REG - UK Comm Prop Tst Ltd - Annual Financial Report <Origin Href="QuoteRef">UKCM.L</Origin> - Part 3
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business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the Group financial statements comply with the Companies
(Guernsey) Law 2008. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for ensuring that the Group complies with the provisions of the Listing Rules and the
Disclosure Rules and Transparency Rules of the UK Listing Authority which, with regard to corporate governance, require the
Group to disclose how it has applied the principles, and complied with the provisions, of the UK Corporate Governance Code
applicable to the Group.
We confirm that to the best of our knowledge:
• the Group financial statements, prepared in accordance with the IFRS, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group and comply with the Companies Law;
• that in the opinion of the Board, the Annual Report and Accounts taken as a whole, is fair, balanced and
understandable and it provides the information necessary to assess the Group's performance, business model and strategy;
and
• the Report of the Directors and Investment Manager Review include a fair review of the progression and performance
of the business and the position of the Group together with a description of the principal risks and uncertainties that it
faces.
On behalf of the Board
Christopher M.W. Hill
Chairman
20 April 2015
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2014 Year ended Year ended
31 December 2014 31 December 2013
Notes £'000 £'000
Revenue
Rental income 70,576 72,191
Gains on investment properties 8 8 124,771 48,395
Interest income 456 491
Total income 195,803 121,077
Expenditure
Investment management fee 2 2 (8,168) (7,456)
Direct property expenses 3 3 (3,653) (4,693)
Other expenses 3 3 (1,947) (3,627)
Total expenditure (13,768) (15,776)
Net operating profit before finance costs 182,035 105,301
Finance costs
Finance costs 4 4 (9,327) (9,229)
Net profit from ordinary activities before taxation 172,708 96,072
Taxation on profit on ordinary activities 5 5 - -
Net profit for the year 172,708 96,072
Other comprehensive income itemsthat may be reclassified subsequently to the income statement
(Loss)/Gain arising on effective portion of interestrate swap 12 12 (1,348) 9,715
Total comprehensive income for the year 171,360 105,787
Basic and diluted earnings per share 7 7 13.96p 8.02p
All of the profit and total comprehensive income for the year is attributable to the owners of the Company. All items in
the above statement derive from continuing operations.
The accompanying notes are an integral part of this statement.
Consolidated Balance Sheet
As at 31 December 2014
Notes 2013£'000 2012£'000
Non-current assets
Investment properties 8 1,215,861 1,042,728
1,215,861 1,042,728
Current assets
Investment properties held for sale 8 49,370 -
Trade and other receivables 10 10,626 8,902
Cash and cash equivalents 63,379 80,734
123,375 89,636
Total assets 1,339,236 1,132,364
Current liabilities
Trade and other payables 11 (22,386) (20,440)
Interest rate swap 12 (3,573) (4,438)
Bank Loan 12 (80,700) -
Long Term Liabilities
Bank Loan 12 (148,937) (229,252)
Interest rate swap 12 (4,694) (2,481)
Total liabilities (260,290) (256,611)
Net assets 1,078,946 875,753
Represented by:
Share capital 13 539,872 482,703
Treasury shares 13 - (25,264)
Special distributable reserve 597,406 600,069
Capital reserve (50,065) (174,836)
Revenue reserve - -
Interest rate swap reserve (8,267) (6,919)
Equity shareholders' funds 1,078,946 875,753
Net asset value per share 14 83.0p 73.1p
The accompanying notes are an integral part of this statement.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2014
Share Capital£'000 Treasury Shares£'000 Special Distributable Reserve £'000 Capital Revenue Interest Rate Swap Reserve £'000 Total£'000
Reserve£'000 Reserve£'000
At 1 January 2014 482,703 (25,264) 600,069 (174,836) - (6,919) 875,753
Issue of Ordinary Shares 49,776 - - - - - 49,776
Issue of Treasury Shares 7,393 25,264 - - - - 32,657
Issue costs - - - - (824) - (824)
Net profit for the year - - - - 172,708 - 172,708
Other comprehensive income - - - - - (1,348) (1,348)
Dividends paid - - - - (49,776) - (49,776)
Transfer in respect of gains on investment properties - - - 124,771 (124,771) - -
Transfer from special distributable reserve - - (2,663) - 2,663 - -
At 31 December 2014 539,872 - 597,406 (50,065) - (8,267) 1,078,946
For the year ended 31 December 2013
Special Interest
Share Treasury Distributable Capital Revenue Rate Swap
Capital Shares Reserve Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2013 482,703 (25,264) 615,252 (223,231) - (16,634) 832,826
Net loss for the year - - - - 96,072 - 96,072
Other comprehensive income - - - - - 9,715 9,715
Dividends paid - - - - (62,860) - (62,860)
Transfer in respect of losses on investment properties - - - 48,395 (48,395) - -
Transfer from special distributable reserve - - (15,183) - 15,183 - -
At 31 December 2013 482,703 (25,264) 600,069 (174,836) - (6,919) 875,753
The accompanying notes are an integral part of this statement.
