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REG - UK Comm Prop Tst Ltd - Annual Financial Report <Origin Href="QuoteRef">UKCM.L</Origin> - Part 2

- Part 2: For the preceding part double click  ID:nRSU7602Ka 

Freehold         Industrial        Volkswagen Group UK Ltd             £20m - £29.9m                                      
 Emerald Park East, Emersons Green, Bristol                   Freehold         Industrial        Knorr-Bremse Systems Ltd            (representing 34% of the portfolio capital value)  
 Colmore Court, 9 Colmore Row, Birmingham                     Leasehold        Office            BNP Paribas                         
 No 2 Temple Quay, Bristol                                    Freehold         Office            Public Sector                       
 Broadbridge Retail Park, Horsham                             Mixed            Retail Warehouse  Homebase Ltd                                                                           
 81/85 George Street, Edinburgh                               Freehold         High St, Retail   Aviva Insurance Ltd                                                                    
 Craven House, Fouberts Place, London, W1                     Freehold         Office            WH Smith Retail Holdings Ltd                                                           
 Network House & Meadowside House, Hemel Hempstead            Freehold         Office            Public Sector                                                                          
 No 1 Temple Quay, Bristol                                    Freehold         Office            British Telecommunications Plc                                                         
 Pall Mall Court, King Street, Manchester*                    Freehold         Office            AWG Business Centres Ltd                                                               
 16/20 High Street & 1/3 Beford Street, Exeter                Leasehold        High St, Retail   H&M Hennes & Mauritz UK Ltd         £10m - £19.9m                                      
 140/144 Kings Road, London, SW3                              Freehold         High St, Retail   French Connection UK Ltd            (representing 11% of the portfolio capital value)  
 14 - 22 West Street, Marlow                                  Freehold         High St, Retail   Sainsbury's Supermarket Ltd         
 Gatwick Gate Industrial Estate, Crawley                      Freehold         Industrial        Signet Group Ltd                    
 134/138 North Street, Brighton                               Freehold         High St, Retail   Sportsdirect.Com Retail Ltd                                                            
 Pride Hill Shopping Centre, Shrewsbury                       Freehold         Shopping Centre   Next plc                                                                               
 Site D1, Aberdeen Gateway, Aberdeen                          Freehold         Industrials       Tetra Technologies UK Ltd                                                              
 52/56 Market Street, Manchester                              Freehold         High St, Retail   Adidas (Uk) Ltd                                                                        
 Site C2, Aberdeen Gateway, Aberdeen                          Freehold         Offices           Ensco Services Ltd                  Below  £9.9m                                       
 Crossways Cargo Centre, Dartford                             Freehold         Industrials       Veerstyle Ltd                       (representing 3% of the portfolio capital value)   
 Knaves Beech Industrial Estate, High Wycombe                 Freehold         Industrial        Dreams Ltd                          
 Riverside Mall, Shrewsbury                                   Leasehold        Shopping Centre   Wilkinson Hardware Stores Ltd       
 146 Kings Road, London SW3                                   Freehold         High St, Retail   Telefonica O2 UK Ltd                                                                   
                                                                                                                                                                                        
 Overall number of properties                                 44                                                                                                                        
 Total number of tenancies                                    347                                                                                                                       
 Total average property value                                 £28.9m                                                                                                                    
 Total floor area                                             5,435,800 sq ft                                                                                                           
 Freehold/Leasehold (leases over 100 years)                   91%/9%                                                                                                                    
 *Sold post year end                                                                                                                                                                    
 
 
Report of the Directors 
 
Results and Dividends 
 
The results for the year are set out in the attached accounts. The Company has paid interim dividends in the year ended 31
December 2014 as follows: 
 
                                  Payment Date  Rate per share (p)  
 Fourth Interim for prior period  Feb 2014      1.3125              
 First Interim                    May 2014      0.9200              
 Second Interim                   Aug 2014      0.9200              
 Third Interim                    Nov 2014      0.9200              
 Total                                          4.0725              
 
 
On 12 February 2015 the Company declared a fourth Interim dividend of 0.92 pence per Ordinary Share with an ex-dividend
date of 19 February 2015, which was paid on 27 February 2015. 
 
Post Balance Sheet Events 
 
In January 2015, the Company sold two properties for a combined value of £49.4 million.  These assets are deemed as
Investment properties held for sale in the Balance Sheet. 
 
In April 2015, the Company secured twelve year financing from Cornerstone Real Estate Advisers Europe LLP, part of the
MassMutual Financial Group. This was used to repay the £80 million Lloyds facility which was due to expire in June 2015 and
the associated swap liabilities at the time of repayment. In addition, the Company obtained a £50 million revolving credit
facility from Barclays and extended the current £150 million term loan. The Company also repaid all swaps with Barclays
that existed at the 31 December 2014 and replaced these with one new 5 year swap. To facilitate the debt facilities above,
an EGM was held in March 2015 which approved the continuation of the Company for a further five years. Further details are
given in Note 20. 
 
Principal Activity and Status 
 
The Company is a Guernsey company and during the year carried on business as a property investment company. The principal
activity and status of the Company's subsidiaries is set out in Note 9. 
 
Listing Requirements 
 
Throughout the period the Company complied (and intends to continue to comply) with the conditions applicable to property
investment companies set out in the Listing Rules. 
 
Share Capital 
 
The issued Ordinary share capital at 31 December 2014 consisted of 1,299,412,465 Ordinary shares of 25p each. At 20 April
2015 these numbers were unchanged. Each Ordinary share of the Company carries one vote at general meetings of the Company. 
 
