REG - Value & Index Prop - Annual Financial Report
26/06/2023 18:30
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RNS Number : 9612D Value and Indexed Prop Inc Tst PLC 26 June 2023
VALUE AND INDEXED PROPERTY INCOME TRUST PLC
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED 31 MARCH 2023
Chairman's Statement
This is my first communication with you since I became Chairman in July 2022.
We all owe a debt of gratitude to my predecessor, James Ferguson, for his
expert stewardship of the Trust over his 28 years as Chairman. During the
year, we welcomed Lucy Winterburn, with her wide experience of the property
market, to the Board.
The property sector was particularly affected by the economic and geopolitical
turmoil over the year - the rise in inflation and interest rates, the
political chaos of the short-lived Truss administration, and the multiple
consequences of the war in Ukraine. While the Trust's portfolio, which is not
exposed to offices or high street shops, outperformed the MSCI UK Quarterly
Property Index, it was certainly not immune to the general malaise. In the
year under review, the total net asset value return per share, measuring debt
at carrying value, was -17.9%; the share price total return was -9.2%, the
difference reflecting the substantial narrowing of the discount to asset
value, which is now below the average for the property sector.
This narrowing reflects the completion of the major reconstruction of the
Trust, which has been in progress for the last three years. The last remaining
equity holdings have been sold. Debt has been refinanced and now has an
average maturity of over seven years and an average, almost entirely fixed,
interest rate below 4%. Our holdings now comprise industrial premises,
supermarkets, and leisure facilities and almost all have rents linked to
inflation. Tenant covenants are strong - all rent due in the last year has
been collected, with 60% of rents coming from our top 6 tenants. The dividend
is now covered by contracted income and since the average yield exceeds the
cost of the Company's debt, the Board is confident of the Trust's ability to
continue the progressive dividend policy, which the Company has maintained for
36 years. At 31 March 2023, VIP's Ordinary Shares yielded 6.3%.
The majority of the indexed rents in the Company's portfolio have caps - which
limit the rate of increase - and collars - which specify a minimum increase.
The effect of these arrangements is illustrated in the Annual Report. If the
Consumer Price Index (CPI) increases by 4% annually, the growth of the
Company's income will more or less match the inflation rate. If inflation is
less than this - and the Bank of England's target is 2%, although it has
recently been far from achieving this target - income will increase by more
than inflation. However, if inflation is faster than 4%, the caps on rent
increases imply that these increases will fall short of full indexation.
The costs of the Company's major debt reconstruction provide part of the
explanation of the Trust's asset value decline in the year under review - the
remaining debenture was repaid at a premium and there are costs associated
with both acquisitions and disposals. The result is a robust portfolio, which
should prove resilient in the face of continued political and economic
uncertainties. The market has recognised these achievements and the discount
to net asset value has narrowed and is below the property sector average.
As Shareholders were advised in 2020, when the process of reconstruction
began, the Board intends to offer Shareholders an exit at net asset value less
costs. Proposals will be put to Shareholders at the 2026 AGM of the Company.
Many uncertainties certainly remain. The fiasco of 'liability driven
investment' - in which long term investors purporting to minimise risk were
forced to scramble for short term cash - is now largely resolved. Some of the
banking institutions most exposed to mismatched assets and liabilities in a
period of rising interest rates have been rescued. However, there is still
much illusory wealth in tech stocks and crypto related assets, which will
evaporate as reality dawns. While VIP has restructured its debt on sustainable
terms, there are many capital providers who have yet to do so. Problems in
this 'shadow banking' sector are likely to continue to have implications for
both the financial system as a whole and the property sector, in particular,
for several years yet.
The Board is recommending a final dividend of 3.6 pence per share, making
total dividends of 12.9 pence per share for the year to 31 March 2023,
compared to 12.6 pence in the previous year, an increase of 2.4%. Subject to
Shareholder approval at the 2023 Annual General Meeting (AGM), the final
dividend will be paid on 4 August 2023 to Shareholders on the register on 7
July 2023. The ex-dividend date is 6 July 2023.
The AGM will be held at the Kingham Room, Broadway House Conference Centre,
Tothill Street, London SW1H 9NQ at 12.30pm on Wednesday, 2 August 2023. The
Notice of Annual General Meeting can be found in the Annual Report. The Board
encourages Shareholders to vote using the proxy form, which can be submitted
to the Company's Registrars, Computershare Investor Services PLC, The
Pavilions, Bridgwater Road, Bristol, BS99 6ZY. Proxy forms should be completed
and returned in accordance with instructions thereon and the latest time for
the receipt of proxy forms is 12.30pm on 31 July 2023. Proxy votes can also be
submitted by Crest or online using the Registrar's Share Portal service at
www.investorcentre.co.uk/eproxy.
John Kay
Chairman
26 June 2023
Summary of Portfolio
Portfolio transition 31 March 2023 31 March 2022
£m % £m %
UK property 150.6 98.5 155.8 83.0
Cash 2.3 1.5 5.2 2.7
UK equities - - 26.9 14.3
152.9 100.0 187.9 100.0
VIP property portfolio - sector weightings since 2012
Sector March 2023 March 2022 March 2021 March 2020 March 2014 March 2012
Offices 0% 0% 0% 0% 0% 0%
Shops and Retail Warehouses 0% 0% 0% 0% 39% 49%
Supermarkets 29% 27% 16% 2% 5% 0%
Pubs and Restaurants 9% 13% 24% 32% 17% 13%
Leisure 18% 11% 8% 12% 11% 10%
Industrial 29% 33% 35% 32% 8% 8%
Roadside 6% 7% 3% 6% 16% 16%
Other 9% 9% 14% 16% 4% 4%
Total 100% 100% 100% 100% 100% 100%
Number of Properties 39 43 31 26 29 27
Manager's Report
The property market
UK commercial property values peaked in June 2022 after property yields were
pushed down to 40 year lows. QE (Quantitative Easing) had been going on too
far, for too long, in the United Kingdom as in most Western economies, forcing
interest rates unsustainably low and capital values, especially of low
yielding assets, unsustainably high. The Bank of England, in particular, had
dropped its guard on its official 2% inflation target. So Russia's invasion of
Ukraine, raising world energy and commodity prices, meant that UK interest
rates and gilt yields had to shoot up to take the strain when the UK's
post-pandemic recovery was already the weakest of the G7 nations and our
public sector and overseas trade deficits were the worst.
Bond and currency markets have now stabilised after the economic and interest
rate chaos of the Truss-Kwarteng administration last autumn, and average
values of commercial property are now down about 20% from their mid 2022 peak
and 13% over 2022 as a whole. So far in 2023, average property values have
been slipping slightly further on the MSCI UK Monthly Property Index, but
turnover is very low so this is based more on sentiment than actual completed
transactional evidence. Investors are cautious and risk averse. Properties
with long, strong, indexed income let at sustainable rents to robust tenants
are still in demand, particularly from cash buyers in smaller lot sizes, and
should continue to outperform. There should be attractive investment
opportunities over the next few months from forced or pressured sellers who
will find it increasingly hard to refinance highly geared portfolios as credit
conditions tighten.
Comparative investment yields - End December (except 2023 - March)
2023* 2022 2021 2020 2019 2011 2008 2006
Property (equivalent yield) 6.2 6.1 5.1 5.8 5.6 6.9 8.3 5.4
Long Gilts Conventional 3.5 3.8 1.0 0.2 1.0 2.5 3.7 4.6
Index linked -0.1 0.3 -2.6 -2.6 -2.0 -0.2 0.8 1.1
UK Equities 3.6 3.6 3.1 3.4 4.1 3.5 4.5 2.9
RPI (annual rate) 13.5 13.4 7.5 1.2 2.2 4.8 0.9 4.4
Yield gaps: Property less Conventional Gilts 2.7 2.3 4.1 5.6 4.6 4.4 4.6 0.8
Property less Index Linked Gilts 6.3 5.8 7.7 8.4 7.6 7.1 7.5 4.4
Property less Equities 2.6 2.5 2.0 2.4 1.5 3.4 3.8 2.5
Source: MSCI UK Quarterly Property Index and ONS for the RPI (*to December
except March 2023)
Offices, with a total return of -9.8% over 2022, underperformed the market as
they have over the past 1, 3, 5 and 10 calendar years on the MSCI UK Quarterly
Property Index. Retail property, with a total return of -4.8% was the best
performer of the main sectors for the first time since 2010.
Industrial/warehouse property, by contrast, gave back much of its previous
gains as valuation yields were marked out, with a return of -14.4%. The
alternative sectors generally outperformed, like retail, with marginally
negative total returns.
Rental values were up on average by 3.8% over 2022, but growth has started to
slow in recent months. Industrial rental growth will tail off rapidly in 2023
under pressure from rising business rates and tenant defaults. Sector
differences may, therefore, be less important than individual property
selection in 2023, with rents under pressure but valuation yields bottoming
out. Capital values should be starting to rise again by the year end as
inflation falls back and the UK economy and real incomes start growing again.
UK commercial property - Average annual % growth rates to March 2023
1 year 3 years 5 years 10 years
Capital values All property -16.8 -2.6 -2.6 1.5
Rental values All property 3.5 1.2 0.6 1.6
Total returns All property -13.0 1.7 1.9 6.5
Source: MSCI UK Quarterly Property Index March 2023
Property transaction volumes slowed down markedly between June and October
2022, especially for the lowest yielding properties, with many sales only
going through after agreed prices had been "chipped" by buyers and more
properties having to be withdrawn from the market unsold. But more
realistically priced stock is starting to appear. This is mainly "off market",
particularly from property unit trusts under redemption pressure, and
individual pension funds and pooled pension vehicles caught out by the
Liability Driven Investing (LDI) crisis. This led, as the Bank of England
Financial Policy Committee put it, to "a vicious spiral of collateral calls
and forced gilt sales, and a material risk to UK financial stability".
Regulatory stable doors are now being loudly shut, but risks remain in
non-bank credit, where the Bank of England estimates that global private
credit has trebled in size over the past decade.
Retail and industrial property void rates are now back to their pre-COVID
levels, but as the table below shows, office void rates have shot up from 13%
pre-COVID to an all time high of over 20% now, well above the previous record
high of 15% for office voids in 2013. This has dragged the average void rate
for all property back up to its previous peak of 10% in 2009, although retail
and industrial void rates are stable between 6% and 7%. Persistently high void
rates will continue to undermine office sector returns, for two reasons:
first, most office occupiers are downsizing their net space requirements to
reflect hybrid working patterns (40% of UK working adults are now working from
home for at least one day a week, compared to 12% pre-pandemic), and second,
many older office buildings contain a ticking Energy Performance Certificate
compliance time bomb, making it ever more costly to retain and replace
tenants.
In summary, the main property valuers marked capital values down much further
and faster between September and December than in previous property market
downturns, despite little or no evidence of transactions completed at the new
lower levels. That was still realistic with the relentless rise in gilt yields
and base rate, now to 5%.
Rental values and rent collection will, however, come under more recessionary
pressures this year, as tenant default rates begin to rise and rental income
falls, particularly in the industrial and office sectors. The key to portfolio
outperformance on both the income and total return fronts in a difficult
market will be reducing risk and sticking to strong tenants, paying
affordable, preferably index-linked, rents on long leases for sustainable
buildings in prosperous locations.
Property prospects by sector
Warehouse / Industrials - Valuation yields stabilising
Following the industrial market's fall from grace in Q4, investors' gloom is
starting to lift a little. Average valuation yields, having risen by over
150bps in Q4 2022, have now stabilised. Any effects of the recent banking
crisis have not yet been seen.
The market remains thin in comparison to recent years, with less than £700m
of industrial property transactions completed during Q1 2023 (over 80% down on
Q1 2022). Some institutional money is back for South East multi-let estates.
The key is modern stock in solid locations and buyers are taking a much more
conservative approach towards future potential rental growth. Equivalent
yields are typically now only 75bps to 100bps above the initial yield, a
significant difference to the 200 - 300 bps differential often seen in the
first half of 2022. With EPC ratings coming ever more into focus, some sellers
are needing to take the cost of improvements off the sale price to get
buildings up to scratch and in line with legislative requirements.
The pressure of rising occupational costs, such as the business rate increase
and rising energy prices, will be reflected in weaker occupational demand and
rental levels. In April, the business rates payable on industrial and
warehouse property rose on average by 27% (+33% in London and the South East).
These additional costs will cool occupational demand and the record rental
growth of the past few years will tail off. Industrial occupiers will then be
hit with a further blow in two years' time when business rates will increase
again. So by the end of 2023, there will be more evidence of rental values
falling, tenants' incentives becoming more generous and void rates increasing.
We are unlikely to see the sharp yields witnessed in the first half of 2022
for many years, but valuation yields should remain stable over the rest of the
year. The MSCI UK Quarterly Property Index's net initial yield for industrials
was 4.4% for March with a corresponding equivalent yield of 5.7% compared to
3.1% and 4.0% at the peak of the market in summer 2022.
Offices - Still more suffering to come
Completed transactions were few and far between over the last six months and
yields continued to soften (significantly in the case of secondary assets).
Agents, having marked out typical prime West End and City of London yields by
over 75 bps and having cut capital values by around 20% last year, have
limited evidence to move these yields out again so are sitting on the fence
for the time being, but their reported yields are trending weaker. We expect
these yields will move out further over the course of 2023. Many debt-
financed office owners will need to cut their office exposure due to external
pressures such as higher borrowing costs or even a lack of available financing
in addition to the worsening occupational story and ESG compliance issues and
costs.
Many large office holdings in the main office markets, London, the South East
and the "Big Six" UK cities, are predominantly held by overseas investors,
often with high levels of gearing. When refinancing, these investors will be
affected by the recent banking crisis and interest rate rises and some will be
forced to sell, increasing supply and consequently softening yields and
capital values further. The occupational market will continue to suffer
through the year as many large office employers continue to consolidate spaces
and faces, with permanent working from home arrangements and job cuts on the
back of the disrupted economy and the current banking crisis. The average
actual office occupancy rate across the UK is 29% in comparison to the 80%
recorded pre pandemic. Occupiers will continue to demand more flexible leases
and superior amenities in order to attract the workforce to use the office,
hitting capital values directly due to high levels of required capital
expenditure.
This lack of occupier demand is now being borne out in vacancy rates, which
have edged up to 20.5% in the MSCI UK Monthly Property Index. These rates will
increase even further over 2023 to levels never seen in the market before. ESG
compliance issues and costs may be the final nail in the coffin for many
secondary "zombie" offices - three-quarters of office stock in the UK does not
comply with the minimum energy efficiency standards for 2027. With high costs
to improve these buildings, upgrading to comply is no longer viable.
