REG - Supermarket Inc REIT - Half-year Report <Origin Href="QuoteRef">SUPR.L</Origin> - Part 2
05/02/2018 07:05
- Part 2: For the preceding part double click ID:nRSE8473Da
(unaudited) 1,200 86,362 (90) 28,625 (3,553) 112,544
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
General information
The principal activity of Supermarket Income REIT plc ('the Company') and its
subsidiaries ('the Group') is to provide its shareholders with an attractive
level of income together with the potential for capital growth by investing in
a diversified portfolio of supermarket real estate assets in the UK.
These unaudited condensed consolidated financial statements for the period
from the Company's incorporation on 1 June 2017 to 31 December 2017, have been
prepared in accordance with:
· IAS 34 'Interim Financial Reporting', as adopted by the European Union,
except for the requirement to include prior period comparatives as this is the
Company's first financial period since incorporation;
· The Disclosure and Transparency Rules of the Financial Conduct
Authority; and
· The Companies Act 2006, as applicable to companies reporting under
IFRS.
As this is the Company's first accounting period, annual statutory financial
statements have not yet been filed with the Registrar of Companies. The
Company will prepare its first statutory financial statements in accordance
with standards, interpretations and amendments that are currently effective
under IFRS, as adopted by the European Union
The condensed consolidated financial statements ('the financial statements')
have been prepared on a historical cost basis, except that investment
properties and interest rate derivatives are measured at fair value.
Accounting convention and currency
The financial statements are presented in Pounds Sterling and all values are
rounded to the nearest thousand (£'000), except where otherwise indicated.
Pounds Sterling is the functional currency of the Company and the presentation
currency of the Group.
Going concern
In assessing the going concern basis of accounting the Directors have had
regard to the guidance issued by the Financial Reporting Council.
During this initial period the Group raised £120 million from the issue of
equity shares and a further £100 million under the credit facility referred to
in note 14, of which £5.2 million remained available for drawdown as at 31
December 2017. There is currently significant headroom under the credit
facility with all financial covenants met to date.
The Group generated a net cash flow from operating activities in the period of
£3.9 million, with its cash balances at 31 December 2017 totalling £1.3
million and the Group having no capital commitments or contingent liabilities
as at that date.
NOTES TO THE FINANCIAL STATEMENTS
The Group benefits from a secure income stream from its property assets that
are let to tenants with excellent covenant strength under long leases that are
subject to upward only annual RPI rent reviews.
As a result, the Directors believe that the Group is well placed to manage its
financing and other business risks and that the Group will remain viable,
continuing to operate and meet its liabilities as they fall due. The Directors
are therefore of the opinion that the going concern basis adopted in the
preparation of the financial statements is appropriate.
New standards, interpretations and amendments
The new standards, interpretations and amendments set out below, which are all
not yet effective and have not been early adopted in these financial
statements, may have an effect on the future financial statements of the
Group.
Description of new standards:
· IFRS 9 'Financial Instruments' This standard is replacing IAS 39
'Financial Instruments' and contains two primary measurement categories for
financial assets. The standard also introduces new requirements that align
hedge accounting more closely with risk management and establishes a more
principles-based approach. This standard has been endorsed by the European
Union and is to be effective for annual periods beginning on or after 1
January 2018.
· IFRS 15 'Revenue from contracts with customers'. This standard is
replacing IAS 11 'Construction Contracts' and IAS 18 'Revenue'. The standard
introduces a new revenue recognition model that recognises revenue either at a
point in time or over time. This standard has been endorsed by the European
Union and is to be effective for annual periods beginning on or after 1
January 2018.
· IFRS 16 'Leases'. This standard introduces a single, on-balance sheet
accounting model for leases which refers primarily to accounting for lessees.
Lessors continue to classify leases as operating or finance, with IFRS 16's
approach to lessor accounting substantially unchanged from its predecessor,
IAS 17. This standard has been endorsed by the European Union and is to be
effective for annual periods beginning on or after 1 January 2019.
Current assessment of expected impact:
The Directors do not currently anticipate that the adoption of IFRS 9 will
have a material impact on the financial statements, other than on presentation
and disclosure, when the standard is first required to be applied by the
Group, assuming that the existing capital structure and financing arrangements
remain in place when it becomes effective.
