REG - TR Property Inv. - Preliminary Announcement of Annual Results
01/06/2022 07:00
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RNS Number : 4820N TR Property Investment Trust PLC 01 June 2022
TR PROPERTY INVESTMENT TRUST PLC
LONDON STOCK EXCHANGE ANNOUNCEMENT
Unaudited preliminary results for the year ended 31 March 2022
LEI: 549300BPGCCN3ETPQD32
Information disclosed in accordance with Disclosure Guidance and Transparency
Rule 4.1
TR Property Investment Trust plc, announces its full year results for the year
ended 31 March 2022 (unaudited)
Chairman David Watson commented
"In a year dominated by volatility and powerful global macroeconomic and
political themes, I'm pleased to report a year of healthy performance. Our NAV
total return for the year was 21.4% against a benchmark of 12.2%."
Manager Marcus Phayre-Mudge commented
"Although the economic outlook remains unsettled, property assets,
particularly where the income is index-linked, should remain relatively
attractive despite rising interest costs."
Year ended 31 March Year ended 31 March
2022 2021 Change
Balance Sheet
Net asset value per share 492.43p 417.97p +17.8%
Shareholders' funds (£'000) 1,562,739 1,326,433 +17.8%
Shares in issue at the end of the year (m) 317.4 317.4 0.0%
Net debt(¹,6) 10.2% 16.5%
Share Price
Share price 456.50p 392.50p +16.3%
Market capitalisation £1,449m £1,246m +16.3%
Year ended 31 March Year ended 31 March
2022 2021 Change
Revenue
Revenue earnings per share 13.69p 12.25p +11.8%
Dividends²
Interim dividend per share 5.30p 5.20p +1.9%
Final dividend per share 9.20p 9.00p +2.2%
Total dividend per share 14.50p 14.20p +2.1%
Performance: Assets and Benchmark
Net Asset Value total return (3,6) +21.4% +20.7%
Benchmark total return (6) +12.2% +15.9%
Share price total return (4,6) +19.9% +28.3%
Ongoing Charges(5,6)
Including performance fee 2.19% 1.40%
Excluding performance fee 0.60% 0.65%
Excluding performance fee and direct property costs 0.58% 0.63%
1. Net debt is the total value of loan notes, loans (including
notional exposure to CFDs) less cash as a proportion of net asset value.
2. Dividends per share are the dividends in respect of the financial
year ended 31 March 2022. An interim dividend of 5.30p was paid on 14 January
2022. A final dividend of 9.20p (2021: 9.00p) will be paid on 2 August 2022 to
shareholders on the register on 24 June 2022. The shares will be quoted
ex-dividend on 23 June 2022.
3. The NAV Total Return for the year is calculated by reinvesting
the dividends in the assets of the Company from the relevant ex-dividend date.
Dividends are deemed to be reinvested on the ex-dividend date as this is the
protocol used by the Company's benchmark and other indices.
4. The Share Price Total Return is calculated by reinvesting the
dividends in the shares of the Company from the relevant ex-dividend date.
5. Ongoing Charges are calculated in accordance with the AIC
methodology. The Ongoing Charges ratios provided in the Company's Key
Information Document are calculated in line with the PRIIPs regulation which
is different to the AIC methodology.
6. Considered to be an Alternative Performance Measure
Chairman's statement
Introduction
The year was again dominated by powerful global macro- economic and political
themes, propelling the market in the first half and depressing it in the
second. Spring 2021 saw broadly-based market optimism through the continuation
of broad post vaccine recovery across all economies, aided by the sustained
dovish response from central banks. As inflationary pressures built towards
the second half, particularly due to supply chain disruption and increasingly
tight labour markets, investors began to build in expectation of increases in
base rates and consequently, credit spreads and expectations of global growth
moderated or evaporated. The central investment theme became inflationary
concerns, with the key questions being its degree of permanence and the
various key central banks' responses. Towards the end of the financial year,
risk was elevated further by the tragic events and unfolding humanitarian
disaster in Ukraine. For global equity markets the cold-hearted financial
repercussions are manifold; evidenced through the price of energy and the
supply and price of a range of hard and soft commodities which were mined,
refined or grown in abundance in Ukraine. The longer-term impact of Russian
aggression on commodity prices and global trade and energy flows are only now
starting to be understood.
It may therefore seem somewhat surprising that against that back drop I am
able to report a year of healthy performance for the Company. Our net asset
value total return was +21.4%, well ahead of the benchmark return of +12.2%.
The share price total return at +19.9% was slightly behind the underlying
asset growth, as the discount between the share price and the NAV widened just
before the year end.
At the half year, I highlighted that our Manager continued to focus on the
most sustainable income and that he had further tilted the portfolio towards
index-linked income. This continued to be the case in the second half and
helped drive relative performance. Real estate has good inflation protecting
attributes, not least that the vast majority of our income is, to varying
degrees, explicitly linked to national inflation indices. Inevitably, it is
not just public market investors who have realised the attraction of steady
real income growth. Private equity investment into real estate continues to be
elevated and there has been much merger and acquisition activity which is
detailed later in the Manager's report. The consequences for the Company are
twofold. In the short term, we have made sizeable gains from our stakes in
those companies which have been taken private or merged. Secondly, investors
have responded, recognising that if listed property companies share prices are
left to drift well below asset value then the private market will swoop in.
This remains a critical and valuable underpin.
Revenue results and dividend
Earnings for the year were 13.69p per share, 12% higher than the previous year
(12.25p) but still almost 6% behind pre COVID-19 levels.
As anticipated in the Half Year Report, earnings for the second half were
lower than in the previous year. This was partly because of one-off items in
the second half of the year to March 2021 which did not recur and partly
because of the significant changes in dividend timetables seen through the
year but which largely impacted the second half. Many companies moved to more
frequent and smaller distributions, which reduced income in comparison to the
prior year due simply to timing. More details are set out in the Manager's
Report.
These factors mask a positive underlying trend and, as described above, our
Manager has focused the portfolio on sources of sustainable income. The Board
is therefore pleased to announce an increase in the final dividend to 9.20p
(2021: 9.00p) bringing the full year dividend to 14.50p, an increase of just
over 2%. This will require a small contribution from the Company's revenue
reserve. We highlighted in the last Annual Report that we expected that this
would be the case and that the Board was happy to employ some of the revenue
reserve, providing a return to pre COVID-19 income levels could be expected in
the medium term.
Revenue outlook
Our Manager is feeling comfortable about the Company's revenue outlook.
Dividends announced for the first quarter are showing increases on the prior
year. Many of our investee companies have medium term debt arrangements
secured when interest rates were at historic lows and so will not immediately
feel the impact of higher interest rates. Further ahead, this will become more
of an issue if higher rates persist. Our own income tax rate will also
increase for the 2022/23 financial year. As always, the Board will keep an eye
to the longer term, but having built up the revenue reserve over many years,
we feel it is appropriate to maintain dividend levels where we can easily do
so provided a longer term fall in income is not expected. After the final
dividend set out above, the revenue reserve will still be 11.37p per share.