The downward pressure on capital and rental values will continue throughout
the rest of the year and beyond until the economy recovers and the market
starts to fully understand and get on the right side of the structural change.
Many poor secondary assets may not withstand these changes. We believe the
value of office buildings could fall by at least a further 20% in the next two
to three years. The MSCI UK Quarterly Property Index recorded a capital value
fall of -12.5% over the 12 months to December 2022 and it has already fallen a
further -2.6% in the first quarter of 2023. Industrial and office yields are
now equal, the market has shifted, and investors are more likely to purchase
occupied industrial property with land than vacant, costly, depreciating and
unused office space.
Retail - Fighting back as business rates fall
Consumer confidence is low with real retail sales falling in 2023 and real
living standards under unprecedented pressure. But since the pandemic, online
sales penetration has declined faster than expected, with consumers still
valuing physical retail. Occupier profit margins will be under increasing
strain as inflation continues to bite, and with logistics costs soaring, many
occupiers will seek to direct consumers back into stores to increase
efficiencies. Some major retailers are now charging shoppers who return items
bought online, with the cost taken from their refund but items purchased
online can still be returned for free in stores. Going into 2023 with a lack
of transactional activity, retail yields are higher than in other sectors so
should be better protected against current debt costs and retail may
outperform the property sector as a whole again in 2023.
In 2022, Aldi overtook Morrisons to become the UK's fourth biggest
supermarket, increasing its market share to around 9.2%, with Lidl hot on
their trail at 7.1%. Tesco's market share stands at 27.5% with Sainsbury's
15.4% followed by Asda at 14.2%. Behind Morrisons, Aldi and Lidl is the Co-op
with 5.5% and Waitrose at 4.7%. The discount supermarkets grew so fast because
consumers, who had moved online during the pandemic, returned to the value-led
stores in person due to their demand for competitive pricing due to the
current economic climate. The discounters continued their store expansion last
year competing directly for the best sites, increasing store coverage but
potentially taking on property risk to secure representation in key target
locations by doubling up. Lidl opened 54 stores last year but have now
announced a reduced acquisition programme. Tesco, Asda, Morrisons and M&S
are also looking to secure sites in the 15,000 sq ft to 25,000 sq ft bracket
competing head on, with Aldi stating they are still focussed on 40 new stores
per year across the UK, targeting London and the South East. Profits are under
pressure across the whole food retail sector, with supermarket margins
squeezed between rising costs and falling customer incomes, with traditionally
loyal customers trading down to value products or going to cheaper competitors
as food inflation continues to rise to the highest on record of over 16%. Many
retailers such as Tesco, Asda and Lidl are giving further pay rises this year
due to the rising cost of living and labour shortages, with the National
Minimum wage just up by 9.7% to £10.42 per hour.
Capital values of supermarkets fell sharply in the second half of 2022 after
valuation yields were forced down too low last summer, with an Aldi trading at
a 3% yield. There are glimmers of a recovery in Q1 2023 as the sector offers
secure income in volatile markets (food is a necessity). Well-let,
particularly smaller, properties are now again offering low risk, rental
growth and potential for capital recovery. Despite a substantially reduced
volume of investment transactions (volumes below £700m in 2022 - down from
£1.85bn in 2021) supermarket investment activity should stabilise with a
wider differential between supermarket covenants. The gap in pricing between
supermarkets let on index-linked leases and those with open market reviews may
continue to grow. Morrisons are still struggling with their sale and
leasebacks of larger stores with buyers hard to find in the investment market
where sellers are unrealistic with pricing.
Demand for retail warehousing cooled towards the end of 2022 as the reality of
consumer pressures started to bite but could improve in 2023. Transaction
volumes were low in Q1 2023 due to the lack of product, despite the sector
benefiting from a stronger than forecast Christmas period and rental growth in
2022. Previous downturns suggest bigger ticket items such as household goods /
appliances and non-essential goods such as clothing and footwear could
experience a more pronounced squeeze than areas such as DIY and trade counters
but this sector should prove its resilience.
High street retail and shopping centres suffered a miserable few years of
underperformance since well before COVID, with steep falls in capital value as
institutional investors turned their backs on these sectors, which have
structurally changed as institutions sold to private investors. Values may
have now stabilised and possibly bottomed out (shopping centres had the least
negative returns in 2022). They may prove more resilient than lower-yielding
investments in other sectors but an over supply of shops will continue to
hamper performance. Despite the squeeze on real incomes, rebased rents are now
more affordable, with most retailers now enjoying short, flexible leases.
Retailers with the right offer, right product and who have not over expanded
in recent years are now taking advantage of lower rents and higher vacancy
rates to secure favourable high street positions, particularly in prosperous
suburbs and smaller towns.
The long awaited business rates reform came into effect on 1 April 2023 (the
revaluation is based on April 2021 values), giving a 20% average reduction in
retail rateable values across England and Wales with no downwards phasing of
liabilities, meaning a property will have its entire reduction in rates
payable from day one, providing a much needed boost for bricks and mortar
retailing.
Alternatives - Strong operators thriving
Property in the "Alternatives" sector - i.e. everything except offices, retail
and industrial/warehouse property - accounts for about one fifth of the MSCI
UK Quarterly Property Index. Volatile, often disappointing returns in the
traditional office, retail and industrial sectors have led investors to search
for higher returns and lower risk to diversify their portfolios over the past
decade. Properties in this sector usually offer strong defensive
characteristics such as long, index- linked leases and a wide range of
property types and tenants. 2022 saw the RPI and CPI soar to levels not seen
for 40 years, fuelled by ever increasing energy and food costs. So properties
in the alternatives sector have become increasingly sought after and hold the
key to sustained portfolio performance.
December saw valuers moving yields out further and faster than in previous
downturns to address market volatility and waning investor confidence. No
sector was immune but valuation decline in the alternatives sector was less
acute, with the attraction of inflation- linked rental uplifts really paying
off. Valuations have started to stabilise. There is a thinner market for the
larger lot sizes but private property companies and high net worth investors
continue to see value in the sector. In some cases, rents will have risen too
high so only robust tenants with strong balance sheets will be able to weather
the storm. The trend of "flight to quality" has gained momentum. Values will
recover faster for properties let at affordable rents on long index-linked
leases in good locations and to strong tenants, but it is likely there will be
a widening of the gap between prime and secondary assets as investors get
increasingly selective.
Rising costs and staff shortages are hurting the hospitality industry more
than most and at a time when they were relying on consumers to dig deep into
their pockets. The leading pubcos, like Greene King, as well as traditional
regional brewers like Shepherd Neame and Youngs, have strong balance sheets
and will survive relatively unscathed but independent pub and restaurant
operators will struggle, particularly if rents become unaffordable. High
inflation has meant that sales in real terms continue to lag pre- pandemic
levels in this industry. The start of the year has seen a noticeable recovery
of confidence in London pubs and restaurants as office workers and visitors
returned to the Capital. Consumers remain eager to eat and drink out despite
the mounting pressure on disposable incomes but operators must ensure that
they do not push all their rising costs onto the consumer, and when possible,
return to investing in their premises, or the goodwill that they have built up
post pandemic will quickly wane causing longer term trading problems.
Modern discount hotels are well placed to benefit from the more cost-
conscious consumer. Premier Inn, in particular, have been strategic, opening
more hotels in prosperous smaller towns, rural areas and tourist hot spots to
capture British staycationers and workers rather than focusing on city centres
or airports. Constant flight disruption from 'unexpected' weather, striking
workers at key holiday times and expensive international flights are still
encouraging people to reconsider holidays abroad amid a cost-of-living crisis
with UK caravan parks also benefitting. Capital values of Premier Inn
investments slipped in the general market weakness, but they are recovering
this quarter and remain a much more secure investment than Travelodge or other
weaker operators.
Health and Fitness clubs in affluent suburban areas have seen some benefit
from the move to hybrid working, but capital values are under pressure right
across the sector as they use so much energy, and expensive membership
renewals are usually the first to go when customers cut back on non-essential
spending. There have been no gym transactions this quarter and a number that
came on to the market last year remain unsold. When investment does pick up,
only the strongest operators in the sector are likely to attract attention.
The two main ten pin bowling companies, who dominate the market, are trading
strongly and investing in their properties. They offer a sensibly priced
family outing which cannot be replicated online. Tenpin owner Ten
Entertainment Group enjoyed a record performance last year with sales up 87.6%
on 2021 and 50.6% up on the pre-pandemic year of 2019.
Like-for-like sales were 40% higher than pre-pandemic. Hollywood Bowl also
reported that annual profits and revenues had grown against pre- pandemic
levels. Both companies look well placed for the years ahead. But bingo halls
and cinemas have suffered structural change with online gaming and streaming
the new norm. Cinemas in multiplexes and retail parks have no movie magic.
Taking the family to the cinema is now an expensive treat so only cinemas with
genuinely affordable rents will survive. Cineworld's equity has been wiped out
by a deal with its lenders and its rents in the UK will still need to fall.
Student numbers are rising and investments on long leases to well- established
universities have been in great demand. But valuation yields on student
housing, as on other residential investment types, now look too low as
investment competition had driven pricing to very hot levels. However, many
universities are facing a critical shortage of student housing with new local
supply limited and likely to remain so with construction costs rising so fast.
Care homes are struggling with staff shortages and insufficient public sector
funding. Bed vacancy rates are rising rapidly because of more deaths and
admissions are slower. Values will continue to remain under pressure.
The economy
The UK economy is still flatlining, lagging global GDP growth, now expected by
the IMF to be around 3% over the next year. Average earnings and productivity
have shown little growth since the Global Financial Crisis hit us especially
hard in 2008-9. More recently, business investment has stagnated since 2016,
in the words of the Office for Budget Responsibility, due to uncertainty about
the UK's future trading relationship with the EU among other concerns.
Different governments have tried different policies and remedies, often
pulling in opposite directions from their predecessors, to increase investment
and productivity growth, but to little net effect. The UK is running the
highest public sector and overseas trade deficits in the G7 group of developed
nations and is the only one with GDP still lower than pre-COVID.
Our labour market is particularly tight, due partly to Brexit, partly to a
deep seated skills and training deficit and partly to older people leaving
work post-COVID. Consumer price inflation remains above Western Europe and the
USA, with rapidly rising food prices keeping the Consumer Price Index rising
at an annual rate of 10.1% for March and 13.5% for the Retail Price Index.
The UK's sclerotic housing market, with prices and rents both significantly
higher than in our main Western competitor
countries, remains a drag on our economic performance, as a source of
financial instability and a barrier to geographic and social mobility. The
Government's Help To Buy scheme increased demand for house purchase but not
supply, pushing up home prices and housebuilders' profits. Only 205,000 homes
were completed in the year to April 2022, against 330,000 in 1972 and about
400,000 in 1962, and this year will be worse. Private sector completions have
shown little change, but social housebuilding by local authorities and housing
associations has collapsed, and existing social housing has been transferred
to the private rental sector at much higher cost. Changes to stamp duty and
interest deductibility for private landlords in recent years have led to an
exodus of small landlords and upward pressure on rents. With over 80% of
mortgages at fixed rates and employment still high, house prices are less
vulnerable to rising interest rates than in previous downturns, but they are
already now about 5% off their late 2022 peak. Housing, whether to buy or to
rent, would still be exceptionally unaffordable in most areas of the UK by
long-term standards, with the only obvious sustainable solution being for much
more genuinely affordable social housing to be built again.
The UK economy is in a deeper structural hole than many similar countries
post-COVID, with pay rises running well behind the rate of price increases,
especially for essentials like food and heating which leave little spare
spending power for the lower paid. But poverty is quite polarised, with many
people still holding high savings post-pandemic and keen to spend, but not in
predictable patterns.
Business and consumer confidence are starting to improve, partly out of relief
at calmer Government and partly as gas and electricity prices fall back. The
warm winter in Europe, and major reductions in gas usage, in particular, due
both to high prices and smarter usage, are leading to sharp falls in some
energy and commodity prices, so international inflation rates should fall this
year, but not to anywhere near 2% in the foreseeable future.
Bank of England Monetary Policy Committee has had a difficult year. Bank Rate
collapsed from a peak of 5.75% in July 2007 to 0.5% in March 2009, and it
stayed around that level for 13 years before its 9 rises to 3.5% last year.
Now it has been raised to 5.0% and it needs to stay at or above that level at
least into 2024 so that higher inflationary expectations do not become
embedded, especially in the labour market after the current wave of public
sector strikes. The UK cannot afford to run risks on inflation when it will
have to borrow so much for so long from abroad.
There is no particular magic about 2% as the number for the inflation target
for most Central Banks in the developed world. Underlying inflation in the
USA, UK and Eurozone did average around 2% with relatively minor fluctuations
between the early 2000's and COVID in 2020. As the table below shows, the Bank
of England has been slow since the pandemic to raise their forecasts for
inflation for one year ahead - but at least they have raised them. Their
forecasts for two years ahead have, however, stuck firmly in cloud cuckoo land
around 2% p.a., falling to 1% from 2023. So 2% annual inflation now looks an
unrealistic long term target.
The end of ultra-low interest rates is inevitably a stressful and uneven
process but it is ultimately helpful for the economy. Too much cheap money has
inflated asset bubbles, encouraged speculative frenzies ranging from
over-hyped technology stocks to crypto currencies, diverted too much capital
into financial engineering by private equity, pushed up UK house prices
unaffordably and unsustainably and kept too many zombie companies alive for
too long when their skilled workforces, in particular, should have been more
productively reallocated elsewhere. It is ending with strains in the
international credit markets, which are being contained so far as mainstream
regulated banks are concerned in the USA and Switzerland.
The real danger for world economies and property markets will come if the
plethora of private equity and hedge fund property-owning and lending
vehicles, which have sprung up mainly in the shadows over the past 5-10 years,
run into serious redemption or refinancing difficulties. In the words of the
Chief Executive of Brookfield (one of the largest such vehicles and owner of
Canary Wharf) "What we do is behind the scenes. Nobody knows we are there".
What we do know, however, is that loan default risks, especially on large
offices, are rising and that most conventional UK property trusts are also now
gated, although the authorities have still not stopped them pretending to
offer daily dealings on assets which take months to sell.
The international economic outlook and business confidence are now improving
slightly, but two big question marks remain over economic forecasts into 2024.
On the upside, if the war in Ukraine ended either in stalemate or an effective
Russian defeat, inflation and interest rates would move lower. But that can
only be a hope, not a forecast.
On the downside, tightening credit conditions and higher interest rates are
not good for growth of commercial or residential property values, although
plenty of pain is now properly priced into commercial property yields and
prices, at least in the United Kingdom.
