Value & Index Prop - Annual Financial Report
10/06/2022 16:59
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RNS Number : 5368O Value and Indexed Prop Inc Tst PLC 10 June 2022
VALUE AND INDEXED PROPERTY INCOME TRUST PLC
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED 31 MARCH 2022
Chairman's Statement
You will see from the Manager's Report that VIP has been successful in
continuing with its plan, that I wrote about last year, to establish a
portfolio of properties on long leases with inflation linked rent reviews.
This has involved greater investment activity than usual, but the
re-arrangement of our portfolio has now broadly been completed. Since VIP's
year end, we have borrowed an additional £8 million from an existing lender.
The net decrease in cash is due to the purchase of additional properties, in
line with the Company's investment policy.
Many of the Company's index-linked leases provide for maximum and minimum
increases at future rent review, often described as 'caps and collars'. The
details of these are shown in Note 9 to the Financial Statements. The
Financial Statements have been prepared under IFRS (International Financial
Reporting Standards) and IFRS 16 requires that these minimum rent increases,
which may arise only many years in the future, are averaged over the whole
life of the lease. As detailed in Note 10 to the Financial Statements, an
increase in amounts due from brokers this year has arisen due to the sale of
an investment in the quoted portfolio which straddled the year end and the
cash was received in full two days later.
The Board is recommending a final dividend of 3.6p per share making total
dividends of 12.6p per share for the year to 31 March 2022, compared to 12.3p
per share in the previous year, an increase of 2.4%. Subject to Shareholder
approval at the Annual General Meeting (AGM), the final dividend will be paid
on 29 July 2022 to Shareholders on the register on 1 July 2022. The
ex-dividend date is 30 June 2022. It will be the 35(th) year of dividend
increases following the reconstruction of the Company. In the short term this
will require some use of our capital reserves. In the medium term, however,
the Board will aim to ensure that the dividend is paid from rents and
dividends received (after interest costs and management expenses) and that the
indexed leases permit future increases in line with inflation.
Net Asset Value total return (with debt at par) and Share Price total return
are considered by the Board to be Alternative Performance Measures (APMs) as
explained further in the Business Review in the Annual Report and defined in
the Glossary in the Annual Report. Over the year, the Net Asset Value total
return (with debt at par) was 15.6% (2021: 12.3%) and the Share Price total
return was 15.8% (2021: 39.3%). This compares with the FTSE All-Share Index
total return of 13.0% (2021: 26.7%). The total return from the property
portfolio was 20.2% (2021: 2.3%) (the MSCI UK Quarterly Property Index total
returns were 19.6% (2021: 0.9%)) and from the equity portfolio was 24.1%
(2021: 26.6%). From 1 April 2021, our performance comparator was changed from
the FTSE All-Share Index to the MSCI UK Quarterly Property Index to reflect
the change in our investment policy.
As provided in the Circular issued to Shareholders in December 2020, there
will be an opportunity in the future for Shareholders who wish to sell their
shares to do so at Net Asset Value less costs. The Board's intention is to
table a proposal at the AGM to be held in 2026.
As noted in previous statements, the difference between the fair value and the
nominal value of our Debenture Stock and our secured loans is reducing over
the life of the Debenture, which would be repaid at its nominal (par) value.
The figures are set out in Note 17 to the Financial Statements. We announced
on 24 May 2022 that we intend to repay this Debenture early to reduce interest
costs and provide greater flexibility in the management of our portfolio.
This years' AGM will be held in the offices of Shepherd & Wedderburn LLP,
1 Exchange Crescent, Conference Square, Edinburgh, EH3 8UL on Friday, 8 July
2022 at 12.30pm. 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 Computershare, the Company's Registrar. Proxy Forms
should be completed and returned in accordance with the instructions thereon
and the latest time for the receipt of Proxy Forms is 12.30pm on Wednesday, 6
July 2022. Proxy votes can also be submitted by CREST or online using the
Registrar's Share Portal Service at www.investorcentre.co.uk/eproxy
(http://www.investorcentre.co.uk/eproxy) .
I announced last year that I intended to retire during the course of 2022 and,
accordingly, I shall be retiring after the AGM and John Kay will become
Chairman. Over the years, I have appreciated greatly the support of my
colleagues on the Board, and also the professionalism and attention to detail
of our Managers and Secretaries.
The outlook for markets is dominated at present by the major uncertainties of
inflation and Ukraine. However, property with long term, inflation-related
leases offers good value in these circumstances.
James Ferguson
Chairman
10 June 2022
Summary of Portfolio
31 March 2022 31 March 2021
£m % £m %
UK Property 155.8 83.0 81.1 46.2
UK Equities 26.9 14.3 28.6 16.3
Cash 5.2 2.7 66.0 37.5
187.9 100.0 175.7 100.0
Property Manager's Report
Property Portfolio
The Market
The MSCI UK Quarterly Property Index, the most representative measure of the
performance of institutional investment property portfolios, showed a total
return of 16.3% over 2021, with capital growth of 11.5%. Estimated rental
values were up overall by 1.8%, with retail 3% down on average, offices and
alternatives virtually level and industrial property up 9%. Differential
movements in capital values were more dramatic, with industrial property up by
no less than 31%, retail and alternative sector properties up on average by
3%-4% and offices flat. For 2021 as a whole, total returns, taking capital and
income together, for industrial/warehouse property averaged 36%, with retail
and alternatives averaging 8%-10% and offices only 5%. 2021 was the first year
since 2009 when retail property in the UK outperformed offices. There will be
many more as the office sector remains locked in long term structural decline.
Total returns will be lower but still satisfactory over 2022 as a whole. They
may be around 12% overall, with returns for industrials, retail and the
alternative sectors all in the early teens but offices only around 5% with
capital values flat, rents under pressure and voids through the roof.
Property's real returns will be far lower, with the RPI already up 9% year on
year. It will stay higher for longer than the Bank of England or the market
expects. Stagflation is here to stay for at least as long as the war in
Ukraine drags on.
UK Commercial Property - Average Annual % Growth Rates to March 2022
3 Months 6 Months 1 Year 3 Years 5 Years 10 Years
Capital Values +14.8 +17.9 +14.9 +1.9 +2.2 +3.3
Rental Values +4.6 +4.6 +3.1 -0.3 +0.3 +1.2
Total Returns +18.8 +22.2 +19.6 +6.4 +6.7 +8.3
Source: MSCI UK Quarterly Property Index - Annualised
These returns to the end of March are higher than the calendar year figures
quoted above because capital value growth accelerated through 2021 after a
dull first quarter.
Comparative Investment Yields - End December (Except end March 2022)
March 2022
2021 2020 2019 2017 2011 2008 2006
Property (Equivalent Yield)
5.0 5.1 5.8 5.6 5.6 6.9 8.3 5.4
Long Gilts: Conventional 1.6 1.0 0.2 1.0 1.4 2.5 3.7 4.6
Index Linked -2.2 -2.6 -2.6 -2.0 -1.8 -0.2 0.8 1.1
UK Equities 3.1 3.1 3.4 4.1 3.6 3.5 4.5 2.9
RPI (Annual Rate) * 9.0 7.1 0.9 2.2 4.1 4.8 0.9 4.4
Yield Gaps: Property less Conventional Gilts 3.4 4.1 5.6 4.6 4.2 4.4 4.6 0.8
less Index Linked Gilts 7.2 7.7 8.4 7.6 7.4 7.1 7.5 4.4
less Equities 1.9 2.0 2.4 1.5 2.0 3.4 3.8 2.5
Source: MSCI UK Quarterly Property Index and ONS for the RPI (*to December
except March 2022)
Property transaction volumes and market liquidity improved markedly through
2021 with an estimated total turnover of £65 billion, higher than in 2019
pre-pandemic and above the long term averages. This trend has continued so far
in 2022. Industrial property volumes were strongest but activity increased in
previously quiet sectors, especially leisure, hotels and retail, with
relentless demand for retail warehouses and supermarkets supplemented recently
by buyers of in town retail at high yields. Prime, especially long-let offices
were active but the market for older secondary offices is getting worse, with
some now virtually unlettable and unsaleable where they do not meet
environmental standards. There is a growing "brown discount" for properties in
all sectors with non-compliant Energy Performance Certificates (EPCs).
