FROM TENANTS
Where service charges and other expenses are recharged to tenants, the expense
and the income received in reimbursement are offset within the Statement of
Comprehensive Income and are not separately disclosed, as the Directors
consider that the Group acts as agent in this respect. Service charges and
other property-related expenses that are not recoverable from tenants are
recognised in expenses on an accruals' basis.
(C) OTHER EXPENSES
Expenses are accounted for on an accruals' basis. The Group's investment
management and administration fees, finance costs and all other expenses are
charged to revenue through the Statement of Comprehensive Income.
(D) DIVIDENDS PAYABLE
Dividends are accounted for in the period in which they are paid. All the
dividends are paid as interim dividends and the dividend policy is put to
shareholders for approval.
(E) TAXATION
The Group is a UK REIT and is thereby exempt from corporation tax on both net
rental profits and chargeable gains arising on properties using within its
exempt property business. In order to retain UK REIT status, certain ongoing
criteria must be maintained. The main criteria are as follows:
− at the start of each accounting period, the assets of the Tax-exempt
Business must be at least 75% of the total value of the Group's assets;
− at least 75% of the Group's total profits must arise from the
Tax-exempt Business;
− at least 90% of the tax-exempt rental business profits must be
distributed in the form of a Property Income Distribution within 12 months of
the end of the period; and
− the Group must hold a minimum of three properties with no single
property exceeding 40% of the total values of the properties used within the
Tax-exempt Business.
The Directors intend that the Group should continue as a UK REIT for the
foreseeable future, with the result that deferred tax is not recognised on
temporary differences relating to the property rental business which is within
the UK REIT structure.
Taxation on any profit or loss for the period not exempt under UK-REIT
regulations comprises current and deferred tax. Taxation is recognised in the
Statement of Comprehensive Income except to the extent that it relates to
items recognised as direct movements in equity, in which case it is also
recognised as a direct movement in equity.
Current tax is the expected tax payable on the taxable income for the period,
using tax rates and laws enacted or substantively enacted at the year-end
date.
Deferred tax is provided using the liability method on all temporary
differences at the reporting date between the tax bases of assets and
liabilities, and their carrying amounts for financial reporting purposes
calculated using rates and laws enacted or substantively enacted by the end of
the period expected to apply. Deferred tax assets are recognised only to the
extent that it is probable that taxable profit will be available against which
deductible temporary differences, carried forward tax credits or tax losses
can be utilised. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets and
liabilities. In determining the expected manner of realisation of an asset,
the Directors consider that the Group will recover the value of investment
property through sale. Deferred tax relating to items recognised directly in
equity is recognised in equity and not in profit or loss.
(F) INVESTMENT PROPERTIES
Investment properties are properties held to earn rentals or for capital
appreciation, or both, and are accounted for using the fair value model.
Investment properties are revalued quarterly with resulting gains and losses
recognised in profit or loss. These are included in the Consolidated Statement
of Financial Position at their fair values.
Investment properties consist of land and buildings that are not occupied for
use by or in the operations of the Group or for sale in the ordinary course of
business but are held to earn rental income together with the potential for
capital and income growth.
Investment properties are initially recognised at the fair value of
consideration given, including transaction costs associated with the
investment property. Any subsequent capital expenditure incurred in improving
investment properties is capitalised in the period incurred and included
within the book cost of the property.
After initial recognition, investment properties are measured at fair value,
with gains and losses recognised in the Statement of Comprehensive Income.
Fair value is based on an open market valuation provided by Knight Frank LLP,
Chartered Surveyors, at the year-end date using recognised valuation
techniques appropriately adjusted for unamortised lease incentives, lease
surrender premiums and rental adjustments.
The determination of the fair value of investment properties requires the use
of estimates such as future cash flows from assets (including lettings,
tenants' profiles, future revenue streams, capital values of fixtures and
fittings, plant and machinery, any environmental matters and the overall
repair and condition of the property) and discount rates applicable to those
assets. These estimates are based on local market conditions existing at the
reporting date.
In terms of IAS 40, investment property under construction is measured at fair
value, with gains and losses recognised in the Statement of Comprehensive
Income. Fair value is based on an open market valuation provided by Knight
Frank LLP, Chartered Surveyors, at the year-end date. The determination of the
fair value of investment property under construction requires the use of
estimates such as future cash flows from assets (including lettings, tenants'
profiles, future revenue streams, capital values of fixtures and fittings,
plant and machinery, any environmental matters and the overall repair and
condition of the property) and discount rates applicable to those assets.
These estimates are based on local market conditions existing at the reporting
date.
Investment property is derecognised when it has been disposed of or
permanently withdrawn from use and no future economic benefit is expected from
its disposal. On derecognition, gains and losses on disposals of investment
properties are recognised in the Statement of Comprehensive Income and
transferred to the capital reserve - investments sold. Recognition and
derecognition occurs on the completion of a sale.
(G) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand and short-term deposits in
banks with an original maturity of three months or less.
(H) TRADE AND OTHER RECEIVABLES
Rents receivable, which are generally due for settlement at the relevant
quarter end, are recognised and carried at the original invoice amount less an
allowance for any uncollectable amounts. An expected credit loss methodology
is applied to applicable trade and other receivables. Expected credit losses
are recognised in the Statement of Comprehensive Income as part of the ongoing
assessment. Any incurred losses are written off when identified.
The Group applies the IFRS 9 simplified approach to measuring the expected
credit losses (ECLs) for trade receivables whereby the allowance or provision
for all trade receivables are based on the lifetime ECLs. The Group considers
historical defaults over the expected life of the trade receivables and any
information related to the debtors available at year end to determine
forward-looking estimates of possible defaulting. This is consistent with the
approach followed in prior periods.
(I) INTEREST-BEARING LOANS AND BORROWINGS
All loans and borrowings are initially recognised at the fair value of the
consideration received net of arrangement costs associated with the borrowing.
After initial recognition, all interest-bearing loans and borrowings are
subsequently measured at amortised cost; any difference is recognised in the
Statement of Comprehensive Income over the period of the borrowing using the
effective interest method. Amortised cost is calculated by taking into account
any loan arrangement costs and any discount or premium on settlement.
The Company discloses the bases and impact of early repayment of debt and also
the fair value of the loans but includes the creditor amounts on the
accounting policy above.
(J) PROPERTY ACQUISITIONS
Where property is acquired, via corporate acquisitions or otherwise,
management considers the substance of the assets and activities of the
acquired entity in determining whether the acquisition represents the
acquisition of a business or the acquisition of an asset.
Where such acquisitions are not judged to be an acquisition of a business,
they are not treated as business combinations. Rather, the cost to acquire the
corporate entity is allocated between the identifiable assets and liabilities
of the entity based on their relative fair values at the acquisition date.
Accordingly, no goodwill or additional deferred taxation arises. Otherwise,
acquisitions are accounted for as business combinations.
(K) RESERVES
SHARE PREMIUM
The surplus of net proceeds received from the issuance of new shares over
their par value is credited to this account and the related issue costs are
deducted from this account. The reserve is non-distributable. The initial
share premium account, on the launch of the Company in 2014, was transferred
to the special distributable reserve, following shareholder approval and
successful application to court.
CAPITAL RESERVES
The following are accounted for in the capital reserve - investments sold:
− realised gains and losses arising on the disposal of investment
properties.