Consolidated Cash Flow Statement
For the year ended 31 December 2014
Year ended31 December 2014£'000 Year ended31 December 2013£'000
Cash flows from operating activities
Net profit for the year before taxation 172,708 96,072
Adjustments for:
Gains on investment properties (124,771) (48,395)
Movement in lease incentive (1,106) (340)
Movement in provision for bad debts (790) 744
Decrease/(Increase) in operating trade and other receivables 172 (1,282)
Increase/(Decrease) in operating trade and other payables 1,885 (1,908)
Finance costs 9,345 9,229
Net cash inflow from operating activities 57,443 54,120
Cash flows from investing
Purchase of investment properties (97,033) (18,648)
Sale of investment properties 3,610 44,200
Capital expenditure (4,309) (4,353)
Net cash (outflow)/inflow from investing activities (97,732) 21,199
Cash flows from financing activities
Issue of Ordinary Shares 49,776 -
Reissue of Treasury Shares 32,657 -
Issue Costs (824) -
Dividends paid (49,776) (62,860)
Bank loan interest paid (4,303) (4,156)
Payments under interest rate swap arrangement (4,596) (4,631)
Net cash inflow/(outflow) from financing activities 22,934 (71,647)
Net (decrease)/increase in cash and cash equivalents (17,355) 3,672
Opening balance 80,734 77,062
Closing cash and cash equivalents 63,379 80,734
Represented by:
Cash at bank 22,191 21,639
Short term deposits - 20,301
Money market funds 41,188 38,794
63,379 80,734
Notes to the Accounts
1. Accounting Policies
A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out
below.
(a) Basis of Accounting
The consolidated accounts have been prepared in accordance with International Financial Reporting Standards issued by, or
adopted by, the International Accounting Standards Board (the IASB), interpretations issued by the IFRS Interpretations
Committee that remain in effect, and to the extent that they have been adopted by the European Union, applicable legal and
regulatory requirements of Guernsey law and the Listing Rules of the UK Listing Authority.
New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year, except for the following new and
amended IFRSs effective for this Group as of 1 January 2014. The nature and the impact of each new standard and amendment
are described below. Other amendments to certain standards apply for the first time in 2014, however, they do not impact
the annual consolidated financial statements of the Group.
Investment entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an
investment entity under IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at
fair value through profit or loss. These amendments are effective for annual periods beginning on or after 1 January 2014.
None of the Group subsidiaries are considered to be investment entities as defined in IFRS 10 as all subsidiaries within
the group are wholly owned within the Group and hence are related parties. As none of the Group subsidiaries are deemed as
investment entities there has been no impact on the Group.
There have been other new and amended standards issued or have come into effect from 1 January 2014 but these are not
considered to be applicable and hence not discussed.
(b) Significant accounting judgements, estimates and assumptions
The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that
affect the amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could
result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in
the future.
Fair value of investment properties: Investment property is stated at fair value as at the balance sheet date as set out in
note 1(h) and note 8 to these accounts.
The determination of the fair value of investment properties requires the use of estimates such as future cash flows from
the assets. The estimate of future cash flows includes consideration of the repair and condition of the property, lease
terms, future lease events, as well as other relevant factors for the particular asset.
These estimates are based on local market conditions existing at the balance sheet date.