Save for the provision of the articles of association, there are no restrictions on the transfer of Ordinary shares in the
Company other than certain restrictions which may from time to time be imposed by law (for example, insider trading law). 
 
Business Review 
 
The Board of Directors is responsible for the overall stewardship of the Company, including investment and dividend
policies, corporate strategy, corporate governance, and risk management. A review of the business and how it has performed
in the year is encompassed in the Chairman's Statement and Investment Manager Review as well as the Report of the
Directors. 
 
Investment Policy 
 
The Company's investment objective is to provide ordinary shareholders with an attractive level of income together with the
potential for capital and income growth from investing in a diversified UK commercial property portfolio. 
 
Investment risks are spread through the Company and its subsidiaries (the "Group") by investing in a diversified portfolio
of freehold and long leasehold UK commercial properties. The Group invests in income producing investments. The Group
currently invests in four commercial property sectors: office, retail, industrial and leisure. The Group has not set any
maximum geographic exposures within the UK nor any maximum weighting limits in the principal property sectors. No single
property shall, however, exceed at the time of acquisition 15 per cent of the gross assets of the Group. The Group is
currently permitted to invest up to 15 per cent of its total assets in indirect property funds including in other listed
investment companies. The Group is permitted to invest cash, held by it for working capital purposes and awaiting
investment, in cash deposits, gilts and money market funds. 
 
At an EGM of the Company on 28 April 2011 the shareholders of the Company approved a revised gearing policy of the Group
amended to read as follows: "Gearing, calculated as borrowings as a percentage of the Group's gross assets, may not exceed
65 per cent. The Board intends that borrowings of the Group at the time of draw down will not exceed 25 per cent. of the
Total Assets of the Group. For so long as the Lloyds Facility remains outstanding, it is the Board's current intention that
borrowings of the Company will be limited to a maximum of 10 per cent. of the Group's net assets at the time of draw down.
The Board receives recommendations on gearing levels from the Investment Manager and is responsible for setting the gearing
range within which the Investment Manager may operate". On 8 April 2015 the Lloyds facility referred to above was repaid.
(See note 20 to the financial statements.) 
 
As at 31 December 2014 the Group had total borrowings of £230 million, representing a gearing level of 17.5 per cent of the
year end total assets. 
 
An analysis of how the portfolio was invested as at 31 December 2014 is contained within the Investment Manager Review and
a full portfolio listing is provided. 
 
The Group's performance in meeting its objectives is measured against key performance indicators. A review of the Group's
returns during the year, the position of the Group at the end of the year, and the outlook for the coming year is contained
in the Chairman's Statement and the Investment Manager Review. 
 
Principal Risks and Risk Uncertainties 
 
The Board confirms that it frequently carries out a robust assessment of the principal risks facing the Company. These
risks and how they are mitigated are set out below. 
 
The Company's assets consist of direct investments in UK commercial property.  Its principal risks are therefore related to
the commercial property market in general, but also to the particular circumstances of the properties in which it is
invested and their tenants. The Manager seeks to mitigate these risks though continual review of the portfolio utilising
research produced by the Manager's in-house research team and also through asset management initiatives. More detailed
explanations of these risks and the way in which they are managed are contained under the headings of credit risk,
liquidity risk and interest rate risk in note 16 to the accounts. The Board has also identified a number of specific risks
that are reviewed at each Board meeting.  These are as follows: 
 
• The Company and its objectives become unattractive to investors which may lead to a persistent discount and a
continuation vote. This is mitigated through regular performance reviews of the Company's portfolio,  contact with
shareholders,  a regular review of share price performance and the level of discount at which the shares trade to NAV and
regular meetings with the Company's broker to discuss these points and address any issues that arise. At an Extraordinary
General Meeting ("EGM") held on 31 March 2015 shareholders approved the continuation of the Company by approving a special
resolution to amend the Company's Articles of Association to replace the previous continuation note with a vote in 2020 and
at least seven yearly thereafter. 
 
• Company indebtedness - The largest liabilities the Company has are the loan facilities. The Board recognizes that being
unable to service or indeed repay these debts would threaten the future solvency and liquidity of the Group.  This risk is
mitigated by two factors. First of all the Investment policy of the Company limits gearing to 25 per cent. of total assets.
This low gearing limit means it is expected that, barring any unforeseen circumstances, the Group will have adequate assets
to service and repay the debt if required. Secondly, the underlying assets themselves are mainly invested in a diversified,
prime UK commercial property underpinned by a strong tenant base. This means that, even in a significant economic downturn,
the Board is confident that the assets will still be of sufficient value and generate sufficient income to meet future
liabilities. The debt facilities of the Company were restructured post year end. Further details are given in note 20 to
the financial statements. Further detail is given in note 20 to the financial statements. 
 
• Tenant failure or inability to let property. Due diligence work on potential tenants is undertaken before entering into
new lease agreements. In addition, tenants are kept under constant review through regular contact and various reports both
from managing agents and from the Manager's own reporting processes. Finally, contingency plans are put in place at units
that have tenants that are believed to be in financial trouble. 
 
• Taxation - The Group is currently structured in a tax efficient method which results in rental income the Group generates
being offset by expenses and internal loan interest. The terms on the internal loan notes, namely interest rates and loan
to value ratios, are crucial in preserving the tax efficiency of the group and any material change in these could pose a
risk to future performance. To mitigate this risk the Group has agreed the terms of the vast majority of the loan notes in
place with HMRC and also goes through a rigorous process when setting new loan notes to ensure they represent commercially
available terms. The majority of these loan notes are due to expire in September 2016 and sensitivity analysis has been
performed on the impact on the Group should these terms materially change bearing in mind that the Company currently has
over £30 million of unutilised tax losses. The impact on the Company's performance will depend on the terms that these
internal loan notes can be re-financed. No deferred tax asset has been recognised as it is not certain that these losses
will be utilised. 
 