The following are accounted for in the capital reserve - investments held:
− increases and decreases in the fair value of investment properties held
at the period end.
REVENUE RESERVE
The net profit arising in the revenue column of the Statement of Comprehensive
Income is added to or deducted from this reserve which is available for paying
dividends. Where the Company's revenue reserve is insufficient to fund the
dividends paid, a transfer can be made to this reserve from the special
distributable reserve.
SPECIAL DISTRIBUTABLE RESERVE
Shortly after the launch of the Company, an application to Court was
successfully made for the cancellation of the initial share premium account,
which allowed the balance of the share premium account at that date to be
transferred to the special distributable reserve. This reserve is available
for paying dividends and buying back the Company's shares.
CAPITAL MANAGEMENT
The Group's capital is represented by the Ordinary Shares, share premium,
capital reserves, revenue reserve and special distributable reserve. The Group
is not subject to any externally imposed capital requirements.
The capital of the Group is managed in accordance with its investment policy,
in pursuit of its investment objective. Capital management activities may
include the allotment of new shares, the buy back or re-issuance of shares
from treasury, the management of the Group's discount to net asset value and
consideration of the Group's net gearing level.
There have been no changes in the capital management objectives and policies
or the nature of the capital managed during the year.
(L) CHANGES IN ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the previous
financial year.
STANDARDS ISSUED BUT NOT YET EFFECTIVE
The following standards have been issued but is not effective for this
accounting period and has not been adopted early:
− IAS 1 (amended) - Amendments regarding classifications of liabilities,
and disclosure of accounting policies - effective from 1 January 2023
− IAS 8 (amended) - Amendments regarding the definition of accounting
estimates - effective from 1 January 2023.
− IAS 12 (amended) - Amendments regarding deferred tax on leases and
decommissioning obligations - effective from 1 January 2023.
− IFRS 17 - Amendments to IFRS 17 'Insurance Contracts' (Amendments to
IFRS 17 and IFRS 4) - effective from 1 January 2023.
Adoption of the new or amended standards and relevant interpretations in
future periods is not expected to have a material impact on the financial
statements of the Group.
The Group does not consider the adoption of any new standards or amendments,
other than those noted above, to be applicable to the Group.
2. INVESTMENT MANAGEMENT FEE
Year ended 30 September 2022 Year ended
£'000 30 September 2021
£'000
Investment management fee 1,703 1,687
Total 1,703 1,687
Ediston Investment Services Limited has been appointed as the Company's
Alternative Investment Fund Manager (AIFM) and Investment Manager, with the
property management services of the Group being delegated to Ediston
Properties Limited. Ediston Investment Services Limited is entitled to a fee
calculated as 0.95% per annum of the net assets of the Group up to £250m,
0.75% per annum of the net assets of the Group over £250m and up to £500m
and 0.65% per annum of the net assets of the Group over £500m. The management
fee on any cash available for investment (being all cash held by the Group
except cash required for working capital and capital expenditure) is reduced
to 0.475% per annum while such cash remains uninvested. The Management fee is
reduced by £40,000 per annum pursuant to the side letter agreement entered
into in December 2020.
Ediston Investment Services Limited has committed to investing 20.0% of the
quarterly management fee in the Company's shares each quarter commencing from
1 October 2020 to 21 December 2023. Refer to Note 17 for further information.
3. OTHER EXPENSES
Year ended 30 September 2022 Year ended 30 September 2021
£'000 £'000
Direct operating expenses for investment properties:
- from which income is received 2,077* 1,016
- from which income is not received - -
Administration fee 190 179
Valuation and other professional fees 174 157
Directors' fees 216 212
Public relations and marketing 83 73
Auditor's remuneration for:
Audit services:
- fees payable for the audit of the consolidation and the parent company 80 42
accounts
- fees payable for the audit of subsidiaries, pursuant to legislation 45 36
Listing and registrar fees 73 46
Other 274 153
Total 3,212 1,914
* Direct property expenses includes transaction costs for potential
acquisitions not concluded.
The movement in expected credited losses, which was previously grouped with
other expenses, has been reconsidered and whilst this is immaterial, it has
been presented separately on the face of the Consolidated Statement of
Comprehensive Income, in line with the requirements of IAS 1.
4. INTEREST RECEIVABLE
Year ended 30 September 2022 Year ended 30 September 2021
£'000 £'000
Deposit interest 22 -
Total 22 -
5. INTEREST PAYABLE
Year ended 30 September 2022 Year ended 30 September 2021
£'000 £'000
Loan interest 2,837 2,938
Amortisation of loan set-up costs 166 165
Bank interest - 6
Total 3,003 3,109
6. TAXATION
Year ended 30 September 2022 Year ended 30 September
£'000 2021
£'000
Total tax charge - -
A reconciliation of the corporation tax charge applicable to the results at
the statutory corporation tax rate to the charge for the year is as follows:
Year ended 30 September 2022 Year ended
£'000 30 September 2021
£'000
Profit/(loss) before taxation 21,487 17,110
UK tax at a rate of 19.0% (2021: 19.0%) 4,082 3,251
Effects of:
REIT exempt profits (1,751) (2,228)
REIT exempt gains/losses (2,452) (1,109)
Excess management expenses of residual business 121 86
Total tax charge - -
The Company served notice to HM Revenue & Customs that the Company, and
its subsidiaries, qualified as a REIT with effect from 31 October 2014.
Subject to continuing relevant UK-REIT criteria being met, the profits from
the Group's property rental business, arising from both income and capital
gains, are exempt from corporation tax.
The Group has unutilised tax losses carried forward in its residual business
of £3,202,000 at 30 September 2022 (2021: £2,566,000). No deferred tax asset
has been recognised on this amount as the Group cannot be certain that there
will be taxable revenue profits arising within its residual business from
which the future reversal of the deferred tax asset could be deducted.
Although the Group anticipates sufficient capital profits, these cannot be
offset against losses which are revenue in nature.
7. DIVIDENDS
Twelve monthly dividends of 0.4167 pence per share, at a total cost of
£10,568,000 (2021: Seven monthly dividends of 0.3333 pence per share and five
monthly dividends of 0.4167 pence per share, at a total cost of £9,334,000)
were paid during the year. This equates to an annualised dividend of 5.00
pence (2021: 4.42 pence) per share.
Since the year end, interim dividends, each of 0.4167 pence per share, have
been paid on 31 October 2022 and 30 November 2022. A further
interim dividend, of 0.4167 pence per share, will be paid on 30 December 2022.
This monthly dividend of 0.4167 pence per share equates to an annualised
dividend level of 5.00 pence per share. All of the distributions made by the
Company have been Property Income Distributions (PIDs).
8. EARNINGS PER SHARE
Basic and diluted earnings per share.*
Year ended 30 September 2022 Year ended 30 September 2021
£'000 Pence per share £'000 Pence per share
Revenue earnings 8,581 4.06 11,276 5.34
Capital earnings 12,906 6.11 5,834 2.76
Total earnings 21,487 10.17 17,110 8.10
Average number of shares in issue 211,333,737 211,333,737
* There is no difference between basic and diluted earnings per share (2021:
no difference).