Fair value of interest rate swaps: The fair value of the interest rate swaps are determined using mathematical models. The
inputs to these models are taken from observable market data where possible, but where this is not possible a degree of
judgement is required in estimating fair value. Changes in assumptions used in the model could affect the reported fair
value.
(c) Basis of Consolidation
The consolidated accounts comprise the accounts of the Company and its subsidiaries drawn up to 31 December each year.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from
the date on which control is transferred out of the Group. The structured entities within the Group are all controlled via
voting rights and hence these entities are consolidated.
(d) Functional and Presentation currency
Items included in the financial statements of the Group are measured using the currency of the primary economic environment
in which the entity operates ("the functional currency") which is pounds sterling. The financial statements are also
presented in pounds sterling. All figures in the financial statements are rounded to the nearest thousand unless otherwise
stated.
(e) Revenue Recognition
Rental income, excluding VAT, arising from operating leases (including those containing stepped and fixed rent increases)
is accounted for in the Statement of Comprehensive Income on a straight line basis over the lease term. Surrender lease
premiums paid and rent free periods granted, are recognised as assets and are amortised over the period from the date of
the lease commencement to the lease termination date.
Interest income is accounted on an accruals basis and included in operating profit.
(f) Expenses
Expenses are accounted for on an accruals basis. The Group's investment management and administration fees, finance costs
and all other expenses are charged through the Statement of Comprehensive Income. Service charge costs, to the extent they
are not recoverable from tenants, are accounted for on an accruals basis and included in operating profit.
(g) Taxation
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation
authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by
the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in
profit or loss. Positions taken in tax returns with respect to situations in which applicable tax regulations are subject
to interpretation are periodically evaluated and provisions established where appropriate.
Deferred income tax is provided using the liability method on all temporary differences at the reporting date between the
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets
are recognised only to the extent that it is probable that taxable profit will be available against which deductible
temporary differences, carried forward tax credits or tax losses can be utilised. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. In determining
the expected manner of realisation of an asset the directors consider that the Group will recover the value of investment
property through sale. Deferred income tax relating to items recognised directly in equity is recognised in equity and not
in profit or loss.
(h) Investment Properties
Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction
costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment
properties is capitalised in the period during which the expenditure is incurred and included within the book cost of the
property.
After initial recognition, investment properties are measured at fair value, with the movement in fair value recognised in
the Statement of Comprehensive Income and transferred to the Capital Reserve. Fair value is based on the open market
valuation provided by CBRE Limited, chartered surveyors, at the Balance Sheet date. For the purposes of these financial
statements, in order to prevent 'double accounting', the assessed market value is reduced by the carrying amount of any
accrued income resulting from the spreading of lease incentives and/or minimum lease payments.
On derecognition, gains and losses on disposals of investment properties are recognised in the Statement of Comprehensive
Income and transferred to the Capital Reserve.
Recognition and derecognition occurs on the unconditional exchange of signed contracts between a willing buyer and a
willing seller.
Investment property is transferred to non-current assets held for sale when it is expected that the carrying amount will be
recovered principally through sale rather than from continuing use. For this to be the case, the property must be available
for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such property
and its sale must be highly probable.
The Group has entered into forward funding agreements with third party developers in respect of certain properties. Under
these agreements the Group will make payments to the developer as construction progresses. The value of these payments is
assessed and certified by an expert.
Investment properties are recognised for accounting purposes upon completion of contract. Properties purchased under
forward funding contracts are recognised at certified value to date.
(i) Operating Lease Contracts - the Group as Lessor
The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based
on an evaluation of the terms and conditions of the arrangements that it retains all the significant risks and rewards of
ownership of these properties and so accounts for leases as operating leases. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a
straight-line basis over the lease term.
(j) Share Issue Expenses
Incremental external costs directly attributable to the issue of shares that would otherwise have been avoided are written
off to revenue reserves.
(k) Segmental Reporting
The Directors are of the opinion that the Group is engaged in a single segment of business being property investment in the
United Kingdom.
(l) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits, and other short-term highly liquid investments
readily convertible within three months or less to known amounts of cash and subject to insignificant risk of changes in
value.