Other risks faced by the Company include the following: 
 
• Economic - inflation or deflation, economic recessions and movements in interest rates could affect property valuations,
and its bank borrowings. 
 
• Strategic - incorrect strategy, including sector and property allocation and use of gearing, could lead to poor returns
for shareholders. 
 
• Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange Listing, financial
penalties or a qualified audit report. 
 
• Management and control - changes that cause the management and control of the Company to be exercised in the United
Kingdom could lead to the Company becoming liable to United Kingdom taxation on income and capital 
 
gains. 
 
• Financial - inadequate controls by the Investment Manager or third party service providers could lead to 
 
misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to
misreporting or breaches of regulations. 
 
• Operational - failure of the Investment Manager's accounting systems or disruption to the Investment  Manager's business,
or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading
to a loss of shareholders' confidence. 
 
The Board seeks to mitigate and manage these risks through continual review, policy setting and enforcement of contractual
obligations. It also regularly monitors the investment environment and the management of the Company's property portfolio
and levels of gearing, and applies the principles detailed in the UK Corporate Governance Code. 
 
Alternative Investment Fund Manager ("AIFM") 
 
The Board appointed Ignis Fund Managers Limited (registered in the United Kingdom) as its AIFM on 18 July 2014 to undertake
the management of the Company under the new regulatory regime which is now in operation. Ignis Fund Managers Limited is a
subsidiary of Standard Life Investments Limited. A new investment management agreement has been entered into and Citibank
International PLC has been appointed as depositary. 
 
Management of Assets and Shareholder Value 
 
The Board has contractually delegated the management of the investment portfolio and other services to Ignis Fund Managers
Limited. 
 
The Company invests in properties which the Investment Manager believes will generate a combination of long-term growth in
income and capital for shareholders. Investment decisions are based on analysis of, amongst other things, prospects for
future capital growth, sector and geographic prospects, tenant covenant strength, lease length and initial yield. 
 
Investment risks are spread through investing in a range of geographical areas and sectors, and through letting properties
to low risk tenants. A list of all the properties held as at 31 December 2014 is contained in this report and further
analysis can be found in the Investment Manager Review. At each Board meeting, the Board receives a detailed presentation
from the Investment Manager together with a comprehensive analysis of the performance of the portfolio during the reporting
period. 
 
The Board and the Investment Manager recognise the importance of managing the premium/discount of share price to net asset
value in enhancing shareholder value. One aspect of this involves appropriate communication to gauge investor sentiment.
The Investment Manager meets with current and potential new shareholders, and with stockbroking analysts who cover the
investment company sector, on a regular basis. In addition, communication of quarterly portfolio information is provided
through the Company's website, www.ukcpt.co.uk, 
 
and the Company also utilises a public relations agency to enhance its profile among investors. 
 
Key Performance Indicators ("KPI") 
 
The Company's benchmark is the Investment Property Databank Monthly and Quarterly Funds. This benchmark incorporates all
monthly and quarterly valued property funds and the Board believes this is the most appropriate measure to compare the
performance of a quarterly valued property investment Company with a balanced portfolio. 
 
The Board uses a number of performance measures to assess the Company's success in meeting its objectives. The key
performance indicators are as follows: 
 
• Net asset value share price total return against the IPD benchmark and other selected comparators. 
 
• Premium/(Discount) of share price to net asset value. 
 
• Dividend per share and dividend yield. 
 
• Ongoing Charges. 
 
In addition the Board considers specific property KPIs such as void rates, rent collection levels and weighted average
lease length on a regular basis. 
 
Directors 
 
The Directors who held office during the period and their interests in the ordinary shares of the Company as at 31 December
2014 (all of which are beneficial) were: 
 
                   Date of Appointment          As at 31 December 2014  As at 31 December 2013  
 Christopher Hill  Sep 2006                     20,000                  20,000                  
 Christopher Fish  Sep 2006 (retired Jun 2014)  n/a                     10,000                  
 John Robertson    Sep 2006                     10,000                  10,000                  
 Andrew Wilson     Sep 2006                     75,000                  45,000                  
 Ken McCullagh     Feb 2013                     40,000                  -                       
 Sandra Platts     Dec 2013                     -                       -                       
 
 
There have been no changes in the above interests between 31 December 2014 and 31 March 2015. 
 
The Directors are also Directors of UK Commercial Property Holdings Limited, UK Commercial Property GP Limited, UK
Commercial Property Nominee limited, UK Commercial Property Estates Holdings Limited and UK Commercial Property Estates
Limited (and post year end UK Commercial Property Finance Holdings Limited) which are all wholly owned subsidiary
undertakings. 
 
The Company maintains an appropriate level of insurance in respect of Directors' & Officers' liabilities in relation to
work undertaken on behalf of the Company and all its subsidiaries. In addition, Individual Directors may, at the expense of
the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. 
 
In accordance with the articles of association Mr A Wilson and Mrs S Platts retire by rotation and, being eligible, offer
themselves for re-election. In addition, the AIC Code of Corporate Governance and the UK Corporate Governance Code both
recommend that all Directors of FTSE 350 companies be subject to annual re-election, therefore Mr C Hill, Mr K McCullagh
and Mr J Robertson also retire and offer themselves for re-election. Following formal performance evaluations for each
individual Director and the Board as a whole, as well as a review of the performance of the Chairman by the other members
of the Board, the performance of all of the Directors continues to be effective with each making a positive contribution to
the performance of the Company. Therefore, the re-election of all the Directors is recommended to shareholders at the 2015
Annual General Meeting. In addition to the self-appraisal of the Board that is undertaken each year, the consultants
Boardroom Review Limited facilitated an external review in February 2014 to consider the effectiveness of the Board, its
committees and individual directors. A number of action points arose in the course of this review and the Board has
addressed these; where appropriate, revised practices have been adopted. 
 