9. INVESTMENT PROPERTIES
Freehold and leasehold properties As at 30 September 2022 As at 30 September 2021
£'000 £'000
Opening book cost 320,694 315,611
Opening unrealised depreciation (42,710) (47,365)
Opening fair value 277,984 268,246
Movements for the period
Acquisitions - 21,850
Sales - proceeds (67,704) (27,953)
- (Loss)/gain on sales (3,014) 1,179
Transfer to unrealised reserves on properties sold 6,167 -
Capital expenditure 4,279 10,007
Movement in book cost (60,272) 5,083
Unrealised gains on investment properties 29,772 10,798
Unrealised losses on investment properties (13,852) (6,143)
Unrealised movement during the year 15,920 4,655
Transfer between unrealised and realised reserves for properties sold (6,167) -
Movement in fair value 9,753 4,655
Closing book cost 260,422 320,694
Closing unrealised depreciation (32,957) (42,710)
Closing fair value 227,465 277,984
During the year ended 30 September 2022, the Group sold the properties at
Bath, Newcastle, Edinburgh, Birmingham, Hartlepool and Telford. The Group
received a net amount of £67,704,000 (2021: £27,953,000) from investments
sold during the year. The total book cost of the investments when it was
purchased was £64,551,000 (2021: £26,774,000). These investments have been
revalued over time and, until it was sold, any unrealised gains/losses were
included in the fair value of the investments.
During the year, expenditure totalling £4,279,000 (2021: £10,007,000),
including capitalised lease incentives, incurred in improving investment
properties, has been capitalised to the book cost of the property.
The fair value of the investment properties reconciled to the appraised value
as follows:
As at 30 September 2022 As at
£'000 30 September 2021
£'000
Closing fair value 227,465 277,984
Lease incentives held as debtors (Note 11) 3,970 5,361
Appraised market value per Knight Frank 231,435 283,345
Changes in the valuation of investment properties:
Year ended 30 September 2022 Year ended
£'000 30 September 2021
£'000
(Loss)/gain on sale of investment properties (3,014) 1,179
Unrealised profit realised during the year 6,167 -
Gain on sale of investment properties realised* 3,153 1,179
Unrealised gains on investment properties 9,753 4,655
Total gain on revaluation of investment properties 12,906 5,834
* Represents the difference between the sales proceeds, net of costs, and the
property valuation at the time of sale.
The gain/loss on revaluation of investment properties reconciles to the
movement in appraised market value as follows:
Year ended 30 September 2022 Year ended
£'000 30 September 2021
£'000
Total gain on revaluation of investment properties held at year end 9,753 4,655
Purchases - 21,850
Capital expenditure 4,279 10,007
Sales - net proceeds (64,551) (26,774)
Movement in fair value (50,519) 9,738
Movement in lease incentives held as debtors (1,391) 632
Movement in appraised market value (51,910) 10,370
At 30 September 2022, the investment properties were valued at £231,435,000
(2021: £283,345,000) by Knight Frank LLP (Knight Frank), in their capacity as
external valuers. This includes no investment property under construction
(2021: £Nil). The valuation was undertaken in accordance with the current
editions of RICS Valuation - Global Standards, which incorporate the
International Valuation Standards, and the RICS UK National Supplement. Fair
value is based on an open market valuation (the price that would be received
to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date), provided by Knight Frank
on a quarterly basis, using recognised valuation techniques as set out in the
Group's accounting policies.
The Group is required to classify fair value measurements of its investment
properties using a fair value hierarchy, in accordance with IFRS 13 'Fair
Value Measurement'. In determining what level of the fair value hierarchy to
classify the Group's investments within, the Directors have considered the
content and conclusion of the position paper on IFRS 13 prepared by the
European Public Real Estate Association (EPRA), the representative body of the
publicly listed real estate industry in Europe. This paper concludes that,
even in the most transparent and liquid markets, it is likely that valuers of
investment property will use one or more significant unobservable inputs or
make at least one significant adjustment to an observable input, resulting in
the vast majority of investment properties being classified as Level 3.
Observable market data is considered to be that which is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary and
provided by independent sources that are actively involved in the relevant
market. In arriving at the valuation Knight Frank will have to make
adjustments to observable data of similar properties and transactions to
determine the fair value of a property and this will involve the use of
considerable judgement.
Considering the Group's specific valuation process, industry guidance, and the
level of judgement required in the valuation process, the Directors believe it
appropriate to classify the Group's assets within Level 3 of the fair value
hierarchy.
All leasehold properties are carried at fair value rather than amortised over
the term of the lease. The same valuation criteria are applied to leasehold
and freehold properties. All leasehold properties have more than 100 years
remaining on the lease term.
The Group's investment properties, which are all commercial properties, are
considered to be a single class of assets. There have been no changes to the
valuation technique used through the period, nor have there been any transfers
between levels.
The key unobservable inputs made in determining the fair values are:
− estimated rental value (ERV): the rent at which space could be let in
the market conditions prevailing at the date of valuation; and
− net equivalent yield: the equivalent yield is defined as the internal
rate of return of the cash flow from the property, assuming a rise to ERV at
the next review, but with no further rental growth.
Information on these inputs is disclosed below:
30 September 2022 30 September 2021
Range Weighted Range Weighted
average average
Estimated rental value per sq. ft. per annum £5 - £42.82 £12.90 £5 - £43 £13.80
Net equivalent yield 5.5% - 8.0% 6.96% 6.0% - 9.8% 7.0%
The ERV for the total portfolio is not materially different from the
contracted rent.
A decrease in the net equivalent yield applied to the portfolio by 0.25% will
increase the fair value of the portfolio by £11,087,000 (2021: £10,500,000),
and consequently increase the Group's reported income from unrealised gains on
investments. An increase in yield by 0.25% will decrease the fair value of the
portfolio by £9,243,699 (2021: £9,800,000) and reduce the Group's income.
The management of market price risk is part of the investment management
process and is typical of a property investment company. The portfolio is
managed with an awareness of the effects of adverse valuation movements
through detailed and continuing analysis, with an objective of maximising
overall returns to shareholders. Investments in property and property-related
assets are inherently difficult to value due to the individual nature of each
property. As a result, valuations are subject to substantial uncertainty.
There is no assurance that the estimates resulting from the valuation process
will reflect the actual sales price even where such sales occur shortly after
the valuation date. Such risk is minimised through the appointment of external
property valuers. The basis of valuation of the property portfolio is set out
in detail in the accounting policies.
Any changes in market conditions will directly affect the profit and loss
reported through the Statement of Comprehensive Income. Details of the Group's
investment property portfolio held at the balance sheet date are disclosed in
Note 9. A 10% increase in the value of the investment properties held as at 30
September 2022 would have increased net assets available to shareholders and
increased the net income for the year by £23,000,000 (2021: £28,000,000); an
equal and opposite movement would have decreased net assets and decreased the
net income by an equivalent amount.
The calculations are based on the investment property valuations at the
respective balance sheet date and are not representative of the year as a
whole, nor reflective of future market conditions.
10. INVESTMENT IN SUBSIDIARIES
EPIC (No.1) Limited is a wholly owned subsidiary of Ediston Property
Investment Company plc and is incorporated in England and Wales (Company
number: 09106328) with registered address The Scalpel, 18th Floor, 52 Lime
Street, London EC3M 7AF. EPIC (No.1) Limited was incorporated on 27 June 2014
and began trading on 5 May 2015. On 5 May 2015, the ownership of the property
portfolio held by the Company at that date was transferred to EPIC (No.1)
Limited. The net asset value of EPIC (No.1) Limited as at 30 September 2022
was £96,727,000 (2021: £102,605,000). The loss of EPIC (No.1) Limited for
the year to 30 September 2022 was £1,026,000 (2021: £4,716,000 profit).