(m) Trade and Other Receivables
Trade receivables, which are generally due for settlement at the relevant quarter end are recognised and carried at the
original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made when
collection of the full amount is no longer probable, debts are over 90 days old or relate to tenants in administration.
Bad debts are written off when identified.
(n) Trade and Other Payables
Rental income received in advance represents the pro-rated rental income invoiced before the year end that relates to the
period post the year end. VAT payable is the difference between output and input vat at the year end. Other payables are
accounted for on an accruals basis and include amounts which are due for settlement by the Group as at the year end and are
generally carried at the original invoice amount. An estimate is made for any services incurred at the year end but for
which no invoice has been received.
(o) Reserves
Special Distributable Reserve
The special reserve is a distributable reserve to be used for all purposes permitted under Guernsey law, including the
buyback of shares and the payment of dividends.
Capital Reserve
The following are accounted for in this reserve:
- gains and losses on the disposal of investment properties
- increases and decreases in the fair value of investment properties held at the year end
Revenue Reserve
Any surplus arising from the net profit on ordinary activities after taxation and payment of dividends is taken to this
reserve, with any deficit charged to the special distributable reserve.
Interest Rate Swap Reserve
Any surplus/deficit arising from the marked to market valuation of the swap instrument is credited/charged to this
account.
Treasury Share Reserve
This represents the cost of shares bought back by the Company and held in Treasury.
(p) Interest-bearing borrowings
All bank loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of
arrangement costs associated with the borrowing. After initial recognition, all interest bearing loans and borrowings are
subsequently measured at amortised cost. Amortised cost is calculated by taking into account any loan arrangement costs and
any discount or premium on settlement.
On maturity, bank loans are recognised at par, which is equivalent to amortised cost. Bank loans redeemed before maturity
are recognised at amortised cost with any charges associated with early redemptions being taken to the Statement of
Comprehensive Income.
(q) Derivative financial instruments
The Group uses derivative financial instruments to hedge its risk associated with interest rate fluctuations.
Derivative instruments are initially recognised in the Balance Sheet at their fair value. Fair value is determined by
reference to market values for similar instruments. Transaction costs are expensed immediately.
Gains or losses arising on the fair value of cash flow hedges in the form of derivative instruments are taken directly to
the Statement of Comprehensive Income. Such gains and losses are taken to a reserve created specifically for that purpose,
described as the Interest Rate Swap Reserve in the Balance Sheet.
On maturity or early redemption the unrealised gains or losses arising from cash flow hedges in the form of derivative
instruments, initially recognised in Other Comprehensive Income, are transferred to Consolidated Statement of Comprehensive
Income.
The Group considers its interest rate swap qualifies for hedge accounting when the following criteria are satisfied:
- The instrument must be related to an asset or liability - It must change the character of the interest rate by
converting a variable rate to a fixed rate or vice versa;
- It must match the principal amounts and maturity date of the hedged item; and
- As a cash flow hedge the forecast transaction (incurring interest payable on the bank loan) that is subject to the
hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect the
profit or loss. The effectiveness of the hedge must be capable of reliable measurement and must be assessed as highly
effective on an ongoing basis throughout the financial reporting periods for which the hedge was designated.
If a derivative instrument does not satisfy the Group's criteria to qualify for hedge accounting that instrument will be
deemed as an ineffective hedge.
Should any portion of an ineffective hedge be directly related to an underlying asset or liability, that portion of the
derivative instrument should be assessed against the Group's effective hedge criteria to establish if that portion
qualifies to be recognised as an effective hedge.
Where a portion of an ineffective hedge qualifies against the Group's criteria to be classified as an effective hedge that
portion of the derivative instrument shall be accounted for as a separate and effective hedge instrument and treated as
other comprehensive income.
Gains or losses arising on any derivative instrument or portion of a derivative instrument which is deemed to be
ineffective will be recognised in profit or loss. Gains and losses, regardless of whether related to effective or
ineffective hedges, are taken to a reserve created specifically for that purpose described in the balance sheet as the
Interest Rate Swap Reserve.