Substantial Interests in Share Capital 
 
At 31 December 2014 the following holdings, representing more than 3 per cent of the Company's issued share capital, had
been notified to the Company. 
 
                                    Number of Ordinary Shares Held  Percentage Held (%)  
 Phoenix Life Limited               690,960,172                     53.2                 
 Investec Wealth Limited            161,177,855                     12.4                 
 Nestle Capital Management Limited  56,137,385                      4.3                  
 Schroders plc                      43,427,556                      3.4                  
 
 
In March 2015 Investec Wealth Limited notified the Company it had reduced its holding to 155,749,866 shares (11.99%). No
other changes to t holdings had been notified to the Company as at 31 March 2015. 
 
The Company's ultimate controlling party is Phoenix Group Holdings and immediate parent company is Phoenix Life Limited. 
 
Corporate Governance 
 
The Board has considered the principles and recommendations of the AIC Code of Corporate Governance (AIC Code) by reference
to the AIC Corporate Governance Guide for investment Companies (AIC Guide) both of which can be found at www.theaic.co.uk. 
The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate  Governance Code
which can be found  at www.frc.org.uk, as well as setting  out additional principles and recommendations on issues that are
of specific relevance to the Company. 
 
The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC
Guide (which incorporates the UK Corporate Governance Code), will provide an appropriate and satisfactory level of
transparency to shareholders. 
 
The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate
Governance Code, except as set out below. 
 
The UK Corporate Governance Code includes provisions relating to: 
 
• the role of the chief executive; 
 
• executive directors' remuneration; 
 
• the need for an internal audit function. 
 
For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers these
provisions are not relevant to the position of the Company, being an externally managed investment company.  In particular,
all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the
Company has no executive directors, employees or internal operations. The Company has therefore not reported further in
respect of these provisions. 
 
The Board consists solely of non-executive Directors of which Mr Christopher Hill is Chairman and Mr Andrew Wilson is
Senior Independent Director. All Directors, other than Mr John Robertson, are considered by the Board to be independent,
with any potential conflicts considered at each Board meeting with reference to the AIC Code. The Board's policy on tenure
is that continuity and experience are considered to add significantly to the strength of the Board and, as all Directors
will be subject to re- election on an annual basis, it is not appropriate for the Board to have a limit on the overall
length of service of any of the Company's Directors, including the Chairman. The Board undertakes formal performance
evaluations. 
 
The Company does not have a Remuneration Committee with the Board as a whole being responsible for Director and Board
remuneration levels. 
 
New Directors follow an induction process, including input from the Investment Manager, Secretary and Corporate Broker, on
joining the Board and all Directors receive other relevant training as necessary. 
 
The Company has no executive Directors or employees. A management agreement between the Company and its Investment Manager,
Ignis Fund Managers Limited, sets out the matters over which the Investment Manager has authority and the limits beyond
which Board approval must be sought. All other matters, including strategy, investment and dividend policies, gearing, and
corporate governance procedures, are reserved for the approval of the Board of Directors. The Board currently meets at
least quarterly and receives full information on the Company's investment performance, assets, liabilities and other
relevant information in advance of Board meetings. In addition the Board has many ad-hoc meetings and a strategy day held
once a year. 
 
Board Committees 
 
The Board has appointed four committees to cover specific operations: Audit Committee, Management Engagement Committee,
Nominations Committee and Property Valuation Committee.  Copies of the terms of reference of each committee are available
on the Company's website, or upon request from the Company. 
 
Audit Committee 
 
The Audit Committee, which was chaired by Mr Christopher Fish and, from 17 June 2014, Mr Ken McCullagh, operates within
well- defined written terms of reference, which are available on the Company's website. It comprises all of the directors
other than Mr John Robertson, who is invited to attend meetings of the Committee unless, as a non-independent director, a
conflict of interest would exist. Given the non-executive nature of the Board, the Committee also believe it is appropriate
for the Chairman of the Company to sit on the Audit Committee. Within the membership of the Committee, Mr Ken McCullagh,
the Chairman, is a chartered accountant. 
 
The duties of the Audit Committee are as follows: 
 
• Review the Annual and Interim Accounts and challenge where necessary the actions and judgements of the Company's
Manager; 
 
• Review and monitor the internal controls and risk management systems on which the Company is reliant; 
 
• Determine the terms of appointment of the auditor, together with its remuneration; 
 
• To advise the Board on whether the Annual Report and Accounts, taken as a whole are fair, balanced and understandable and
provide the information necessary for shareholders to assess the Company's performance, business model and strategy. 
 
The Audit Committee is also the channel through which the auditor reports to the Board of Directors. It meets at least
three times a year to take account of the requirements placed on audit committees by the 2012 UK Corporate Governance Code
and AIC Code dated February 2013. The Audit Committee considers any matters which the auditor wishes to communicate to the
Audit Committee and, through them, to the Board of Directors.  This provides a forum for the external auditor to give their
views about significant qualitative aspects of the Company's accounting practices and to draw to the attention of the Audit
Committee any significant difficulties that they encountered during the audit, any substantial uncorrected misstatements,
any disagreements with management and any other matters which they felt it appropriate to raise. 
 