Property void rates rose from 8.2% at the start of the pandemic in March 2020
to a peak of 10.2% in June 2021 and remain high at around 10%. As the table
below shows, industrial and retail void rates have fallen markedly from their
COVID peaks, but office voids shot up from 13.1% in March 2020 to 19.4% now,
well above the previous record high of 14.8% for office voids in 2013.
During the COVID crisis, the Government, under political and tenant pressure,
repeatedly suspended landlords' traditional tools for enforcing rent
collection - eviction orders, use of Commercial Rent Arrears Recovery (CRAR)
bailiffs and statutory demands for winding up. They have also introduced a
fiendishly complicated legal arbitration procedure for rent arrears run up
during COVID. This will be a bonanza for lawyers and no real help for
landlords and tenants who should have done a deal long ago.
Apart from that, landlords are able again to use their normal strong powers to
enforce prompt payment of rent from commercial property tenants, including the
use of bailiffs where necessary. With all properties throughout the UK now
able to open again and trade normally, there is no longer any excuse for
strong tenants not to pay their rent promptly and in full; rent collection
rates should, therefore, now be back to normal on all professionally managed
institutional property portfolios.
Property Prospects by Sector
Warehouse/Industrials - an Overheated Market - Yields have Fallen Far Enough
Warehouse and industrial property delivered most of commercial property's
total capital growth in 2021 for the right reasons, with voracious demand,
mainly from food and online retailers, driving up rents right across the UK
for both "big box" warehouses near motorways and smaller units on estates
nearer city centres. Valuation yields were forced down to reflect improving
rental growth prospects, and the outlook for rental growth remains good,
vacancy rates for both "big box" units and traditional industrial estates are
very low (and now negligible in parts of the South East, Midlands and East
Anglia). Driven by the explosion of online retailing, 2021 saw the second
highest ever take up of logistics "big boxes" at 34.1 million square feet,
only slightly below the exceptional performance in 2020 at 35.8 million square
feet and 71% above 2019. 2022 will be slower.
Over £18 billion was invested across the industrial/warehouse sector in 2021,
nearly double the 2020 transaction volume and over 60% above the previous
highest annual level recorded in 2017. But the industrial property investment
market is now running white hot, too hot in our view, with yields bid down to
unsustainably low levels by panic buyers, who are having to make wholly
unrealistic rental growth projections to justify the prices they are paying.
Sellers are hard to find. Rapidly rising interest rates and other economic
pressures have started to cool this overheated market. The latest UK figures
showed online non-food retail sales down to 39% of the total, against 63% a
year ago. Amazon recorded its first quarterly loss since 2015 at the end of
April, the share price fell 16% instantly and has fallen 26% to date. The
share prices of the larger property REITS focusing on large warehouses
followed suit with Segro -25% and Tritax Big Box -22%.
Rapidly rising costs and supply chain problems, together with a weakening
economy and consumer confidence, are already putting pressure on the strong
occupiers and may affect some weaker occupiers more acutely this year,
although industrial property values will still be supported by the conversion
of older and lower value sites to residential and other alternative uses,
especially in southern England. Well-located industrial and warehouse property
in all sizes from logistics "big boxes" on motorway junctions to "last mile"
urban sheds and estates of smaller units should still outperform offices and
probably the property market as a whole for the rest of the year. But risks
are rising and selling opportunities should be taken where valuation yields
have fallen too far to generate satisfactory long-term returns.
Offices - Locked in Long Term Relative Decline - the Way we Work has Changed
for Good
Offices have taken over the performance wooden spoon from retail for the first
time in twelve years and may hold it for the foreseeable future. Investors'
long overdue focus on ESG is hitting office values harder than on most other
sectors, because so many older office buildings, in London in particular,
simply cannot be updated to suitable standards at realistic cost. Occasional
headline-grabbing investment or letting deals for the very best space are just
a sign of a flight from quantity to quality, with tenants usually downsizing
at the same time, giving owners of their old space a hospital pass. There is
still some demand for high quality city centre offices, but for more limited
space for meeting, training and prestige purposes.
Mid and back-office work is now being done far more from home, or partly at
low cost non-city centre locations. Unnecessary offices are one cost that
businesses can now cut, with break clauses exercised in most cases and tenants
demanding considerable capital expenditure from landlords to renew leases,
even in part. Functional obsolescence and depreciation will, therefore, need
to be factored more specifically into most office valuations, keeping capital
values under continuing downward pressure to reflect lower effective net rents
and greater re-letting risk, as valuers start to reflect this risk properly.
The public sector, the largest UK office tenant, has clearly now adopted a
long-term hybrid working model, and would have serious HR and legal problems
and additional trade union pressure if it tried to force any employee back to
the office full-time, despite the Minister for Government Efficiency publicly
applying pressure. Many UK companies are also downsizing, going hybrid,
closing their head office altogether and taking temporary space nearby
instead. Those employers such as some American investment banks or law firms
requiring full office attendance will, therefore, find staff recruitment and
retention ever more difficult in a climate where talented employees feel more
able to negotiate the way they work, irrespective of age or sex.
Retail - Bouncing Back, Led by Retail Warehouses and Supermarkets
The COVID pandemic hit the high street hard where it had already been hurting
for many years: first, by getting many more older shoppers, in particular,
used to the range and convenience of non-food shopping in particular, online;
and second, by making people switch from public transport or parking in
congested city-centres to easier and safer car-borne shopping out of town.
Retail warehouse rents are rising again, especially where well-run operators
like B&Q, B&M and Home Bargains trade alongside the leading
supermarkets, and capital values are growing rapidly - some institutional
investors missed the market in industrial property, want no more offices, and
have money which they are struggling to invest.
On the high street, the steepest falls in property values happened in "prime"
central London and other prime highly valued cities and towns which are now
unaffordable for both multiple and individual retailers. Unfair business rates
had already crippled urban high streets in less prosperous parts of the UK,
and the Government's latest partial attempt at rates reform will be too
little, too late for many locations. Prosperous suburbs and market towns with
affordable rents and an attractive mix of convenience and independent traders
have proved more resilient during the crisis and are generally recovering
better than bigger centres. Transaction volumes are rising again for high
street shops and shopping centres, and as rental values have been reset at
affordable and sustainable levels, there are now growing signs of capital
growth from the retail bargain basement.
Supermarkets and convenience stores (including petrol filling stations), have
done well during COVID, often with increases of 20%-30% in their turnover,
part of which they are able to retain with more people working on average
nearer home. Online food sales' market share has slipped back from 16% to 11%
now with Sainsbury's reporting online sales down from 21% to 15% of their
total. Aldi, Lidl, and their older-established grocery competitors are
fighting fiercely for stores under 15,000 - 20,000 sq. ft. The leading
supermarkets are also much better at combining physical and online shopping
than most non-food retailers.
Non-Traditional Alternatives - Index-Linked Leases to Strong Survivors are Key
Property in the "Alternatives" sector - i.e. everything except office,
industrial or retail - has been growing rapidly in importance for
institutional investors in recent years and now accounts for one-sixth of the
MSCI UK Quarterly Property Index. It covers a wide range of property types and
tenants, often with long, index-linked leases. With the RPI now rising at an
annual rate of 9% and the CPI at 7%, these index-linked leases hold the key to
sustained outperformance so long as the individual property rents are well
covered by operating profits and paid by strong multiple tenants.