Net Debt and Currencies
The opening gearing position was 16.5% and closed at 10.2%. It fluctuated over
the year between these levels as the gearing was actively managed. Our debt
portfolio gives us considerable flexibility to increase and decrease gearing
levels quickly and this has proved beneficial yet again.
Sterling has traded in a narrow range against the Euro throughout the year and
it closed only fractionally stronger at the end of the year. Therefore
currencies have not been a significant factor in this year's results.
Discount and Share Repurchases
From the starting point of 6.1% the discount, for the most part, gradually
narrowed in the period up to the beginning of 2022 and then traded at a small
premium through January. With the invasion of Ukraine and a general worsening
of sentiment, the shares moved back to a discount, its widest at 9.9% and
closing the year at 7.4%. The discount average for the year was 3.4%. This
meant that the share price return was slightly behind the NAV return.
No share buy-backs or issues were made during the year.
Awards
The Company was the winner of in the Specialist Equities category of the
Citywire Investment Trust Awards for the second year running. It has also been
awarded ratings with a number of platforms and publications and these are
included in the shareholder information section later in this report.
Outlook
The era of cheap money is coming to an end. Inflation is surging and central
banks are reversing their balance sheet expansion that has defined the period
following the Global Financial Crisis. Consequently, bond markets are volatile
and real (as opposed to nominal) yields on duration debt are getting even more
negative. Inflation protected income is becoming harder to find so
index-linked property income should remain attractive. However, rising
interest costs are clearly a headwind for any leveraged asset class.
Our strategy remains the same, identifying asset classes and sub-markets where
demand outstrips supply and where rents are capable of rising. Build cost
inflation and the regulatory/social pressure to build more sustainably (higher
upfront cost, but lower long-term maintenance and running costs)
has squeezed development margins. Our Manager expects a subdued development
cycle in many markets and a reduction in risk of oversupply must be a positive
in the medium term. We continue to seek more exposure to asset classes where
rebuild costs are well above the current prescribed asset values. Equity
market volatility is providing us with some of these opportunities in the
listed space and we hope to enlarge our physical property portfolio based on
the same investment thesis.
David Watson
Chairman
31 May 2022
Manager's Report
Performance
The Net Asset Value total return for the year to the end of March 2022 was
+21.4%, ahead of the benchmark total return of +12.2%.
The Spring and Summer of 2021 saw a benign backdrop of continuing monetary
policy largesse from central banks coupled with an improving outlook for all
economies and this bode well for many parts of the real estate landscape.
Share prices across our universe responded accordingly and our NAV grew by 14%
from April to August. Post the summer holidays investors increasingly fretted
over the themes of a global slowdown (breakdown in supply chains, COVID-19
impacted manufacturing capabilities in Asia) coupled with rising wage and
energy costs. All of which heightened the risk of stagflation. Share price
volatility increased hugely and we experienced 20% swings in the value of the
benchmark between the beginning of September and the end of November. Such
large swings in sentiment reflected the changes in expectation of central
banks' behaviour. In simple terms - would they turn hawkish (and at what pace)
to help control these renewed inflationary pressures. The last phase of the
financial year (December to March) was marked by a steady decline in real
estate equity prices as the expectation of multiple rate rises by the US
Federal Reserve and the Bank of England alongside more hawkish rhetoric from
the European Central Bank was priced in. The last month of the financial year
was, of course, overshadowed by the terrible events in Ukraine immediately
adding to energy and other raw material inflation expectations.
What I have summarised here is the performance of pan-European real estate
equities over the 12 months to the end of March rather than underlying
property values. Share prices are volatile and react quickly to macro driven
sentiment. Underlying real estate values tend to adjust when the price of
capital changes, as opposed to the expectation of future price changes. They
are also anchored much more locally being dependent on the expectation of
local rental growth or contraction. Spreads have widened and debt costs are
increasing but they remain historically low and crucially, at the moment, debt
is still readily available. As I warned in last year's Annual Report, if
equity markets allow listed companies to trade on large discounts to their
implicit asset value then private vehicles (who can operate with higher
leverage and hence a lower cost of capital) will take them private. This has
been a key theme this year and the Company's performance has benefited from a
number of transactions. Expectations of capital growth amongst private owners
(be it institutional or retail investors) is much more important to underlying
pricing than the gyrations of publicly listed share prices. It is encouraging
to see transaction volumes and private market optimism normalise in many of
our sub-markets and this is examined in more detail later in the report.
The portfolio positioning had been heavily adjusted in the immediate 'post
vaccine' period (Q4 2020, Q1
2021) essentially closing the underweight to European shopping centres and
renewing exposure to office markets with shorter commute times (i.e. a focus
on the smaller cities, not London and Paris). The year under review saw that
process extended, with the portfolio further concentrating on capturing the
impact of three key trends. Those sectors likely to experience the greatest
rental growth in a recovering economic environment such as logistics,
industrial, self-storage and prime office development continue to be heavily
represented in the portfolio. Secondly, security of income is crucial. Private
rented residential property continues to enjoy virtually full occupancy,
particularly in Germany and Sweden where rents remain heavily regulated (and
at sub-market levels). The final theme was inflation protection and seeking to
own explicitly index-linked, high quality income across a broad range of
sectors. This latter theme overlaps with the residential focus given the
highly defensive nature of the earnings.
All of these themes were drivers of relative outperformance alongside the
positive impact of numerous merger and acquisition ('M&A') situations over
the year (that activity will be detailed later in the report). However, it is
important to clarify that the listed German residential names have - with one
exception - performed relatively poorly this year. The sector saw the largest
piece of M&A activity with the cash takeover of Deutsche Wohnen by Vonovia
and this was extensively reviewed in the Half Year Report. We have remained
loyal to our central view that Berlin residential property values will
continue to outperform the rest of Germany with a continued supply/demand
imbalance. Phoenix Spree Deutschland (total return +18%) was the performance
outlier over the year and ensured that our German residential portfolio
contributed positively to our relative outperformance of the benchmark.
Offices
The vast majority of office workers have now returned to the office, at least
part of the time. The longer term consequences of the dramatic increase in
remote working since 2020 are still evolving. However, we are increasingly
confident of a number of key features which either pre-existed or have
emerged. The first is all around optionality. Most office workers to a greater
or lesser extent can work remotely. This optionality means that the office
environment must become more attractive and/or more efficient than the
alternative for workers. This need for a better quality workplace coincides
with businesses becoming increasingly focused on their environmental
footprint. At the same time government regulation across the developed world
is driving energy efficiency improvements. The net result will be an increase
in demand (and the rent achieved) for 'green' buildings, in the right
locations offering state of the art amenities. There is already a clear
polarisation in favour of CBD (central business districts) over decentralised
or suburban markets. Central Paris saw take up of +49% year on year, a drop in
immediate supply of 17% over 2020 with vacancy at 3% driving rents up, whilst
the Western Crescent and La Defense saw rents fall and incentives increase.