Significant Issues 
 
At a planning meeting of the Audit Committee with the auditor, the scope and timing of the audit were agreed and it was
confirmed that the Directors had no knowledge of any fraud within the Company; it was agreed that the significant issues in
the audit should be the valuations of the properties and the accuracy of income recognition in the Company and set out
below is how the Committee considered these issues during its review of the financial statements. 
 
Valuation of Properties - How was the issue addressed? 
 
The valuation of properties is undertaken in accordance with the accounting policy disclosed in note 1(h) to the accounts.
The process adopted in the valuation of the portfolio and the valuations themselves are considered by the Property
Valuation Committee, representatives of which met the external valuer, along with the Manager, as part of the year end
valuation process. The Chairman of this Committee reported to the Audit Committee in March 2015 and indicated that the
following issues were discussed in the meeting with the external valuers: 
 
• Market review and outlook; 
 
• The level of yields on properties within the portfolio; 
 
• Letting activity within the portfolio; 
 
• Rental value and void changes; 
 
• Comparable evidence relating to the valuation of the properties. 
 
Particular focus was given to the underlying yields applied to a number of the properties and whether they appropriately
reflected the correct level given comparable evidence, letting activity and the property market as a whole.  Following this
meeting and subsequent discussions with the Investment Manager, a value of £1,272,315,000 was agreed as the valuation of
the property portfolio as at 31 December 2014 (before lease incentive adjustment). The Audit Committee considered the
report by the Chairman of the Property Valuation Committee along with a summary of the valuation and its key movements by
the Investment Manager and agreed that this valuation was appropriate for the financial statements and that a robust
process of analysis had been followed. In terms of existence of the properties, the Committee noted the procedures that the
Manager has in place to ensure correct approval and title to all properties held which include any property transaction
documentation having to be approved and signed by the Board irrespective of its value and the obligations on the Company's
solicitors to ensure good and marketable title. In addition, the Committee sought assurance from the auditor prior to sign
off of the financial statements that the confirmation of all titles has been included  as part of the audit work
undertaken. 
 
Recognition of Rental Income - How was the issue addressed? 
 
The recognition of rental income is undertaken in accordance with the accounting policy disclosed in note 1(e) to the
accounts. The Committee considered the processes and controls the Manager has in place to ensure the completeness and
accuracy of income. These include data input checks, rent demand reconciliations and rent arrear reconciliations. In
addition the Committee also considered the various reports provided by the Investment Manager and reviewed on a quarterly
basis during the year which included the following: 
 
• Portfolio Yield summaries; 
 
• Movement in annualised contracted rent; 
 
• Quarterly Income Changes with details of lease activity in the quarter; 
 
• Rent collection percentages; 
 
• Rental arrears; 
 
• Detailed quarterly financial reporting detailing out the main reason for revenue movements in the quarter. 
 
The Audit Committee concluded that, given the controls and reporting in place throughout the year, the rental income number
included in the financial statements of £70,576,000 was appropriate. 
 
Review of Auditor 
 
The objectivity of the auditor is reviewed by the Audit Committee, which also considers the terms under which the external
auditor is appointed to perform non-audit services. The objectivity  and independence  of the auditor is safeguarded by
obtaining assurances from the auditor that adequate policies and procedures exist within its firm to ensure the firm and
its staff are independent of the Company by reason of family, finance, employment, investment  and business relationships
(other than in the normal course of the business) and enforcing  a policy concerning  the provision of non-audit  services
by the auditor which governs the types of work which are excluded. The Audit Committee reviews the scope and results of the
audit including the following areas: 
 
• Quality of audit work including ability to resolve issues in a timely manner; 
 
• Working relationship with the Committee and Manager; 
 
• Suitably qualified personnel involved in the audit; 
 
• Cost effectiveness and the independence and objectivity of the auditors, with particular regard to non-audit fees. 
 
The performance and effectiveness of the auditors in relation to the above points was considered through a formal
evaluation template completed by the Committee and the Managers. 
 
In relation to non-audit fees, these amounted in aggregate to £54,000 (2013: £109,400) for the year ended 31 December 2014
and related principally to costs in connection with tax returns, tax structuring  and capital allowances. All of these
services are deemed by the Committee to be beneficial to the current tax position of the Group. Where any non-audit fee is
expected to exceed £25,000, the Company operates a policy under which specific prior approval must be given by the
Committee. Notwithstanding the provision of such non-audit services, the Audit Committee considers Ernst & Young LLP to be
independent, given the safeguards put in place by Ernst & Young LLP to ensure independence. 
 
The Audit Committee considers that it received all necessary information from the Company's service providers as well as
from the external auditor in order for it to compile the necessary disclosures. The Committee noted the full co-operation
of all parties in producing the Annual Report and no difficulties or disagreements were observed. Following the completion
of the audit, the Audit Committee and Board followed a systematic approach to evaluate the auditor and the effectiveness of
the audit process and found this to be satisfactory. 
 
Declaration 
 
On the recommendation of the Audit Committee, the Board consider that the Annual Report and Accounts, taken as a whole, is
fair, balanced and understandable, and provides the information necessary for shareholders and other users to assess the
Company's position, performance, business model and strategy. The Board is able to make this assertion since the Annual
Report and Accounts document, which is prepared by the Manager and subsequently subject to external audit, is carefully
scrutinised by the Audit Committee (and by any Directors who are not members of the Audit Committee) specifically focusing
on the significant issues highlighted in this report. In their consideration of the document, the Directors put themselves
in the position of a shareholder and consider carefully whether the comments made are consistent with their view of the
overall performance of the Company during the period under consideration.  Specifically, consideration has been given to
the Financial and Property Highlights section to ensure that the points raised in this have been selected so as to give a
fair picture of the Company's position and that the performance data in the document has not been selected so as to give a
misleadingly optimistic view of the Company. The Directors have also critically reviewed the Investment Manager's report to
ensure that the comments made in this are consistent with their knowledge of the Company and with the figures in the
accounts. As with any Company, there are some elements in the accounts that are inevitably more complex than others and the
Board has been at pains to have these expressed in clear language so as to make them as understandable as possible. 
 