COVID with its ever-changing lockdowns posed a once in a lifetime challenge to
alternative sector operators and investors. Tenants with strong long-term
business models and short-term crisis management, working with investors who
knew how and when to give help and improve leases, came through the COVID
challenge stronger than ever before, with their weaker multiple competitors,
and many private operators, savagely squeezed or forced out of business
altogether. Alternative investments are, therefore, outperforming most
property sectors again, and probably even industrials over 2022, but with
strong survivor bias and variations within and between different sub-sectors,
as outlined below.
Alternatives - Leisure and Hotels - Strong Tenants Trading Stronger than ever
Outside City Centres
Well-let pubs have proved far safer investments than restaurants, where many
private-equity backed multiple chains were already drowning in debt pre-COVID.
The leading pubcos, like Greene King and Wetherspoons, as well as most
traditional regional brewers, have strong balance sheets with plenty of
freehold assets and borrowing capacity. Profitable, spacious pubs with outside
space, have been trading exceptionally well and above pre-pandemic levels over
the past year, apart from central London. Pubs of this type in suburban,
smaller town and rural locations will stay short and long-term winners whilst
consumer spending on food and drink remains at current levels.
Hotel values are also well off the bottom. Modern hotels in prosperous smaller
towns and rural areas, serving British holidaymakers, workers and businesses,
have been performing really strongly over the past year, proving resilient
even during the latest COVID surge. They will continue to outperform large
city centre and airport hotels dependent on international business and travel.
Zoom, Teams and ESG have slashed expensive corporate frequent flying. Covenant
strength will remain crucial for hotels' investment value - for example, a
Premier Inn is valued well above a similar Travelodge, because long-term
investors hate CVAs (Company "Voluntary" Arrangements). Caravan parks should
also trade very strongly for many years to come.
Health and Fitness clubs have been rebuilding their memberships but will be
suffering from the squeeze on real incomes. The leading brands on large out of
town sites, with good car parking and customers often able to work from home,
offer the best long-term investments.
The two main ten pin bowling companies, who dominate the market, are going
from strength to strength and offer a sensibly priced family treat which
cannot be replicated online. But bingo halls and cinemas face a tougher future
as lockdowns drove away many of their older customers and the operators are
vulnerable to online competition.
Alternatives - Student Housing and Care Homes - Covenant Strength Key
Direct-let investments on long leases to well-established universities should
continue to perform well but indirect student housing investments with
nomination agreements or third-party providers, depending more on the local
residential letting market, are less clear beneficiaries of yield hardening
for safe, long-let property.
COVID has hit care homes hard. Costs and vacancy rates are rising because of
more deaths, slower admissions and severe Brexit and vaccination-related staff
shortages, while some private-equity backed care home providers need more
equity and lower rents. High quality homes with self-funded residents will
continue to outperform those dependent on squeezed local authority budgets.
The rise in National Insurance contributions has raised staff costs for care
homes, and the Government's reforms to social care funding will not deliver
meaningful extra cash for another three to four years. Medical centres and
private hospitals will stay in demand as the NHS faces years of non-COVID
catch up and outsourcing more profitable work.
25 years ago Gordon Brown gave the Bank of England Monetary Policy Committee
the power to set interest rates to meet a stated inflation target. As the
chart above shows, until recently, their record has been good. Even including
the current inflation tsunami, annual UK CPI growth over the past quarter of a
century has averaged exactly 2% (with the RPI at 2.8%). Official interest
rates have averaged 2.6%, compared with 10.4% over the previous 25 years and
8.4% for the RPI (CPI figures are not available). But success, as so often in
business and government, has bred complacency and groupthink, reinforced by
similar flawed inflation models in other Western Central Banks. Massive
Quantitative Easing was the only possible response to the 2008/9 banking
crash, which hit the UK hardest of all the main Western economies, but the
Bank persisted with the policy far longer and stronger than was necessary or
prudent, leaving Britain in our present agonizing double bind of unsustainably
low interest rates and high inflation. The Bank really has no alternative now
to raising interest rates rapidly to stop inflation expectations taking a real
hold, as they did in eerily similar circumstances in the early 1970's after
the first oil price shock. Inflation has also rocketed in the US to 8.3% (a
new 40 year high) and 7.4% in the Eurozone.
The March consumer price figures (CPI + 7.0% and RPI + 9.0% year on year)
clearly show inflation heading higher over the next few months, probably into
double figures for the CPI and 12% for the RPI Inflation may still be around
the current rates at the year end. The latest Producer Price Indices show
output prices up by 11.5% year on year and input prices up by 19.2%.
So Britain is now suffering stagflation, with average real incomes likely to
fall by at least 2% and maybe up to 3% over 2022 as a result of increases in
tax and National Insurance combined with average earnings and benefits lagging
far behind price rises. UK domestic consumer spending was the main engine of
UK economic recovery in 2021, with exceptionally high pandemic savings being
spent by better off households, and employees gradually returning to work.
That will not be repeated in 2022, and forecasts, like the OBR's in March, for
UK GDP to grow by 3.8% this year now look far too high. A technical recession
may well be looming later this year on a quarter by quarter basis. Q1 2022 may
be only just up, with Q2, Q3, Q4 all down. Although GDP figures are often
subject to major subsequent revisions. Any progress later in 2023 will be
critically dependent on progress towards peace in Ukraine and easing
disruption to international trade, not least with China, and supply shortages
around the world. There is still a danger of renewed outbreaks of COVID,
especially in less developed countries where vaccination rates are very low.
Food and energy shortages, serious as they feel in richer countries like the
UK, could actually kill millions especially in Africa, if the war in Ukraine
and disruption of world trade drag on.
Conclusion - Index-Linked Income Still Seriously Undervalued
UK commercial property values stabilised in late 2020 and have since been
rising rapidly. Industrials have been by far the star performers, but their
yield re-rating must be over as prices are clearly overheating especially at
the prime end of the market. Offices' relative performance is going from bad
to worse. Retail values started to recover early in 2021, as gains for retail
warehouses, supermarkets and convenience stores offset slowing rates of
decline in shopping centres and high street shops, which have now finally
bottomed out. The alternative sectors have also bounced back strongly with
pubs, hotels, bowling and caravan parks booming, especially outside London.
Healthcare and nursing home investments will stay in demand despite their
staffing problems. 2022 may see a similar pattern of relative property
performance, despite current short term interest rate rises, and possibly
sharp increases in current unsustainably low long term bond yields, with
alternatives, retail and industrials leading the way and offices bringing up
the rear.
The COVID crisis has taught UK property investors a stark lesson: stay on the
right side of structural change, avoid offices, and stick wherever you can to
properties let to strong tenants at affordable rents on long, preferably
index-linked, leases. Safe, long-term indexed income will be even more highly
prized as inflation rises faster for longer than myopic markets and complacent
central bankers expect. Wars are always inflationary, and however long the hot
war lasts in Ukraine, the West is clearly now in an economic cold war with
Russia and its allies, with sanctions and shortages biting for years to come.
Secure, index-linked, UK property offers massive yield margins over
index-linked gilts, and a comfortable yield cushion still over conventional
bonds. It is still seriously undervalued.
Portfolio Summary
VIP specialises in UK commercial properties with long, strong, index-related
income streams to deliver above average long term real returns.
31 March 30 September 31 March
PORTFOLIO SUMMARY 2022 2021 2021
Portfolio Value: £155,478,000* £110,050,000 £80,550,000
Contracted Income: £8,339,944 £6,336,645 £5,151,786
Contracted income as a % of Portfolio Value: 5.4% 5.8% 6.4%
Total Number of Properties: 43 39 31
Total Number of Tenants (the Portfolio is 100% let): 43 40 32
Contracted Indexed Rent: 95.8% 92.4% 90.6%
Weighted Average Unexpired Lease Term (if all tenants exercise break options):
12.8 years 13.8 years 15.1 years
20.2% (MSCI:19.6%) 2.3%
Annual Total Return March to March: - (MSCI: 0.9%)
*Savills Valuation - NB: This figure does not include £6m committed to
complete the Alnwick Hotel Development. The fair valuation given by Savills
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. For further information see Note 9 to the Financial Statements.