London experienced a very similar picture with the West End, Midtown and the
City seeing Q4 2021 take up of 3.8m sq ft, a 7 year quarterly high. The total
take up for 2021 was 10m sq ft, 65% ahead of 2020. Docklands and other
suburban markets did not experience this level of improving statistics.
Investors remain bullish, Knight Frank ('KF') reported a fourfold increase in
Q1, 2022 on the corresponding quarter of 2021 with £5.8bn of transactions
(versus £1.2bn).
Savills produced a detailed research note in March 2022, predicting reductions
in office space demand across all European cities to varying degrees. We have
sympathy with the overall expectation but the crucial point is the other side
of the equation. If this demand is very focused on quality, where is that
supply coming from? If we look at the UK's six regional markets (to avoid only
discussing London) we see all six cities as having less than two years'
supply. Cost inflation and the inability to tie down risk pricing with
contractors results in reduced speculative construction which will exacerbate
the problem.
KF's M25 report for Q4 2021 highlights technology, media and telecom (TMT) and
Life Science tenant demand but generally subdued take up levels versus
pre-pandemic levels. Oxford and Cambridge continue to experience strong rental
growth but Reading, Uxbridge and St Albans saw little, given greater supply of
new buildings. The traditional occupiers of these strong satellite towns are
in the throes of assessing their office needs. One would have expected the
investment market to also reflect this 'pause for thought' but this has not
been the case. According to KF, South East office volumes reached £4bn in
2021, a record for the region and 45% ahead of the long term average.
International buyers dominated but they generally have a longer investment
horizon than local buyers. The build cost inflation we are now seeing may well
prove that buying high quality existing assets was a very sensible strategy.
Retail
Negative sentiment towards this sector had begun to soften as the post
pandemic retail environment experienced the predicted recovery in sales and
footfall. Across Europe, consumers had rebuilt savings (or reduced debt) over
the last two years and the re-opening statistics didn't disappoint the
optimists. However, looking forward the investment community is trying to
establish the likely sales volumes post this initial re-opening surge. All the
major firms of valuers are reporting stability in yields over the last few
quarters across both shopping centres and high streets at both prime and
secondary assets. This may well appear optimistic as it is based on low
volumes but the number of deals is increasing and we are confident of much
higher transaction volumes in 2022 than 2021.
The one area of real valuation recovery has been retail warehousing. The last
year has seen an extraordinarily competitive landscape in this sub-sector with
yields compressing over 1% at the prime end and even more amongst secondary
assets. What is understandable is that where tenant demand/affordability has
been proven then investors are happy to own. As retailing evolves into a
seamless 'clicks and bricks' omnichannel experience, retail parks are a key
part of the value chain for the retailers. If the retailer can offer a fast
and efficient 'click and collect' service which the customer is happy to use,
then the sales margins from selling online improve materially. It is the 'last
mile' delivery which is so cost inefficient.
The outlook for large, regional shopping centres remains uncertain. The vast
majority are too big for their market in an omnichannel world. Owners are
seeking to demolish part or repurpose to non-traditional uses, in many cases
trying to redefine themselves as a community hub as opposed to just a covered
retailing arena. The strategy feels correct but the costs of conversion and
the inability of new users to pay anything like the previous rents will lead
to subdued returns. However, there has been some price discovery with high
profile examples such as Hammerson's sale of Silverburn in Glasgow and a wide
range of smaller transactions across Europe from Eurocommercial, Klepierre and
Unibail providing evidence that buyers believe that rents are stabilising.
Industrial and Logistics
2021 was yet another record year in terms of take up, capital value growth
and, all importantly, further shrinkage in the amount of vacancy. The UK
market saw take up exceed 50 million sq ft and vacancy is now below 3% across
the whole range of 'big box' unit sizes. Like for like rental growth for
Segro's portfolio was in excess of 5% and this has driven yields nationwide
75-100 bps leading to huge capital growth. Yet urban logistics has been even
hotter, with investors focused on the supply inelasticity of infill markets.
Greater London prime industrial transactional evidence now regularly sees
equivalent yields (i.e. based off market rents which are higher than passing
rents) of less than 3%. This price inflation has been fuelled by evidence of
another year
of rental growth exceeding 10%. Segro reported rental growth averaging 13.1%
in its UK portfolio during 2021. Savills estimate that inner London rents have
moved 25% in the last year alone.
UK industrial transaction volumes reached £16.7bn in 2021, 113% growth on
2020 and 152% growth on the five year average. Given such an acceleration we
must closely watch the fundamentals, there may well be capital seeking
deployment without due consideration. However, for now, the demand/supply
imbalance at the occupier level is driving rental growth. The entire UK
industrial market recorded a drop in available space to 18.1million sq ft, a
contraction of one third over the year. No wonder rents are rising.
On the Continent, we have also seen market rental growth outstrip annual
indexation. This is set to continue even with the printing of record high
annualised inflation of 5.1%. Segro are the only fully pan-European listed
player and they reported 4.1% like for like rental growth across Continental
Europe for 2021. We remain confident that in many key markets this level of
growth will be exceeded in 2022. Across Continental Europe, online sales
penetration now averages 15-18%, still a long way behind the UK at c.28%.
Shortening supply chains and reshoring has driven demand in cheaper markets
such as Poland. Savills European Logistics Survey 2021 showed that 46% of all
occupiers canvassed expected to increase their warehouse requirements over the
next year.
Availability continues to shrink, with vacancy down from 5.1% to 3.5%, with
record low levels in Dublin (1.1%), the Netherlands (3.3%), Czech Republic
(1.7%) and take up levels well ahead of decade averages with Madrid (+9),
Poland (+13%) and the Netherlands (+10%). For the best space, rents are
responding very rapidly and we expect average rental growth to exceed 5%
across the Continent. However in early May this year (post the year end)
Amazon announced a dramatic pause in its expansion programme. Whilst we
believe that these comments were focused on their domestic US market, it has
caused reverberations across all logistics/ecommerce real estate markets.
Major owners and developers such as Segro and Tritax point to full orderbooks
and strong transactional evidence, forward looking equity markets took fright.
Share prices of these two names are down - 22% and 17% respectively, calendar
year to date.
Residential
This sector remains a strong store of value. In the short term capital values
should be impacted by rising interest rate expectations. For PRS (private
rental sector) this uncertainty (along with the broader geo-political
backdrop) has probably encouraged would be buyers to remain renters in the
near term. Occupancy rates remain at record levels across both open-market
rental markets (UK, Finland) and regulated rental markets (Germany and
Sweden). In the latter group of companies, we expect below market rents to
assist in maintaining affordability even as energy costs rise and consumption
is squeezed. Rent is not a bill which can be reduced, particularly when it is
already below market. We are not predicting greater vacancy (the structural
issues of demand/supply disequilibrium are still there) but we are mindful of
the potential for slower rental growth.