(r) New standards, amendments and interpretation not yet effective
There are a number of new standards, amendments and interpretations that have been issued but are not yet effective for
this accounting year and have not been adopted early. The impact of these standards has not yet been assessed by the Group
but will be in due course.
As at the date of authorisation of these financial statements IFRS 9 and IFRS 15 have not yet been endorsed or adopted by
the EU.
IFRS 9 Financial Instruments
IFRS 9, as issued in 2010, reflects the first phase of the IASB's work on the replacement of IAS 39 and applies to
classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was
initially effective for annual periods beginning on or after 1 January 2013. In November 2013, Chapter 6 of IFRS 9 on
hedge accounting was published. At the same time, Chapter 7 containing the effective date and transition provisions was
amended to remove the mandatory effective date of IFRS 9. This was intended to provide sufficient time for preparers to
make the transition to the new requirements. Entities may still choose to apply IFRS 9 immediately, but are not required to
do so with the effective date of 1 January 2018.
IFRS 15 - Revenue from Contracts
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2017) specifies how and when an entity should recognise
revenue and enhances the nature of revenue disclosures.
Annual Improvement to IFRS
In addition to the above, Annual Improvement to IFRSs 2010-2012 Cycle (effective 1 July 2014) and Annual Improvement to
IFRSs 2011-2013 Cycle (effective 1 July 2014) have not been adopted early.
2. Fees
Year ended31 December 2014£'000 Year ended31 December 2013£'000
Investment management fee 8,168 7,456
The Group's Investment Manager, Ignis Fund Managers Limited, receives an aggregate annual fee from the Group at an annual
rate of 0.65 per cent. of the Total Assets effective from 1 July 2014 as per a new Investment Management Agreement entered
into in July 2014. Prior to this the Group's Investment Manager was Ignis Investment Services Limited and the fee was 0.75
per cent. of Total Assets less borrowings plus 0.50 per cent. on borrowings. The Investment Manager is also entitled to an
administration fee amounting to £165,000 which will increase annually in line with inflation. In the current year this fee
amounted to £172,000 (see note 3). Both fees are payable quarterly in arrears. The fees of any managing agents appointed by
the Investment Manager are payable out of the Investment Management fee. The Investment Management agreement is terminable
by any of the parties to it on 12 months' notice.
3. Expenses
Direct Property Expenses Year ended31 December 2014£'000 Year ended31 December 2013£'000
Direct operating expenses arising from investment property that generated rental income during the period 3,653 4,356
Direct operating expenses arising from investment property that did not generate rental income during the period - 337
3,653 4,693
Other Expenses Year ended31 December 2014£'000 Year ended31 December 2013£'000
Professional fees 1,984 1,986
Movement in bad debt provision (790) 744
Directors' fees 196 183
Administration fee 172 168
Administration and company secretarial fees 85 85
Regulatory fees 140 115
Auditor's remuneration for:
Statutory audit 55 43
Non audit services 54 109
Other expenses 51 194
1,947 3,627
4. Finance costs
Year ended31 December 2014£'000 Year ended31 December 2013£'000
Interest on principal loan amount 4,281 4,210
Amounts payable in respect of interest rate swap arrangement 4,600 4,656
Amortisation of loan set up fees 446 363
9,327 9,229
5. Taxation
UK Commercial Property Trust Limited owns four Guernsey tax exempt subsidiaries, UK Commercial Property GP Limited (GP), UK
Commercial Property Holdings Limited (UKCPH), UK Commercial Property Estates Limited (UKCPEL) and UK Commercial Property
Estates Holdings Limited (UKCPEH). GP and UKCPH are partners in a Guernsey Limited Partnership ("the Partnership") and own
six Jersey Property Unit Trusts. UKCPEL owns 3 Jersey Property Unit Trusts. The Partnership, UKCPH and UCKPEL own a
portfolio of UK properties and derived rental income from those properties. As the Partnership, GP, UKCPH, UKCPEL and
UKCPEH are considered tax transparent in the UK, their taxable results are liable to UK income tax at the rate of 20 per
cent on their respective net rental income.