The Board very much welcomes views from shareholders and company analysts on the Annual Report and Accounts and, where
practical, will incorporate any suggestions that will improve the document. 
 
Management Engagement Committee 
 
The Management Engagement Committee has met once in the past year preceding the date of the signing of these accounts. The
purpose of the Committee is to review the terms of the agreements with the Manager including, but not limited to, the
management fee and also to review the performance of the Manager in relation to the achievement of the Company's
objectives. These reviews have been conducted during the year and the outcomes are noted below. 
 
Ignis Investment Services Limited provided management services to the Company up until the 18 July 2014. Following the
implementation of the Alternative Investment Fund Managers Directive ("AIFMD"), Ignis Fund Managers Limited was appointed
as the Alternative Investment Fund Manager ("AIFM") of the Company from 18 July 2014.  A summary of the current contract
between the Company and Ignis Fund Managers Limited in respect of management services provided is given in note 2 to the
accounts. 
 
The Directors, other than Mr John Robertson, have considered the investment performance of the Company and the capability
and resources of the Investment Manager to deliver satisfactory investment performance.  They also considered the length of
the notice period of the investment management contract and the fees payable to the Investment Manager, together with the
standard of the other services provided. It was noted that the 
 
Investment Manager had reduced the level of fees charged from 
 
1 July 2014. 
 
Following this review, it is the Directors' opinion that the continuing appointment of the Investment Manager on the terms
agreed is in the interests of shareholders as a whole due to the strength and quality of the management team, performance
achieved and the Investment Manager's commitment to the sector. The Management Engagement Committee have also conducted
reviews (where appropriate with the assistance of the Investment Manager) of the Company's other service providers. The
outcome of those reviews has been satisfactory. 
 
Nominations Committee 
 
The Nominations Committee comprises all independent Directors of the Company and is chaired by Mr Christopher Hill. The
Nominations Committee considers appointments of new Directors, undertaking a thorough and open process involving, where
appropriate, professional recruitment consultants and committee interviews with candidates identified. The Board and
Committee are cognisant of the debate around the recommendations of the Davies Report on Women on Boards and recognises the
benefits of diversity in its broadest sense and the value this brings to the Company in terms of skills, knowledge and
experience. The Nominations Committee did not require to meet during the year. 
 
Property Valuation Committee 
 
The Property Valuation Committee comprises all of the Directors and is chaired by Mr Andrew Wilson. Committee  members meet
CBRE, the independent valuer to the Company and representatives of Standard Life Investments at least twice a year and
report back to the Board on the process for arriving at independent valuations and on any issues that arise in relation to
this process. 
 
Going Concern 
 
The Company's business activities, together with the factors likely to affect its future development, performance and
financial position are set out in the Investment Policy and the Principal and Risk Uncertainties review. In addition, Note
16 to the financial statements includes the Company's objectives, policies and processes for managing its capital; its
financial risk management objectives; details of its financial instruments; and its exposure to credit risk and liquidity
risk. 
 
At both the Company and Group levels comprehensive going concern assessments have been performed. The Board has followed
the Financial Reporting Council's "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009" when
performing their going concern assessments and also considered the new recommendations on Risk Management and Control in
the UK Corporate Governance Code (September 2014). 
 
The assessments performed include review of the valuation and liquidity of investments as at the balance sheet date and
forecasts of NAV, cash resources and income under both normal and stressed conditions.  This has been undertaken over a
three year period as this tie in with the forecasting cycle undertaken by the Company's Manager and is considered to be the
maximum timescale within which the performance of the asset class can be forecast with a material degree of certainty. 
 
Having thoroughly considered the going concern assessment the Board has concluded that there are no material uncertainties
that may cast significant doubt about the Company and Group's ability to continue as a going concern over the next three
years, barring any unforeseen circumstances. The only qualification to this statement is that the shares of the Company,
which currently trade at a premium to NAV may in the future, trade at a discount to NAV of over 5% for 90 consecutive
dealing days, thereby leading to a continuation vote. This risk is considered, and mitigating actions addressed, in the
Principal Risk and Uncertainties Review. The Directors have a reasonable expectation that the Company and Group will be
able to continue in operational existence and to have adequate resources to meet its liabilities as they fall due over the
next three years. Therefore, the Board continues to adopt the going concern basis of accounting in preparing the annual
financial statements. 
 
Environmental, Ethical & Bribery Policy 
 
The Investment Manager acquires, develops and manages properties on behalf of the Company. It is recognised that these
activities have both direct and indirect environmental and social impacts. The Board has adopted the Investment Manager's
own Sustainable Real Estate Investments Policy and associated Environmental Management Systems and are committed to
environmental management in all phases of an asset's cycle - from acquisition through demolition, redevelopment and
operational management to disposal. The focus is on energy conservation, mitigating greenhouse gases emissions, maximizing
waste recycling and water conservation. To facilitate this, the Manager works in partnership with contractors, suppliers,
tenants and consultants to minimise those impacts, seeking continuous improvements in environmental performance and
conducting regular reviews. 
 