This cost of energy crisis will accelerate the need to improve the energy
efficiency of all residential stock. This is particularly an issue in Germany
where so much of the housing stock owned by the listed companies requires
upgrading, coupled with the need to find alternatives to Russian gas (the
major domestic energy source). The cost of these improvements will ultimately
be split between the state, the landlord and the tenant. The outstanding
question is in what proportions. There is certainly no 'one size fits all'
solution but if the bulk of this energy efficiency expenditure is subsidised
by the state and the landlord can, in addition, gain a return on their share
of the investment via higher rents (and reduced energy bills), this doesn't
have to be a bear investment case for this sector.
Although these potential headwinds are well flagged, underlying house (and
apartment) prices continue to rise driven by affordability. Mortgage rates,
whilst rising, are still very low by historical standards and wage inflation
is feeding through, which drives affordability. Major cities such as Berlin
and Stockholm where there is very little new supply continue to see values
rising at c.1% per month. According to JLL, there was an 11.6% year on year
increase in Berlin condominium prices.
Alternatives
The record occupancy increases and rate growth in self storage recorded
through the pandemic will undoubtably slow. However we are confident that
growth will continue, fuelled by the structural drivers of commercial usage
(last mile, business to consumer, supply chain resilience) and increasing
awareness of the product from residential customers. The Self Storage
Association UK reported further occupancy growth across all its members. This
remains a highly fragmented sector with over 1,900 separate sites and only 30%
are operated by 'large' operators (defined as those with 10 or more stores).
The marketing advantage for the largest operators (the listed companies) is
very valuable, ensuring that almost all potential customers searching via the
internet (the vast majority) will see an offer from one or more of the largest
operators.
Healthcare property had a tougher year. Those focused on primary healthcare
have the benefit of rental underpin (directly or indirectly) from the state
however, in the case of the UK, rental growth risks being at sub-inflation
levels due to its deferred reference point (historic build cost).
In Continental Europe, the exposure of poor care and financial irregularities
at Orpea, a large listed nursing home operator has highlighted (amongst many
things) the meagre margins which these businesses are run off. A state
investigation is underway by the French authorities and we maintain very
minimal exposure
to this underlying operator. The vast majority of our Continental European
healthcare exposure is in the Netherlands and Belgium rather than France.
Purpose built student accommodation (PBSA) has fared better as students
clearly want the campus experience and value for money. The structural
fundamentals remain sound; the combination of the growing numbers of students
(post the recent demographic dip) coupled with the desire to live in better
quality accommodation than previous student generations. According to UCAS,
30% of first year students live in PBSA and this has increased from 22% five
years ago. An encouraging growth rate. Another 40% start their university life
in halls of residence but that percentage has remained static over the same
period, reflecting the lack of capacity or capability for universities to add
to their own residential real estate portfolios. Cushman Wakefield have
identified 681,000 student accommodation beds across the UK with a net
increase of just 21,000 over 2020/21. Q1 2022 data has also revealed a marked
slowdown in planning applications for new PBSA units. Importantly, quality is
a key priority with prices up by 17% since 2019/20 for those with en suite
bathrooms.
We continue to hold Unite (UK) and Xior (Belgium, Spain) and note the recent
takeover of American Campus Communities, an $8bn market cap US student
accommodation REIT by Blackstone. Yet another privatisation.
Debt and Equity Markets
Debt markets continued to be supportive for real estate companies throughout
the year under review, with central banks continuing to provide support
through quantitative easing and bond purchases as well as maintaining very low
rates. The start of 2022 brought a change in investor attitude with a marked
shift in expectation of more hawkish behaviour from central banks, led by the
US Federal Reserve. Reviewing listed European real estate debt issuance, we
may well look back on the €20.9bn raised in 2021 (alongside the €23bn in
2017) as record years unlikely to be seen again as the cycle of rising rates
evolves during 2022 and beyond. German residential businesses were again busy
customers of the bond market with Vonovia's cheapest deal raising €1,250m at
0.25% for a 7 year bond; whilst they also raised 30 year money (€750m) at
1.625%. LEG, their smaller competitor, managed 0.875% for 12 years raising
€500m.
Equity markets were also very busy with the 'deal sheet' highlight being the
record breaking €8bn rights issue by Vonovia, required to fund the
acquisition of Deutsche Wohnen. Logistics businesses were once again avid
raisers of capital, given their premium rated paper. Tritax Bigbox raised
£350m, Eurobox £215m, VGP €300m and Aberdeen European Logistics £45m.
Elsewhere equity raisings were focused on stocks with strong underlying income
with LXI raising twice in the year (totalling £225m) alongside fellow index
linked income play Supermarket Income Reit raising £200m. The latter name has
already come back to the market shortly after the year end. Healthcare falls
into this secure income camp with the UK's Target Healthcare (£125m) and
Assura (£182m) seizing the moment alongside Belgium listed Aedifica
(€285m).
Whilst considerable primary issuance added to the size of the listed real
estate sector, this capital inflow was dwarfed by the record breaking amount
of M&A activity which in the majority of cases led to privatisation and
shrinkage in the sector's market capitalisation.
Investment Activity - property shares
Turnover (purchases and sales divided by two) totalled £549m equating to 36%
of the average net assets over the year. This is, coincidentally, the same as
last year's equivalent figure (36%) which itself was slightly ahead of the
year to March 2020 (32%). It has therefore now been three years of elevated
portfolio rotation due to
a combination of market volatility, sector rotation and, importantly, M&A
activity.
Last year, this section of the report highlighted several moves by private
equity ('PE') into the listed space with PE firms such as Brookfield buying
into British Land and KKR into Great Portland Estates (now called GPE).
Starwood had taken RDI (market cap £325m) private in February 2021and this
turned out to be a precursor to the elevated levels of activity seen
thereafter.
In June, Blackstone was required to increase its initial bid for St Modwen
Properties, paying a 21% premium to the net asset value of 463p. Once again,
private equity was able to look beyond the immediate development pipeline and
value the high quality land bank more aggressively than public markets. In the
same month, ABG (alongside Blackstone again) announced the acquisition of GCP
Student Living (market cap £960m). Blackstone and ABG were also co-investors
in several UK and European student funds.
Brookfield, another giant private equity firm struck 3 times in the year.
Firstly in November in Germany, they acquired 91% of Alstria (market cap
€3bn), the only pure German only office investor. In Belgium in February
this year, they announced an agreed bid for Befimmo, an unloved owner of
primarily Brussels offices. As if that was not enough, just before our year
end they announced the agreed take private of Hibernia, Dublin's only listed
office developer. In each of these deals, Brookfield paid substantial premiums
(+20%) to the undisturbed share price but still acquired at close to or even
below net asset value. Offices remain out of favour with stock market
investors and therefore these businesses were - in the eyes of private equity
- undervalued in the public domain. The Company held both Alstria and
Hibernia. In the case of the latter, our holding was 4% of the issued capital.
The transaction is bittersweet: whilst we saw a significant valuation gain we
have lost a well managed company with strong technical expertise in developing
prime office space. Not easy to replace.