A reconciliation of the income tax charge applicable to the results from ordinary activities at the statutory income tax
rate to the charge for the year is as follows:
Year ended Year ended
31 December 2014 31 December 2013
£'000 £'000
Net profit before tax 172,708 96,072
UK income tax at a rate of 20 per cent 34,542 19,214
Effect of:
Capital gains on investment properties not taxable (25,143) (8,377)
Lease incentive adjustment not allowable for tax purposes 221 68
Capital gains realised not taxable (32) (1,370)
Income not taxable (91) (98)
Intercompany loan interest (12,862) (12,754)
Expenditure not allowed for income tax purposes 1,865 1,773
Deferred tax asset not provided for 1,500 1,544
Total tax charge - -
The Group has unused tax losses carried forward of £30,047,000 (2012/2013: £24,375,000). These will only be utilised if the
Group has profits chargeable to income tax in the future.
The Company and its subsidiaries are exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey)
Ordinance, 1989. A fixed annual fee of £1,200 per company is payable to the States of Guernsey in respect of this
exemption. No charge to Guernsey taxation will arise on capital gains.
The Directors intend to conduct the Group's affairs such that management and control is not exercised in the United Kingdom
and so that neither the Company nor any of its subsidiaries carries on any trade in the United Kingdom. Accordingly, the
Company and its subsidiaries will not be liable for United Kingdom taxation on their income or gains other than certain
income deriving from a United Kingdom source.
6. Dividends
Dividends on Ordinary Shares:2013 Fourth interim of 1.3125p per share paid Year ended31 December 2014£'000 Year ended31 December 2013£'000
28 February 2014 (2012 Fourth interim: 1.3125p) 15,715 15,715
2014 First interim of 0.92p per share paid
30 May 2014 (2013 First interim: 1.3125p) 11,016 15,715
2014 Second interim of 0.92p per share paid
29 August 2014 (2013 Second interim: 1.3125p) 11,390 15,715
2014 Third interim of 0.92p per share paid
28 November 2014 (2013 Third interim: 1.3125p) 11,655 15,715
49,776 62,860
A fourth interim dividend of 0.92p was paid on 27 February 2015 to shareholders on the register on 19 February 2015.
Although this payment relates to the year ended 31 December 2014, under International Financial Reporting Standards it will
be accounted for in the year ending 31 December 2015.
7. Basic and diluted Earnings per Share
The earnings per share (EPS) are based on the net profit for the year of £172,708,000 (2013: profit £96,072,000) and on
1,236,787,497 (2013: 1,197,348,858) Ordinary Shares, being the weighted average number of shares in issue during the year.
As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical.
The EPRA EPS for the year ended 31 December 2014 is 3.88p per share (2013: 3.98p). This is calculated after excluding any
gain/loss on investment properties and losses arising on ineffective portions of interest rate swaps from the Net
profit/(loss) position for the year.
8. Investment Properties
Freehold and Leasehold properties Year ended 31 December 2014£'000 Year ended 31December 2013£'000
Opening valuation 1,042,728 1,015,532
Purchases at cost 97,033 18,648
Capital expenditure 4,309 4,353
Gain on revaluation to market value 125,717 41,885
Disposals at prior year valuation (3,450) (37,350)
Adjustment for lease incentives (1,106) (340)
Fair value at 31 December 2014 1,265,231 1,042,728
Less: reclassified as held for sale (49,370) -
Fair value as at 31 December 2014 1,215,861 1,042,728
Gains/(Losses) on investment properties at fair value Comprise
Valuation gains 125,717 41,885
Movement in provision for lease incentives (1,106) (340)
Gain on disposal 160 6,850
124,771 48,395
Losses on investment properties sold
Original cost of investment properties sold (10,100) (66,950)
Sale proceeds 3,610 44,200
Losses on investment properties sold (6,490) (22,750)
Recognised in previous periods (6,650) (29,600)
Recognised in current period 160 6,850
(6,490) (22,750)
Given the objectives of the Group and the nature of its investments, the Directors believe that the Group has only one
asset class, that of Commercial Property.