Conclusion - Safe property repriced to attractive yields
The rapid valuers' mark down of commercial property prices by about 20% from
their mid-2022 peak is now starting to offer good buying opportunities at
safe, high yields for long-term investors. At average yields now of over 6%,
UK property offers an attractive yield premium over UK equities and is
fundamentally undervalued against UK conventional and index-linked gilts,
which only offer volatility, doubtful liquidity and negligible real returns.
The key to both relative outperformance and strong real total returns for
property over the next few years will be capturing these high yields in
practice by a relentless focus on strong tenants with long, preferably
index-linked leases with sustainable rents and buildings.
Annual portfolio summary
VIP specialises in direct investment in UK commercial properties with long,
strong, index-related income streams to deliver above average long term real
returns.
The portfolio comprises 39 properties across 7 well diversified sub-sectors,
all let on 42 full repairing and insuring leases (WAULT 12.6 years to the
tenants' option to break) to 21 different tenant covenants across England,
Scotland and Wales, with 60% of rents coming from the top 6 tenants. All are
freehold except two, which are long leasehold with 108 and 82 years to run
(Doncaster and Fareham).
Indexed Rent Reviews
The contracted income on the whole portfolio stands at £9.3 million per annum
where 96.2% (41 out of 42 tenancies) have index-linked or fixed increases.
Only one property, the industrial at Fareham, has three yearly open market
upwards only reviews.
Over the financial year, 15 rent reviews completed representing 40% of the
rent roll, with an average increase of 6.4% on their rents passing, which
added £0.23 million (2.9%) to all held properties. Nine were annual reviews;
eight were RPI-linked and one with a fixed increase. Four had five yearly RPI-
linked reviews, one with a fixed increase and one with a sweep up clause after
a three yearly upwards only open market rent review.
There are 41 leases, which are reviewed either; RPI-linked (69%), CPI-linked
(11%) or with fixed increases (16%) and there is just one industrial with an
open market review (4%).
Nine tenancies representing 27% (year ending 31 March 2023) of the indexed
rental income have annual rent reviews and thirty two (69%) have five yearly
reviews with one (4%) having a three yearly review pattern. Over the following
five year period VIP expects the following percentage of rental income to be
reviewed in each financial year:
Year ending 31 March Annual 5 yearly 3 yearly Total
2024 27% 10% 4% 41%
2025 27% 3% - 30%
2026 27% 30% - 57%
2027 27% 10% 4% 41%
2028 27% 15% - 42%
Over the next 12 months, 14 tenancies representing 41% of the total rent roll,
will undergo a rent review.
Of the indexed rents within the portfolio; 66% of the RPI-linked and CPI-
linked rents are subject to collared uplifts, which average 1.7% per annum and
73% are subject to capped uplifts, which average 3.9% per annum. 12% of the
total indexed income has uncapped RPI increases. Fixed rent review uplifts
average 2.4% per annum.
Purchases and sales
Three long let index-linked purchases for £25.5 million and six sales for
£9.8 million completed over the year.
Purchases completed
Supermarket - Eastwood Road, Rayleigh
The purchase of a dominant town centre freehold M&S Simply Food
supermarket in Rayleigh, Essex completed in July 2022 for a total of £11.3
million let to Marks & Spencer plc until 20 July 2035 (WAULT just under
thirteen years) with five yearly RPI-linked rent reviews with a minimum of 1%
pa and maximum 4% pa. The net initial purchase yield was 4.8% which has risen
to an RPI-linked 5.3%.
Hotel - Willowburn Trading Estate, Alnwick (Development)
The forward funding of an 80 bedroom Premier Inn hotel and inhouse Brewers
Fayre pub/ restaurant at Willowburn Trading Estate, Alnwick, completed in
October 2022 for a total of £7.2 million at a net initial yield of 5.0%. The
freehold property is open and trading and is let to Premier Inn for twenty
five years until 2047 with a tenant's option to break in 2042, and has five
yearly CPI-linked rent reviews to a maximum of 4% per annum.
Bowling - Crosspoint, Olivier Way, Coventry
The purchase of a freehold purpose built prominently located leisure
investment on a 3.2 acre site with over 140 car parking spaces in Coventry
completed in March 2023 for a total of £8.3 million at a net initial yield of
7.4%. The rental income totals £0.6 million; 77% to Tenpin Limited (bowling)
on a lease without a break until 2050, with RPI-linked rent increases capped
at 4% and collared at 2% p.a. The two purpose built restaurants are let to
Starbucks on a RPI-linked lease and Pizza Hut on an annual fixed increase
lease with 11 and 9 years to run respectively (WAULT just over 23 years).
Sales
Completed
The sale of six overrented properties completed during the year for £9.8
million: two convenience stores, three pubs and a bingo hall, in line with
their March 2022 valuations at an average net sale yield of 6.1%.
Completed Since 31 March 2023
The sale of a city centre pub in Newcastle upon Tyne let to Stonegate
completed in April 2023 above valuation at a net sale yield of 7.5%.
Exchanged
The sale of a petrol filling station in Melton Mowbray let to BP Oil UK
Limited with a lease expiring in September 2033 exchanged in April 2023, above
valuation at a net sale yield of 6.2% with completion due in July 2023.
Reinvestment of sale proceeds is in hand and other properties are under
investigation to upgrade the portfolio quality further.
Rent Collection
100% of all contracted rents due were collected during the year to 31 March
2023. The top 6 tenants have 20 leases: Marks & Spencer, HM Government/
Local Authorities, Ten Entertainment Group, Premier Inn, Sainsbury's and the
Co-operative Group representing 60% of the contracted income.
Fully let
The portfolio is fully let, with no voids (MSCI void rate: 8.2%).
Responsible impact based ESG management
OLIM Property has always taken a cautious and responsible approach to managing
VIP's property portfolio, with environmental impact, social responsibility and
governance (ESG) taken fully into account in selecting high quality properties
and suitable tenants for acquisition, long term management and disposal.
Occupier relationships are crucial. We engage with our tenants to understand
and establish sustainable rental levels and grow future income streams,
working closely with them to address value add energy performance targets. All
VIP's properties are regularly reviewed, ESG improvements implemented at
appropriate asset management stages and properties sold where performance may
be negatively impacted by ESG factors.
Top 10 properties by capital value
Property Tenant Sector % of portfolio by capital value
Dover Park Resorts Caravan Park 8%
Newport Isle of Wight Marks and Spencer Supermarket 7%
Rayleigh Marks and Spencer Supermarket 7%
Garstang Sainsbury's Supermarket 6%
Coventry (Crosspoint) Tenpin, Pizza Hut & Starbucks Bowling 5%
Aylesford Kier Industrial 5%
Catterick Premier Inn Hotel 4%
Alnwick Premier Inn Hotel 4%
Milton Keynes Winterbotham Darby Industrial 4%
Gloucester H.M. Government Industrial 3%
Total 53%
Energy Performance Certificates (EPCs)
96% of the properties now have an EPC rating A-C (up from 64% over the past
twelve months). We continue to work with our tenants to upgrade properties and
improve EPC ratings.
Performance and independent revaluation
Savills' independent valuation at 31 March 2023 on all 39 properties totalled
£150,500,000 reflecting a net initial yield of 5.8% after deducting notional
purchase costs (31 March 2022: 5.1%, 30 September 2022: 5.1%), with a running
yield of 6.0%. The half-yearly valuation totals at 30 September 2022 were
£157,550,000 and at 31 March 2022 £155,478,000. On a like for like basis,
excluding purchases and sales, the portfolio's capital value declined by 0.1%
in the first half of the year and by 12.7% in the second, reflecting the
impact of rising interest rates across the investment property market and
economic and political turbulence. Investment turnover has been very low with
values marked down more on sentiment than completed evidence. Investors are
cautious and risk averse.
Capital values of the 37 properties held throughout the financial year had a
like for like total decline in value of 12.8%, being significantly better than
the MSCI benchmark of -16.8%. The only sector to gain in value was bowling up
by 3.4% with the biggest fall in values in the roadside and supermarket
sectors of -19.4% and -14.9% respectively, as a consequence of sector
repricing. The valuation reflects an outward yield shift of 70 basis points
over the six months to 31 March 2023 (six months to September 2022: no yield
shift). Contracted income is now £9.3 million (up 12.0%) against £8.3
million at end of March 2022, due to three new purchases and fifteen rent
increases over the year providing rental growth in this highly inflationary
environment.
The property portfolio has been upgraded with the sale of six smaller, mainly
overrented properties, which completed for £9.8 million (three pubs, a bingo
hall and two convenience stores) with the net sale proceeds reinvested in
three long-let property purchases for £25.5 million, a Marks and Spencer
Simply Food supermarket in Rayleigh, Essex, a new Premier Inn at Alnwick,
Northumberland and a leisure investment in Coventry; all let on index linked
leases.
The property portfolio produced a total return on all 39 properties of -7.8%
over the past year to March, against -13.0% for the MSCI UK Quarterly Property
Index, the main benchmark for commercial property performance. Properties held
throughout had a total return of -7.5%.
The returns on VIP's property portfolio have been between 5% and 12% a year
over 3, 5, 10, 20 and 36 years and are above the MSCI averages over all these
periods. The real returns have been behind the Retail Price Index over 1 and 3
years but above it over longer periods, with a real return of 8% a year over
36 years since the inception of OLIM Property's Management.
Matthew Oakeshott & Louise Cleary
OLIM Property Limited
26 June 2023
Business Review
This Business Review is intended to provide an overview of the strategy and
business model of the Company as well as the key measures used by the
Directors in overseeing its management. The Company is an investment trust
company that invests in accordance with the investment objective and
investment policy outlined in the Business Review.
Value and Income Trust PLC changed its name on 22 January 2021 to Value and
Indexed Property Income Trust PLC (VIP or the Company). VIP's Ordinary Shares
are listed on the Premium segment of the Official List and traded on the main
market of the London Stock Exchange. The Company is registered as a public
limited company in Scotland under company number SC050366. VIP is an
investment company within the meaning of Section 833 of the Companies Act
2006. The Company has one class of share. VIP is a member of the Association
of Investment Companies (AIC).
The Group
Value and Indexed Property Income Services Limited (VIS), a wholly owned
subsidiary of the Company, is authorised by the Financial Conduct Authority to
act as the Company's Alternative Investment Fund Manager (AIFM).
Capital structure
As at 31 March 2023, and as at the date of this Annual Report, VIP's share
capital consisted of 43,012,464 Ordinary Shares of 10p nominal value in issue
and 2,537,511 Ordinary Shares of 10p each held in Treasury. Each Ordinary
Share in issue entitles the holder to one vote on a show of hands and, on a
poll, to one vote for every share held.
Share dealing
Shares in VIP can be purchased and sold in the market through a stockbroker,
or indirectly through a lawyer, accountant or other professional adviser.
Further information on how to invest in VIP is detailed in the Annual Report.
Recommendation of non-mainstream investment products
VIP currently conducts its affairs so that the shares issued by it can be
recommended by independent financial advisers to ordinary retail investors in
accordance with the rules of the Financial Conduct Authority (FCA) in relation
to non-mainstream investment products and intends to do so for the foreseeable
future. VIP's shares are excluded from the FCA's restrictions which apply to
non-mainstream investment products because they are shares in an investment
trust company and the returns to investors are based on investments in
directly held property.
Highlights of the year
• Net Asset Value total return (with debt at carrying value)* of
-17.9% (2022: 21.3%) over one year and 11.7% (2022: 7.5%) over three years.
• Share Price total return* of -9.2% (2022: 15.8%) over one year and
48.3% (2022: 13.3%) over three years.
• MSCI UK Quarterly Property Index total return of -13.0% over one
year (2022: 19.6%) and 5.1% (2022: 6.4%) over three years.
• FTSE All-Share Index total return of 2.9% (2022: 13.0%) over one
year and 47.4% (2022: 16.8%) over three years.
• Dividends for year up 2.4% - the 36th consecutive year of dividend
increases.
• Dividend yield at 31 March 2023 - 6.3% (2022: 5.3%).
Financial record
30 31 31 31 31 31 31 31 31 31 31 31
Sep 1986 Mar 1987 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 Mar 2020 Mar 2021 Mar 2022 Mar 2023
NAV (valuing debt at carrying value)* (p) 44.0 55.1 325.5 326.9 319.0 345.5 330.5 332.5 253.1 271.1 314.3 246.9
Share price (p) 42.0 52.0 265.0 254.3 221.8 255.0 262.0 251.0 165.0 218.0 239.0 204.5
Discount of share price to NAV (valuing debt at carrying value)* (%) 4.6 5.6 18.6 22.2 30.5 26.2 20.7 24.5 34.8 19.6 24.0 17.2
Dividend per share (p) N/A 1.25 8.5 9.0 10.5 11.0 11.4 11.8 12.1 12.3 12.6 12.9
Total assets less current liabilities (£m) 17.4 24.8 183.6 189.0 185.5 207.3 200.4 205.6 176.2 177.6 196.5 158.0
* This is an Alternative Performance Measure (APM) which has been explained in
the Glossary in the Annual Report.
Investment objective and investment policy
Investment objective
The Company invests mainly in directly held UK commercial property to deliver
secure, long-term, index-linked income. The Company aims to achieve long-term,
real growth in dividends and capital value without undue risk.
Investment policy
The Company's policy is to invest in directly held UK commercial property and
cash or near cash securities. The Company will not invest in overseas property
or securities or in unquoted companies. UK directly held commercial property
will usually account for at least 80 per cent. of the total portfolio but it
may fall below that level if relative market levels and investment value, or a
desired increase in cash or near cash securities, make it appropriate. The
Company will not use derivatives. The Company is permitted to invest cash held
for working capital purposes and awaiting investment in cash deposits, gilts
and money market funds.
The UK commercial property portfolio
The Company will target secure income and capital returns linked to inflation,
mainly through its diversified portfolio of UK property assets, let or pre-let
to a broad range of strong tenants on long leases with rental growth subject
to index-linked or fixed increases. The Company has not set any geographical
limits, except that it may invest in all four nations of the United Kingdom.
It has also set no structural limits and expects the portfolio to be focused
on (but not limited to), the industrial/ warehouse, supermarket, roadside and
leisure sectors (including for example, caravan parks, pubs, hotels, garden
and bowling centres) income strips and ground rents. Offices and high street
retail properties would not be priority sectors for investment. In order to
manage risk in the portfolio, at the time of purchase, no single property
asset will exceed in value 25 per cent. of the Company's gross asset value and
no single tenant (except UK Government and public sector) will account for
more than 30 per cent. of the Company's total rental income.