Performance and Independent Revaluation
Savills' independent valuation at 31 March 2022 on the direct commercial
property portfolio increased to £155,478,000 with a running yield of 5.4%
(from 5.7% as at end-December 2021). This is up from the half-yearly valuation
at 30 September 2021 of £110,050,000, the increase driven by both net
acquisitions and valuation uplift.
VIP's property portfolio produced a total return on all 43 properties of 20.2%
over the past year to March, against 19.6% for the MSCI UK Quarterly Property
Index, the main benchmark for commercial property performance. Properties held
throughout had a total return of 23.5%, the difference reflecting the
acquisition costs on 14 properties bought during the year.
VIP's property portfolio total returns on All Assets of 20.2% over the past
year and 8.8% over the past six months were driven by a valuation uplift of
8.5% on the 38 properties held over the six months (leisure 16.1%, industrials
12.4%, supermarkets 8.1%, other 7.1%, hotels 5.4%, pubs 4.1% and roadside
2.0%).
The longer term returns on the property portfolio have been between 10% and
12% a year over 3, 5, 10 and 20 years and 35 years and are above the MSCI
averages over all these periods. The real returns above the Retail Price Index
from VIP's property portfolio were 10% last year and between 5% and 9% a year
over all cumulative periods from 3 to 35 years since the inception of OLIM
Property's management.
Contracted rental income rose by 6% on held properties. The average lot size
is £3,600,000, ranging from £1,150,000 to £13,000,000.
Properties
All 43 properties are let and 100% occupied on full repairing and insuring
leases (tenants are responsible for repair, maintenance and outgoings), plus
there is an agreement for lease in place at Alnwick where a Premier Inn hotel
(80 bedrooms plus hotel) is currently under construction with completion due
summer 2022. All 43 tenancies have upwards only rent increases and a weighted
average unexpired length of 12.8 years (19.8 years if the break options are
not exercised). All the properties valued at 31 March 2022 are freehold with
the exception of two which are long leasehold with 109 and 83 years to run
(Doncaster and Fareham).
Purchases to 31 March 2022
Fourteen new properties were purchased over the year for £63,430,000 in total
including costs, at an average net initial yield of 5.3% (plus there will be
an additional £6,000,000 to be paid on practical completion during late
summer of 2022 of the Premier Inn Hotel at Alnwick, which is currently under
construction); their average weighted unexpired lease length at 31 March 2022
is 10.4 years (if the break options are exercised). The newly purchased
freehold properties consist of two hotels (one under construction), six
industrials, three petrol filling stations with convenience stores and three
supermarkets. Seven of the properties have RPI-linked rent increases, four
have CPI-linked rent increases and three with fixed increases.
Purchases and Sales since March 2019
Year March to March Purchases No. of properties Sales No. of properties
2019/2020 £10,800,000 5 £9,200,000 5
2020/2021 £17,600,000 7 £4,750,000 2
2021/2022 £63,430,000 14 £3,260,000 2
Total £91,830,000 26 £17,210,000 9
Purchase Pipeline
Further properties with long, strong, index-linked income are under active
investigation.
Sales to 31 March 2022
The sale of two short-let overrented properties completed during the year: a
petrol filling station in Southampton and a pub in Thornton Cleveleys for a
combined £3.3m, 4.9% above valuation and at a net sale yield of 8.8%.
Sales since 31 March 2022
Since the year end, two properties have completed: a Buzz Bingo in Bradford
and a Co-op store in Barton upon Humber for a combined £3.3m in total (39.5%
above valuation) at a net sale yield of 6.2%.
Rent Reviews
The portfolio now has 96% of contracted income (42 out of 43 tenancies) with
index-linked or fixed rent increases. Only one property, the industrial at
Fareham, has three yearly open market upwards only reviews (the December 2021
sweep up clause has since been agreed with a 4% uplift and is to be documented
imminently).
Nineteen rent reviews completed over the course of the year (twelve with
annual rent increases and seven with five yearly review patterns), sixteen
RPI-linked rent increases and three with fixed rental increases: 7 pubs, 5
supermarkets, 2 petrol filling stations, 1 bingo hall, 1 bowling alley, 1
library, a driving test centre and the caravan park giving a combined 6.9%
uplift on their passing rents.
Rent Collection
100% of all contracted rents due were collected in the year to 31 March 2022
and landlords' rights to enforce rent collection are now back to normal.
The portfolio remains well-spread with a focus on index-linked rent reviews
and the sectors of the UK commercial property market which benefit from
structural change-industrials (33%), supermarkets (27%) and alternatives (40%
mainly leisure, pubs and hotels). We do not invest in offices. VIP'S safe,
long let indexed portfolio should prove resilient. It has outperformed through
previous turbulent times as shown by the Property Record Table in the Annual
Report, delivering long term above average real returns (benchmark MSCI UK
Quarterly Property Index).
Louise Cleary & Matthew Oakeshott
OLIM Property Limited
10 June 2022
Equity Manager's Report
UK Equities
Market Background
The UK stock market gave a good absolute return over VIP's financial year,
with the FTSE All-Share Index delivering a total return of 13.0%, against
19.6% for UK property. For most of the year progress was steady, driven by
improving sentiment as lockdown restrictions were eased progressively.
However, share prices dropped sharply in February and early March 2022 after
the Russian invasion of Ukraine. They then recovered to end the quarter only
marginally down.
Property shares were strong over the year to end March 2022, with the FTSE All
Share Real Estate Investment Trusts ("REITs") Index generating a total return
of 22.5%. REIT NAV performance was strong, benefiting from the post-pandemic
recovery in commercial property values and, in particular, from the strength
in industrial property sector valuations.
Performance
VIP's equity portfolio performed well ahead of the wider stock market,
reflecting the better performance of property stocks as a whole. The portfolio
recorded a total return of 24.1%, which also outperformed the FTSE All Share
REITs Index. The portfolio benefited from its high exposure to its new
investments in industrial property, and from the strong performances of its
two Food Retailers, Wm Morrison Supermarkets and Tesco. The former was the
subject of competing private equity takeover bids and was eventually taken
private at 287p per share, generating a profit of over £1.5m for VIP. Tesco's
share price was aided by strong trading and this holding was also subsequently
disposed of at a significant profit.
Portfolio
The last twelve months saw sales of equities of £36.2m and purchases of
£30.5m giving total transactions of £66.7m, with net sales of £5.7m. During
the year we completed the sale of the portfolio's legacy holdings, switching
into property-backed securities. The new portfolio focused on the industrial
sector with three specialist industrial REITs, Tritax Big Box REIT, Urban
Logistics REIT and Warehouse REIT, and a large holding in BMO Real Estate
Investments, which mainly invests in industrial property and retail
warehouses. A new holding in Tesco was established and an increased investment
in Wm Morrison Supermarkets was made, both at small premiums to their
respective asset values, in order to gain exposure to the resilient food
retail property sector. As noted above, both of these investments were
realised before the year end at a significant profit. New holdings were also
made in PRS REIT and Residential Secure Income REIT, which both have exposure
to attractive RPI-linked leases, and in Real Estate Credit Investments, which
advances loans secured on property. An initial holding in Civitas Social
Housing was sold after corporate governance issues came to light. At the end
of March 2022, the equity portfolio had 7 remaining investments valued at
£26.9m.
Since the year end, the portfolio's three specialist industrial property
holdings, Tritax Big Box REIT, Urban Logistics REIT and Warehouse REIT, have
been sold for a good profit and at a premium to their most recent NAVs. The
proceeds have been partly re-invested in BMO Real Estate Investments at a
discount of 25%.