CBRE Limited, Chartered Surveyors (the "Property Valuer") completed a valuation of Group investment properties at 31
December 2014 on an open market basis in accordance with the requirements of the Valuation Standards issued by the Royal
Institution of Chartered Surveyors, which is deemed to equate to market value. The Property Valuer, in valuing the
portfolio, is acting independently and external to it. Market value is determined by reference to market based evidence,
which is the amount for which each asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable,
willing seller in an arms length transaction as at the valuation date. The market value of these investment properties
amounted to £1,272,315,000 (2013 - £1,048,705,000). The difference between the market value and the fair value at 31
December 2014 consists of accrued income relating to the pre-payment for rent-free periods recognised over the life of the
lease totalling £7,084,000 (2013 - £5,978,000) which is separately recorded in the accounts as a current asset.
The Group has entered into leases on its property portfolio as lessor (See note 18 for further information). No one
property accounts for more than 15 per cent of the gross assets of the Group. All leasehold properties have more than 60
years remaining on the lease term. There are no restrictions on the realisability of the Group's investment properties or
on the remittance of income or proceeds of disposal. However, the Group's investments comprise UK commercial property,
which may be difficult to realise. Property and property related assets are inherently difficult to value due to the
individual nature of such property. As a result, valuations are subject to substantial uncertainty. There is no assurance
that the estimates resulting from the valuation process will reflect the actual sales price even where the actual sales
occur shortly after the valuation date.
In addition to the above, the property portfolio market value as at 31 December 2014 is based on the following:
• The Estimated Net Annual Rent for each property, which is based on the current rental value of each of the
properties, which reflects the terms of the leases where the property, or part of the property, are let at the date of
valuation. If the property, or parts thereof, are vacant at the date of valuation, the rental value reflects the rent the
valuer considers would be obtainable on an open market letting as at the date of valuation.
• The valuer has assumed that all rent reviews are to be assessed by reference to estimated rental value. Also
there is the assumption that all tenants will meet their obligations under their leases, and are responsible for insurance,
payment of business rates, and all repairs, whether directly or by means of a service charge.
• The valuer has not made any adjustments to reflect any liability to taxation that may arise on disposal, nor any
costs associated with disposals incurred by the owner however, normal acquisition costs are included in the valuation.
• The valuer assumes an initial yield in the region of 3 to 7 per cent for the majority of the properties, with
the reversionary yield being in the region of 4 to 7 per cent.
• The property valuer takes account of deleterious materials included in the construction of the investment
properties in arriving at its estimate of open market valuation when the Investment Manager advises of the presence of such
materials.
The majority of the leases are on a full repairing basis and as such the Group is not liable for costs in respect of
repairs or maintenance to its investment properties.
The following disclosure is provided in relation to the adoption of IFRS 13 Fair Value Measurement. All properties are
deemed Level 3 for the purposes of fair value measurement and the current use of each property is considered the highest
and best use. The fair value of completed investment property is determined using a yield methodology. Under this method,
a property's fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over
the asset's life including an exit or terminal value. As an accepted method within the income approach to valuation, this
method involves the projection of a series of cash flows on a real property interest. To this projected cash flow series,
an appropriate, market-derived discount rate (capitalisation rate) is applied to establish the present value of the cash
inflows associated with the real property. The duration of the cash flow and the specific timing of inflows and outflows
are determined by events such as rent reviews, lease renewal and related lease up periods, re-letting, redevelopment, or
refurbishment. The appropriate duration is typically driven by market behaviour that is a characteristic of the class of
property. In the case of investment properties, periodic cash flow is typically estimated as gross income less vacancy,
non- recoverable expenses, collection losses, lease incentives, maintenance cost, agent and commission costs and other
operating and management expenses. The series of periodic net cash inflows, along with an estimate of the terminal value
anticipated at the end of the projection period, is then discounted. Set out below are the valuation techniques used for
each property sector plus a description and quantification of the key unobservable inputs relating to each sector. There
has been no change in valuation technique in the year.