Borrowing policy
The Company has a longstanding policy of funding most of the increases in its
property portfolio through the judicious use of borrowings. Gearing will
normally be within a range of 25 per cent. and 50 per cent. of the total
portfolio. The Company will not raise new borrowings if total net borrowings
would then represent more than 50 per cent. of the total assets.
Detail of the Company's current borrowings, comprising two fixed term secured
loan facilities can be found in Note 12.
Performance, results and dividend
As at 31 March 2023, the Net Asset Value (NAV) total return (with debt at
carrying value) over one year was -17.9% and the Share Price total return over
one year was -9.2%. This compares to the MSCI UK Quarterly Property Index
total return of -13.0%. Total assets less current liabilities were £158.0
million. A review of the performance of the property portfolio is detailed in
the Chairman's Statement and in the Manager's Report.
For the year to 31 March 2023, quarterly dividends of 3.0p per share, 3.1p per
share, and 3.2p per share were paid on 28 October 2022, 27 January 2023 and 28
April 2023, respectively. The Directors have declared a final dividend of 3.6p
per Ordinary Share (2022: 3.6p) which, if approved by Shareholders at the 2023
AGM, will be paid on 4 August 2023 to Shareholders on the register on 7 July
2023. The ex-dividend date is 6 July 2023. This represents an annual increase
in dividends of 2.4% as compared with the 13.5% and 10.1% annual increases in
the Retail Price and Consumer Price Indices, respectively, as at the end of
March 2023.
Principal and emerging risks and uncertainties
The Board has an ongoing process for identifying, evaluating and monitoring
the principal and emerging risks and uncertainties facing the Group and the
Parent Company. The risk register forms a key part of the Group and the Parent
Company's risk management framework used to carry out a robust assessment of
the risks, including a significant focus on the controls in place to mitigate
them. The principal and emerging risks and uncertainties which affect the
Group's and the Company's business are:
Market risk
The fair value of, or future cash flows from, a financial instrument held by
the Group may fluctuate because of changes in market prices. This market risk
comprises two elements - price risk and interest rate risk.
Price risk
Changes in market prices (other than those arising from interest rate or
currency risk) may affect the value of the Group's investments.
VIS delegates its portfolio management responsibilities to OLIM Property
Limited (OLIM Property), the Investment Manager responsible for managing the
property portfolio, which reports to VIS and to the Board, which meet
regularly in order to review the investment strategy. All investment
properties held by the Group are commercial properties located in the UK,
mainly with long-term, index-linked income streams.
Interest rate risk
Interest rate movements may affect:
• the fair value of the investments in property;
• the level of income receivable on cash deposits; and
• the fair value of borrowings.
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment and
borrowing decisions.
The Board imposes borrowing limits to ensure that gearing levels are
appropriate to market conditions and reviews these on a regular basis. Current
borrowings comprise two secured term loans, with three and ten year terms
remaining, providing secure long-term funding. It is the Board's policy to
maintain a gearing level, measured on the most stringent basis of calculation
after netting off cash equivalents, of between 25% and 50%.
Liquidity risk
This is the risk that the Group will encounter difficulty in meeting
obligations associated with its financial liabilities.
The Group's assets comprise investment properties which, by their nature, are
not readily realisable. The maturity of the Company's existing borrowings is
set out in the interest rate risk profile section of Note 21 to the Financial
Statements.
Property risk
The Group's commercial property portfolio is subject to both market and
specific property risk. Since the UK commercial property market has been
markedly cyclical for many years, it is prudent to expect that to continue.
The price and availability of credit, real economic growth and the constraints
on the development of new property are the main influences on the property
investment market.
Against that background, the specific risks to the income from the portfolio
are tenants being unable to pay their rents and other charges or leaving their
properties at the end of their leases. All leases are on full repairing and
insuring terms, with upward only rent reviews and the weighted average
unexpired lease length to the break option is 12.6 years. Details of the
tenant and geographical spread of the portfolio are set out in the Annual
Report. The long-term record of performance through the varying property
cycles since 1987 is set out in the Annual Report. OLIM Property is
responsible for property investment management, with surveyors, solicitors and
managing agents acting on the portfolio under OLIM Property's supervision.
Political risk
Political changes that result in parties with extreme political or social
agendas having power or influence over policies could lead to instability and
uncertainty in the markets, legislation and the economy.
The Board reviews regularly the political situation, together with any
associated changes to the economic, regulatory and legislative environment, to
ensure that any risks arising are mitigated as effectively as possible.
An explanation of certain economic and financial risks and how they are
managed is contained in Note 21 to the Financial Statements.
Climate change and social responsibility risk
The Board recognises that climate change is an important emerging risk that
all companies should take into consideration within their strategic planning.
As referred to elsewhere in the Strategic Report and in the Governance Report
in the Annual Report, the Company has little direct impact on environmental
issues. All of the Company's properties are let on full repairing and insuring
leases, with the tenants responsible for complying with statutory obligations.
The Board is aware that the Manager continues to take into account
environmental, social and governance matters, and, in particular, Energy
Performance Certificates and flood risks, in managing the portfolio.
Economic risk
The valuation of the Company's investments may be affected by underlying
economic conditions, such as fluctuating interest rates, rising inflation,
increased fuel and energy costs, and the availability of bank finance, all of
which can be impacted during times of geopolitical uncertainty and volatile
markets, including the recent coronavirus pandemic and the ongoing war in
Ukraine. The Board monitors the economic and market environment closely,
including the situation in Ukraine, and believes that the diverse,
well-spread, long let indexed portfolio should prove resilient.
Other key risks
Additional risks and uncertainties include:
• Discount volatility: The Company's shares may trade at a price
which represents a discount to its underlying net asset value.
• Regulatory risk: The Directors strive to maintain a good
understanding of the changing regulatory agenda and consider emerging issues
so that appropriate changes can be implemented and developed in good time. The
Group operates in a complex regulatory environment and, therefore, faces a
number of regulatory risks. A breach of Section 1158 of the Corporation Tax
Act 2010 would result in the Company being subject to capital gains tax on
portfolio investments. Breaches of other regulations, including but not
limited to, the Companies Act 2006, the FCA Listing Rules, the FCA Disclosure,
Guidance and Transparency Rules, the Market Abuse Regulation, the Packaged
Retail and Insurance-based Investment Products (PRIIPs) Regulation, the Second
Markets in Financial Instruments Directive (MiFID II) and the General Data
Protection Regulation (GDPR), could lead to a number of detrimental outcomes
and reputational damage.
The Company is also required to comply with tax legislation under
the Foreign Account Tax Compliance Act and the Common Reporting Standard. The
Company has appointed its registrar, Computershare, to act on its behalf to
report annually to HM Revenue & Customs (HMRC).
The Company's privacy policy is available to view on the Company's web pages
hosted by the Investment Manager at
www.olimproperty.co.uk/value-and-indexed-property-income-trust.html
(http://www.olimproperty.co.uk/value-and-indexed-property-income-trust.html)
.
Breaches of controls by service providers to the Company could also lead to
reputational damage or loss. The Audit and Management Engagement Committee
monitors compliance with regulations by reviewing internal control reports
from the Administrator and from the Investment Manager.
Alternative investment fund managers directive
The Alternative Investment Fund Managers Directive (AIFMD) introduced an
authorisation and supervisory regime for all managers of authorised investment
funds in the EU.
In accordance with the requirements of the AIFMD, the Company appointed VIS as
its Alternative Investment Fund Manager (AIFM) and BNP Paribas Trust
Corporation UK Limited as its Depositary. VIS's status as AIFM remains
unchanged following the UK's departure from the EU. The Board has controls in
place in the form of regular reporting from the AIFM and the Depositary to
ensure that both are meeting their regulatory responsibilities in relation to
the Company.
Key performance indicators
At each Board Meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives and which also
enable Shareholders and prospective investors to gain an understanding of its
business.
A historical record of these performance measures, with comparatives, together
with the Alternative Performance Measures (APMs) are shown in the Highlights
of the year and Financial record section of the Business Review. Definitions
of the APMs can be found in the Glossary in the Annual Report.
Following the change in investment policy to invest predominantly in property,
the Directors have carried out a review of the key performance indicators to
determine the performance of the Company. The Directors have identified the
following as key performance indicators:
• Net asset value and share price total returns relative to the
MSCI UK Quarterly Property Index (total returns); and
• Dividend growth relative to Consumer Price Inflation.
The net asset value (NAV) total return is considered to be an appropriate
measure of Shareholder value as it includes the current NAV per share and the
sum of dividends paid to date.
The medium term dividend policy is for increases at least in line with
inflation.
The Board reviews the Company's rental income and operational expenses on a
quarterly basis, as the Directors consider that both of these elements are
important components in the generation of Shareholder returns. Further
information can be found in Notes 2 and 4 to the Financial Statements.
In addition, the Directors will consider economic, regulatory and political
trends and factors that may impact on the Company's future development and
performance.
Share buy-backs
545,000 Ordinary Shares were bought back in the year to 31 March 2023 (2022:
nil Ordinary Shares bought back). As at 31 March 2023, and as at the date of
this Annual Report, 2,537,511 Ordinary Shares of 10p each are held in
Treasury. Further information can be found in Note 14 to the Financial
Statements.
At the forthcoming AGM, the Board will seek the necessary Shareholder
authority to continue to conduct share buy-backs.
Statement of compliance with investment policy
The Company is adhering to its stated investment policy and managing the risks
arising from it. This can be seen in various tables and charts throughout the
Annual Report, and from the information provided in the Chairman's Statement
and in the Manager's Report.
The Board's section 172 duty and stakeholder engagement
The Directors recognise the importance of an effective Board and its ability
to discuss, review and make decisions to promote the long-term success of the
Company and protect the interests of its key stakeholders. As required by
Provision 5 of The AIC Code of Corporate Governance (the AIC Code) (and in
line with The UK Corporate Governance Code (the Code)), the Board has
discussed the Directors' duty under Section 172 of the Companies Act and how
the interests of key stakeholders have been considered in the Board
discussions and decision making during the year. This has been summarised in
the table below:
Stakeholder Form of Engagement Influence on Board decision making
Shareholders AGM - Shareholders are encouraged to attend the AGM and are provided with the Dividend declarations - The Board recognises the importance of dividends to
opportunity to ask questions and engage with the Directors and the Manager. Shareholders and takes this into consideration when making decisions to pay
Shareholders are also encouraged to exercise their right to vote on the quarterly and propose final dividends for each year. Further details regarding
resolutions proposed at the AGM (please refer to the further information on dividends for the year under review can be found in the Chairman's Statement.
the AGM in the Directors' Report in the Annual Report).
Share buy-back policy - the Directors recognise the importance to Shareholders
Shareholder documents - The Company reports formally to Shareholders by of the Company maintaining a buy-back policy and considered this when
publishing Annual and Interim Reports, normally in June and November each establishing the current programme. Further details can be found in the
year. Business Review and in the Directors' Report in the Annual Report.
Significant matters or reporting obligations are disseminated to Shareholders Shareholder communication and feedback from the Broker feeds directly into the
by way of announcement to the London Stock Exchange. Board's annual strategy review, the asset allocation considerations and the
Manager's guidance on desirable investment characteristics.
The Company Secretary acts as a key point of contact for the Board and all
communications received from Shareholders are circulated to the Board. The Directors recognise the importance to Shareholders of having a diverse
Board with a range of skilled and experienced individuals represented, and
took this into account when the decision was made during the year to appoint
Lucy Winterburn as a Director.
Other Shareholder events include investor and wealth manager lunches and
roadshows organised by the Company's Broker at which the Manager is invited to
present.
Manager Quarterly Board Meetings - The Manager attends every Board Meeting and The Directors and the Manager are cognisant of the Company's investment policy
presents a detailed portfolio analysis and reports on key issues such as and the strategy agreed by the Board, which the Manager has been tasked with
performance of the property portfolio. implementing. The Directors and Manager worked together during the year on the
restructuring of the Company's debt, on competitive terms, and completed the
transition to a direct property investment trust.
The Manager reports to the Board on the Company's property portfolio and the
Directors challenge the Manager where they feel it is appropriate.
The Board engages constructively with the Manager to ensure investments are
consistent with the agreed strategy and investment policy.
The Manager works closely with all tenants and, as a result, 100% of all
contracted rents due were collected in the year to 31 March 2023.
Registrar Review meetings and control reports. The Directors review the performance of all third party service providers;
this includes ensuring compliance with GDPR.
Depositary and Custodian Regular statements and control reports received, with all holdings and The Directors review the performance of all third party providers, including
balances reconciled. oversight of securing the Company's assets.
Advisers The Company relies on the expert audit, accounting and legal advice received The Directors review the performance of all third party service providers.
from its Auditor, Administrator and Legal Advisers.
As referred to in the Chairman's Statement, during the year the Company
carried out a major debt reconstruction, which included the early repayment of
the 9.375% Debenture Stock 2026; secured an additional £13 million of
borrowings under an existing loan; increased the term of one of the loans to
2033; and completed its transition to a direct property investment trust.
There were no other key decisions made in the year to 31 March 2023 that
require to be disclosed.
Employee, environmental and human rights policy
As an investment trust company, the Company has no direct employee or
environmental responsibilities, nor is it responsible for the emission of
greenhouse gases. Its principal responsibility to Shareholders is to ensure
that the investment portfolio is properly managed and invested. The Company
has no employees and, accordingly, has no requirement to report separately on
employment matters.
Management of the investment portfolio is undertaken by the Investment Manager
through members of its portfolio management team. In light of the nature of
the Company's business, there are no relevant human rights issues and,
therefore, the Company does not have a human rights policy.
Independent auditor
The Company's Independent Auditor is required to report if there are any
material inconsistencies between the content of the Strategic Report and the
Financial Statements. The Independent Auditor's Report can be found in the
Annual Report.
Future strategy
The Board and the Investment Manager intend to maintain the strategic policies
set out above for the year ending 31 March 2024 as it is believed that these
are in the best interests of Shareholders.
The Company's Viability Statement is included in the Directors' Report in the
Annual Report.
Approval
This Business Review, and the Strategic Report as a whole, was approved by the
Board of Directors and signed on its behalf by:
John Kay
Chairman
26 June 2023
Going concern
The Group and the Parent Company's business activities, together with the
factors likely to affect their future development and performance, are set out
in the Directors' Report, and the financial position of the Group and of the
Parent Company is described in the Chairman's Statement within the Strategic
Report. In addition, Note 21 to the Financial Statements includes: the
policies and processes for managing the financial risks; details of the
financial instruments; and the exposures to market risk (price risk and
interest rate risk), liquidity risk, credit risk and property risk. The
Directors believe that the Group and the Parent Company are well placed to
manage their business risks.