The Group's revenues are currently all derived from property leases, which are
outside the scope of IFRS 15 but within the scope of IFRS 16. The Directors
therefore do not currently expect that IFRS 15 will have an impact on the
financial statements when the standard is first required to be applied by the
Group.
NOTES TO THE FINANCIAL STATEMENTS
Since IFRS 16 will not result in significant changes of accounting policies
for lessors, the Directors do not currently expect that the adoption of this
standard will have a material impact on the financial statements when first
required to be applied by the Group.
2. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
In the application of the Group's accounting policies, which are summarised in
note 3, the Directors are required to make judgements, estimates and
assumptions that affect the reported amounts recognised in the financial
statements and the disclosures therein.
The judgements, estimates and assumptions that the Directors consider have a
significant risk of causing a material adjustment to the carrying amounts of
the Group's assets and liabilities within the next twelve months are outlined
below.
Fair value of investment properties
The valuation of the Group's investment properties is at fair value, which is
determined by the Group's independent valuer on the basis of market value in
accordance with the RICS Valuation - Professional Standards (the 'Red Book').
Recognised valuation techniques are used by the independent valuer which are
in accordance with those recommended by the International Valuation Standard
Committee and compliant with IFRS 13, Fair Value Measurement.
The independent valuer has sufficient current local and national knowledge of
the supermarket property market and has the requisite skills and understanding
to undertake the valuation competently.
In forming an opinion as to fair value, the independent valuer makes a series
of assumptions, which are typically market related, such as those in relation
to net initial yields and expected rental values. These are based on the
independent valuer's professional judgement. Other factors taken into account
by the independent valuer in arriving at the valuation of the Group's
investment properties include the length of property leases, the location of
the properties and the strength of tenant covenants.
The significant methods and assumptions used by the independent valuer in
estimating the fair value of the Group's investment properties are set out in
note 11.
Acquisition of investment properties
The Group has acquired and intends to acquire further investment properties.
At the time of each purchase the Directors assess whether an acquisition
represents the acquisition of an asset or the acquisition of a business. To
date all acquisitions of properties have been direct asset purchases.
The Group may in future acquire entities that own property assets. These
acquisitions would be accounted for as a business combination only if an
integrated set of activities were to be acquired in addition to the property.
In the situations where such an acquisition was not be judged to be an
acquisition of a business, the Group would not treat it as a business
combination. Rather, the cost to acquire the entity concerned would be
allocated between the identifiable assets and liabilities of the entity based
upon their relative
NOTES TO THE FINANCIAL STATEMENTS
fair values at the acquisition date. Accordingly, no goodwill or additional
deferred taxation would arise from such an acquisition.
Operating lease contracts - the Group as lessor
The Group has acquired investment properties that are subject to commercial
property leases with tenants. The Directors have concluded, based on an
evaluation of the terms and conditions of the arrangements, that the Group
retains all the significant risks and rewards of ownership of the properties
acquired to date and so has accounted for these leases as operating leases
rather than finance lease. Such considerations are required each time that the
Group acquires a property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of the condensed
consolidated financial statements are set out below.
3.1 Basis of consolidation
The condensed consolidated financial statements comprise the financial
statements of the Company and all of its subsidiaries drawn up to 31 December
2017.
Subsidiaries are those entities, including special purpose entities, directly
or indirectly controlled by the Company. 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 are eliminated in full.
Uniform accounting policies are adopted for all companies within the Group.
3.2 Segmental information
The Directors are of the opinion that the Group is currently engaged in a
single segment business, being the investment in the United Kingdom in
supermarket property assets.
3.3 Rental income
Rental income arising on investment properties is accounted for in profit or
loss on a straight line basis over the lease term, as adjusted for the
following:
· Any rental income from fixed and minimum guaranteed rent review uplifts
is recognised on a straight line basis over the shorter of the term to lease
expiry or to the first tenant break option;
NOTES TO THE FINANCIAL STATEMENTS
· Lease incentives are spread evenly over the lease term, even if payments
are not made on such a basis. The lease term is the non-cancellable period of
the lease together with any further term for which the tenant has the option
to continue the lease, where, at the inception of the lease, the Directors are
reasonably certain that the tenant will exercise that option.
Contingent rents are recognised in the period in which they are earned.