Sector Fair Value at Valuation techniques Unobservable inputs Range
31/12/14 (£m) (weighted average)
Retail 561.7 Yield methodology Annual rent per sq ft £8-£310 (£83)
Capitalisation rate 3.5%-11.5% (5.6%)
Office 280.5 Yield methodology Annual rent per sq ft £15-£75 (£35)
Capitalisation rate 3.0%-7.5% (5.0%)
Industrial 330.9 Yield methodology Annual rent per sq ft £4-£19 (£8)
Capitalisation rate 5.0%-7.0% (5.7%)
Leisure 92.1 Yield methodology Annual rent per sq ft £18-£40 (£31)
Capitalisation rate 2.5%-6.0% (5.3%)
Sensitivity analysis
The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the
valuation of investment property.
Sector Assumption Movement Effect on valuation
Retail Yield +50 basis points Decrease £45.5m
-50 basis points Increase £64.9m
Office Yield +50 basis points Decrease £28.0m
-50 basis points Increase £37.9m
Industrial Yield +50 basis points Decrease £26.1m
-50 basis points Increase £34.3m
Leisure Yield +50 basis points Decrease £8.4m
-50 basis points Increase £10.3m
Investment property valuation process
The valuations of investment properties are performed quarterly on the basis of valuation reports prepared by independent
and qualified valuers.
These reports are based on both:
· Information provided by the Investment Managers such as current rents, terms and conditions of lease agreements,
service charges and capital expenditure. This information is derived from the Investment Managers financial and property
management systems and is subject to the Investment Managers overall control environment.
· Assumptions and valuation models used by the valuers - the assumptions are typically market related, such as yields.
These are based on their professional judgment and market observation.
The information provided to the valuers and the assumptions and valuation models used by the valuers are reviewed by the
Investment Managers. This includes a review of fair value movements over the period.
Assets held for sale
Assets shown on the balance sheet as held for sale at the year end are Pall Mall Court, Manchester and the Sovereign
Centre, Weston-super-Mare. These assets are shown at fair value in the Balance sheet as held for sale assets. These assets
continue to be valued by CBRE Limited using the method described in this note. Held for sale assets are included in the
investment property table shown in this note. Any unrealised gains and losses on these assets are shown in the investment
property table and in the consolidated statement of comprehensive income as gains/(losses) on investment properties.
Pall Mall Court, Manchester was sold by the Group on 23 January 2015 for a consideration of £19.5 million.
Sovereign Centre, Weston-super-Mare was sold by the Group on 28 January 2015 for a consideration of £29.9 million.
9. Investment in Subsidiary Undertakings
The Company owns 100 per cent of the issued ordinary share capital of UK Commercial Property Holdings Limited (UKCPH), a
company incorporated in Guernsey whose principal business is that of an investment and property company.
The Company owns 100 per cent of the issued share capital of UK Commercial Property GP Limited, (GP), a company
incorporated in Guernsey whose principal business is that of an investment and property company.
UKCPT Limited Partnership, (GLP), is a Guernsey limited partnership, and it holds a portfolio of properties. UKCPH and GP,
have a partnership interest of 99 and 1 per cent respectively in the GLP. The GP is the general partner and UKCPH is a
limited partner of the GLP.
The Company owns 100 per cent of the issued share capital of UK Commercial Property Nominee Limited, a company incorporated
in Guernsey whose principal business is that of a nominee company.
Post the year end the Company transferred all holdings in UKCPH and GP to UK Commercial Property Finance Holdings Limited
(UKCPFH). The Company owns 100% of the share capital in UKCPFH.
The Company owns 100 per cent of the issued share capital of UK Commercial Property Estates Holdings Limited (formerly SCP
Group Limited), a company incorporated in Guernsey whose principal business is that of a holding company. UK Commercial
Property Estates Holdings Limited owns 100 per cent of the issued share capital of UK Commercial Property Estates Limited,
a company incorporated in Guernsey whose principal business is that of an investment and property company.
In addition the Group wholly owns nine Jersey Property Unit Trusts namely 176-206 High Street Kensington Unit Trust,
Junction 27 Retail Unit Trust, Charles Darwin Retail Unit Trust, St Georges Leicester Unit Trust, Kew Retail Park Unit
Trust, Pride Hill Retail Unit Trust, Riverside Mall Retail Unit Trust, Rotunda Kingston Property Unit Trust and
Weston-super-Mare Unit Trust. The principal business of the Unit Trusts is that of investment in property.
10. Trade and Other receivables
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