Patrick Harrington
OLIM Property Limited
10 June 2022
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 this 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 2022, and as at the date of this Annual Report, VIP's share
capital consisted of 43,557,464 Ordinary Shares of 10p nominal value in issue
and 1,992,511 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 and publicly quoted securities.
Highlights of the Year
· Net Asset Value total return (with debt at par)* of 15.6%
(2021: 12.3%) over one year and 2.7% (2021: -8.5%) over three years.
· Share Price total return* of 15.8% (2021: 39.3%) over one year
and 13.3% (2021: -3.3%) over three years.
· FTSE All-Share Index total return of 13.0% (2021: 26.7%) over
one year and 16.8% (2021: 9.9%) over three years.
· MSCI Quarterly Property Index total return of 19.6% over one
year.
· Dividends for year up 2.4% - increased for the 35th consecutive
year.
Financial Record
31 Mar 2022 31 Mar 2021
NAV (valuing debt at par) (p) 314.3 271.1
NAV (valuing debt at market) (p)* 305.0 256.6
Ordinary share price (p) 239.0 218.0
Discount of share price to NAV (valuing debt at market) (%) 21.6 15.0
Dividend per share (p) 12.6 12.3
Total assets less current liabilities (£m) 196.5 177.6
* 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 and partly in property-backed UK
securities. 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,
property-backed securities listed on the London Stock Exchange 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 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.
The UK quoted securities portfolio
In order to limit the risk to the Company's overall total portfolio of assets
that are derived from any particular securities investment, no individual
shareholding will account for more than 10 per cent. of the gross assets of
the Company at the time of purchase. 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.
No material changes may be made to the Company's investment policy described
above without the prior approval of Shareholders by the passing of an Ordinary
Resolution.
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.
Until 2015, all borrowings had been long-term debentures to provide secure
long-term funding, and avoiding the risks associated with short-term funding
of having to sell illiquid assets at a low point in markets if loans had to be
repaid. Detail of the Company's current borrowings, comprising two fixed term
secured loan facilities and the 9.375% Debenture Stock 2026, can be found in
Notes 12 and 24 to the Financial Statements. As announced on 24 May 2022, the
Company has voluntarily decided to redeem the 2026 Debenture Stock early on 28
June 2022. The redemption price will be determined in accordance with the
conditions set out in the Trust Deed and will be communicated to holders of
the 2026 Debenture Stock shortly before the redemption date.
Performance, Results and Dividend
As at 31 March 2022, the Net Asset Value (NAV) total return (with debt at par)
over one year was 15.6% and the Share Price total return over one year was
15.8%. This compares to the FTSE All-Share Index total return over one year of
13.0% and the MSCI UK Quarterly Property Index total return of 19.6%. Total
assets less current liabilities were £196.5 million. A review of the
performance of the property and equity portfolios is detailed in the
Chairman's Statement in the Annual Report and in the Property and Equity
Manager's Reports in the Annual Report.
For the year to 31 March 2022, quarterly dividends of 3.0p per share were each
paid on 29 October 2021, 28 January 2022 and 29 April 2022. The Directors have
declared that a final dividend of 3.6p per Ordinary Share (2021: 3.6p), if
approved by Shareholders at the 2022 AGM, is paid on 29 July 2022 to
Shareholders on the register on 1 July 2022. The ex-dividend date is 30 June
2022. This represents an annual increase in dividends of 2.4% as compared with
the 9.0% and 7.0% annual increases in the Retail Price and Consumer Price
Indices, respectively, as at the end of March 2022.
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 three elements - price risk, interest rate risk and currency 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.
For equities, asset allocation and stock selection, as set out in the
Investment Policy in the Annual Report, both act to reduce market risk.
OLIM Property Limited (OLIM Property) is the Investment Manager responsible
for the management of the Company's property and equities portfolios.
VIS delegates its portfolio management responsibilities to OLIM Property,
which, as well as managing the property portfolio, actively monitors market
prices throughout the year and reports to VIS and to the Board, which meet
regularly in order to review investment strategy. The equity investments held
by the Group are listed on the London Stock Exchange. All investment
properties held by the Group are commercial properties located in the UK 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 a debenture stock and two secured term loans, with four
and eleven 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%.
Currency Risk
A small proportion of the Group's investment portfolio is invested in
securities whose fair value and dividend stream are affected by movements in
foreign exchange rates. It is not the Company's policy to hedge this risk.
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 readily realisable securities which can be sold to
meet commitments, if required, and investment properties which, by their
nature, are less 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.
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.
The risk is not significant and is managed as follows:
· investment transactions are carried out on behalf of VIP by an
outsourced dealing agent. Settlement of these transactions is executed by a
large investment bank whose credit standing is reviewed periodically by OLIM
Property (which reports to VIS).
· the risk of counterparty exposure due to failed trades causing
a loss to the Group is mitigated by the review of failed trade reports on a
daily basis. In addition, a stock reconciliation to third party
administrators' records is performed on a daily basis to ensure that
discrepancies are picked up on a timely basis. VIS carries out periodic
reviews of the Depositary's operations and reports its findings to the
Company. This review also includes checks on the maintenance and security of
investments held.
· cash is held only with reputable banks with high quality external
credit ratings which are monitored on a regular basis.
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 average unexpired lease
length is 20 years (2021: 17 years) and 13 years if break options are
exercised. Details of the tenant and geographical spread of the portfolio are
set out on 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
The EU (Future Relationship) Act 2020 came into effect on 1 January 2021 and
the full political, economic and legal consequences of the UK leaving the
European Union (EU) are not yet known. It is possible that investments in the
UK may be more difficult to value and assess for suitability of risk, harder
to buy or sell and may be subject to greater or more frequent rises and falls
in value. In the longer term, there is likely to be a period of uncertainty as
the UK seeks to negotiate its ongoing relationship with the EU and other
global trade partners. The UK's laws and regulations, including those relating
to investment companies, may in future, diverge from those of the EU. This may
lead to changes in the operation of the Company or the rights of investors in
the territories in which the shares of the Company may be promoted and sold.
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 Statement of
Corporate Governance in the Annual Report, the Company has little direct
impact on environmental issues. As an investment trust company, the Company
has no direct employee or environmental responsibilities. The Board is aware
that the Manager continues to take into account environmental, social and
governance matters when considering investments.
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 during the coronavirus pandemic and the situation in
Ukraine. The Board monitors the economic and market environment closely, and
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
https://www.olimproperty.co.uk/value-and-indexed-property-income-trust.html
(https://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 Securities
Services 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 and FTSE All-Share Index (total returns); and
· Dividend growth relative to consumer price inflation.
The Manager's Reports report on how the Company performed during the year
under review against these indices.
The net asset value (NAV) total return is considered to be an appropriate
long-term measure of Shareholder value as it includes the current NAV per
share and the sum of dividends paid to date.
The share price total return relative to the FTSE All-Share Index (total
return) is the theoretical return including reinvesting each dividend in
additional shares in the Company at the current mid-market price on the day
that the shares go ex-dividend.
The medium term dividend policy is for increases at least in line with
inflation.
The Board reviews the Company's rental and investment 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 the Annual Report.
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
No Ordinary Shares were bought back in the year to 31 March 2022 (2021:
1,992,511 Ordinary Shares bought back). As at 31 March 2022, and as at the
date of this Annual Report, 1,992,511 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 this
Annual Report, and from the information provided in the Chairman's Statement
and in the Manager's Property and Equity Reports in the Annual 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 Chairman's Statement in dividends for the year under review can be found in the Chairman's Statement
the Annual Report). in the Annual Report.
Shareholder documents - The Company reports formally to Shareholders by Share buy-back policy - the Directors recognise the importance to Shareholders
publishing Annual and Interim Reports, normally in June and November each of the Company maintaining a buy-back policy and considered this when
year. establishing the current programme. Further details can be found in this
Business Review in the Annual Report and in the Directors' Report in the
Annual Report.