Corporate activity between listed companies was also much in evidence. In
November, Landsec acquired U+I (previously called Development Securities) for
£170m, at an eyewatering 70% premium to the undisturbed share price. This
small urban regeneration stock's performance had been lacklustre as investors
worried about its balance sheet and inability to fund its long dated
development pipeline. For Landsec, this was a precursor to announcing a
strategic initiative in regional regeneration with the acquisition of 75% of
MediaCity in Manchester (£426m).
CTP, the newly listed Eastern European logistics developer agreed to buy
Deutsche Industrie, a small listed German property company owning secondary
industrial assets and development land across Germany. Whilst the acquisition
currency was shares in CTP, the price reflected a 48% premium to the
undisturbed price. At the time we felt this transaction was a positive read
across to our other German holdings, Sirius and VIB Vermoegen. A couple of
months later, DIC, a listed manager of property funds, surprised the market
with a partial tender for 51% of VIB Vermoegen at €51 per share. This well
run Bavarian logistics owner /developer is listed on a local exchange and not
the main market. DIC were therefore able to acquire over 10% before announcing
their intentions and they quickly reached 25% of the share capital (ahead of
the tender).
At this point I chose to sell our holding (3% of the Company's net assets) at
a 'block premium' of €54 per share. I was fearful that DIC's control would
result in the loss of the highly regarded management team and this has come to
pass with CEO and CFO departing. However, we have been handsomely rewarded
through the corporate activity. The share price at the beginning of the
financial year was just under €30 per share. This company has been a key
component of our logistics exposure over more than a decade.
In Sweden, SBB the highly acquisitive social infrastructure company, announced
control of a small residential business, Amasten. We had recently completed
our own research on this business and we had begun to build a holding. The bid
price was a 20% premium to where we were buying shares a month earlier.
Finally, in March we saw the final act in the Mckay Securities saga.
Longstanding shareholders will have been aware of our view that this well run
owner of South East office and industrial property was being materially
undervalued by the equity market.
Essentially the company was too small and the shares too illiquid for today's
stock market. This company is absolutely not alone in this regard, there are
many companies which are just too small and need to join forces with fellow
minnows. The key with this business was the high quality of the portfolio. We
were pleased to read that Rothschild had undertaken a competitive sales
process which culminated in an agreed bid from Workspace, a listed owner of
flexible office space in London. Owning 9% of the issued capital we were
invited to provide an irrevocable undertaking (subject to no higher offer)
which we provided. The bid was two thirds cash (209p) and one third shares and
reflected a premium of 30% to the undisturbed price. We will open a holding in
Workspace in May on completion of the transaction.
Investment Activity - direct property portfolio
The physical property portfolio produced a total return for the 12 months of
18.1% made up of a capital return of 15.4% and an income return of 2.7%. This
can be compared to the return from the MSCI All property index which produced
a total return of 23.9% made up of a capital return of 18.0% and an income
return of 5.0%.
The core driver of returns was rental growth at the two industrial properties
in Wandsworth and Gloucester. At Gloucester, we let the largest unit at a new
headline rent on the estate following a short marketing period to an online
health food business. This will allow us to move rents forward with other
lease events on the estate scheduled for 2022 and 2023. In Wandsworth we
completed a number of new lettings including a letting to the online leisure
fashion brand Sweaty Betty. They plan to use the premises as a photographic
studio for their online offering. We are delighted to add them to the tenant
line-up and this not only reflects the diversity of tenants on the estate but
also exemplifies the versatility of uses in a standard steel portal industrial
building.
At the Colonnades our restaurant operator, Happy Lamb Hot Pot, completed their
fit out and opened for trading as soon as COVID-19 restrictions were lifted in
May 2021. They have become a successful and vibrant addition to the local
area. We are currently exploring opportunities to sell this asset.
Revenue and Revenue Outlook
Revenue earnings for the current year have increased by almost 12% over the
prior year.
The increase in earnings was attributable to the first half. At the half year
stage we announced earnings some 34% ahead of the prior year. It was flagged
at the time that this increase would not be repeated in the second half.
The comparison of the first half (April to September 2021) was being made
against April to September 2020, which had suffered an extreme fall in income.
As a reaction to the COVID-19 pandemic many companies suspended dividends and,
in some cases even cancelling ones which had already been announced.
Distributions were very cautious against such an uncertain backdrop. In the
current year, the vaccination programme was well underway and confidence began
to return in the first half.
Comparing second half earnings year to year in isolation, they fell by around
27%, although this is not a fair comparison. Just before March 2021 we finally
received a tax refund as a result of a long running reclaim. This enhanced the
earnings for the year to March 2021 so a more realistic comparison of the
second half of the year shows a fall of around 12% rather than the 27%
highlighted above . The explanation for this 5% fall is explained largely by
the fact that many companies changed their dividend schedules, not only in
timing but also the frequency, annual payers moved to paying half yearly,
half-yearly to quarterly etc. so the amounts being paid in each distribution
were proportionately lower. The new payment schedules will have been
established for the forthcoming year so we don't expect this to have an
ongoing impact.
The overall trend for earnings is positive, the majority of companies have
resumed distributions although there are some exceptions, mainly in the retail
sector where we are significantly underweight.
Whilst the year to 31 March 2022 earnings result is still some 6% behind pre
COVID-19 levels, we do expect some further recovery in the year to March 2023.
There are some new clouds on the horizon though, the era of cheap money is
over, inflation is reaching levels not seen for many years and a cost of
living crisis looms for a number of well documented reasons. However, many of
our companies secured debt at historically low levels and will enjoy the
benefit of this for a while. Changing market outlook and sentiment is likely
to lead to lower gearing levels from time to time and that in turn reduces
income levels.
As previously documented, providing the Board is comfortable with longer term
income prospects, it is prepared to supplement distributions from the revenue
reserve to cover shorter term fluctuations.
Gearing and Debt
The Chairman has already commented on gearing levels and highlighted the
benefits of our flexible borrowing structure.
This flexibility has been crucial in such a volatile year. Our gearing
oscillated in a 10 - 16% range as we responded to the dramatic changes in
market sentiment through the year. Over the year we utilised both our
revolving loan facilities and our CFD capability in addition to our
longer-term debt. Although the shorter-term debt is linked to market rates and
therefore the cost will increase, the flexibility this affords in adjusting
gearing levels is more of an advantage than the lower cost of fixed term debt.
We aim to achieve a balance between pricing and flexibility which is why our
debt is sourced from a number of providers.
Outlook
As recently as this January, central bankers across the world were indicating
that they believed that inflationary pressures were transitory. The rise in
energy costs seen in Q4, 2021 were then supercharged by events in Ukraine in
February and March. Supply chain disruption, particularly around Chinese
shutdowns and post COVID-19 workforce shortages, have compounded these
pressures. The result has been a period of sustained inflation, Euroland CPI
reached 7.5% in April, its sixth consecutive new monthly high. The UK's March
figure was 7%. We now expect these elevated figures to continue into 2023 and
for the central banks to be forced to react quickly with interest rate rises.