In conjunction with these environmental principles the Company has a health and safety policy which demonstrates commitment
to providing safe and secure buildings that promote a healthy working/customer experience that supports a healthy
lifestyle. The Company, through the Manager, manages and control health and safety risks systematically as any other
critical business activity using technologically advanced systems and environmentally protective materials and equipment. 
The aim is to achieve a health and safety performance the Company can be proud of and allow the Company to earn the
confidence and trust of tenants, customers, employees, shareholders and society at large. In addition the Board has adopted
an ethical policy which highlights the need for ethical considerations to be considered in the acquisition and management
of both new and existing properties. 
 
It is the Company's Policy to prohibit and expressly forbid the offering, giving or receiving of a bribe in any
circumstances.  This includes those instances where it may be perceived that a payment, given or received, may be a bribe.
The Company has adopted this Anti-Bribery and Corruption Policy to ensure robust compliance with The UK Bribery Act 2010. 
The Company has made relevant enquiries of its Manager and has received assurances that appropriate anti-bribery and
corruption policies have been formulated and communicated to their employees. 
 
Internal Controls 
 
The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. The Board has
therefore established an ongoing process designed to meet the particular needs of the Company in managing the risks to
which it is exposed, consistent with the guidance issued by the Financial Reporting Council in October 2005. The process is
based principally on the Investment Manager's existing risk-based approach to internal control whereby a risk matrix is
created that identifies the key functions carried out by the Investment Manager and other service providers, the individual
activities undertaken within those functions, the risks associated with each activity and the controls employed to minimise
those risks. A residual risk rating is then applied. The risk matrix is regularly updated and the Board is provided  with
regular reports highlighting all material changes to the risk ratings and confirmation of the action which has been, or is
being, taken. A formal annual review of these procedures is carried out by the Board and includes consideration of ISAE
3402 (formerly SAS70) and similar reports issued by the Investment Manager and other service providers. In addition, the
Board also receives quarterly updates from both the Compliance and Internal Audit departments of the Investment Manager on
areas that specifically affect the Company. Compliance reports are also received from the administrator on a quarterly
basis. 
 
Internal control procedures have been in place throughout the period and up to the date of approval of this Report, and the
Board is satisfied with their effectiveness. These procedures are designed to manage rather than eliminate risk and, by
their nature, can only provide reasonable, but not absolute, assurance against material misstatement or loss. At each Board
meeting the Board monitors the investment performance of the Company in comparison to its stated objective and against
comparable companies. The Board also reviews the Company's activities since the previous Board meeting to ensure that the
Investment Manager adheres to the agreed investment policy and approved investment guidelines and, if necessary, approves
changes to such policy and guidelines. In addition, at each Board meeting, the Board receives reports from the Secretary in
respect of compliance matters and duties performed on behalf of the Company including conflicts of interest. 
 
With effect from 18 July 2014, the Company entered into arrangements to comply with AIFMD. The Company appointed Ignis Fund
Managers Limited as its AIFM and Citibank International PLC as its Depositary. 
 
The Depositary's responsibilities include cash monitoring, safe keeping of the Company's financial instruments and
monitoring the Company's compliance with investment limits and leverage requirements. 
 
The AIFM has a permanent risk management function to ensure that effective risk management policies and procedures are in
place to monitor compliance with risk limits.  The AIFM has a risk policy which covers the risks associated with the
management of the portfolio and the adequacy and appropriateness of this policy is reviewed at least annually. 
 
The Board has reviewed the need for an internal audit function. The Board has decided that the systems and procedures
employed  by the Investment Manager and the Secretary, including both their internal audit functions and the work carried
out by the Company's external auditors, provide sufficient  assurance that a sound system of internal control, which
safeguards shareholders' investments and the Company's  assets, is maintained. An internal audit function specific to the
Company is therefore considered unnecessary. 
 
Relations with Shareholders 
 
The Company places great importance on communication with its shareholders and welcomes the views of shareholders. The
Manager and Broker of the Company meet existing and potential shareholders on a regular basis and the Board receives
regular reports on the views of shareholders from these meetings. In addition the Chairman, where possible, meets larger
shareholders annually and other Directors are available to meet shareholders if required. The Annual General Meeting of the
Company and also the annual and interim results presentations provides a forum, both formal and informal, for shareholders
to meet and discuss issues with the Directors and Investment Manager of the Company. 
 
Non-Mainstream Pooled investments 
 
The Company currently conducts its affairs so that the shares issued by the Company can be recommended by IFAs to ordinary
retail investors in accordance with the FCA's rules in relation to non-mainstream investment products and intends to
continue to do so for the foreseeable future.  The shares are excluded from the FCA's restrictions which apply to
non-mainstream investment products because the Company would qualify as an investment trust if the Company were based in
the UK. 
 
Annual General Meeting 
 
Among the resolutions being put at the Annual General Meeting of the Company to be held on 16 June 2015, the following
resolutions will be proposed. 
 
Disapplication of Pre-emption Rights 
 
Resolution 11 gives the Directors, for the period until the conclusion of the Annual General Meeting in 2016 or, if
earlier, on the expiry of 15 months from the passing of resolution 11, the necessary authority either to allot securities
or sell shares held in treasury, otherwise than to existing shareholders on a pro-rata basis, up to an aggregate nominal
amount of £32,485,312. This is equivalent to approximately 10 per cent of the issued ordinary share capital of the Company
as at 20 April 2015. 
 
The Directors will allot new shares pursuant to this authority only if they believe it is advantageous to the Company's
shareholders to do so and in no circumstances would this be done if it results in a dilution to the prevailing net asset
value per share. 
 