Significant matters or reporting obligations are disseminated to Shareholders
by way of announcement to the London Stock Exchange.
Shareholder communication and feedback from the Broker feeds directly into the
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.
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.
Investee companies and assets Quarterly Board Meetings - The Manager reports to the Board on the Company's The Manager worked closely with all tenants during the COVID-19 pandemic, and,
investment portfolio and the Directors challenge the Manager where they feel as a result,100% of all contracted rents due were collected in the year to 31
it is appropriate. March 2022.
The Directors are aware that the exercise of voting rights is key to promoting
good corporate governance and, through the Manager, ensures that the listed
companies are encouraged to adopt best practice corporate governance. The
Board has delegated the responsibility for monitoring the listed companies to
the Manager and has given it discretion to vote in respect of the Company's
holdings in the equity portfolio, in a way that reflects the concerns and key
governance matters discussed by the Board.
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 and equities portfolios. implementing, which has resulted in a reduction in the number of equity
investments and an increase in the number of properties held in the portfolio.
The Board engages constructively with the Manager to ensure investments are
consistent with the agreed strategy and investment policy.
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.
There were no key decisions made in the year to 31 March 2022 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 2023 as it is believed that these
are in the best interests of Shareholders.
The Company's Viability Statement is included 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:
James Ferguson
Chairman
10 June 2022
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 price risk, interest rate
risk, liquidity risk, credit risk and price risk sensitivity. 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 Article 4 of the IAS Regulation
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
James Ferguson
Chairman
10 June 2022
Group Statement of Comprehensive Income
For the year ended 31 March
Year ended Year ended
31 March 2022 31 March 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
INCOME Note
Rental income 2 5,647 - 5,647 5,359 - 5,359
Investment income 2 1,682 - 1,682 3,414 - 3,414
Other income 2 - - - 159 - 159
7,329 - 7,329 8,932 - 8,932
Gains on investments
Realised gains on held-at-fair-value investments and investment properties 9 - 10,440 10,440 - 8,588 8,588
Unrealised gains on held-at-fair-value investments and investment properties 9 - 8,797 8,797 - 1,185 1,185
TOTAL INCOME 7,329 19,237 26,566 8,932 9,773 18,705
EXPENSES
Investment management fees 3 (1,088) (2) (1,090) (301) (702) (1,003)
Other operating expenses 4 (870) - (870) (771) - (771)
Finance costs 5 (3,177) - (3,177) (5,084) - (5,084)
Total expenses (5,135) (2) (5,137) (6,156) (702) (6,858)
Profit before taxation 2,194 19,235 21,429 2,776 9,071 11,847
Taxation 6 (321) 3,154 2,833 (359) 1,132 773
Profit attributable to equity Shareholders of parent company 1,873 22,389 24,262 2,417 10,203 12,620
Earnings per Ordinary Share (pence) 7 4.30 51.40 55.70 5.35 22.56 27.91
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, 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 Notes form part of these Financial Statements.
The Board is proposing a final dividend of 3.60p per share, making a total
dividend of 12.60p per share for the year ended 31 March 2022 (2021: 12.30p
per share) which, if approved by Shareholders, will be payable on 29 July 2022
(see Note 8).
Company Statement of Comprehensive Income
for the year ended 31 March
Year ended Year ended
31 March 2022 31 March 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
INCOME Note
Rental income 2 5,647 - 5,647 5,359 - 5,359
Investment income 2 1,682 - 1,682 3,414 - 3,414
Other income 2 - - - 159 - 159
7,329 - 7,329 8,932 - 8,932
GAINS AND LOSSES ON INVESTMENTS
Realised gains on held-at-fair-value investments and investment properties 9 - 10,440 10,440 - 8,588 8,588
Unrealised gains on held-at-fair-value investments and investment properties 9 - 8,797 8,797 - 1,781 1,781
TOTAL INCOME 7,329 19,237 26,566 8,932 10,369 19,301
EXPENSES
Investment management fees 3 (1,088) (2) (1,090) (301) (702) (1,003)
Other operating expenses 4 (870) - (870) (771) - (771)
Finance costs 5 (3,177) - (3,177) (5,050) - (5,050)
Total expenses (5,135) (2) (5,137) (6,122) (702) (6,824)
Profit before taxation 2,194 19,235 21,429 2,810 9,667 12,477
Taxation 6 (321) 3,154 2,833 (359) 1,132 773
Profit attributable to equity Shareholders of parent company 1,873 22,389 24,262 2,451 10,799 13,250
Earnings per Ordinary Share (pence) 7 4.30 51.40 55.70 5.42 23.88 29.30
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, 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 31 March
As at As at
31 March 2022 31 March 2021
Note £'000 £'000 £'000 £'000
ASSETS
Non current assets
Investment properties 9 155,838 81,132
Investments held at fair value through profit or loss 9 26,871 28,581
182,709 109,713
Deferred tax asset 6 4,091 1,258
Receivables 10 2,238 2,017
189,038 112,988
Current assets
Cash and cash equivalents 5,153 65,965
Receivables 10 4,709 972
9,862 66,937
TOTAL ASSETS 198,900 179,925
Current liabilities
Payables 11 (2,423) (2,318)
(2,423) (2,318)
TOTAL ASSETS LESS CURRENT LIABILITIES 196,477 177,607
Non-current liabilities
Payables 12 (2,854) (2,862)
Borrowings 12 (56,723) (56,662)
(59,577) (59,524)
NET ASSETS 136,900 118,083
EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 113,899 95,082
TOTAL EQUITY 136,900 118,083
NET ASSET VALUE PER ORDINARY SHARE (PENCE) 17 314.30 271.10
These Financial Statements were approved by the Board on 10 June 2022 and were
signed on its behalf by:-
James Ferguson,
Chairman
The Notes form part of these Financial Statements.
Company Statement of Financial Position
As at 31 March
As at As at
31 March 2022 31 March 2021
Note £'000 £'000 £'000 £'000
ASSETS
Non current assets
Investment properties 9 155,838 81,132
Investments held at fair value through profit or loss 9 27,071 28,781
182,909 109,913
Deferred tax asset 6 4,091 1,258
Receivables 10 2,238 2,017
189,238 113,188
Current assets
Cash and cash equivalents 4,953 65,765
Receivables 10 4,709 972
9,662 66,737
TOTAL ASSETS 198,900 179,925
Current liabilities
Payables 11 (2,423) (2,318)
(2,423) (2,318)
TOTAL ASSETS LESS CURRENT LIABILITIES 196,477 177,607
Non-current liabilities
Payables 12 (2,854) (2,862)
Borrowings 12 (56,723) (56,662)
(59,577) (59,524)
NET ASSETS 136,900 118,083
EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 113,899 95,082
TOTAL EQUITY 136,900 118,083
NET ASSET VALUE PER ORDINARY SHARE (PENCE) 17 314.30 271.10
These Financial Statements were approved by the Board on 10 June 2022 and were
signed on its behalf by:-
James Ferguson,
Chairman
The Notes form part of these Financial Statements.
Group Statement of Cashflows
For the year ended 31 March
2022 2021
Note £'000 £'000 £'000 £'000
Cash flows from operating activities
Rental income received 5,970 5,218
Dividend income received 1,835 3,486
Interest (paid)/received (1) 244
Operating expenses paid (1,914) (1,673)
NET CASH INFLOW FROM OPERATING ACTIVITIES 18 5,890 7,275
Cash flows from investing activities
Purchase of investments held at fair value through profit or loss (30,132) (4,500)
Purchase of investment properties (63,412) (17,553)
Sale of investments held at fair value through profit or loss 32,042 79,584
Sale of investment properties 3,445 4,725
NET CASH (OUTFLOW)/INFLOW FROM INVESTING ACTIVITIES (58,057) 62,256
Cash flow from financing activities
Repayment of debenture stock - (15,000)
Fees paid on new loan - (4)
Interest paid on loans (3,113) (4,938)
Finance cost of leases (78) (191)
Payments of lease liabilities (9) (17)
Dividends paid 8 (5,445) (5,512)
Buyback of Ordinary Shares for Treasury 14 - (4,332)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (8,645) (29,994)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (60,812) 39,537
Cash and cash equivalents at 1 April 2021 65,965 26,428
CASH AND CASH EQUIVALENTS AT 31 MARCH 2022 5,153 65,965
The Notes form part of these Financial Statements.