Following a detailed review, the Directors have a reasonable expectation that
the Group and the Parent Company have adequate financial resources to enable
them to continue in operational existence for the foreseeable future, being at
least 12 months from approval of the Financial Statements, and accordingly,
they have continued to adopt the going concern basis (as set out in Note 1(b)
to the Financial Statements) when preparing the Annual Report and Financial
Statements.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with UK adopted international accounting
standards and applicable laws and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law, the Directors are required to prepare the
Group Financial Statements, and have elected to prepare the Company Financial
Statements, in accordance with UK adopted international accounting standards.
Under company law, the Directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss for the Group and
Company for that period.
In preparing these Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
• state whether they have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006, subject to any material departures disclosed and explained
in the Financial Statements;
• state whether they have been prepared in accordance with UK
adopted international accounting standards, subject to any material departures
disclosed and explained in the Financial Statements;
• prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business; and
• prepare a Directors' Report, a Strategic Report and Directors'
Remuneration Report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and, hence, for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for ensuring that the Annual Report and
Financial Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for Shareholders to assess the Group's
position and performance, business model and strategy.
The Directors are responsible for ensuring the Annual Report and Financial
Statements are made available on a website. Financial Statements are published
on the Company's web pages hosted by the Investment Manager in accordance with
legislation in the United Kingdom governing the preparation and dissemination
of financial statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company's web pages is the
responsibility of the Directors. The Directors' responsibility also extends to
the ongoing integrity of the Financial Statements contained therein.
Directors' responsibility statement
Each Director confirms, to the best of his or her knowledge, that:
• the Financial Statements have been prepared in accordance with
the applicable set of accounting standards and give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Group
and Company; and that
• the Annual Report includes a fair review of the development and
performance of the business and the financial position of the Group and
Company, together with a description of the principal risks and uncertainties
that they face.
The Directors confirm that the Annual Report and Financial Statements taken as
a whole is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Group's position and performance,
business model and strategy.
For and on behalf of the Board of
Value and Indexed Property Income Trust PLC
John Kay
Chairman
26 June 2023
Group Statement of Comprehensive Income
Year ended 31 March 2023 Year ended 31 March 2022
Note
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Income
Rental income 2 8,358 - 8,358 5,647 - 5,647
Investment income 2 168 - 168 1,682 - 1,682
Other income 2 314 - 314 - - -
8,840 - 8,840 7,329 - 7,329
Gains and losses on investments
Realised gains on held-at- fair-value investments and investment properties 9 - 1,446 1,446 - 10,440 10,440
Unrealised (losses)/ gains on held-at-fair-value investments and investment 9 - (24,695) (24,695) - 8,797 8,797
properties
Total income 8,840 (23,249) (14,409) 7,329 19,237 26,566
Expenses
Investment management fees 3 (990) - (990) (1,088) (2) (1,090)
Other operating expenses 4 (895) - (895) (870) - (870)
Finance costs 5 (1,779) (6,269) (8,048) (3,177) - (3,177)
Total expenses (3,664) (6,269) (9,933) (5,135) (2) (5,137)
Profit/(loss) before taxation 5,176 (29,518) (24,342) 2,194 19,235 21,429
Taxation 6 (979) 1,425 446 (321) 3,154 2,833
Profit/(loss) attributable to equity shareholders of parent company
4,197 (28,093) (23,896) 1,873 22,389 24,262
Earnings per Ordinary Share (pence)
7 9.70 (64.92) (55.22) 4.30 51.40 55.70
The total column of this statement represents the Statement of Comprehensive
Income of the Group, prepared in accordance with IFRS. The revenue return and
capital return columns are supplementary to this and are prepared under
guidance published by the Association of Investment Companies. All items in
the above statement derive from continuing operations.
The Group does not have any other comprehensive income and so the total
profit/(loss), as disclosed above, is the same as the Group's total
comprehensive income. All income is attributable to the equity holders of
Value and Indexed Property Income Trust PLC, the parent company. There are no
minority interests.
The Board is proposing a final dividend of 3.6p per share, making a total
dividend of 12.9p per share for the year ended 31 March 2023 (2022: 12.6p per
share) which, if approved by Shareholders, will be payable on 4 August 2023
(see Note 8).
The Notes form part of these Financial Statements.
Company Statement of Comprehensive Income
Year ended 31 March 2023 Year ended 31 March 2022
Note
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Income
Rental income 2 8,358 - 8,358 5,647 - 5,647
Investment income 2 168 - 168 1,682 - 1,682
Other income 2 314 - 314 - - -
Gains and losses on investments 8,840 - 8,840 7,329 - 7,329
Realised gains on held-at- fair-value investments and investment properties 9 - 1,446 1,446 - 10,440 10,440
Unrealised (losses)/ gains on held-at-fair-value investments and investment 9 - (24,695) (24,695) - 8,797 8,797
properties
Total income 8,840 (23,249) (14,409) 7,329 19,237 26,566
Expenses
Investment management fees 3 (990) - (990) (1,088) (2) (1,090)
Other operating expenses 4 (895) - (895) (870) - (870)
Finance costs 5 (1,779) (6,269) (8,048) (3,177) - (3,177)
Total expenses (3,664) (6,269) (9,933) (5,135) (2) (5,137)
Profit/(loss) before taxation 5,176 (29,518) (24,342) 2,194 19,235 21,429
Taxation 6 (979) 1,425 446 (321) 3,154 2,833
Profit/(loss) attributable to equity shareholders of parent company
4,197 (28,093) (23,896) 1,873 22,389 24,262
Earnings per Ordinary Share (pence)
7 9.70 (64.92) (55.22) 4.30 51.40 55.70
The total column of this statement represents the Statement of Comprehensive
Income of the Company prepared in accordance with IFRS. The revenue return and
capital return columns are supplementary to this and are prepared under
guidance published by the Association of Investment Companies. All items in
the above statement derive from continuing operations.
The Company does not have any other comprehensive income and so the total
profit/(loss), as disclosed above, is the same as the Company's total
comprehensive income.
The Notes form part of these Financial Statements.
Group Statement of Financial Position
As at As at
31 March 2023 31 March 2022
Note
£'000 £'000 £'000 £'000
Assets
Non current assets
Investment properties 9 150,636 155,838
Investments held at fair value through profit or loss 9 - 26,871
150,636 182,709
Deferred tax asset 6 4,537 4,091
Receivables 10 2,366 2,238
157,539 189,038
Current assets 2,273 5,153
Cash and cash equivalents
Receivables 10 599 4,709
2,872 9,862
Total assets 160,411 198,900
Current liabilities
Payables 11 (2,376) (2,423)
(2,376) (2,423)
Total assets less current liabilities 158,035 196,477
Non-current liabilities
Payables 12 (2,845) (2,854)
Borrowings 12 (49,000) (56,723)
(51,845) (59,577)
Net assets 106,190 136,900
Equity attributable to equity shareholders
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 83,189 113,899
Total equity 106,190 136,900
Net asset value per Ordinary Share (pence) 17 246.88 314.30
These Financial Statements were approved by the Board on 26 June 2023 and were
signed on its behalf by:
John Kay
Chairman
The Notes form part of these Financial Statements.
Company Statement of Financial Position
As at As at
31 March 2023 31 March 2022
Note
£'000 £'000 £'000 £'000
Assets
Non current assets
Investment properties 9 150,636 155,838
Investments held at fair value through profit or loss 9 200 27,071
150,836 182,909
Deferred tax asset 6 4,537 4,091
Receivables 10 2,366 2,238
157,739 189,238
Current assets 2,073 4,953
Cash and cash equivalents
Receivables 10 599 4,709
2,672 9,662
Total assets 160,411 198,900
Current liabilities
Payables 11 (2,376) (2,423)
(2,376) (2,423)
Total assets less current liabilities 158,035 196,477
Non-current liabilities
Payables 12 (2,845) (2,854)
Borrowings 12 (49,000) (56,723)
(51,845) (59,577)
Net assets 106,190 136,900
Equity attributable to equity shareholders
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 83,189 113,899
Total equity 106,190 136,900
Net asset value per Ordinary Share (pence) 17 246.88 314.30
These Financial Statements were approved by the Board on 26 June 2023 and were
signed on its behalf by:
John Kay
Chairman
The Notes form part of these Financial Statements.
Group Statement of Cashflows
Year ended Year ended
31 March 2023 31 March 2022
Note
£'000 £'000 £'000 £'000
Cash flows from operating activities
Rental income received 8,936 5,970
Dividend income received 266 1,835
Interest and other income received/(paid) 295 (1)
Operating expenses paid (1,974) (1,914)
Taxation paid (29) -
Net cash inflow from operating activities 18 7,494 5,890
Cash flows from investing activities
Purchase of investments held at fair value through profit or loss (7,215) (30,132)
Purchase of investment properties (25,353) (63,412)
Sale of investments held at fair value through profit or loss 35,720 32,042
Sale of investment properties 9,746 3,445
Net cash inflow/(outflow) from investing activities 12,898 (58,057)
Cash flow from financing activities
Repayment of debenture stock (26,380) -
Drawdown of loan 13,000 -
Fees paid on new loan (176) -
Interest paid on loans (2,815) (3,113)
Finance cost of leases (78) (78)
Payments of lease liabilities (9) (9)
Dividends paid 8 (5,507) (5,445)
Buyback of Ordinary Shares for Treasury 14 (1,307) -
Net cash outflow from financing activities (23,272) (8,645)
Net decrease in cash and cash equivalents (2,880) (60,812)
Cash and cash equivalents at 1 April 5,153 65,965
Cash and cash equivalents at 31 March 2,273 5,153
The Notes form part of these Financial Statements.
Company Statement of Cashflows
Year ended Year ended
31 March 2023 31 March 2022
Note
£'000 £'000 £'000 £'000
Cash flows from operating activities
Rental income received 8,936 5,970
Dividend income received 266 1,835
Interest and other income received/(paid) 295 (1)
Operating expenses paid (1,974) (1,914)
Taxation paid (29) -
Net cash inflow from operating activities 18 7,494 5,890
Cash flows from investing activities
Purchase of investments held at fair value through (7,215) (30,132)
profit or loss
Purchase of investment properties (25,353) (63,412)
Sale of investments held at fair value through profit 35,720 32,042
or loss
Sale of investment properties 9,746 3,445
Net cash inflow/(outflow) from investing activities 12,898
(58,057)
Cash flow from financing activities
Repayment of debenture stock (26,380) -
Drawdown of loan 13,000 -
Fees paid on new loan (176) -
Interest paid on loans (2,815) (3,113)
Finance cost of leases (78) (78)
Payments of lease liabilities (9) (9)
Dividends paid 8 (5,507) (5,445)
Buyback of Ordinary Shares for Treasury 14 (1,307) -
Net cash outflow from financing activities (23,372) (8,645)
Net decrease in cash and cash equivalents (2,880) (60,812)
Cash and cash equivalents at 1 April 4,953 65,765
Cash and cash equivalents at 31 March 2,073 4,953
The Notes form part of these Financial Statements.
Statement of Changes in Equity
Year ended 31 March 2023
Note Share capital Share premium Retained earnings Total
£'000 £'000 £'000 £'000
Group
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
Loss for the year - - (23,896) (23,896)
Dividends paid 8 - - (5,507) (5,507)
Buyback of Ordinary Shares for Treasury 14 - - (1,307) (1,307)
Net assets at 31 March 2023 4,555 18,446 83,189 106,190
Company
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
Loss for the year - - (23,896) (23,896)
Dividends paid 8 - - (5,507) (5,507)
Buyback of Ordinary Shares for Treasury 14 - - (1,307) (1,307)
Net assets at 31 March 2023 4,555 18,446 83,189 106,190
Year ended 31 March 2022
Note Share capital Share premium Retained earnings Total
£'000 £'000 £'000 £'000
Group
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
Profit for the year - - 24,262 24,262
Dividends paid 8 - - (5,445) (5,445)
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
Company
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
Profit for the year - - 24,262 24,262
Dividends paid 8 - - (5,445) (5,445)
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
The Notes form part of these Financial Statements.
Notes to the Financial Statements
1. Accounting policies
The Financial Statements have been prepared in accordance with UK adopted
international accounting standards.
The functional and presentational currency of the Group and Company is pounds
sterling because that is the currency of the primary economic environment in
which the Group and Company operate. The Financial Statements and the
accompanying Notes are presented in pounds sterling and rounded to the nearest
thousand pounds except where otherwise indicated.
(a) Basis of preparation
The Financial Statements have been prepared on a going concern basis as
disclosed in the Directors' Report in the Annual Report and on the historical
cost basis, except for the revaluation of equities, investment properties and
investment in subsidiaries, all of which are valued at fair value through
profit and loss. The principal accounting policies adopted are set out below.
Where presentational guidance set out in the Statement of Recommended Practice
Financial Statements of Investment Trust Companies and Venture Capital Trusts
(the SORP) issued by the Association of Investment Companies (AIC) in July
2022 is consistent with the requirements of IFRSs, the Directors have sought
to prepare the Financial Statements on a basis compliant with the
recommendations of the SORP, except for the allocation of finance costs to
revenue as explained in Note 1(f).
The Board has considered the requirements of IFRS 8, 'Operating Segments'. The
Board is charged with setting the Group's investment strategy. The Board has
delegated the day to day implementation of this strategy to the Investment
Manager but the Board retains responsibility to ensure that adequate resources
of the Group are directed in accordance with its decisions. The Board is of
the view that the Group is engaged in a single segment of business, being
investments in UK commercial properties. The view that the Group is engaged in
a single segment of business is based on the fact that one of the key
financial indicators received and reviewed by the Board is the total return
from the investment portfolio taken as a whole. A review of the investment
portfolio is included in the report from the Investment Manager.
(b) Going concern
The Group's business activities, together with the factors likely to affect
its future development and performance, are set out in the Strategic Report in
the Annual Report. The financial position of the Group as at 31 March 2023 is
shown in the Statement of Financial Position. The cash flows of the Group for
the year ended 31 March 2023 are shown in the Group and Company Statement of
Cashflows. The Group had fixed debt totalling £49,000,000 as at 31 March
2023, as set out in Notes 11 and 12; none of the borrowings is repayable
before March 2026. Note 21 sets out the Group's risk management policies and
procedures, including those covering market price risk, liquidity risk and
credit risk. As at 31 March 2023, the Group's total assets less current
liabilities exceeded its total non current liabilities by a factor of over
three. The assets of the Group consist mainly of investment properties that
are held in accordance with the Group's investment policy. The Directors, who
have reviewed carefully the Group's forecasts for the coming year and having
taken into account the liquidity of the Group's investment portfolio and the
Group's financial position in respect of cash flows, borrowing facilities and
investment commitments (of which there is none of significance), are not aware
of any material uncertainties that may cast significant doubt upon the Group's
ability to continue as a going concern. Accordingly, the Directors believe
that it is appropriate to continue to adopt the going concern basis in
preparing the Financial Statements.