Directors' Authority to Buy Back Shares 
 
The current authority of the Board granted to it by shareholders at the 2014 AGM to buy back shares in the Company expires
at the end of AGM to be held in 2015. The Board intends to renew such authority to buy back shares up to 14.99 per cent of
the number of Ordinary Shares in issue. This special resolution, if approved, will enable the Company to buy back up to
194,781,928 shares based on the current number of shares in issue (excluding treasury shares). Any buy back of Ordinary
Shares will be made subject  to Guernsey law and within guidelines established from time to time by the Board, (which will
take into account the income and cash flow requirements of the Company), and the making and timing of any buy backs will be
at the absolute discretion of the Board. 
 
Purchases of Ordinary Shares will only be made through the market for cash at prices below the prevailing published net
asset value of an Ordinary Share (as last calculated), where the Directors believe such purchases will enhance shareholder
value. Such purchases will also only be made in accordance with the rules of the UK Listing Authority which provide that
the price to be paid must not be more than the higher of (i) five per cent above the average of the middle market
quotations for the Ordinary Shares for the five business days before the purchase is made and (ii) the higher of the last
independent trade and the highest current independent bid on the London Stock Exchange. The minimum price (exclusive of
expenses) that may be paid is 25 pence a share. 
 
The Company may retain any shares bought back as treasury shares for future re-issue, or transfer, or may cancel any such
shares. During the period when the Company holds shares as treasury shares, the rights and obligations in respect of those
shares may not be exercised or enforced by or against the Company. The maximum number of shares that can be held as
treasury shares by the Company is 10 per cent of the aggregate nominal value of all issued Ordinary Shares. Ordinary Shares
held as treasury shares will only be re-issued, or transferred at prices which are not less than the published net asset
value of an Ordinary Share. 
 
It is the intention of Directors that the share buy back authority will be used to purchase Ordinary Shares, (subject to
the income and cash flow requirements of the Company), if the share price of an Ordinary Share is more than 5 per cent
below the published net asset value for a continuous period of time. In the event that such discount is more than 5 per
cent for 90 dealing days or more, following the second anniversary of the Company's most recent continuation  vote, (10
July 2009),  the Directors will convene an Extraordinary General Meeting ("EGM") to be held within three months to consider
an ordinary resolution for the continuation of the Company. If this continuation resolution is not passed, the Directors
will convene a further extraordinary general meeting to be held within six months of the first extraordinary meeting to
consider the winding up of the Company or a reconstruction of the Company which offers all Shareholders the opportunity to
realise their investment. If any such continuation resolution is passed, this discount policy, save in respect of share buy
backs, would not apply for a period of two years thereafter. 
 
At an EGM of the Company held on 31 March 2015 a resolution was passed which effectively resulted in the following: 
 
(a) The continuation vote required by the Company's Articles of Association was brought forward from 2016 to 2015; 
 
(b) Approved the Continuation of the Company; 
 
(c) Set the next continuation vote for 2020 and seven yearly thereafter. 
 
The purpose of this change was to facilitate the new debt facilities described earlier in the report. It should be
highlighted that the buy back authority and discount management policy described above, including the provision for
continuation votes, will remain in place and are not affected by the changes to the Company's Articles of Association. 
 
Amendments to the Memorandum and Articles of Association 
 
It is proposed  in Resolutions 13 and 14 to adopt new Memorandum and Articles of Incorporation of the Company in order to
update the Company's current Memorandum and Articles of Association, to comply with the Companies (Guernsey) Law, 2008, as
amended  (the ''Companies Law''). 
 
The principal changes introduced in the new Memorandum and Articles of Incorporation are contained in the Appendix to the
Notice of the Annual General Meeting. Other changes, which are of a minor, technical or clarifying nature, and also some
more minor changes which merely reflect changes made by the Companies Law or confirm certain language in the new Memorandum
and Articles, have not been noted in the Appendix. The new Memorandum and Articles showing all the changes to the current
Memorandum and Articles of Association are available for inspection, as stated in the notes to the Notice of Annual General
Meeting. 
 
Auditors 
 
Ernst & Young LLP have expressed their willingness to continue in office as auditors and a resolution  proposing  their
re-appointment will be submitted at the Annual General Meeting. 
 
So far as each of the Directors is aware, there is no relevant audit information of which the Company's Auditor is unaware,
and each has taken all the steps he/she ought to have taken as a Director to make themself aware of any relevant audit
information and to establish that the Company's Auditor is aware of that information. 
 
Recommendations 
 
The Directors believe that the resolutions to be proposed at the Annual General Meeting are in the best interests of the
Company and its shareholders as a whole, and recommend that shareholders vote in favour of the resolutions, as the
Directors intend to do in respect of all their own beneficial shareholdings. 
 
Approved by the Board on 20 April 2015. 
 
Christopher M.W. Hill     Chairman 
 
Ken McCullagh              Director 
 
Directors RESPONSIBILITY STATEMENT 
 
The Directors are responsible for preparing the Annual Report and the 
 
Group financial statements in accordance with applicable Guernsey law and those International Financial Reporting Standards
("IFRS") as have been adopted by the European Union. They are also responsible for ensuring that the Annual Report includes
information required by the Rules of the UK Listing Authority. 
 
The Directors are required to prepare Group financial statements for each financial year which give a true and fair view of
the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing
those Group financial statements the Directors are required to: 
 
•      select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates
and Errors and then apply them consistently; 
 
•      present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information; 
 
•      provide additional disclosures when compliance  with the specific requirements in IFRS is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the Group's financial position
and financial performance; 
 
•      state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the
financial statements; and 
 
•      prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group will
continue in 

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