Company Statement of Cashflows
For the year ended 31 March
2022 2021
Note £'000 £'000 £'000 £'000
Cash flows from operating activities
Rental income received 5,970 5,218
Dividend income received 1,835 3,486
Interest (paid)/received (1) 244
Operating expenses paid (1,914) (1,673)
NET CASH INFLOW FROM OPERATING ACTIVITIES 18 5,890 7,275
Cash flows from investing activities
Purchase of investments held at fair value through profit or loss (30,132) (4,500)
Purchase of investment properties (63,412) (17,553)
Sale of investments held at fair value through profit or loss 32,042 79,584
Sale of investment properties 3,445 4,725
NET CASH (OUTFLOW)/INFLOW FROM INVESTING ACTIVITIES (58,057) 62,256
Cash flow from financing activities
Repayment of debenture stock - (15,000)
Fees paid on new loan - (4)
Interest paid on loans (3,113) (4,938)
Finance cost of leases (78) (157)
Payments of lease liabilities (9) (51)
Dividends paid 8 (5,445) (5,512)
Buyback of Ordinary Shares for Treasury 14 - (4,332)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (8,645) (29,994)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (60,812) 39,537
Cash and cash equivalents at 1 April 2021 65,765 26,228
CASH AND CASH EQUIVALENTS AT 31 MARCH 2022 4,953 65,765
The Notes form part of these Financial Statements.
Statement of Changes in Equity
For the year ended 31 March
Group Year ended 31 March 2022
Share Share Retained Total
capital premium earnings
Note £'000 £'000 £'000 £'000
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 Year ended 31 March 2022
Share Share Retained Total
capital premium earnings
£'000 £'000 £'000 £'000
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
Group Year ended 31 March 2021
Share Share Retained Total
capital premium earnings
Note £'000 £'000 £'000 £'000
Net assets at 31 March 2020 4,555 18,446 92,306 115,307
Profit for the year - - 12,620 12,620
Dividends paid 8 - - (5,512) (5,512)
Buyback of Ordinary Shares for Treasury 14 - - (4,332) (4,332)
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
Company Year ended 31 March 2021
Share Share Retained Total
capital premium earnings
£'000 £'000 £'000 £'000
Net assets at 31 March 2020 4,555 18,446 91,676 114,677
Profit for the year - - 13,250 13,250
Dividends paid 8 - - (5,512) (5,512)
Buyback of Ordinary Shares for Treasury 14 - - (4,332) (4,332)
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
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 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 April
2021 is consistent with the requirements of IFRS, 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 quoted UK equities and 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 reports from the Investment Manager in
the Annual Report.
(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 2022 is
shown in the Statement of Financial Position in the Annual Report. The cash
flows of the Group for the year ended 31 March 2022 are set out in the Annual
Report. The Group had fixed debt totalling £56,723,000 as at 31 March 2022,
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 2022, the Group's total assets less current
liabilities exceeded its total non current liabilities by a factor of over
two. The assets of the Group consist mainly of securities and investment
properties that are held in accordance with the Group's investment policy, as
set out in the Annual Report. Most of these securities are readily realisable,
even in volatile markets. 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, the intention to
repay the debenture early, 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 30% to revenue and 70% to capital for the year ended 31 March 2022
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) Receivables and Payables
Receivables do not carry any interest and are stated at their nominal value,
as reduced by any impairment calculated using an expected credit loss model.
Payables are not interest bearing and are stated at their nominal value.
(h) 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.
(i) 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.
(j) Investments
Equity investments
All equity investments are 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, is such that the
portfolio of equity investments is managed, and performance is evaluated, on
the basis of fair value. Consequently, all equity investments are measured at
fair value through profit or loss.
For listed investments, fair value through profit or loss is 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 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.
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. An operating lease is a lease that does not transfer
substantially all the risks and rewards incidental to ownership of an
underlying asset. 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. 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 2020 (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.
(k) Cash and cash equivalents
Cash and cash equivalents comprises deposits held with banks that are
repayable on demand.
(l) 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.
(m) Leases
The Group leases properties that meet the definition of investment property.
These right-of-use assets are presented as part of Investments 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 rental income is recognised on a
straight line basis over the expected term of the lease.
(n) 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 2022 is disclosed in
Note 9.
(o) Adoption of new and revised Accounting Standards
The following new and revised Standards and Interpretations became effective
during the year and had no material impact on the amounts reported in these
Financial Statements but may impact accounting for future transactions and
arrangements.
Standards
IFRS 16 Amendments - Covid 19-Related Rent Concessions (effective 1 June 2020)
IAS 39, IFRS 4, 7, 9 and 16 Amendments - Interest Benchmark Reform Phase 2
(effective 1 January 2021)
IFRS 16 Amendments - Covid-19 Related Rent Concessions beyond 30 June 2021
(effective 1 April 2021)
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 - Classification of Liabilities as Current or Non-Current
(effective 1 January 2023)
IAS 1 Amendments - Disclosure of Accounting Policies (effective 1 January
2023)
IAS 8 Amendments - Definition of Accounting Estimates (effective 1 January
2023)
IAS 12 Amendments - Deferred Tax related to Assets and Liabilities arising
from a Single Transaction (effective 1 January 2023)
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 2022 2021
Group Company Group Company
£000 £000 £000 £000
Investment income
Dividends from listed investments in UK 1,682 1,682 3,414 3,414
Other operating income
Rental income 5,647 5,647 5,359 5,359
Interest receivable on short term deposits - - 159 159
Total income 7,329 7,329 8,932 8,932
2022 2021
3 Investment management fee Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Group and Company
Investment management fee 1,088 2 1,090 301 702 1,003
A summary of the terms of the management agreement is given in the Directors'
Report in the Annual Report.
In November 2020, OLIM gave notice of its intention to wind up its operations
in early 2021. As a result, the investment management agreement with OLIM
ceased with effect from 28 February 2021 and responsibility for the management
of the equity portfolio moved to OLIM Property Limited.
From 1st April 2021 the management fee has been allocated 100% to revenue
(previously 30% to revenue, 70% to capital).
OLIM Property Limited received an investment management fee of £1,090,000
(2021 - £479,000), the basis of calculation of which is given in the Annual
Report.
OLIM Limited received an investment management fee of £nil (2021 -
£524,000).