(c) Basis of consolidation
The consolidated Financial Statements incorporate the Financial Statements of
the Company and the entity controlled by the Company (its subsidiary). An
investor controls an investee when it is exposed, or has rights, to variable
returns from its involvement with the investee and has ability to affect those
returns through its power over the investee. The Company consolidates the
investee that it controls. All intra-group transactions, balances, income and
expenses are eliminated on consolidation. The investment in the subsidiary is
recognised at fair value in the Financial Statements of the Company. This is
considered to be the net asset value of the Shareholders' funds, as shown in
its Statement of Financial Position.
Value and Indexed Property Income Services Limited is a private limited
company incorporated in Scotland under company number SC467598. It is a wholly
owned subsidiary of the Company and has been appointed to act as Alternative
Investment Fund Manager of the Company.
(d) Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue and
capital nature has been presented alongside the Statement of Comprehensive
Income. In accordance with the Company's Articles, net realised capital
returns may be distributed by way of dividend.
Additionally, the net revenue is the measure that the Directors believe to be
appropriate in assessing the Company's compliance with certain requirements
set out in sections 1158-1160 of the Corporation Tax Act 2010.
(e) Income
Dividend income from investments is recognised as revenue for the period on an
ex-dividend basis. Where no ex- dividend date is available, dividends
receivable on or before the period end are treated as revenue for the period.
Where the Group has elected to receive dividend income in the form of
additional shares rather than cash, the amount of cash dividend foregone is
recognised as income.
Any excess in the value of shares received over the amount of cash dividend
foregone is recognised as a gain in the income statement.
Interest receivable from cash and short term deposits and interest payable is
accrued to the end of the period.
Rental receivable and lease incentives, where material, from investment
properties under operating leases are recognised in the Statement of
Comprehensive Income over the term of the lease on a straight line basis.
Other income is recognised on an accruals basis.
(f) Expenses and Finance Costs
All expenses and finance costs are accounted for on an accruals basis.
Expenses are presented as capital where a connection with the maintenance or
enhancement of the value of investments can be demonstrated. In this respect
and in accordance with the SORP, the investment management fees have been
allocated, 100% to revenue to reflect the Board's expectations of long term
investment returns.
It is normal practice and in accordance with the SORP for investment trust
companies to allocate finance costs to capital on the same basis as the
investment management fee allocation. However as the Company has a significant
exposure to property, and property companies allocate finance costs to revenue
to match rental income, the Directors consider that, contrary to the SORP, it
is inappropriate to allocate finance costs to capital.
(g) Other Receivables
Financial assets classified as loans and receivables are held to collect
contractual cash flows and give rise to cash flows representing solely
payments of principal and interest. As such they are measured at
amortised cost. Other receivables do not carry any interest, they have been
assessed for any expected credit losses over their lifetime due to their
short-term nature.
(h) Other payables
Payables are non-interest bearing and are stated at their discounted cash
flow.
(i) Taxation
The Company's liability for current tax is calculated using tax rates that
have been enacted or substantially enacted by the date of the Statement of
Financial Position.
Deferred tax is recognised in respect of all temporary differences that have
originated but not reversed at the date of the Statement of Financial
Position, where transactions or events that result in an obligation to pay
more tax in the future or the right to pay less tax in the future have
occurred at the date of the Statement of Financial Position.
This is subject to deferred tax assets only being recognised if it is
considered more probable than not that there will be suitable profits from
which the future reversal of the temporary differences can be deducted.
Due to the Company's status as an investment trust company, and the intention
to continue to meet the conditions required to maintain approval for the
foreseeable future, the Company has not provided deferred tax on any capital
gains and losses arising on the revaluation or disposal of investments.
(j) Dividends payable
Interim dividends are recognised as a liability in the period in which they
are paid as no further approval is required in respect of such dividends.
Final dividends are recognised as a liability only after they have been
approved by Shareholders in general meeting.
(k) Investments
Equity investments
All equity investments were classified on the basis of their contractual
cashflow characteristics and the Group's business model for managing its
assets. The business model, which is the determining feature, was such that
the portfolio of equity investments was managed, and performance was
evaluated, on the basis of fair value. Consequently, all equity investments
were measured at fair value through profit or loss.
For listed investments, fair value through profit or loss was deemed to be bid
market prices or closing prices for SETS stocks sourced from the London Stock
Exchange. SETS is the London Stock Exchange electronic trading service
covering most of the market including all FTSE 100 constituents and most
liquid FTSE 250 constituents along with some other securities. Gains and
losses arising from changes in fair value were included in net profit or loss
for the period as a capital item in the Statement of Comprehensive Income and
were ultimately recognised in the retained earnings.
Investment property
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 incurred and is included
within the book cost of the property.
After initial recognition, investment properties are measured at fair value.
Gains and losses arising from changes in fair value are included in net profit
or loss for the period as a capital item in the Statement of Comprehensive
Income and are ultimately recognised in the retained earnings.
As disclosed in Note 21, the Group leases out all of its properties on
operating leases. A property held under an operating lease is classified and
accounted for as an investment property where the Group holds it to earn
rental, capital appreciation or both. Any such property leased under an
operating lease is carried at fair value. Fair value is established by
half-yearly professional valuation on an open market basis by Savills (UK)
Limited, Chartered Surveyors and Valuers, and in accordance with the RICS
Valuation - Global Standards (January 2022) (the 'RICS Red Book'). The
determination of fair value by Savills is supported by market evidence,
excluding prepaid or accrued operating lease income arising from the spreading
of lease incentives or minimum lease payments because it has been recognised
as a separate liability or asset. The fair value of investment property held
by a lessee as a right-of-use asset reflects expected cash flows (including
variable lease payments that are expected to become payable). Accordingly, if
a valuation obtained for a property is net of all payments expected to be
made, it will be necessary to add back any recognised lease liability, to
arrive at the carrying amount of the investment property using the fair value
model. These valuations are disclosed in Note 9.
The Company accounts for its investment in its subsidiary at fair value. All
fair value adjustments in relation to the subsidiary are eliminated on
consolidation.
(l) Cash and cash equivalents
Cash and cash equivalents comprises deposits held with banks.
(m) Non-current liabilities
All new loans and borrowings are initially measured at cost, being the fair
value of the consideration received, less issue costs where applicable.
Thereafter, all interest-bearing loans and borrowings are subsequently
measured at amortised cost. Amortised cost is calculated by taking into
account any discount or premium on settlement. The costs of arranging any
interest-bearing loans are capitalised and amortised over the life of the
loan. When the term of a loan is modified, the amortisation of costs is
adjusted in line and the loan measured at fair value on the balance sheet.
(n) Leases
The Group leases properties that meet the definition of investment property.
These right-of-use assets are presented as part of Investment Properties in
the Statement of Financial Position and held at fair-value. All properties are
leased out under operating leases and rental income is recognised on a
straight line basis over the expected term of the relevant lease. Many leases
have fixed or minimum rental uplifts and where lease incentives or temporary
rent reductions have been granted as a result of the recent COVID pandemic,
rental income is recognised on a straight line basis over the expected term of
the lease. The capital element of lease obligations is recorded as a finance
lease payable liability in the Statement of Financial Position on inception of
the arrangement. Lease payments are apportioned between capital repayment and
finance charge, using the effective interest rate method, to produce a
constant rate of charge on the balance of the capital repayments outstanding.
The lease liability relates to the head rent on the property in Fareham. The
current lease is for a period of 99 years with an option for a further 26
years. The liability is based on the option being taken up and extinguishing
in December 2105.
(o) Critical accounting judgements and key estimates
The preparation of the Financial Statements requires the Directors to make
judgements, estimates and assumptions that may affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expenses. The critical accounting area involving a higher degree of
judgement or complexity comprises the determination of fair value of the
investment properties. The Group engages independent professional qualified
valuers to perform the valuation. Information about the valuation techniques
and inputs used in determining fair value as at 31 March 2023 is disclosed in
Note 9 to the Financial Statements.
(p) Adoption of new and revised Accounting Standards
New and revised standards and interpretations that became effective during the
year had no significant impact on the amounts reported in these Financial
Statements but may impact accounting for future transactions and arrangements.
At the date of authorisation of these Financial Statements, the following
Standards and interpretations, which have not been applied to these Financial
Statements, were in issue but were not yet effective.
Standards
IAS 1 Amendments - Presentation of Financial Statements (effective 1 January
2023)
IAS 8 Amendments - Accounting Policies, Changes in Accounting Estimates and
Errors (effective 1 January 2023)
IAS 12 Amendments - Deferred Tax related to Assets and Liabilities arising
from a Single Transaction (effective 1 January 2023)
IFRS 17 (Initial Application of IFRS 17 and IFRS 9 - Comparative Information)
(effective 1 January 2023)
IFRS 16 Amendments (Lease Liability in a Sale and Leaseback) (effective 1
January 2024)
IAS 1 Amendments - Presentation of Financial Statements (effective 1 January
2024)
The Directors do not expect the adoption of these Standards and
interpretations (or any other Standards and interpretations which are in issue
but not effective) will have a material impact on the Financial Statements of
the Group in future periods.
2. Income
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Investment income
Dividends from listed investments in UK 168 168 1,682 1,682
Other operating income
Rental income 8,358 8,358 5,647 5,647
Interest receivable on short term deposits 155 155 - -
Other income 159 159 - -
Total income 8,840 8,840 7,329 7,329
3. Investment management fee
Year ended 31 March 2023 Year ended 31 March 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Group and Company
Investment management fee 990 - 990 1,088 2 1,090
A summary of the terms of the management agreement is given in the Directors'
Report in the Annual Report.
OLIM Property Limited received an investment management fee of £990,000 (2022
- £1,090,000), the basis of calculation of which is detailed in the
Directors' Report in the Annual Report.
4. Other operating expenses
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Fee payable to the Company's auditor for the audit of the Company's accounts 65 65 55 55
- audit of the Subsidiary's accounts - - 2 2
Directors' fees 97 97 105 105
NIC on Directors' fees 3 3 3 3
Fees for company secretarial services 237 237 222 222
Direct property costs (23) (23) (2) (2)
Other expenses 516 516 485 485
895 895 870 870
Directors' fees comprise the Chairman's fees of £30,000 (2022 - £30,000),
the Audit and Management Engagement Committee Chairman's fees of £24,500
(2022 - £24,500) and fees of £22,000 (2022 - £22,000) per annum paid to
each other Director.
Additional information on Directors' fees is given in the Directors'
Remuneration Report in the Annual Report.
5. Finance costs
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Interest payable on:
9.375% Debenture Stock 2026 456 456 1,875 1,875
Less amortisation of issue premium (111) (111) (24) (24)
Bank loan interest payable 1,753 1,753 1,181 1,181
Loan expenses derecognised 385 385 - -
Gain on loan modification (908) (908) - -
Borrowing costs expensed on recognition of fair value 80 80 - -
Effective interest 24 24 - -
Amortisation of loan expenses 22 22 67 67
Finance costs attributable to lease liabilities 78 78 78 78
1,779 1,779 3,177 3,177
In June 2022, the 9.375% Debenture Stock 2026 was repaid early at a premium of
£6,380,000 and a balance of £111,000 unamortised premium from the issue of
the debenture was expensed, resulting in a capital charge of £6,269,000 for
the year to 31 March 2023 (see Note 12).
On 28 November 2019, the Company entered into a £22,000,000 fixed term
secured loan facility for a period of up to seven years to 30 November 2026.
On 3 March 2021, this facility was extended until 31 March 2031. During the
year ended 31 March 2023, the loan was increased to £35,000,000 and extended
for a further two years until 31 March 2033, costs previously incurred on the
loan were extinguished at this point.
6. Taxation
Year ended 31 March 2023 Year ended 31 March 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
a) Analysis of the tax credit/(charge) for the year:
Group
Current tax (979) 979 - (321) 321 -
Deferred tax - 446 446 - 2,833 2,833
(979) 1,425 446 (321) 3,154 2,833
Factors affecting the total tax credit/ (charge) for year: (24,342) 21,429
(Loss)/profit before tax
Tax charge thereon at 19% (2022 - 19%) (4,625) 4,072
Effects of:
Non taxable dividends 32 (320)
Losses/(gains) on investments not taxable 4,417 (3,655)
Unrelieved finance costs (270) (2,930)
(446) (2,833)
Company
979 - -
(979) (321) 321
Current tax
Deferred tax - 446 446 - 2,833 2,833
(979) 1,425 446 (321) 3,154 2,833
Factors affecting the total tax credit/ (charge) for year: 21,429
(24,342)
Profit before tax
Tax charge thereon at 19% (2022 - 19%) (4,625) 4,072
Effects of:
Non taxable dividends 32 (320)
Losses/(gains) on investments not taxable 4,417 (3,655)
Unrelieved finance costs (270) (2,930)
(446) (2,833)
Year ended 31 March 2023 Year ended 31 March 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
b) Factors affecting future tax charges 18,148
23,192
Unutilised tax losses
Potential tax benefit at 19% - 635
Potential tax benefit at 25% 4,537 4,963
4,537 5,598
Recognised as a deferred tax non-current asset 4,537 4,091
Not recognised as a deferred tax asset - 1,507
4,537 5,598
The Company and Group have deferred tax assets of £4,537,000 (2022 -
£5,598,000) at 31 March 2023 relating to total accumulated unrelieved tax
losses carried forward of £18,148,000 (2022 - £23,192,000). The Company and
Group have recognised deferred tax assets of £4,537,000 (2022 - £4,091,000),
based on forecast profits for the next five years but have not recognised
deferred tax assets of £nil (2022 - £1,507,000) arising as a result of
losses carried forward. These losses do not have an expiry date but it is
considered too uncertain that the Group will generate profits against which
these losses would be available to offset and, on that basis, the deferred tax
asset in respect of these losses has not been recognised.