Where income is recognised in advance of the related cash flows due to fixed
and minimum guaranteed rent review uplifts or lease incentives, an adjustment
is made to ensure that the carrying value of the relevant property, including
the accrued rent relating to such uplifts or lease incentives, does not exceed
the external valuation.
Rental income is invoiced in advance with that element of invoiced rental
income that relates to a future period being included within current
liabilities in the consolidated statement of financial position.
3.4 Finance expense
Finance expense consist principally of interest payable and loan arrangement
fees.
Loan arrangement fees are expensed using the effective interest method over
the term of the relevant loan. Interest payable and any other finance costs,
including commitment fees, which the Group incurs in connection with bank
borrowings, are expensed in the period in which they occur.
3.5 Administrative and other expenses
Administrative and other expenses, including the investment advisory fees
payable to the Investment Adviser, are recognised in profit or loss on an
accruals basis.
3.6 Dividends payable to shareholders
Dividends to the Company's shareholders are recognised, when they become
legally payable, as a reduction in equity in the financial statements. Interim
equity dividends are recognised when paid. Final equity dividends will be
recognised when approved by shareholders at an Annual General Meeting.
3.7 Taxation
Non-REIT taxable income
Taxation on the Group's profit or loss for the period that is not exempt from
tax under the UK-REIT regulations comprises current and deferred tax, as
applicable. Tax is recognised in profit or loss except to the extent that it
relates to items recognised as direct movements in equity, in which case it is
similarly recognised as a direct movement in equity.
Current tax is the expected tax payable on any non-REIT taxable income for the
period, using tax rates enacted or substantively enacted at the end of the
relevant period.
NOTES TO THE FINANCIAL STATEMENTS
Entry to the UK-REIT regime
The Group obtained its UK-REIT status effective from 21 December 2017. Entry
to the regime results in, subject to continuing relevant UK-REIT criteria
being met, the profits of the Group's property rental business, comprising
both income and capital gains, being exempt from UK taxation.
The Group intends to ensure that it complies with the UK-REIT regulations on
an on-going basis and regularly monitors the conditions required to maintain
REIT status.
3.8 Investment properties
Investment properties consist of land and buildings (all supermarkets) which
are held to earn rental income together with the potential for capital
growth.
Investment properties are recognised when the risks and rewards of ownership
have been transferred and are measured initially at cost, being the fair value
of consideration given, including transaction costs. Transaction costs include
transfer taxes and professional fees for legal services. Any subsequent
capital expenditure incurred in improving investment properties is capitalised
in the period incurred and included within the book cost of the property. All
other property expenditure is written off in profit or loss as incurred.
After initial recognition, investment properties are measured at fair value,
with gains and losses recognised in profit or loss in the period in which they
arise.
Gains and losses on disposals of investment properties will be determined as
the difference between the net disposal proceeds and the carrying value of the
relevant asset. These will be recognised in profit or loss in the period in
which they arise.
3.9 Financial assets and liabilities
Financial assets and liabilities are recognised when the relevant group entity
becomes a party to the unconditional contractual terms of an instrument.
Unless otherwise indicated, the carrying amounts of financial assets and
liabilities are considered by the Directors to be reasonable estimates of
their fair values.
Financial assets
Financial assets are recognised initially at their fair value. All of the
Group's financial assets, except interest rate derivatives, currently
constitute 'loans and receivables' which are measured at amortised cost using
the effective interest method, less any impairment.
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.
NOTES TO THE FINANCIAL STATEMENTS
Trade and other receivables
Trade and other receivables, including rents receivable, are recognised and
carried at the lower of their original invoiced value and recoverable amount.
A provision for impairment will be made where there is objective evidence that
the Group will not be able to recover balances in full. Balances will be
written-off in profit or loss in circumstances where the probability of
recovery is assessed as being remote.
Trade and other payables
Trade and other payables are recognised initially at their fair value and
subsequently at amortised cost.
Bank borrowings
Bank borrowings are initially recognised at fair value net of attributable
transaction costs. After initial recognition, bank borrowings are subsequently
measured at amortised cost, using the effective interest method. The effective
interest rate is calculated to include all associated transaction costs.
Derivative financial instruments and hedge accounting
The Group's derivative financial instruments currently comprise interest rate
caps that are designated as hedging instruments and for which hedge accounting
is being applied. These instruments are used to manage the Group's cash flow
interest rate risk.