EPIC (No.2) Limited is a wholly owned subsidiary of Ediston Property
Investment Company plc and is incorporated in England and Wales (Company
number: 10978359) with registered address The Scalpel, 18th Floor, 52 Lime
Street, London EC3M 7AF. EPIC (No.2) Limited was incorporated on 23 September
2017, having been established to hold the five properties acquired by the
Group and to enter into the Group's additional loan facility. The net asset
value of EPIC (No.2) Limited as at 30 September 2022 was £99,011,000 (2021:
£81,412,000). The profit of EPIC (No.2) Limited for the period to 30
September 2022 was £23,149,000 (2021: £12,680,000).
11. TRADE AND OTHER RECEIVABLES
As at 30 September 2022 As at
£'000 30 September 2021
£'000
Secured balance held with loan provider 31,047 6,837
Capital and rental lease incentives 3,970 5,361
Rent receivable (net of allowance for expected credit losses) 865 1,175
Other debtors and prepayments 96 17
Total 35,978 13,390
The secured balance held with the loan provider represents monies that have
been drawn under the Group's loan facilities, which are not currently invested
in properties and which have been placed in a secured account with Aviva until
required. The balance includes interest receivable of £90,000 (2021:
£186,000). These monies are available for reinvestment in the Group's
investment property portfolio or, if necessary, could be used to partially
repay the Group's borrowings. During the year ended 30 September 2022, the
Company deposited an additional sum of £24,209,000 to the secured account
(2021: utilised £1,646,000 from the secured amount).
Capital and rental lease incentives consist of £3,435,000 (2021: £3,717,000)
being the prepayments for rent-free periods recognised over the life of the
lease, £570,000 (2021: £1,644,000) relating to capital incentives paid to
tenants, and £33,000 (2021: £Nil) of lease premium being the premium paid by
the tenant. As set out in the accounting policy for rental income, an
adjustment is made for these amounts to the fair value of the investment
properties (see Note 9) to prevent double counting.
Rent receivable is shown net of an allowance for expected credit losses
balance of £34,000 (2021: £85,000). The movement in the allowance is shown
below and reflected in the Statement of Comprehensive Income.
Allowance for expected credit losses As at 30 September 2022 As at
£'000 30 September 2021
£'000
Opening balance as at 30 September 85 700
Reversal of allowance for expected credit losses (51) (615)
Closing balance as at 30 September 34 85
12. CASH AND CASH EQUIVALENTS
All cash balances at the year end were held in cash, current accounts or
deposit accounts.
As at 30 September 2022 As at 30 September
£'000 2021
£'000
Cash and cash equivalents 50,235 11,642
Total 50,235 11,642
13. LOANS
As at 30 September 2022 As at 30 September 2021
£'000 £'000
Principal amount outstanding 111,076 111,076
Set-up costs (1,612) (1,612)
Amortisation of loan set-up costs 979 813
Total 110,443 110,277
The Group's loan arrangements are with Aviva Commercial Finance Limited.
The Group has loans totalling £56,920,000, which carry a blended fixed
interest rate of 2.99% and mature in May 2025. This rate is fixed for the
period of the loan as long as the LTV is maintained below 40%, increasing by
10 basis points if the Loan-to-Value is 40% or higher. These loans are secured
over EPIC (No.1) Limited's property portfolio.
The Group also has a loan totalling £54,156,000, which carries a fixed
interest rate of 2.73% and matures in December 2027. This rate is fixed for
the period of the loan as long as the LTV is maintained below 40%, increasing
by 10 basis points if the LTV is 40% or higher. This loan is secured over EPIC
(No.2) Limited's property portfolio. At year end, the covenants were both
below 40 per cent LTV.
The Group's weighted average cost of borrowings remained 2.86% at 30 September
2022.
Under the financial covenants relating to the loans, the Group has to ensure
that for each of EPIC (No.1) Limited and EPIC (No.2) Limited:
− the Historic Interest Cover and Projected Interest Cover, each being
the passing rental income as a percentage of finance costs and generally
calculated over a period of 12 months to/from the calculation date, is at
least 300%; and
− the LTV ratio, being the adjusted value of the loan as a percentage of
the aggregate market value of the relevant properties, must not exceed 50%.
Breach of the financial covenants, subject to various cure rights, may lead to
the loans falling due for repayment earlier than the final maturity dates
stated above. The Group has complied with all the loan covenants during the
year. Under the terms of early repayment relating to the loans, the cost of
repaying the loans on 30 September 2022, based on the yield on the treasury 5%
2025 and treasury 4.25% 2027 plus a margin of 0.5%, would have been
approximately £111,520,000 (2021: £120,268,000), including repayment of the
principal of £111,076,000 (2021: £111,076,000).
The fair value of the loans based on a marked-to-market basis, being the yield
on the relevant treasury plus the appropriate margin, was £98,682,000 as at
30 September 2022 (2021: £114,918,000). This includes the principal amount
borrowed. Analysis of net debt:
Cash and cash equivalents 2022 Borrowing Net Debt Cash and cash equivalents Borrowing Net debt
£'000 2022 2022 2021 2021 2021
£'000 £'000 £'000 £'000 £'000
Opening balance 11,642 (110,277) (98,635) 12,308 (110,112) (97,804)
Cash flows 38,593 2,837 41,430 (666) - (666)
Non-cash flows - (3,003) (3,003) - (165) (165)
Closing balance 50,235 (110,443) (60,208) 11,642 (110,277) (98,635)
14. TRADE AND OTHER PAYABLES
As at 30 September 2022 As at
£'000 30 September 2021
£'000
Rental income received in advance 406 1,320
VAT payable to HMRC 471 549
Investment management fee payable 438 437
Loan interest payable 444 444
Capital expenditure payable - 2
Other payables 1,008 438
Total 2,767 3,190
The Group's payment policy is to ensure settlement of supplier invoices in
accordance with stated terms.
15. NET ASSET VALUE
The Group's net asset value per Ordinary Share of 94.86 pence (2021: 89.69
pence) is based on equity shareholders' funds of £200,468,000 (2021:
£189,549,000) and on 211,333,737 (2021: 211,333,737) Ordinary Shares, being
the number of shares in issue at the year end.
The net asset value calculated under IFRS above is the same as the EPRA net
asset value at 30 September 2022 and 30 September 2021.
16. CALLED-UP EQUITY SHARE CAPITAL
Allotted, called-up and fully paid Ordinary Shares of 1 pence par value Number of shares £'000
Opening balance as at 30 September 2021 211,333,737 2,113
Issue of Ordinary Shares - -
Closing balance as at 30 September 2022 211,333,737 2,113
The Company did not issue any Ordinary Shares in the last two financial years.
The Company did not hold any shares in treasury during the previous two years.
Under the Company's Articles of Association, the Company may issue an
unlimited number of Ordinary Shares but issuance is subject to shareholder
approval.
Ordinary shareholders are entitled to all dividends declared by the Company
and to all of the Company's assets after repayment of its borrowings and
ordinary creditors. Ordinary shareholders have the right to vote at meetings
of the Company. All Ordinary Shares carry equal voting rights.