7. Return per Ordinary Share
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
The return per Ordinary Share is based on the following figures:
Revenue return 4,197 4,197 1,873 1,873
Capital return (28,093) (28,093) 22,389 22,389
Weighted average number of Ordinary Shares in issue 43,272,601 43,272,601 43,557,464 43,557,464
Return per share - revenue 9.70p 9.70p 4.30p 4.30p
Return per share - capital (64.92p) (64.92p) 51.40p 51.40p
Total return per share (55.22p) (55.22p) 55.70p 55.70p
8. Dividends
Year ended Year ended
31 March 2023 31 March 2022
£'000 £'000
Dividends on Ordinary Shares:
Third quarterly dividend of 3.00p per share (2022- 2.90p) paid 29 April 2022 1,307 1,263
Final dividend of 3.60p per share (2022 - 3.60p) paid 29 July 2022 1,568 1,568
First quarterly dividend of 3.00p per share (2022- 3.00p) paid 28 October 2022 1,296 1,307
Second quarterly dividend of 3.10p per share (2022- 3.00p) paid 27 January 1,336 1,307
2023
Dividends paid in the period 5,507 5,445
The third interim dividend of 3.20p (2022 - 3.00p), paid on 28 April 2023, has
not been included as a liability in these financial statements.
The final dividend of 3.60p (2022 - 3.60p), to be paid on 4 August 2023, has
not been included as a liability in these financial statements.
Set out below is the total dividend paid and proposed in respect of the
financial year, which is the basis upon which the requirements of Sections
1158 - 1159 of the Corporation Tax Act 2010 are considered. The current year's
revenue available for distribution by way of dividend is £4,197,000 (2022 -
£1,874,000).
Year ended Year ended
31 March 2023 31 March 2022
£'000 £'000
First quarterly dividend of 3.00p per share (2022- 3.00p) paid 28 October 2022 1,296 1,307
Second quarterly dividend of 3.10p per share (2022- 3.00p) paid 27 January 1,336 1,307
2023
Third quarterly dividend of 3.20p per share (2022 - 3.00p) payable 28 April 1,376 1,307
2023
Final quarterly dividend of 3.60p per share (2022 - 3.60p) payable 4 August 1,549 1,568
2023
5,557 5,489
The final dividend is based on the latest share capital of 43,012,464 Ordinary
Shares in issue, excluding those held in Treasury.
9. Investments
Investment properties Equities Total
£'000 £'000 £'000
Group
Cost at 31 March 2022 129,913 24,395 154,308
Unrealised appreciation 25,925 2,476 28,401
Valuation at 31 March 2022 155,838 26,871 182,709
Purchases 25,353 6,891 32,244
Sales proceeds (9,746) (31,527) (41,273)
Realised gains on sales 1,005 441 1,446
Movement in unrealised appreciation in year (21,814) (2,676) (24,490)
Valuation at 31 March 2023 150,636 - 150,636
Investment properties Investment in subsidiary Equities Total
£'000 £'000 £'000 £'000
Company
Cost at 31 March 2022 129,913 200 24,395 154,508
Unrealised appreciation 25,925 - 2,476 28,401
Valuation at 31 March 2022 155,838 200 26,871 182,909
Purchases 25,353 - 6,891 32,244
Sales proceeds (9,746) - (31,527) (41,273)
Realised gains on sales 1,005 - 441 1,446
Movement in unrealised appreciation in year (21,814) - (2,676) (24,490)
Valuation at 31 March 2023 150,636 200 - 150,836
The fair value valuation given by Savills plc excludes prepaid or accrued
operating lease income arising from the spreading of lease incentives or
minimum lease payments and for adjustments to recognise finance lease
liabilities for one leasehold property, both in accordance with IFRS 16. The
valuation has, therefore, been increased.
Year ended Year ended
31 March 2023 31 March 2022
£'000 £'000
Savills plc valuation 150,500 155,478
Operating lease assets (2,717) (2,502)
Finance lease liabilities 2,853 2,862
150,636 155,838
Increase in fair value 136 360
The fair value valuation given by Savills plc includes £1,600,000 relating to
the property at Newcastle where contracts have been exchanged for sale in
April 2023.
Transaction costs
During the year, expenses were incurred in acquiring and disposing of
investments classified as fair value through profit or loss. These have been
expensed through capital and are included within gains and losses on
investments in the Statement of Comprehensive Income. The total costs were as
follows:
Year ended Year ended
31 March 2023 31 March 2022
£'000 £'000
Purchases 9 95
Sales 32 32
41 127
The fair values of the investment properties were independently valued by
professional valuers from Savills (UK) Limited, acting in the capacity of
External Valuers as defined in the RICS Red Book (but not for the avoidance of
doubt as an External Valuers of the portfolio as defined by the Alternative
Investment Fund Managers Regulations 2013). The valuations were prepared on
the basis of Fair Value as required by the IFRS (International Financial
Reporting Standards). In addition, the valuations have also been prepared in
accordance with RICS Valuation - Professional Standards VPS 3.5 Fair Value and
VPS 4.1 Valuations for Inclusion in Financial Statements. The definition of
Fair Value is set out in IFRS 13 and is adopted by the International
Accounting Standards Board as follows:
"The price that would be received to sell an asset, or paid to transfer a
liability, in an orderly transaction between market participants at the
measurement date"
The RICS Red Book directs us to consider that Fair Value is consistent with
the concept of Market Value, the definition of which is set out in Valuation
Practice Statement 4 1.2 of the Red Book, as follows:
"The estimated amount for which an asset or liability should exchange on the
valuation date between a willing buyer and a willing seller in an arm's length
transaction after proper marketing and where the parties had each acted
knowledgeably, prudently and without compulsion."
The valuations have been arrived at predominantly by reference to market
evidence for comparable property (Level 3 of the Fair Value Hierarchy). As
part of Savills' standard process, the valuations were carried out by
specialist valuers, which were peer reviewed and reviewed again prior to the
valuation date. During the review process, the various characteristics of each
property were taken into consideration.
Passing rent Fair value -
Property portfolio range Group Key unobservable Inputs range Blended yield
£ £'000 input
Industrials 49,500 - 400,000 46,570 Net Equivalent Yield 4.00% - 7.50% 5.50%
Supermarkets 87,000 - 967,590 43,124 Net Equivalent Yield 5.25% - 8.00% 6.00%
Other 61,097 - 559,968 14,297 Net Equivalent Yield 5.00% - 9.50% 7.25%
Bowling 66,788 - 469,586 13,632 Net Equivalent Yield 7.25% - 8.50% 8.00%
Hotels 360,000 -373,549 13,233 Net Equivalent Yield 5.00% - 5.50% 5.25%
Pubs 75,129 - 176,932 11,113 Net Equivalent Yield 5.25% - 9.50% 7.50%
Roadside 181,025 - 213,784 8,667 Net Equivalent Yield 6.75% - 7.50% 7.00%
150,636
A 25 bps decrease in the equivalent yield applied would have increased the net
assets attributable to the Group and Company's Shareholders and the total gain
for the year by £6,500,000. A 25 bps increase in the equivalent yield applied
would have decreased the net assets attributable to the Group and Company's
Shareholders and the total gain for the year by £6,150,000. A 5% decrease in
the rental value applied would have decreased the net assets attributable to
the Group and Company's Shareholders and the total gain for the year by
£3,725,000. A 5% increase in the rental value applied would have increased
the net assets attributable to the Group and Company's Shareholders and the
total loss for the year by £3,825,000.
Investment in subsidiary
Country of incorporation Date of acquisition % Principal activity
ownership
Name
Value and Indexed Property Income Services Limited UK 16 January 2014 100 AIFM
10. Receivables
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Amounts falling due within one year:
Dividends receivable - - 98 98
Prepayments and accrued income 599 599 418 418
Amounts due from brokers - - 4,193 4,193
599 599 4,709 4,709
Amounts falling due after more than one year: Rent 2,366 2,366 2,238 2,238
2,965 2,965 6,947 6,947
Many of the Company's leases provide for minimum and maximum increases of
rental at future rent reviews. Minimum increases have been averaged over the
life of the lease, generating amounts receivable which require to be
recognised as an asset.
11. Payables
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Amounts due to OLIM Property Limited 53 103 103
Accruals and other creditors 53
Value Added Tax payable 1,907 1,907 1,676 1,676
Amounts due to brokers 408 408 312 312
Lease liability - - 324 324
8 8 8 8
2,376 2,376 2,423 2,423
The amount due to OLIM Property Limited comprises the monthly management fee
for March 2023, subsequently paid in April 2023.
12. Non-current liabilities
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Bank loans 50,000 50,000 37,000 37,000
Balance of costs incurred (388) (388) (473) (473)
Costs written off in the year 385 385 - -
Gain on fair value valuation of debt (908) (908) - -
Borrowing costs expensed on recognition of fair value 80 80 - -
Effective interest 24 24 - -
Costs incurred in the year (215) (215) - -
Add: Debit to income for the year 22 22 85 85
49,000 49,000 36,612 36,612
9.375% Debenture Stock 2026 - - 20,000 20,000
Add: Balance of premium less issue expenses 111 111 135 135
Less: Credit to income for the year (111) (111) (24) (24)
- - 20,111 20,111
Total borrowings 49,000 49,000 56,723 56,723
Lease liability payable in more than one year
- within 2 - 5 years 28 28 28 28
- over 5 years 2,817 2,817 2,826 2,826
Total payables 2,845 2,845 2,854 2,854
51,845 51,845 59,577 59,577
The Company has a £15,000,000 fixed term secured loan facility for a period
of up to ten years to 31 March 2026 (2022 - £15,000,000). At 31 March 2023,
£11,893,750 was drawn down at a rate of 4.344% and £3,106,250 was drawn down
at a rate of 3.60%. The terms of the loan facility contain financial covenants
that require the Company to ensure that:
• in respect of each 3 month period ending on 31 March and 30
September (the Half Year dates), net rental income shall be at least 200 per
cent of interest costs;
• in respect of each 12 month period beginning immediately after
31 March and 30 September, net rental income shall be at least 200 per cent of
interest costs; and
• at all times, the loan shall not exceed 60 per cent of the value
of the properties that have been charged.
On 28 November 2019, the Company entered into a £22,000,000 fixed term
secured loan facility for a period of up to seven years to 30 November 2026.
On 3 March 2021, this facility was extended until 31 March 2031. On 27 April
2022, the loan was increased to £30,000,000 and on 22 June 2022, the loan was
increased to £35,000,000 and extended for a further two years until 31 March
2033, costs previously incurred on the loan were extinguished at this point.
Subsequent to this the loan is recorded on the Statement of Financial Position
at it's fair value. 95% of the loan is at a fixed rate and 5% at a floating
rate of interest. At 31 March 2023, £35,000,000 was drawn down at a net
effective interest rate of 3.65%. The terms of the loan facility contain
financial covenants that require the Company to ensure that:
• the total debt ratio does not at any time exceed 50 per cent;
• projected interest cover is not less than 200 per cent at all
times; and
• the Loan to Value shall not exceed 68% of the value of the
properties that have been charged.
The 9.375% Debenture Stock 2026 issued by VIP was repayable at par on 30
November 2026 and secured by a floating charge over the property and assets of
the Company. In June 2022, it was repaid early at a premium of £6,380,000 and
a balance of £111,000 unamortised premium from the issue of the debenture was
taken to profit and loss.
The fair values of the loan and the Debenture are disclosed in Note 21 and the
Net Asset Value per share, calculated with the borrowings at fair value, is
disclosed in Note 17.
13. Deferred tax
Under IAS 12, provision must be made for any potential tax liability on
revaluation surpluses. As an investment trust, the Company does not incur
capital gains tax and no provision for deferred tax is therefore required in
this respect.
As disclosed in Note 6, a deferred tax asset has been recognised to reflect
the estimated value of tax losses carried forward which are likely to be
capable of offset against future profits.
14. Share capital
Year ended Year ended
31 March 2023 31 March 2022
£'000 £'000
Authorised:
5,600 5,600
56,000,000 Ordinary Shares of 10p each (2022 - 56,000,000)
Called up, issued and fully paid:
43,012,464 Ordinary Shares of 10p each (2022 - 43,557,464) 4,301 4,356
Treasury shares:
2,537,511 Ordinary Shares of 10p each (2022 - 1,992,511) 254 199
4,555 4,555
The ordinary share capital on the Statement of Financial Position relates to
the number of Ordinary Shares in issue and in Treasury. Only when shares are
cancelled, either from Treasury or directly, is a transfer made to the Capital
Redemption Reserve.
During the year, the Company repurchased 545,000 Ordinary Shares at a cost of
£1,307,000, including expenses. All of these shares were placed in Treasury.
15. Share premium
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Opening balance 18,446 18,446 18,446 18,446
16. Retained earnings
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Opening balance at 31 March 113,899 113,899 95,082 95,082
(Loss)/profit for the year (23,896) (23,896) 24,262 24,262
Dividends paid (see Note 8) (5,507) (5,507) (5,445) (5,445)
Buyback of Ordinary Shares for Treasury (see Note 14) (1,307) (1,307) - -
Closing balance at 31 March 83,189 83,189 113,899 113,899
The table below shows the movement in retained earnings analysed between
revenue and capital items.
Year ended 31 March 2023 Year ended 31 March 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Group
Opening balance at 31 March (3,476) 117,375 113,899 96 94,986 95,082
Profit/(loss) for the year 4,197 (28,093) (23,896) 1,873 22,389 24,262
Dividends paid (see Note 8) (5,507) - (5,507) (5,445) - (5,445)
Buyback of Ordinary Shares for Treasury - (1,307) (1,307) - - -
(see Note 14)
Closing balance at 31 March (4,786) 87,975 83,189 (3,476) 117,375 113,899
Company
Opening balance at 31 March (4,563) 118,462 113,899 (991) 96,073 95,082
Profit/(loss) for the year 4,197 (28,093) (23,896) 1,873 22,389 24,262
Dividends paid (see Note 8) (5,507) - (5,507) (5,445) - (5,445)
Buyback of Ordinary Shares for Treasury - (1,307) (1,307) - - -
(see Note 14)
Closing balance at 31 March (5,873) 89,062 83,189 (4,563) 118,462 113,899
Of the Company's Retained Earnings of £83,189,000, £76,433,000 is considered
to be distributable.
17. Net asset value per equity share
The net asset values per Ordinary Share are based on the Group's net assets
attributable of £106,190,000 (2022 - £136,900,000) and on the Company's net
assets attributable of 105,780,000 (2022 - £136,900,000) and on 43,012,464
(2022 - 43,557,464) Ordinary Shares in issue at the year end, excluding shares
held in Treasury.
The net asset value per Ordinary Share, based on the net assets of the Group
and the Company adjusted for borrowings at fair value (see Note 21) of
£108,194,000 (2022 - £132,836,000) is 251.54p (2022 - 304.97p).