The instruments are initially recognised at fair value on the date that the
derivative contract is entered into, being the cost of any premium paid at
inception and are subsequently re-measured at their fair values at each
reporting date.
Fair value measurement
The fair value of these instruments is the estimated amount that the Group
would receive or pay to terminate the agreement at the period end date, taking
into account current interest rate expectations and the current credit rating
of the Company and its counterparties.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs significant to the fair value measurement as a whole.
A number of assumptions are used in determining the fair values including
estimations over future interest rates and therefore future cash flows. The
fair value represents the net present value of the difference between the cash
flows produced by the contract rate and the valuation rate.
Hedge accounting
At the inception of a hedging transaction, the Group documents the
relationship between hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking the hedging transaction.
The Group also documents its assessment, both at hedge inception and on an
NOTES TO THE FINANCIAL STATEMENTS
ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash
flows of hedged items.
Assuming the criteria for applying hedge accounting continue to be met the
effective portion of gains and losses on the revaluation of such instruments
are recognised in other comprehensive income and accumulated in the cash flow
hedging reserve. Any ineffective portion of such gains and losses will be
recognised in profit or loss within finance income or expense as appropriate.
The cumulative gain or loss recognised in other comprehensive income is
reclassified from the cash flow hedge reserve to profit or loss (finance
expense) at the same time as the related hedged interest expense is
recognised.
3.10 Equity instruments
Equity instruments issued by the Company are recorded at the amount of the
proceeds received, net of directly attributable issue costs. Costs not
directly attributable to the issue are immediately expensed in profit or
loss.
Further details of the accounting for the proceeds from the issue of shares in
the period are disclosed in note 16.
3.11 Fair value measurements and hierarchy
Fair value is the price that would be received on the sale of an asset, or
paid to transfer a liability, in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on
the presumption that the transaction takes place either in the principal
market for the asset or liability, or in the absence of a principal market, in
the most advantageous market. It is based on the assumptions that market
participants would use when pricing the asset or liability, assuming they act
in their economic best interest. A fair value measurement of a non-financial
asset takes into account the best and highest value use for that asset.
The fair value hierarchy to be applied under IFRS 13 is as follows:
Level 1: Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
Level 3: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are carried at fair value and which will be
recorded in the financial statements on a recurring basis, the Group will
determine whether transfers have occurred between levels in the hierarchy by
reassessing categorization at the end of each reporting period.
NOTES TO THE FINANCIAL STATEMENTS
4. Rental income
1 June 2017 to
31 December 2017
£' 000
Rental income - freehold property 1,408
Rental income - long leasehold property 1,743
Total rental income 3,151
Included within rental income is a £131,000 rent smoothing adjustment that arises as a result of IAS 17 'Leases' requiring that rental income in respect of leases with rents increasing by a fixed percentage to be accounted for on straight line basis over the lease term. During the period this resulted in an increase in rental income and an offsetting entry being recognised in profit or loss as an increase in the deficit on investment property revaluation.
5. Administrative and other expenses
1 June 2017 to
31 December 2017
£' 000
Investment Adviser fees 440
Directors' remuneration 81
Corporate administration fees 110
Legal and professional fees 201
Other administrative expenses 133
Total administrative and other expenses 965
The fees relating to the issue of shares in the period have been treated as share issue expenses and offset against the share premium reserve. Legal and professional fees and other administrative expenses include £260,000 of non-recurring costs relating to the establishment of the Company.
6. Directors' remuneration
1 June 2017 to
31 December 2017
£' 000
Directors' fees 73
Employer's National Insurance Contributions 8
Total directors' remuneration 81
7. Finance expense 1 June 2017 to
31 December 2017
£' 000
Interest payable on bank borrowings and hedging arrangements 453
Commitment fees payable on bank borrowings 85
Amortisation of loan arrangement fees 111
Total finance expense 649
NOTES TO THE FINANCIAL STATEMENTS
8. Taxation
a) Tax charge in profit or loss
1 June 2017 to
31 December 2017
£' 000
UK corporation tax (231)
The Company and its subsidiaries operate as a UK Group REIT. Subject to continuing compliance with certain rules, the UK REIT rules exempt the profits of the Group's property rental business from UK corporation tax. To operate as a UK Group REIT a number
of conditions had to be satisfied in respect of the Company, the Group's qualifying activity and the Group's balance of business. Since the 21 December 2017 the Group has met all such applicable conditions. In the intervening period from incorporation of
Company on 1 June 2017 to 21 December 2017 the Group was subject to UK corporation tax on its property rental business at an effective rate of 19%, resulting in the above tax liability.