17. RELATED PARTIES
There have been no material transactions between the Company and its Directors
during the year other than amounts paid to them in respect of expenses and
remuneration for which there were no outstanding amounts payable at the year
end.
Ediston Investment Services Limited has received investment management fees of
£1,703,000 in relation to the year ended 30 September 2022 (2021:
£1,687,000), of which £438,000 (2021: £437,000) remained payable at the
year end. Ediston Investment Services Limited received no development
management fees in relation to the year ended 30 September 2022 (2021:
£257,000).
Ediston Investment Services Limited acquired 541,000 shares in the Company
during the year ended 30 September 2022 (2021: 374,215) as part of its
commitment to reinvest 20% of its quarterly management fee.
The aggregate shareholding of the Manager and its senior personnel as at 30
September 2022 is 2,618,148 (2021: 1,984,667) shares, 1.2% (2021:
0.9%) of the issued share capital as at that date.
18. OPERATING SEGMENTS
The Board has considered the requirements of IFRS 8 'Operating Segments'. The
Board is of the view that the Group is engaged in a single unified business,
being property investment, and in one geographical area, the United Kingdom,
and that therefore the Group has no segments. The Board of Directors, as a
whole, has been identified as constituting the chief operating decision maker
of the Group. The key measure of performance used by the Board to assess the
Group's performance is the total return on the Group's net asset value. As the
total return on the Group's net asset value is calculated based on the net
asset value per share calculated under IFRSs as shown at the foot of the
Consolidated Statement of Financial Position, the key performance measure is
that prepared under IFRSs. Therefore, no reconciliation is required between
the measure of profit or loss used by the Board and that contained in the
Financial Statements.
The view that the Group is engaged in a single unified business is based on
the following considerations:
− one of the key financial indicators received and reviewed by the Board
is the total return from the property portfolio taken as a whole;
− there is no active allocation of resources to particular types or
groups of properties in order to try to match the asset allocation of an index
or benchmark; and
− the management of the portfolio is ultimately delegated to a single
property manager, Ediston Properties Limited.
19. FINANCIAL INSTRUMENTS
Consistent with its objective, the Group holds UK commercial property
investments. In addition, the Group's financial instruments comprise cash and
receivables and payables that arise directly from its operations. The Group
does not have exposure to any derivative instruments.
The Group is exposed to various types of risk that are associated with
financial instruments. The most important types are credit risk, liquidity
risk and interest rate risk. There is no foreign currency risk as all assets
and liabilities of the Group are maintained in pounds sterling. The Group has
insignificant exposure to market price risk related to financial instruments.
The Board reviews and agrees policies for managing the Group's risk exposure.
These policies are summarised below and have remained unchanged for the period
under review. These disclosures include, where appropriate, consideration of
the Group's investment properties which, whilst not constituting financial
instruments as defined by IFRSs, are considered by the Board to be integral
to the Group's overall risk exposure.
SECURITIES FINANCING TRANSACTIONS (SFT)
The Company has not, during the year to 30 September 2022 (2021: same),
participated in any: repurchase transactions; securities lending or borrowing;
buy-sell back transactions; margin lending transactions; or total return swap
transactions (collectively called SFT). As such, it has no disclosure to make
in satisfaction of the EU regulations on transparency of SFT.
The following table summarises the Group's financial assets and liabilities
into the categories required by IFRS 7 'Financial Instruments: Disclosures':
As at 30 September 2022 As at 30 September 2021
Held at fair value through profit or loss Financial assets and liabilities at amortised cost Held at fair value through profit or loss Financialassets and liabilities at amortised cost
£'000 £'000 £'000 £'000
Financial assets
Trade and other receivables - 31,912 - 8,012
Cash and cash equivalents - 50,235 - 11,642
- 82,147 - 19,654
Financial liabilities
Loan - (110,443) - (110,277)
Trade and other payables - (1,890) - (1,321)
- (112,333) - (111,598)
Apart from the Aviva loans, as disclosed in Note 13, the fair value of
financial assets and liabilities is not materially different from their
carrying value in the financial statements.
CREDIT RISK
Credit risk is the risk that a counterparty will be unable or unwilling to
meet a commitment that it has entered into with the Group. At the reporting
date, the Group's financial assets exposed to credit risk amounted to
£82,147,000 (2021: £19,654,000), consisting of cash of £50,235,000 (2021:
£11,642,000), the secured balance held with the loan provider of £31,047,000
(2021: £6,837,000) and rent receivable of £865,000 (2021: £1,175,000).
In the event of default by a tenant, if it is in financial difficulty or
otherwise unable to meet its obligations under the lease, the Group will
suffer a rental shortfall and incur additional expenses until the property is
re-let. These expenses could include legal and surveyor's costs in re-letting,
maintenance costs, insurances, rates and marketing costs, and may have an
adverse impact on the financial condition and performance of the Group. The
Board receives regular reports on concentrations of risk and any tenants in
arrears. The Investment Manager monitors such reports in order to anticipate,
and minimise the impact of, defaults by occupational tenants. In assessing the
probability of default of the individual debtor. The Directors have considered
a number of factors including history of default, past experience, future
expectations as well as the support the debtor receives from its parent
company and the ability to settle the amount receivable when due.
Where there are concerns over the recoverability of rental income, the Group
monitors creditworthiness of the tenants and makes provision for potential bad
debts based on the ECL model. The Group considers historical defaults over the
expected life of the trade receivables and any information related to the
debtors available at year end to determine forward-looking estimates of
possible defaulting. This is consistent with the approach followed in prior
periods. Given an improved rent profile of tenants and having considered their
ability to pay, the wider expected credit losses considered by the Group has
reduced to £34,000 at 30 September 2022 from £85,000 at 30 September 2021.
Having given consideration to these criteria, the Group has determined that
there are no additional expected credit losses other than those already
recognised. As at 30 September 2022, collection plans are in place to recover
any outstanding amounts. There were no other financial assets that were either
past due or considered impaired at 30 September 2022 or at 30 September 2021.
At 30 September 2022, the Group held £47,382,000 (2021: £8,789,000) with RBS
and £2,853,000 (2021: £2,853,000) with Bank of Scotland plc. Bankruptcy or
insolvency of the bank holding cash balances may cause the Group's ability to
access cash placed with them to be delayed, limited or lost. Both RBS and Bank
of Scotland plc are rated by all the main rating agencies. Should the credit
quality or the financial position of the banks currently employed
significantly deteriorate, cash holdings would be moved to another bank. As at
30 September 2022, 'S&P Global Ratings' credit rating for RBS was A-1 and
Moody's was P-1. The equivalent credit ratings for Bank of Scotland plc were
A-1 and P-1, respectively. There has been no change in the fair values of cash
or receivables as a result of changes in credit risk in the current or prior
periods.
LIQUIDITY RISK
Liquidity risk is the risk that the Group will encounter difficulties in
realising assets or otherwise raising funds to meet financial commitments. The
Group's investments comprise commercial properties.