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
Net assets at 31 March 2023 106,190 106,190 136,900 136,900
Fair value adjustments 252 252 (4,064) (4,064)
Net assets with borrowings at fair value 106,442 106,442 132,836 132,836
Number of shares in issue 43,012,464 43,012,464 43,557,464 43,557,464
Net asset value per share 246.88p 246.88p 314.30p 314.30p
Net asset value per share with borrowings at fair value 247.47p 247.47p 304.97p 304.97p
18. Reconciliation of income from operations before tax to net cash inflow
from operating activities
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Income from operations before tax (14,409) (14,409) 26,566 26,566
Losses/(gains) on investments 23,249 23,249 (19,237) (19,237)
Investment management fee (990) (990) (1,090) (1,090)
Other operating expenses (895) (895) (870) (870)
Decrease in receivables 521 521 303 303
Increase in other payables 18 18 218 218
Net cash from operating activities 7,494 7,494 5,890 5,890
19. Reconciliation of current and non-current liabilities arising from
financing activities
Year ended Year ended
31 March 2023 31 March 2022
Group Company Group Company
£'000 £'000 £'000 £'000
Cash movements
Payment of rental (for leasing) 87 87 88 88
Repayment of debenture 20,000 20,000 - -
Drawdown of loans (for financing) (13,000) (13,000) - -
Loan costs 80 80 32 32
Non-cash movements
Finance costs (for leasing) (78) (78) (78) (78)
Changes in fair value 578 578 (33) (33)
Issue premium on debenture 111 111 - -
Effective interest (24) (24) - -
Amortisation of loan premium and expenses and fair value adjustment (22) (22) (61) (61)
Change in debt in the year 7,732 7,732 (52) (52)
Opening debt at 31 March (59,585) (59,585) (59,533) (59,533)
Closing debt at 31 March (51,853) (51,853) (59,585) (59,585)
20. Relationship with the Investment Manager and Related Parties
Value and Indexed Property Income Services Limited is a wholly owned
subsidiary of Value and Indexed Property Income Trust PLC and all costs and
expenses are borne by Value and Indexed Property Income Trust PLC. Value and
Indexed Property Income Services Limited has not traded during the year.
Matthew Oakeshott is a director of OLIM Property Limited which has an
agreement with the Group to provide investment management services, the terms
of which are outlined in the Directors' Report in the Annual Report and in
Note 3.
21. Financial instruments and investment property risks
Risk management
The Group's and the Company's financial instruments and investment property
comprise property and other investments, cash balances, loans and debtors and
creditors that arise directly from its operations; for example, in respect of
sales and purchases awaiting settlement or debtors for accrued income.
The Managers have dedicated investment management processes which ensures that
the Investment Policy is achieved. The portfolio is reviewed on a periodic
basis by a senior investment manager and by OLIM Property's Investment
Committee.
Additionally, the Manager's Compliance Officer continually monitors the
Group's investment and borrowing powers and reports to the Manager.
The main risks that the Group faces from its financial instruments are:
(i) market risk (comprising price risk and interest rate risk
(ii) liquidity risk
(iii) credit risk
The Board regularly reviews and agrees policies for managing each of these
risks. The Manager's policies for managing these risks are summarised below
and have been applied throughout the year.
(i) Market risk
The fair value of, or future cash flows from, a financial instrument held by
the Group may fluctuate because of changes in market prices. This market risk
comprises three elements - price risk, interest rate risk and currency risk.
Price risk
Price risks (i.e. changes in market prices other than those arising from
interest rate or currency risk) may affect the value of the Group's
investments.
All investment properties held by the Group are commercial properties located
in the UK with long, strong income streams.
Price risk sensitivity
If market prices at the date of the Statement of Financial Position had been
10% higher or lower, while all other variables remained constant, the return
attributable to ordinary shareholders for the year ended 31 March 2023 would
have increased/decreased by £15,043,000 (2022 - increase/ decrease of
£18,271,000) and equity reserves would have increased/ decreased by the same
amount.
Interest rate risk
Interest rate movements may affect:
• the fair value of the investments in property; and
• the level of income receivable on cash deposits.
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment and
borrowing decisions.
The Board imposes borrowing limits to ensure gearing levels are appropriate to
market conditions and reviews these on a regular basis. Borrowings comprise
three and ten year bank loans, providing secure long term funding. It is the
Board's policy to maintain a gearing level, measured on the most stringent
basis of calculation after netting off cash equivalents, of between 25% and
50%. Details of borrowings at 31 March 2023 are shown in Notes 11 and 12.
Interest risk profile
The interest rate risk profile of the portfolio of financial assets and
liabilities at the statement of financial position date was as follows:
Weighted average period for which rate is fixed Years Weighted average interest rate % Fixed rate Floating rate
£'000 £'000
At 31 March 2023
Assets
Sterling - 3.18 - 2,273
Total assets - 3.18 - 2,273
At 31 March 2023
Liabilities
Sterling 6.51 3.63 50,000 -
Total liabilities 6.51 3.63 50,000 -
At 31 March 2022
Assets
Sterling - - - 5,153
Total assets - - - 5,153
At 31 March 2022
Liabilities
Sterling 6.17 5.64 57,000 -
Total liabilities 6.17 5.64 57,000 -
The weighted average interest rate on borrowings is based on the interest rate
payable, weighted by the total value of the loans. The maturity dates of the
Group's loans are shown in Notes 11 and 12.
The floating rate assets consist of cash deposits on call, earning interest at
prevailing market rates. The Group's equity and property portfolios and short
term receivables and payables are non interest bearing and have been excluded
from the above tables. All financial liabilities are measured at amortised
cost.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to
interest rates at the statement of financial position date and the stipulated
change taking place at the beginning of the financial year and held constant
throughout the reporting period in the case of instruments that have floating
rates.
If interest rates had been 100 basis points higher or lower and all other
variables were held constant, the Group's:
• profit for the year ended 31 March 2023 would increase/decrease
by £21,000 (2022 - increase / decrease by £31,000). This is mainly
attributable the Group's exposure to interest rates on its floating rate cash
balances.
• the Group holds no financial instruments that will have an
equity reserve impact.
In the opinion of the Directors, the above sensitivity analyses are not
representative of the year as a whole, since the level of exposure changes
frequently as part of the interest rate risk management process used to meet
the Group's objectives.
Currency sensitivity
There is no sensitivity analysis included as the Group has no outstanding
foreign currency denominated monetary items. Where the Group's equity
investments (which are non-monetary items) are affected, they have been
included within the other price risk sensitivity analysis so as to show the
overall level of exposure.
(ii) Liquidity risk
This is the risk that the Group will encounter difficulty in meeting
obligations associated with its financial liabilities.
The Group's assets of cash or near cash securities and investment properties
which, by their nature, are less readily realisable. The maturity of the
Group's mainly fixed rate borrowings is set out in the interest risk profile
section of this Note.
The table below details the Group's remaining contractual maturity for its
financial liabilities, based on the undiscounted cash outflows, including both
interest and principal cash flows, and on the earliest date upon which the
Group can be required to make payment.
Carrying value Expected cashflows Due within 3 months Due between Due after 1 year
£'000 £'000 £'000 3 months and £'000
1 year
£'000
At 31 March 2023
Borrowings 50,270 62,378 405 1,245 60,728
Leases 2,853 7,177 22 65 7,090
Other payables 1,500 1,500 1,500 - -
Total 54,623 71,055 1,927 1,310 67,818
At 31 March 2022
Borrowings 57,850 75,519 1,261 1,955 72,303
Leases 2,895 7,265 22 65 7,178
Other payables 356 356 356 - -
Total 61,101 83,140 1,639 2,020 79,481
(iii) Credit risk
This is the failure of a counterparty to a transaction to discharge its
obligations under that transaction that could result in the Group suffering a
loss. Cash is held only with reputable banks with high quality external credit
rating, which are monitored on a regular basis.
Credit risk exposure
In summary, compared to the amounts on the Group Statement of Financial
Position, the maximum exposure to credit risk during the year to 31 March was
as follows:
Year ended Year ended
31 March 2023 31 March 2022
Statement of Financial Position Maximum exposure Statement of Financial Position Maximum exposure
£'000 £'000 £'000 £'000
Current assets
Cash and cash equivalents 2,273 27,725 5,153 58,689
Other receivables 599 8,239 4,709 5,186
2,872 35,964 9,862 63,875
(iv) Property risk
The Group's commercial property portfolio is subject to both market and
specific property risk. Since the UK commercial property market has been
markedly cyclical for many years, it is prudent to expect that to continue.
The price and availability of credit, real economic growth and the constraints
on the development of new property are the main influences on the property
investment market.
Against that background, the specific risks to the income from the portfolio
are tenants being unable to pay their rents and other charges, or leaving
their properties at the end of their leases. All leases are on full repairing
and insuring terms, with upward only rent reviews and the weighted average
unexpired lease length to the break option is 12.6 years (2022 - 12.8 years).
Details of the tenant and geographical spread of the portfolio are set out in
the Annual Report. The long term record of performance through the varying
property cycles since 1987 is set out in the Annual Report. OLIM Property is
responsible for property investment management, with surveyors, solicitors and
managing agents acting on the portfolio under OLIM Property's supervision.
The Group leases out its investment property to its tenants under operating
leases. At 31 March 2023, the future minimum lease receipts under
non-cancellable leases are as follows:
Year ended Year ended
31 March 2023 31 March 2022
£'000 £'000
Due within 1 year 9,338 8,159
Due between 2 and 5 years 36,302 32,525
Due after more than 5 years 89,151 78,686
134,791 119,370
This amount comprises the total contracted rent receivable as at 31 March
2023.
None of the Group's financial assets is past due or impaired.
Fair values of financial assets and financial liabilities
All assets and liabilities of the Group other than receivables and payables
and the borrowings are included in the Statement of Financial Position at fair
value.
(i) Fair value hierarchy disclosures
All assets and liabilities of the Group other than receivables and payables
and the borrowings are included in the Statement of Financial Position at fair
value.
The table below sets out fair value measurements using the IFRS 13 Fair Value
hierarchy:
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
At 31 March 2023
Investment properties - - 150,636 150,636
- - 150,636 150,636
At 31 March 2022
Equity investments 26,871 - - 26,871
Investment properties - - 155,838 155,838
26,871 - 155,838 182,709
Company and Group numbers per the above fair value disclosures are the same
except for the investment of £200,000 made by the Company in its subsidiary,
which was the subject of an inter-group transfer in 2014.
Fair value categorisation within the hierarchy has been determined on the
basis of the degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value measurement in
its entirety as follows:-
Level 1 - inputs are unadjusted quoted prices in an active market for
identical assets
Level 2 - inputs, not being quoted prices, are observable, either directly
(i.e. as prices) or indirectly (i.e. derived from prices)
Level 3 - inputs are not observable
There were no transfers between Levels during the year.
(ii) Borrowings
The fair value of borrowings has been calculated at £48,748,000 as at 31
March 2023 (2022 - £61,064,000) compared to a Statement of Financial Position
value in the Financial Statements of £49,000,000 (2022 - £56,723,000) per
Notes 11 and 12.
The fair values of the loans are determined by a discounted cash flow
calculation based on the appropriate inter-bank rate plus the margin per the
loan agreement. These instruments are, therefore, considered to be Level 2 as
defined above. There were no transfers between Levels during the year.
All other assets and liabilities of the Group are included in the Statement of
Financial Position at fair value.
Fair value Statement of financial position value
2023 2022 2023 2022
£'000 £'000 £'000 £'000
9.375% Debenture Stock 2026 - 23,592 - 20,111
Bank loans 48,748 37,472 49,000 36,612
48,748 61,064 49,000 56,723
In June 2022, the 9.375% Debenture Stock 2026 was repaid early at a premium of
£6,380,000 and a balance of £111,000 unamortised premium from the issue of
the Debenture was expensed.
Principal financial instruments
(iii) Financial instruments by category
Financial assets
Fair value through profit or loss Amortised cost
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Cash and cash equivalents - - 2,273 5,153
Other receivables - - 2,965 6,947
Equity investments - 26,871 - -
Total financial assets - 26,871 5,238 12,100
Financial liabilities
Fair value through profit or loss Amortised cost
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Other payables - - (5,221) (5,277)
Loans and other borrowings (34,116) - (14,884) (56,723)
Total financial liabilities (34,116) - (20,105) (62,000)
22. Capital management policies and procedures
The Group's capital management objectives are:
• to ensure that the Group will be able to continue as a going
concern; and
• to maximise the return to its equity shareholders in the form of
long term real growth in dividends and capital value without undue risk.
The capital of the Group consists of equity, comprising issued capital,
reserves, borrowings and retained earnings.
The Board monitors and reviews the broad structure of the Group's capital.
This review includes:
• the planned level of gearing which takes into account the
Manager's view of the market and the extent to which revenue in excess of that
which requires to be distributed should be retained.
The Group's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
Details of the Group's gearing and financial covenants are disclosed in Notes
11 and 12.
23. Commitments
The Board is recommending the payment of a final dividend of 3.6p per Ordinary
Share (2022: 3.6p) which, subject to receiving Shareholder approval at the
2023 AGM, will be paid on 4 August 2023 to all Shareholders on the register as
at 7 July 2023.
There are no significant subsequent events for the Group or the Company,
though purchases and sales of property in the normal course of business which
completed after the year end are disclosed in the Annual Report.
Additional Information
In accordance with section 435 of the Companies Act 2006, the Directors advise
that the financial information set out in this announcement does not
constitute the Group's statutory Financial Statements for the period ended 31
March 2023 but is derived from these Financial Statements. The statutory
Financial Statements for the year ended 31 March 2022 have been delivered to
the Registrar of Companies and contained an audit report which was unqualified
and did not constitute statements under S498(2) or S498(3) of the Companies
Act 2006.
The Financial Statements for the period ended 31 March 2023 have been prepared
in accordance with UK adopted international accounting standards. The
Financial Statements for the period ended 31 March 2023 will be forwarded to
the Registrar of Companies following the Company's Annual General Meeting. The
Auditors have reported on these Financial Statements; their reports were
unqualified and did not contain statements under Section 498(2) or (3) of the
Companies Act 2006.
The Group and Company Statement of Financial Position at 31 March 2023 and the
Group and Company Statement of Comprehensive Income, Statement of Changes in
Equity and Statement of Cash Flows for the year then ended have been extracted
from the Group's Financial Statements. Those Financial Statements have not yet
been delivered to the Registrar.
The 2023 Annual Report and Financial Statements will be posted to Shareholders
shortly and will contain the Notice of the Annual General Meeting of the
Company to be held on Wednesday, 2 August 2023 at 12.30pm at the Kingham Room,
Broadway House Conference Centre, Tothill Street, London SW1H 9NQ.
For Value and Indexed Property Income Trust PLC
Maven Capital Partners UK LLP
Company Secretary
26 June 2023
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