The reconciliation of the loss before tax multiplied by the standard rate of corporation tax for the period of 19% to the total tax charge is as follows:
b) Reconciliation of the tax charge for the period
1 June 2017 to
31 December 2017
£' 000
Loss on ordinary activities before taxation (3,322)
Theoretical tax at UK standard corporation tax rate of 19% (631)
Investment property revaluation not subject to taxation 923
REIT exempt income (61)
Tax charge in the period 231
NOTES TO THE FINANCIAL STATEMENTS
9. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing the profit or loss for the period attributable to ordinary equity
holders of the Company by the weighted average number of ordinary shares in issue during the period. As there are no dilutive
instruments outstanding, basic and diluted earnings per share are identical. The European Public Real Estate Association
('EPRA') publishes guidelines for calculating adjusted earnings on a comparable basis. EPRA EPS is a measure of EPS designed by
EPRA to enable entities to present underlying earnings from core operating activities, which excludes fair value movements on
investment properties.
The calculation of basic, diluted and EPRA EPS is as follows:
Net (loss)/ profit attributable to ordinary shareholders Weighted average number of ordinary shares ₁ Earnings/ (loss) per share
For the period from 1 June 2017 to 31 December 2017 £' 000 Number Pence
Basic and diluted EPS (3,553) 105,542,169 (3.37)p
Adjustments to remove:
Changes in fair value of investment properties 4,859 105,542,169 4.61p
EPRA EPS 1,306 105,542,169 1.24p
1 Based on the weighted average number of ordinary shares in issue from the date of the initial public offering to 31 December
2017. This excludes the period from 1 June 2017 to 20 July 2017 when the Group was effectively dormant.
10. Dividends
1 June 2017 to
31 December 2017
£' 000
Amounts recognised as a distribution to ordinary shareholders in the period:
First interim dividend (1,375)
On 28 September 2017, the Company declared its first interim dividend of 1.375 pence per share for which 100 million ordinary shares were eligible. This dividend was paid on 27 October 2017. On 5 February 2018 the Board has declared a second interim dividend of 1.375 pence per share in respect of the Group's first financial period which will be paid on or around 3 March 2018 to shareholders on the register on 16 February 2018. This has not been included as a liability as at 31
December 2017.
NOTES TO THE FINANCIAL STATEMENTS
11. Investment property
In accordance with lAS 40 'Investment Property', the Group's investment properties have been independently valued at fair value
by Cushman & Wakefield, an accredited independent valuer with a recognised and relevant professional qualification and with
recent experience in the locations and categories of the investment properties being valued. The valuations have been prepared
in accordance with the RICS Valuation - Professional Standards (the 'Red Book') and incorporate the recommendations of the
International Valuation Standards Committee which are consistent with the principles set out in IFRS 13.
The independent valuer in forming its opinion on valuation makes a series of assumptions. As explained in note 2, all the
valuations of the Group's investment property at 31 December 2017 are classified as 'level 3' in the fair value hierarchy
defined in IFRS 13.
The valuations are ultimately the responsibility of the Directors. Accordingly, the critical assumptions used in establishing
the independent valuation are reviewed by the Board.
Investment properties -freehold Investment properties - long leasehold Total
£' 000 £' 000 £' 000
At 1 June 2017 - - -
Property additions 79,885 121,655 201,540
Capitalised acquisition costs 4,467 6,621 11,088
Revaluation movement (1,152) (3,576) (4,728)
Valuation at 31 December 2017 83,200 124,700 207,900
All property acquisitions in the period were direct asset acquisitions. Included within the carrying value of investment
properties at 31 December 2017 is £131,000 in respect of the smoothing of fixed contractual rent uplifts as described in note 4.