The unanswered question is whether raising mortgage costs, which will cool
consumer demand and house price growth, will do much to assist in reducing the
supply driven pressures. Build cost inflation is equally strong and we expect
much potential development to be mothballed as the required return on capital
employed evaporates. However, this drop in potential supply will form an
underpin for rental growth where demand is stable or growing. Our strategy
remains twin-tracked. We will continue to own long and strong income which
offers genuine index-linked income whilst simultaneously maintaining exposure
to markets where we see tenant demand remaining robust even in the face of an
economic slowdown. Renewed focus on balance sheet strength, debt structures
and flexibility will help us ensure that we steer the Company carefully
through the terrain of rising rates.
Writing this outlook in the middle of May, pan-European real estate equities
have already collectively corrected 14% from the start of the new financial
year (1st April). This fall is greater than the FTSE 100, 250 or the EuroStoxx
600. The most leveraged businesses have, predictably, been hit hardest but
previously highly rated businesses with strong growth prospects have also been
hit hard and we expect to find value amongst those with the most secure
balance sheets. Much of our world offers solid earnings from real assets;
buildings which are often crucial to a company's operation or a basic
necessity for domestic users.
Marcus Phayre-Mudge
Fund Manager
31 May 2022
Principal and emerging risks and uncertainties
In delivering long-term returns to shareholders, the Board must also identify
and monitor the risks that have been taken in order to achieve that return.
The Board has included below details of the principal and emerging risks and
uncertainties facing the Company and the appropriate measures taken in order
to mitigate these risks as far as practicable. The ongoing impact of COVID-19
on economies around the world has been recovering throughout this financial
year however the invasion of Ukraine by Russia in February had a significant
effect on global markets and market uncertainty remains. In addition rising
inflation and interest rates bring challenges not seen for many years.
Share price performs poorly in comparison to the underlying NAV
Risk Identified
The shares of the Company are listed on the London Stock Exchange and the
share price is determined by supply and demand. The shares may trade at a
discount or premium to the Company's underlying NAV and this discount or
premium may fluctuate over time.
Board monitoring and mitigation
The Board monitors the level of discount or premium at which the shares are
trading over the short and longer-term.
The Board encourages engagement with the shareholders. The Board receives
reports at each meeting on the activity of the Company's brokers, PR agent and
meetings and events attended by the Fund Manager. The Company's shares are
available through the BMO share schemes and the Company participates in the
active marketing of these schemes. The shares are also widely available on
open architecture platforms and can be held directly through the Company's
registrar.
The Board takes the powers to issue and to buy back shares at each AGM.
Poor investment performance of the portfolio relative to the benchmark
Risk Identified
The Company's portfolio is actively managed. In addition to investment
securities the Company also invests in commercial property and accordingly,
the portfolio may not follow or outperform the return of the benchmark.
Board monitoring and mitigation
The Manager's objective is to outperform the benchmark. The Board regularly
reviews the Company's long- term strategy and investment guidelines and the
Manager's relative positions against these.
The Management Engagement Committee reviews the Manager's performance
annually. The Board has the powers to change the Manager if deemed
appropriate.
Market risk
Risk Identified
Both share prices and exchange rates may move rapidly and adversely impact the
value of the Company's portfolio. Although the portfolio is diversified across
a number of geographical regions, the investment mandate is focused on a
single sector and therefore the portfolio will be sensitive towards the
property sector, as well as global equity markets more generally.
Property companies are subject to many factors which can adversely affect
their investment performance, these include the general economic and financial
environment in which their tenants operate, interest rates, availability of
investment and development finance and regulations issued by governments and
authorities.
Although we have now exited the European Union, the structure of our
relationship with Continental Europe continues to evolve and there could be an
impact on occupation across each sector.
The COVID-19 global pandemic continued for much of the financial year. It has
changed the way we live and work, uncertainties remain regarding the impact on
economies and property markets around the world both in the short and longer
term.
The invasion of Ukraine by Russia in February 2022 created further market
volatility and uncertainty which remains.
Inflation and interest rates are rising globally to levels not seen in over 10
years.
Any strengthening or weakening of sterling will have a direct impact as a
proportion of our Balance Sheet is held in non-GBP denominated currencies. The
currency exposure is maintained in line with the benchmark and will change
over time. As at 31 March 2022, 66% of the Company's exposure was to
currencies other than sterling.
Board monitoring and mitigation
The Board receives and considers a regular report from the Manager detailing
asset allocation, investment decisions, currency exposures, gearing levels and
rationale in relation to the prevailing market conditions.
The report considers the impact of a range of current issues and sets out the
Manager's response in positioning the portfolio and the ongoing implications
for the property market, valuations overall and by each sector.
The Company is unable to maintain dividend growth
Risk Identified
Lower earnings in the underlying portfolio putting pressure on the Company's
ability to grow the dividend could result from a number of factors:
• lower earnings and distributions in investee companies. Companies
in some property sectors continue to be negatively impacted by the COVID-19
pandemic although most have returned to paying dividends, some are at a lower
level than previously and a few are continuing to withhold dividends;
• prolonged vacancies in the direct property portfolio and lease or
rental renegotiations as a result of longer term changes anticipated following
COVID-19;
• strengthening of sterling reducing the value of overseas dividend
receipts in sterling terms. The Company did see a material increase in the
level of earnings in the years leading up to the COVID-19 pandemic. A
significant factor in this was the weakening of sterling following the Brexit
decision. Although this has now passed, the value of sterling may continue to
fluctuate in the near or medium term as the longer term implications of Brexit
and COVID-19 and the impact on the UK and European economies become clearer.
The invasion of Ukraine by Russia has also increased market uncertainty. The
longer term implications will differ across the European economies. This could
lead to currency volatility. Strengthening of sterling would lead to a fall in
earnings;
• adverse changes in the tax treatment of dividends or other income
received by the Company; and changes in the timing of dividend receipts from
investee companies.
• impact of higher interest rates on distributions from investee
companies.
• negative outlook leading to a reduction in gearing levels in order
to protect capital has an adverse effect on earnings.
Board monitoring and mitigation
• The Board receives and considers regular income forecasts.
• Income forecast sensitivity to changes in FX rates is also
monitored.
• The Company has substantial revenue reserves which are drawn upon
when required.
• The Board continues to monitor the impact of Brexit and COVID-19
and the long term implications for income generation.
Accounting and operational risks
Risk Identified
Disruption or failure of systems and processes underpinning the services
provided by third parties and the risk that these suppliers provide a
sub-standard service.
The impact of the COVID-19 pandemic and the longer term changes in working
practices at the administrator and other service providers.
Board monitoring and mitigation
Third party service providers produce periodic reports to the Board on their
control environments and business continuation provisions on a regular basis.
The Management Engagement Committee considers the performance of each of the
service providers on a regular basis and considers their ongoing appointment
and terms and conditions.
The Custodian and Depositary are responsible for the safeguarding of assets.
In the event of a loss of assets the Depositary must return assets of an
identical type or corresponding value unless it is able to demonstrate that
the loss was the result of an event beyond their reasonable control.