Property and property-related assets in which the Group invests are not traded
in an organised public market and are relatively illiquid assets, requiring
individual attention to sell in an orderly way. As a result, the Group may not
be able to liquidate quickly its investments in these properties at an amount
close to their fair value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the Investment
Manager and monitored on a quarterly basis by the Board. In order to mitigate
liquidity risk the Group has a comprehensive nine-year cash flow forecast that
aims to have sufficient cash balances, taking into account projected receipts
for rental income and property sales, to meet its obligations for a period of
at least 12 months. At the reporting date, the maturity of the financial
assets was:
FINANCIAL ASSETS AS AT 30 SEPTEMBER 2022
Three months or less More than More than one year but less than three years More than Total
£'000 three months but less than one year £'000 three years £'000
£'000 £'000
Cash and cash equivalents 50,235 - - - 50,235
Secured balance held with loan provider 31,047 - - - 31,047
Rent receivable 865 - - - 865
Total 82,147 - - - 82,147
FINANCIAL ASSETS AS AT 30 SEPTEMBER 2021
Three months or less More than More than one year but less than three years More than Total
£'000 three months but less than one year £'000 three years £'000
£'000 £'000
Cash and cash equivalents 11,642 - - - 11,642
Secured balance held with loan provider 6,837 - - - 6,837
Rent receivable 1,175 - - - 1,175
Total 19,654 - - - 19,654
At the reporting date, the financial liabilities on a contractual maturity
basis were:
FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2022
Three months or less More than More than one year but less than three years More than Total
£'000 three months but less than one year £'000 three years £'000
£'000 £'000
Loan - - 56,920 54,156 111,076
Interest payable on loan 802 2,378 5,927 3,439 12,546
Other payables 1,446 - - - 1,446
Total 2,248 2,378 62,847 57,595 125,068
FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2021
Three months or less More than More than one year but less than three years More than Total
£'000 three months but less than one year £'000 three years £'000
£'000 £'000
Loan - - - 111,076 111,076
Interest payable on loan 802 2,378 6,389 6,162 15,731
Other payables 877 - - - 877
Total 1,679 2,378 6,389 117,238 127,684
Included in the tables above are payments due to Aviva, including interest
payable, in connection with the loans as detailed in Note 13.
As at 30 September 2022, the Group remain in compliance with the loan
covenants.
As at 30 September 2022, EPIC 1 reported a LTV of 38.10% (LTV of less than 50%
required), the historical interest cover was reported at 349.74% (historical
interest cover of at least 300% required) and the projected interest cover was
reported at 493.81% (projected interest cover of at least 300% required).
As at 30 September 2022, EPIC 2 reported a LTV of 32.78% (LTV of less than 50%
required), the historical interest cover was reported at 627.54% (historical
interest cover of at least 300% required) and the projected interest cover was
reported at 557.03% (projected interest cover of at least 300% required).
INTEREST RATE RISK
Some of the Group's financial instruments will be interest-bearing. They are a
mix of both fixed and variable rate instruments with differing maturities. As
a consequence, the Group is exposed to interest rate risk due to fluctuations
in the prevailing market rate. The Group's exposure to floating interest rates
gives cash flow interest rate risk and its exposure to fixed interest rates
gives fair value interest rate risk.
The following table sets out the carrying amount of the Group's financial
instruments that are exposed to interest rate risk:
As at 30 September 2022 As at 30 September 2021
Fixed rate Variable rate £'000 Fixed rate Variable rate £'000
£'000 £'000
Cash and cash equivalents - 50,235 - 11,642
Secured balance held with loan provider - 31,047 - 6,837
Loan (110,443) - (110,277) -
VARIABLE RATE
An increase of 1% in interest rates would have increased the reported profit
for the year and increased the net assets at 30 September 2022 by £813,000
(2021: 0.5% £92,000), a decrease of 1% in interest rates would have had an
equal and opposite effect. These calculations are based on the variable rate
balances at the respective balance sheet date and are not representative of
the year as a whole, nor reflective of actual future conditions.
FIXED RATE
Considering the effect on the loan balance, it is estimated that an increase
of 1% in interest rates as at the balance sheet date would have decreased its
fair value by approximately £3,373,000 (2021: 0.50% £2,500,000) and a
decrease of 1% would have increased its fair value by approximately
£3,390,000 (2021: 0.50% £2,600,000). As the loan balance is recognised in
the Consolidated Financial Statements at amortised cost, this change in fair
value would not have resulted in a change in the reported loss for the year,
nor the net assets of the Group at the year end.
20. CAPITAL COMMITMENTS
The Group had contractual commitments totalling £62,100 in relation to new
frontages and roofs overclad of units 1A-1C, Stirling, as at 30 September 2022
(30 September 2021: £4,666,000).
21. OPERATING LEASES
The Group leases out its investment properties under operating leases. These
properties are measured under the fair value model as the properties are held
to earn rentals. All leases are non-cancellable with a weighted average
unexpired lease term of 4.5 years (2021: 5.0 years).
The Group's investment properties are leased to tenants under the terms of
property leases that include rent reviews as determined at the inception of
the lease. These reviews can be linked to RPI, fixed rate or stepped rent
increases.
The following table sets out the maturity analysis of leases receivables,
showing the undiscounted lease payments under non-cancellable operating leases
receivable by the Group:
As at 30 September 2022 As at 30 September 2021
£'000 £'000
Year 1 12,795 19,448
Year 2 11,510 16,136
Year 3 10,182 14,267
Year 4 7,857 12,887
Year 5 6,680 10,643
Year 6 and onwards 16,026 27,507
Total 65,050 100,888
The largest single tenant at the year end accounted for 9% (2021: 6.4%) of the
contracted rent.
22. ALTERNATIVE INVESTMENT FUND MANAGERS (AIFM) DIRECTIVE
Ediston Investment Services Limited has been authorised as an AIFM by the
Financial Conduct Authority under the AIFMD regulations and
became the Group's AIFM with effect from 24 February 2016. In accordance with
the AIFMD, information in relation to the Group's leverage and the
remuneration of the Company's AIFM is required to be made available to
investors. Ediston Investment Services Limited has provided disclosures
on its website,
https://www.ediston.com/about-us-ediston-investment-services-limited/,
incorporating the requirements of the AIFMD regulations
regarding remuneration.
The Group's maximum and actual leverage levels at 30 September 2022 are shown
below:
Leverage ratio
Leverage exposure Gross method Commitment method
Maximum limit 3.00 3.00
Actual 1.3 1.3
For the purposes of the AIFMD, leverage is any method which increases the
Group's exposure, including the borrowing of cash and the use of
derivatives. It is expressed as a percentage of the Group's exposure to its
net asset value and is calculated on both a gross and commitment method.
Under the gross method, exposure represents the sum of the Group's positions
after deduction of cash balances, without taking account of any
hedging or netting arrangements. Under the commitment method, exposure is
calculated in a similar manner as the Company doesn't have any hedging or
netting arrangements.
The leverage limits are set by the AIFM and approved by the Board, and are in
line with the maximum leverage levels permitted in the Company's
Articles of Association. The AIFM is also required to comply with the gearing
parameters set by the Board in relation to borrowings.
Detailed regulatory disclosures to investors in accordance with the AIFMD are
contained on the Company's website.
23. SUBSEQUENT EVENTS
No significant events have occurred between the statement of financial
position date and the date when the financial statements have been approved,
which would require adjustments to, or disclosure in the financial statements.