The difference between rents on a straight line basis and rents actually receivable is included within the carrying value of the
investment properties but does not increase that carrying value over fair value. The effect of this adjustment on the
revaluation movement for the period is as follows:
As at
31 December
2017
£' 000
Revaluation movement per above (4,728)
Rent smoothing adjustment (note 4) (131)
Change in fair value recognised in profit or loss (4,859)
NOTES TO THE FINANCIAL STATEMENTS
11. Investment property (continued)
Valuation techniques and key unobservable inputs
Valuation techniques used to derive fair values
The valuations have been prepared on the basis of market value which is
defined in the RICS Valuation Standards as 'the estimated amount for which an
asset or liability should exchange on the date of the valuation between a
willing buyer and a willing seller in an arm's length transaction after proper
marketing wherein the parties had each acted knowledgeably, prudently and
without compulsion'. Market value as defined in the RICS Valuation Standards
is the equivalent of fair value under IFRS.
Unobservable inputs
These include but are not limited to: the estimated rental value ('ERV') based
on market conditions prevailing at the valuation date; the future rental
growth - the estimated average increase in rent based on both market
estimations and contractual situations; the equivalent yield (defined as the
weighted average of the net initial yield and reversionary yield); and the
physical condition of the individual properties determined by inspection.
A decrease in ERV would decrease fair value. A decrease in the equivalent
yield would increase the fair value. An increase in the remaining lease term
would increase the fair value.
Sensitivity of measurement of significant unobservable inputs
As described in note 2 to the financial statements the determination of the
valuation of the Group's investment property portfolio is open to judgements
and is inherently subjective by nature.
Sensitivity analysis - impact of changes in initial yields and passing rent
Initial yields of the Group's investment properties at 31 December 2017 range
from 4.3% to 5.5%. A 0.25% shift of the initial yield on all the Group's
investment properties would have approximately a £10.3 million impact on the
total valuation of the properties. A 1% movement in the passing rents across
all the Group's investment properties would have approximately a £2.1 million
impact on the total valuation of the properties.
12. Trade and other receivables As at
31 December
2017
£' 000
Trade receivables 55
Prepayments and other receivables 49
104
All trade receivables relate to amounts that are less than 30 days overdue as at the period end date.
NOTES TO THE FINANCIAL STATEMENTS
13. Trade and other payables As at
31 December
2017
£' 000
Corporate accrualsTrade payables 1,13753
VAT payable 335
1,525
14. Bank borrowings
As at
31 December
2017
Amounts falling due after more than one year £' 000
Secured debt 94,743
Less: Unamortised finance costs (921)
Bank borrowings per the consolidated statement of financial position 93,822
On 30 August 2017 the Company announced that the Group had secured a
revolving credit facility (the 'credit facility') of £100 million with
HSBC Bank Plc.
The credit facility has a maturity of 3 years and contains options for
extension of two years (split into two, one year extensions). The
extension options require the agreement of both the Group and
counterparty bank in order to exercise.
All the advances drawn under the credit facility have an interest charge
which is payable quarterly based on a margin above three-month LIBOR. The
margin payable by the Group on its bank borrowings as at 31 December 2017
was 160 basis points above three-month LIBOR. Any associated fees in
arranging the bank borrowings that are unamortised as at the end of the
period are offset against amounts drawn under the facility as shown in
the table above.
The Group has been in compliance with all of the financial covenants
under the credit facility throughout the period covered by these
financial statements.
The bank borrowings are secured by way of charges over the individual
investment properties held by certain asset-holding subsidiaries. The
lending bank also holds charges over the shares of these subsidiaries and
any intermediary holding companies of those subsidiaries. The Group does
not provide any cross-group guarantees nor does the Company act as a
guarantor to the lending bank.
At 31 December 2017, £94.7 million has been drawn down in total under the
credit facility.
NOTES TO THE FINANCIAL STATEMENTS 15. Interest rate derivatives
As at
31 December
2017
£' 000
Non-current asset: Interest rate derivative 55
The interest rate derivative is remeasured to fair value by the
counterparty bank on a quarterly basis.
The fair value at the end of the period comprises: £' 000
Interest rate cap premium paid on inceptionAmortisation in the period 158(13)
Change in fair value of interest rate derivative in the period (90)
Fair value as at 31 December 2017 55
To partially mitigate the interest rate risk that arises as a result of
entering into the variable rate credit facility referred to in note 14,
the Group entered into a derivative interest rate cap ('the cap') during
the period. The total notional value of the cap was £63.5 million with
its term coinciding with the expiry of the initial term of the credit
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