Monitoring the quality and timeliness of service as service providers adopt
widespread home working following the COVID-19 pandemic and consideration of
the durability of the arrangements. Many organisations have now incorporated
home working into their operational structure as a permanent feature.
Financial risks
Risk Identified
The Company's investment activities expose it to a variety of financial risks
which include counterparty credit risk, liquidity risk and the valuation of
financial instruments.
Board monitoring and mitigation
Details of these risks together with the policies for managing them are found
in the Notes to the Financial Statements in the full Annual Report and
Accounts.
Loss of Investment Trust Status
Risk Identified
The Company has been accepted by HM Revenue & Customs as an investment
trust company, subject to continuing to meet the relevant eligibility
conditions. As such the Company is exempt from capital gains tax on the
profits realised from the sale of investments.
Any breach of the relevant eligibility conditions could lead to the Company
losing investment trust status and being subject to corporation tax on capital
gains realised within the Company's portfolio.
Board monitoring and mitigation
The Investment Manager monitors the investment portfolio, income and proposed
dividend levels to ensure that the provisions of CTA 2010 are not breached.
The results are reported to the Board at each meeting.
The income forecasts are reviewed by the Company's tax advisor through the
year who also reports to the Board on the year-end tax position and on CTA
2010 compliance.
Legal, regulatory and reporting risks
Risk Identified
Failure to comply with the London Stock Exchange Listing Rules and Disclosure
Guidance and Transparency Rules; failure to meet the requirements of the
Alternative Investment Fund Managers Regulations, the provisions of the
Companies Act 2006 and other UK, European and overseas legislation affecting
UK companies.
Failure to meet the required accounting standards or make appropriate
disclosures in the Interim and Annual Reports
Board monitoring and mitigation
The Board receives regular regulatory updates from the Manager, Company
Secretary, legal advisors and the Auditors. The Board considers these reports
and recommendations and takes action accordingly.
The Board receives an annual report and update from the Depositary.
Internal checklists and review procedures are in place at service providers.
Inappropriate use of gearing
Risk Identified
Gearing, either through the use of bank debt or derivatives may be utilised
from time to time. Whilst the use of gearing is intended to enhance the NAV
total return, it will have the opposite effect when the return of the
Company's investment portfolio is negative or where the cost of debt is higher
than the return from the portfolio.
Board monitoring and mitigation
The Board receives regular reports from the Manager on the levels of gearing
in the portfolio. These are considered against the gearing limits set in the
Investment Guidelines and also in the context of current market conditions and
sentiment. The cost of debt is monitored and a balance sought between term,
cost and flexibility.
Personnel changes at Investment Manager
Risk Identified
Loss of portfolio manager or other key staff.
Board monitoring and mitigation
The Chairman conducts regular meetings with the Fund Management team.
The fee basis protects the core infrastructure and depth and quality of
resources. The fee structure incentivises outperformance and is fundamental in
the ability to retain key staff.
Statement of Directors' Responsibilities in relation to the Group Financial
statements
The Directors are responsible for preparing the Annual Report, the Strategic
Report, the Directors' Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company
financial statements for each financial year. Directors are required to
prepare the Group financial statements in accordance with
UK-adopted International Accounting Standards, in conformity with the
requirements of the Companies Act 2006 and applicable law and have elected to
prepare the Parent Company financial statements on the same basis. In
addition, the Group financial statements are required under the UK Disclosure
Guidance and Transparency Rules to be prepared in accordance with UK-adopted
International Accounting Standards.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Parent Company and of the Group's profit or loss for
that period. In preparing each of the Group and Parent Company financial
statements, the Directors are required to:
• select suitable accounting policies and apply them consistently;
• make judgements and estimates that are reasonable, relevant and
reliable;
• state whether the Group and Parent Company have been prepared in
accordance with UK-adopted International Accounting Standards and in
conformity with the requirements of the Companies Act 2006;
• assess the Group and Parent Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern;
and
• use the going concern basis of accounting unless they either
intend to liquidate the Group or the Parent Company or to cease operations or
have no realistic alternative but to do so.
The Directors are responsible for maintaining adequate accounting records that
are sufficient to show and explain the Parent Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Parent Company and enable them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably open to
them to
safeguard the assets of the Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
By order of the Board
David Watson
Chairman
31 May 2022
Group statement of comprehensive income
for the year ended 31 March 2022
Year ended 31 March 2022 Year ended 31 March 2021
Revenue Capital Revenue Capital Total
Return Return
Return Return Total
£'000 £'000 £'000
Notes £'000 £'000 £'000
Income
Investment 44,170 - 44,170 36,557 - 36,557
income
Other operating 5 - 5 67 - 67
income
Gross rental 2,773 - 2,773 3,185 - 3,185
income
Service charge 1,103 - 1,103 1,051 - 1,051
income
Gains on investments held
at fair - 249,038 249,038 - 196,582 196,582
value
Net movement on foreign
exchange; investments
and loan notes - 1,136 1,136 - (3,144) (3,144)
Net movement on foreign
exchange; cash and cash
equivalents - 637 637 - (1,474) (1,474)
Net returns on contracts for
difference 5,701 16,361 22,062 3,320 17,978 21,298
Net return on total return swap - - - - (188) (188)
Total Income 53,752 267,172 320,924 44,180 209,754 253,934
Expenses
Management and performance
fees (1,663) (29,477) (31,140) (1,556) (14,328) (15,884)
Direct property expenses, rent
payable and service charge costs (1,435) - (1,435) (1,321) - (1,321)
Other administrative expenses (1,621) (608) (2,229) (1,231) (604) (1,835)
Total operating expenses (4,719) (30,085) (34,804) (4,108) (14,932) (19,040)
Operating profit/(loss) 49,033 237,087 286,120 40,072 194,822 234,894
Finance (629) (1,886) (2,515) (416) (1,969) (2,385)
costs
Profit/(loss) from operations
before tax 48,404 235,201 283,605 39,656 192,853 232,509
Taxation (4,967) 3,049 (1,918) (767) 2,667 1,900
Total comprehensive income 43,437 238,250 281,687 38,889 195,520 234,409
Earnings/(loss) per Ordinary
share 13.69p 75.07p 88.76p 12.25p 61.61p 73.86p
The Total column of this statement represents the Group's Statement of
Comprehensive Income, prepared in accordance with UK-adopted International
Accounting Standards. The Revenue Return and Capital Return columns are
supplementary to this and are prepared under guidance published by the
Association of Investment Companies. All items in the above statement derive
from continuing operations.
The Group does not have any other income or expense that is not included in
the above statement therefore "Total comprehensive income" is also the profit
for the year.
All income is attributable to the shareholders of the parent company.