Company Statement of Financial Position
As at 30 September 2022
Notes As at 30 September 2022 As at 30 September 2021
£'000 £'000
Non-current assets
Investment in subsidiary undertakings 3 200,553 177,448
200,553 177,448
Current assets
Trade and other receivables 4 3,077 3,521
Cash and cash equivalents 5 2,958 2,989
6,035 6,510
Total assets 206,588 183,958
Current liabilities
Trade and other payables 6 (1,304) (1,143)
Total liabilities (1,304) (1,143)
Net assets 205,284 182,815
Equity and reserves
Called-up equity share capital 7 2,113 2,113
Share premium 125,559 125,559
Capital reserve - investments sold 4,649 4,649
Capital reserve - investments held (9,112) (32,217)
Special distributable reserve 82,075 82,711
Revenue reserve - -
Equity shareholders' funds 205,284 182,815
Net asset value per Ordinary Share 10 97.15p 86.51p
The accompanying notes are an integral part of these Financial Statements.
Company number: 09090446.
The Company made a profit for the year ended 30 September 2022 of £33,037,000
(2021: loss of £8,955,000).
The Company Financial Statements were approved by the Board of Directors on 13
December 2022 and signed on its behalf by:
William Hill
Chairman
Company Statement of Changes in Equity
For the year ended 30 September 2022
Notes Share capital account Share premium Capital Capital Special distributable reserve Revenue reserve Total equity
£'000 £'000 reserve - reserve - £'000 £'000 £'000
investments held investments sold
£'000 £'000
As at 30 September 2021 2,113 125,559 (32,217) 4,649 82,711 - 182,815
Profit and total comprehensive income for the year - - 23,105 - - 9,932 33,037
Transactions with owners recognised in equity:
Issue of Ordinary Shares 7 - - - - - - -
Dividends paid 2 - - - - - (10,568) (10,568)
Transfer from special reserve - - - - (636) 636 -
As at 30 September 2022 2,113 125,559 (9,112) 4,649 82,075 - 205,284
For the year ended 30 September 2021
Notes Share capital account Share premium Capital Capital Special distributable reserve Revenue reserve Total equity
£'000 £'000 reserve - reserve - £'000 £'000 £'000
investments held investments sold
£'000 £'000
As at 30 September 2020 2,113 125,559 (32,289) 4,649 83,162 - 183,194
Profit and total comprehensive income for the year - - 72 - - 8,883 8,955
Transactions with owners recognised in equity:
Issue of Ordinary Shares 7 - - - - - - -
Dividends paid 2 - - - - - (9,334) (9,334)
Transfer from special reserve - - - - (451) 451 -
As at 30 September 2021 2,113 125,559 (32,217) 4,649 82,711 - 182,815
The accompanying notes are an integral part of these Financial Statements.
Notes to the Company Financial Statements
1. ACCOUNTING POLICIES
BASIS OF PREPARATION
The Company Financial Statements have been prepared in accordance with FRS
101: Reduced Disclosure Framework and applicable legal and regulatory
requirements of the Companies Act 2006.
The accounts have been prepared on a historical cost basis. The notes and
financial statements are presented in pounds sterling (being the functional
currency and presentational currency for the Company) and are rounded to the
nearest thousand except where otherwise indicated.
The major accounting policies of the Company are set out below and have been
applied consistently throughout the current and prior year.
The results of the Company have been included in the Group's Consolidated
Financial Statements. The accounting policies adopted are consistent with
those adopted by the Group as stated in Note 1 to the Consolidated Financial
Statements. The only additional policy applied is in relation to investments
in subsidiary undertakings and this is set out below.
The Company has taken advantage of the following exemptions permitted under
FRS 101:
− an exemption from preparing the Company cash flow statement and related
notes;
− an exemption from listing any new or revised standards that have not
been adopted or providing information about their likely impact; and
− an exemption from disclosing transactions between the Company and its
wholly-owned subsidiaries.
Shareholders were informed about the Company's intention to use the above
disclosure exemptions in the Annual Report and Accounts 2017 and no objections
have since been received. A shareholder holding, or shareholders holding in
aggregate, 5% or more of the total allotted shares in Ediston Property
Investment Company plc may serve objections to the future use of the
disclosure exemptions on Ediston Property Investment Company plc, in writing,
to its registered office (The Scalpel, 18th Floor, 52 Lime Street, London EC3M
7AF) to be received not later than 90 days prior to the end of Company's
relevant reporting period.
GOING CONCERN
The Financial Statements are prepared on the going concern basis as explained
for the Consolidated Financial Statements.
INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
Investments in subsidiary undertakings are stated at cost less, where
applicable, any provision for impairment under the provisions of IAS 36. A
provision for impairment is recognised to reflect the recoverable amount (Note
3) of the subsidiaries. In accordance with IAS 36, provisions for impairment
will be reduced or increased dependent on the assessment of the recoverable
amount of the subsidiary in future. The value of investments can never exceed
costs.
CAPITAL MANAGEMENT
The Company's capital is represented by the Ordinary Shares, Share Premium,
Capital Reserves, Revenue Reserve and Special Distributable Reserve and is
managed in line with the policies set out for the Group.
COMPANY PROFIT FOR THE FINANCIAL YEAR AFTER TAX
Under Section 408 of the Companies Act 2006, the Company is exempt from the
requirement to present its own profit and loss account. The profit after tax
for the year was £33,037,000 (2021: £8,955,000).
The Company does not have any employees (2021: nil). Details of the Directors'
fees paid during the year are disclosed in the Group's Remuneration Report and
in Note 3 to the Consolidated Financial Statements. All of the Directors' fees
were paid by the parent company, although £217,000 (2021: £202,000) was
subsequently re-allocated to the subsidiaries to reflect the work completed by
the Directors in relation to the property assets held by those companies.
Audit fees in relation to the parent company only were £70,000 (2021:
£42,000), excluding VAT. There were no non-audit fees paid to Grant Thornton
UK LLP by the Company during the year (2021: nil).
2. DIVIDENDS
Details of dividends paid by the Company are included in Note 7 to the
Consolidated Financial Statements.
3. INVESTMENTS IN SUBSIDIARIES
As at 30 September 2022 As at
£'000 30 September 2021
£'000
Opening balance - Investment in EPIC (No.1) Limited 99,527 104,160
Opening balance - Investment in EPIC (No.2) Limited 77,921 73,216
Opening balance - Investments in subsidiaries 177,448 177,376
Impairment loss - EPIC (No.1) Limited (509) (4,633)
Impairment loss reversal - EPIC (No.2) Limited 23,614 4,705
Closing balance - Investment in EPIC (No.1) Limited 99,018 99,527
Closing balance - Investment in EPIC (No.2) Limited 101,535 77,921
Closing balance - Investments in subsidiaries 200,553 177,448
At 1 October 2017, the Company had a single equity investment in a wholly
owned subsidiary, EPIC (No.1) Limited. During the year ended 30 September
2018, EPIC (No.1) Limited repurchased £19,520,000 of the equity previously
issued to the Company.
During the year ended 30 September 2018, the Company subscribed for shares in
a newly incorporated subsidiary, EPIC (No.2) Limited.
The Company's two property-owning subsidiaries above has seen an increase in
investment property values over the course of the year to 30 September 2022.
Details of the movement in the fair value of the investment properties of the
Group are set out in Note 9 to the Consolidated Financial Statements. At 30
September 2022, an assessment of potential impairment of the equity investment
in EPIC (No.1) Limited and EPIC (No.2) Limited was conducted, pursuant to the
principles of IAS 36: Impairment of Assets. The net assets of EPIC (No.1) were
lower than its carrying value which resulted in an impairment, and the net
assets of EPIC (No. 2) Limited were higher than its carrying value which
triggered an impairment write back. Following the principles of IAS 36 an
impairment of £509,000 (2021: £4,633,000 impairment) was identified for EPIC
(No.1) and a write back of £23,614,000 (2021: £4,705,000) in EPIC 2 was
determined.
In terms of IAS 36, an asset should be carried at no more than their
recoverable amount. The recoverable amount is determined as the higher of an
asset's fair value less costs of disposal (FVLCOD) and its value in use. The
cost of disposal used in determining the recoverable amount was 1.5% of the
fair value of the asset. The value in use of an asset is the present value of
the future cash flows expected to be derived from the asset.
In the assessment of this impairment, consideration was given to the nature of
the assets and liabilities of the subsidiaries and a suitable determination of
the recoverable amount of the investment in the subsidiaries. In line with the
requirements of IAS 36, the value in use of each subsidiary was determined
using projected cash flows over a five-year period using a discount rate of
7.7% (2021: 7%) and an expected growth rate of 2% for periods beyond the
projected period of five years. The valuation technique is the sum of the fair
value of the different components within the subsidiaries. Properties are
carried at fair value, cash and working capital are held at amortised cost,
which is considered its fair value. The fair value of debt was discounted
based on a blended discount rate of 7.05% for EPIC (No.1) Limited and a
discount rate of 6% for EPIC (No.2) Limited. The fair value hierarchy of the
assets has been assessed as part of the fair value less costs of disposal, the
assessment sits as a level 3 asset (refer to the accounting policies in the
group accounts for the definition of a level 3 asset). The cost of disposal
used in determining the recoverable amount was 3% of the fair value of the
asset. The inputs to the calculations are subject to a high degree of
estimation uncertainty.
EPIC (No.1) Limited has a FVLCOD of £99,018,000, which is considered an
appropriate recoverable amount. The impairment thus reflects the amount by
which the carrying value of £99,527,000 exceeds the recoverable amount of the
investment in EPIC (No.1). A reasonably possible increase of 10% in the fair
value of EPIC 1's property values would result in a recoverable amount of
£104,160,000 this is limited to the original purchase price of the subsidiary
in line with the principals of IAS36. Similarly, a decrease of 10% in the fair
value of the subsidiary would result in a decrease in the recoverable amount
to £88,866,000.
EPIC (No.2) Limited has a FVLCOD of £101,535,000, which is considered an
appropriate recoverable amount. A write back of previous impairment of
£23,614,000 has therefore been raised, as the recoverable amount of the
investment in EPIC (No.2) Limited exceeds its carrying amount of £77,921,000.
A reasonably possible increase of 10% in the fair value of EPIC 2's property
values would result in a recoverable amount of £105,505,000 this is limited
to the original purchase price of the subsidiary in line with the principals
of IAS36. Similarly, a decrease of 10% in the fair value of the subsidiary
would result in a decrease in the recoverable amount to £90,937,000.
See Note 10 to the Consolidated Financial Statements for further details on
the Group structure.
4. TRADE AND OTHER RECEIVABLES
As at 30 September 2022 As at
£'000 30 September 2021
£'000
Amount due from subsidiary undertakings 3,052 3,504
Other receivables and prepayments 25 17
Total 3,077 3,521
The amount due from subsidiary undertakings is a short-term balance, which
arises from the re-allocation of the Group VAT payment and certain expenses
between members of the Group on a quarterly basis and is settled in cash
shortly after each quarter end.
Based on the assessment of impairment of the subsidiaries, there are no
expected credit losses related to the amounts due from subsidiary
undertakings.
5. CASH AND CASH EQUIVALENTS
All cash balances at the year end were held in cash, current accounts or
deposit accounts.
6. TRADE AND OTHER PAYABLES
As at 30 September 2022 As at 30 September 2021
£'000 £'000
VAT payable to HMRC 471 549
Investment management fee payable 438 437
Other payables 395 157
Total 1,304 1,143
The Company's payment policy is to ensure settlement of supplier invoices in
accordance with stated terms.
7. SHARE CAPITAL
Allotted, called-up and fully paid Ordinary Shares of 1 pence par value Number of shares £'000
Opening balance as at 30 September 2021 211,333,737 2,113
Issue of Ordinary Shares - -
Closing balance as at 30 September 2022 211,333,737 2,113
During the year to 30 September 2022, the Company did not issue any Ordinary
Shares (year ended 30 September 2021: did not issue any Ordinary Shares). The
Company did not buyback or resell from treasury any Ordinary Shares during the
year (2021: nil). The Company did not hold any shares in treasury. Under the
Company's Articles of Association, the Company may issue an unlimited number
of Ordinary Shares.
Ordinary shareholders are entitled to all dividends declared by the Company
and to all of the Company's assets after repayment of its borrowings and
ordinary creditors. Ordinary shareholders have the right to vote at meetings
of the Company. All Ordinary Shares carry equal voting rights.
8. FINANCIAL INSTRUMENTS
The Company's risks associated with financial instruments and the policies for
managing its risk exposure are consistent with those detailed in Note 19 to
the Consolidated Financial Statements.
With regards to the categorisation required by IFRS 7 'Financial Instruments:
Disclosures' all of the Company financial assets and liabilities are
categorised as 'financial assets and liabilities at amortised cost'. The
Company's financial assets consist of trade and other receivables and cash and
cash equivalents. The Company's financial liabilities consist of trade and
other payables.
At the reporting date, the Company's financial assets exposed to credit risk
amounted to £6,010,000 (2021: £6,493,000), consisting of the Company's cash
balance of £2,958,000 (2021: £2,989,000) and current account balances due
from its wholly-owned subsidiaries of £3,052,000 (2021: £3,504,000).
The maturity of the Company's financial liabilities (on a contractual maturity
basis) at 30 September 2022 was as follows:
Three months or less More than three months but less than three years More than three years Total
£'000 £'000 £'000 £'000
Other payables 833 - - 833
The maturity of the Company's financial liabilities (on a contractual maturity
basis) at 30 September 2021 was as follows:
Three months or less More than three months but less than three years £'000 More than three years Total
£'000 £'000 £'000
Other payables 594 - - 594
The Company's only financial instrument exposed to interest rate risk at 30
September 2022 was its cash balance of £2,958,000 (2021: £2,989,000), which
received a variable rate of interest. An increase of 1% in interest rates
would have increased the reported profit for the year, and the net assets at
year end, by £30,000 (2021: 0.50% £15,000). A decrease of 1% in interest
rates would have had an equal and opposite effect. These calculations are
based on the variable rate balances at the respective balance sheet date and
are not representative of the year as a whole, nor reflective of actual future
conditions.
9. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE INVESTMENT MANAGER
Other than transactions between the Company and its wholly owned subsidiaries,
in relation to which the Company has adopted the permitted exemption allowed
by FRS 101, related party transactions are the same for the Company as for the
Group. For details, refer to Note 17 to the Consolidated Financial Statements.
The fees payable to the Directors and the Investment Manager are initially
paid by the Company, but may be reallocated, in whole or in part, to the
subsidiaries.
10. NET ASSET VALUE
The Company's NAV per Ordinary Share of 97.15 pence (2021: 86.51 pence) is
based on equity shareholders' funds of £205,284,000 (2021: £182,815,000) and
on 211,333,737 (2021: 211,333,737) Ordinary Shares, being the number of shares
in issue at the year end.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR UOAWRUKUUAAA