Group and Company statement of changes in equity
Group
Share Capital Ordinary Share Premium Account Capital Redemption Retained Earnings Ordinary
£'000 £'000 Reserve £'000 Total
For the year ended 31 March 2022 £'000 £'000
Notes
At 31 March 2021 79,338 43,162 43,971 1,159,962 1,326,433
Total comprehensive income - - - 281,687 281,687
Dividends - - - (45,381) (45,381)
paid
At 31 March 2022 79,338 43,162 43,971 1,396,268 1,562,739
Company
Share Capital Ordinary Share Premium Account Capital Redemption Retained Earnings Ordinary
£'000 £'000 Reserve £'000 Total
For the year ended 31 March 2022 £'000 £'000
Notes
At 31 March 2021 79,338 43,162 43,971 1,159,962 1,326,433
Total comprehensive income - - - 281,687 281,687
Dividends - - - (45,381) (45,381)
paid
At 31 March 2022 79,338 43,162 43,971 1,396,268 1,562,739
Group
Share Capital
Ordinary Account Reserve Ordinary Total
For the year ended 31 March 2021 Notes £'000 £'000 £'000 £'000 £'000
At 31 March 2020 79,338 43,162 43,971 969,982 1,136,453
Total comprehensive income - - - 234,409 234,409
Dividends paid - - - (44,429) (44,429)
At 31 March 2021 79,338 43,162 43,971 1,159,962 1,326,433
Company
Share Share Capital Retained
Capital Premium Redemption Earnings Total
For the year ended 31 March 2021 Notes Ordinary Account Reserve Ordinary £'000
£'000 £'000 £'000 £'000
At 31 March 2020 79,338 43,162 43,971 969,982 1,136,453
Total comprehensive income - - - 234,409 234,409
Dividends paid - - - (44,429) (44,429)
At 31 March 2021 79,338 43,162 43,971 1,159,962 1,326,433
Group and Company balance sheets
as at 31 March 2022
Group 2022 Company 2022 Group 2021 Company 2021
Notes £'000 £'000 £'000 £'000
Non-current assets
Investments held at fair value 1,506,436 1,506,436 1,400,516 1,400,516
Investments in subsidiaries - 36,297 - 43,312
Investments held for sale 48,980 48,980 - -
1,555,416 1,591,713 1,400,516 1,443,828
Deferred taxation asset 903 903 686 686
1,556,319 1,592,616 1,401,202 1,444,514
Current assets
Debtors 97,673 97,208 60,990 60,520
Cash and cash equivalents 32,109 32,107 29,114 29,112
129,782 129,315 90,104 89,632
Current liabilities (66,109) (101,939) (107,280) (150,120)
Net current assets/(liabilities) 63,673 27,376 (17,176) (60,488)
Total Assets plus net current
assets/(current liabilities) 1,619,992 1,619,992 1,384,026 1,384,026
Non-current liabilities (57,253) (57,253) (57,593) (57,593)
Net assets 1,562,739 1,562,739 1,326,433 1,326,433
Capital and reserves
Called up share capital 79,338 79,338 79,338 79,338
Share premium account 43,162 43,162 43,162 43,162
Capital redemption reserve 43,971 43,971 43,971 43,971
Retained earnings 1,396,268 1,396,268 1,159,962 1,159,962
Equity shareholders' funds 1,562,739 1,562,739 1,326,433 1,326,433
Net Asset Value per:
Ordinary share 492.43p 492.43p 417.97p 417.97p
Notes
1 Accounting policies
The financial statements for the year ended 31 March 2022 have been prepared
on a going concern basis, in accordance with UK-adopted International
Accounting Standards and in conformity with the requirements of the Companies
Act 2006. The financial statements have also been prepared in accordance with
the Statement of Recommended Practice "Financial Statements of Investment
Trust Companies and Venture Capital Trusts" ("SORP"), to the extent that it is
consistent with UK-adopted International Accounting Standards.
In assessing Going Concern the Board has made a detailed assessment of the
ability of the Company and the Group to meet its liabilities as they fall due,
including stress and liquidity tests which considered the effects of
substantial falls in investment valuations, substantial reductions in revenues
received and reductions in market liquidity including the effects of the
likely ongoing economic impact of the war in Ukraine. The Board is satisfied
with the operational resilience of the Company's third party service providers
as working practices change following the COVID-19 pandemic but continues to
monitor their performance.
In light of the testing carried out, the liquidity of the level 1 assets held
by the Company and the significant net asset value and net current asset
position of the Group and Parent Company (which could be mitigated by the sale
of liquid level 1 investments), the Directors are satisfied that the Company
and Group have adequate financial resources to continue in operation for at
least the next 12 months following the signing of the financial statements and
therefore it is appropriate to adopt the going concern basis of accounting.
The Group and Company financial statements are expressed in sterling, which is
their functional and presentational currency. Sterling is the functional
currency because it is the currency of the primary economic environment in
which the Group operates. Values are rounded to the nearest thousand pounds
(£'000) except where otherwise indicated.
2 Investment income
Year ended Year ended
31 March 31 March
2022 2021
£'000 £'000
Dividends from UK listed investments 3,101 3,753
Dividends from overseas listed investments 21,349 18,656
Scrip dividends from listed investments 10,693 7,482
Property income 9,027 6,666
distributions
44,170 36,557
3 Earnings/(loss) per Ordinary share
The earnings/(loss) per Ordinary share can be analysed between revenue and
capital, as below:
Year ended Year ended
31 March
31 March
2022 2021
£'000
£'000
Net revenue profit 43,437 38,889
Net capital profit/(loss) 238,250 195,520
Net total profit/(loss) 281,687 234,409
Weighted average number of shares in issue during the year 317,350,980 317,350,980
pence
pence
Revenue earnings per share 13.69 12.25
Capital earnings/(loss) per share 75.07 61.61
Earnings/(loss) per Ordinary share 88.76 73.86
The Group has no securities in issue that could dilute the return per Ordinary
share. Therefore the basic and diluted return per Ordinary share are the same.
4 Net Asset Value Per Ordinary Share
Net asset value per Ordinary share is based on the net assets attributable to
Ordinary shares of £1,562,739,000 (2021: £1,326,433,000) and on 317,350,980
(2021: 317,350,980) Ordinary shares in issue at the year end.
5. Dividends
An interim dividend of 5.30p was paid in January 2022. A final dividend of
9.20p (2021: 9.00p) will be paid on 2 August 2022 to shareholders on the
register on 24 June 2022. The shares will be quoted ex-dividend on 23 June
2022.
6. Status of preliminary announcement
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 March 2022 or 2021. The financial
information for 2021 is derived from the statutory accounts for 2021 which
have been delivered to the Registrar of Companies.
The auditor has reported on the 2021 accounts; their report was (i)
unqualified, (ii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
The statutory accounts for 2022 will be finalised on the basis of the
financial information presented by the Directors in this preliminary
announcement and will be delivered to the Registrar of Companies in due
course.
By order of the Board
BMO Investment Business Limited
Company Secretary,
31 May 2022
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
ENDS
A copy of the Annual Report and Accounts will be submitted to the National
Storage Mechanism and will shortly be available for inspection
at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
The Annual Report and Accounts will also be available shortly on the Company's
website at www.trproperty.com (http://www.trproperty.com) where up to date
information on the Company, including daily NAV and share prices, factsheets
and portfolio information can also be found.
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