4 Other operating expenses 2022 2021
Group Company Group Company
£000 £000 £000 £000
Fee payable to the Company's auditor for the audit of the Company's accounts 55 55 63 63
- audit of the Subsidiary's accounts 2 2 2 2
Directors' fees 105 105 107 107
NIC on Directors' fees 3 3 7 7
Fees for company secretarial services 222 222 230 230
Direct property costs (2) (2) (80) (80)
Other expenses 485 485 442 442
870 870 771 771
Directors' fees comprise the Chairman's fees of £30,000 (2021 - £30,000),
the Audit and Management Engagement Committee Chairman's fees of £24,500
(2021 - £24,500) and fees of £22,000 (2021 - £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 2022 2021
Group Company Group Company
£000 £000 £000 £000
Interest payable on:
11% First Mortgage Debenture Stock 2021 - - 1,650 1,650
9.375% Debenture Stock 2026 1,875 1,875 1,875 1,875
Less amortisation of issue premium (24) (24) (24) (24)
Bank loan interest payable 1,181 1,181 1,307 1,307
Amortisation of loan expenses 67 67 85 85
Finance costs attributable to lease liabilities 78 78 191 157
3,177 3,177 5,084 5,050
6 Taxation 2022 2021
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 (321) 321 - (359) 359 -
Deferred tax - 2,833 2,833 - 773 773
(321) 3,154 2,833 (359) 1,132 773
Factors affecting the total tax credit/(charge) for year:
Profit before tax 21,429 11,847
Tax charge thereon at 19% (2021 - 19%) 4,072 2,251
Effects of:
Non taxable dividends (320) (649)
Gains on investments not taxable (3,655) (1,857)
Movement in deferred tax not recognised (2,930) (518)
(2,833) (773)
2022 2021
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Company
Current tax (321) 321 - (359) 359 -
Deferred tax - 2,833 2,833 - 773 773
(321) 3,154 2,833 (359) 1,132 773
Factors affecting the total tax credit/(charge) for year:
Profit before tax 21,429 12,477
Tax charge thereon at 19% (2021 - 19%) 4,072 2,371
Effects of:
Non taxable dividends (320) (649)
Gains on investments not taxable (3,655) (1,970)
Movement in deferred tax not recognised (2,930) (525)
(2,833) (773)
b) Factors affecting future tax charges
Unutilised tax losses 23,192 25,617
Potential tax benefit at 19% 635 4,867
Potential tax benefit at 25% 4,963 -
5,598 4,867
Recognised as a deferred tax non-current asset 4,091 1,258
Not recognised as a deferred tax asset 1,507 3,609
5,598 4,867
The Company and Group have deferred tax assets of £5,774,000 (2021 -
£4,867,000) at 31 March 2022 relating to total accumulated unrelieved tax
losses carried forward of £23,192,000 (2021 - £25,617,000). The Company and
Group have recognised deferred tax assets of £4,091,000 (2021 - £1,258,000),
based on forecast profits for the next five years but have not recognised
deferred tax assets of £1,507,000 (2021 - £3,609,000) 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 2022 2021
Group Company Group Company
£000 £000 £000 £000
The return per Ordinary Share is based on the following figures:
Revenue return 1,873 1,873 2,417 2,451
Capital return 22,389 22,389 10,203 10,799
Weighted average number of Ordinary Shares in issue 43,557,464 43,557,464 45,216,413 45,216,413
Return per share - revenue 4.30p 4.30p 5.35p 5.42p
Return per share - capital 51.40p 51.40p 22.56p 23.88p
Total return per share 55.70p 55.70p 27.91p 29.30p
8 Dividends 2022 2021
£000 £000
Dividends on Ordinary Shares:
Third quarterly dividend of 2.90p per share (2021- 2.90p) paid 30 April 2021 1,263 1,321
Final dividend of 3.60p per share (2021 - 3.40p) paid 30 July 2021 1,568 1,549
First quarterly dividend of 3.00p per share (2021- 2.90p) paid 29 October 2021 1,307 1,321
Second quarterly dividend of 3.00p per share (2021- 2.90p) paid 28 January 1,307 1,321
2022
Dividends paid in the period 5,445 5,512
The third interim dividend of 3.00p (2021 - 2.90p), paid on 29 April 2022, has
not been included as a liability in these Financial Statements.
The final dividend of 3.60p (2021 - 3.60p), being paid on 29 July 2022, 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 £1,874,000 (2021 -
£2,451,000).
2022 2021
£000 £000
First quarterly dividend of 3.00p per share (2021- 2.90p) paid 29 October 2021 1,307 1,321
Second quarterly dividend of 3.00p per share (2021- 2.90p) paid 28 January 1,307 1,321
2022
Third quarterly dividend of 3.00p per share (2021 - 2.90p) payable 29 April 1,307 1,263
2022
Final quarterly dividend of 3.60p per share (2021 - 3.60p) payable 29 July 1,568 1,568
2022
5,489 5,473
The final dividend is based on the latest share capital of 43,557,464 ordinary
shares excluding those held in Treasury.
9 Investments Investment
properties Equities Total
£'000 £'000 £'000
Group
Cost at 31 March 2021 70,589 18,766 89,355
Unrealised appreciation 10,543 9,815 20,358
Valuation at 31 March 2021 81,132 28,581 109,713
Purchases 63,418 30,456 93,874
Sales proceeds (3,298) (36,235) (39,533)
Realised gains on sales (767) 11,207 10,440
Movement in unrealised appreciation in year 15,353 (7,138) 8,215
Valuation at 31 March 2022 155,838 26,871 182,709
Investment Investment in
properties Subsidiary Equities Total
£'000 £'000 £'000 £'000
Company
Cost at 31 March 2021 70,589 200 18,766 89,555
Unrealised appreciation 10,543 - 9,815 20,358
Valuation at 31 March 2021 81,132 200 28,581 109,913
Purchases 63,418 - 30,456 93,874
Sales proceeds (3,298) - (36,235) (39,533)
Realised gains on sales (767) - 11,207 10,440
Movement in unrealised appreciation in year 15,353 - (7,138) 8,215
Valuation at 31 March 2022 155,838 200 26,871 182,909
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.
2022 2021
£'000 £'000
Savills plc valuation 155,478 80,550
Operating lease assets (2,502) (2,289)
Finance lease liabilities 2,862 2,871
Valuation of Investment Properties 155,838 81,132
Increase in fair value 360 582
The fair value valuation given by Savills plc includes £3,278,000 relating to
the properties at Barton-upon-Humber and Bradford where contracts have been
exchanged for sale in May 2022.
The movement in unrealised appreciation in the year disclosed in the Company's
Statement of Comprehensive Income includes amortisation of £nil (2021 -
£630,000) relating to the transfer of the 11% Debenture Stock 2021 from Audax
Properties Limited to the Company in 2014.
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:-
2022 2021
£'000 £'000
Purchases 95 27
Sales 32 75
127 102
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.
Property portfolio Fair value - Group Inputs
£'000
Key unobservable input Range Blended Yield
Industrial 52,174 Net Equivalent Yield 3.00% - 5.25% 4.50%
Supermarkets 42,584 Net Equivalent Yield 4.00% - 6.50% 5.00%
Pubs 20,456 Net Equivalent Yield 4.50% - 8.50% 6.50%
Other 13,285 Net Equivalent Yield 4.75% - 8.00% 5.50%
Roadside 10,802 Net Equivalent Yield 5.25% - 5.50% 5.50%
Leisure 7,751 Net Equivalent Yield 6.50% - 7.50% 7.50%
Hotels 7,386 Net Equivalent Yield 4.85% 4.85%
154,438*
*The aggregate excludes the Premier Inn Alnwick, valued at £1,400,000 as this
is a development property.
A 50 bps increase 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 £17,012,000. A 50 bps decrease 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 £13,428,000. 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 £3,998,000. 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 profit for the year by £4,652,000.
Investment in subsidiary
Name Country of incorporation Date of acquisition % Ownership Principal activity
Value and Indexed Property Income Services Limited (formerly Value and Income UK 16 January 2014 100 AIFM
Services Limited)
10 Receivables 2022 2021
Group Company Group Company
£000 £000 £000 £000
Amounts falling due within one year:
Dividends receivable 98 98 251 251
Prepayments and accrued income 418 418 721 721
Amounts due from brokers 4,193 4,193 - -
4,709 4,709 972 972
Amounts falling due after more than one year:
Rental 2,238 2,238 2,017 2,017
6,947 6,947 2,989 2,989
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 2022 2021
Group Company Group Company
£000 £000 £000 £000
Amounts due to OLIM Property Limited 103 103 84 84
Accruals and other creditors 1,676 1,676 1,653 1,653
Value Added Tax payable 312 312 572 572
Amounts due to brokers 324 324 - -
Lease liability 8 8 9 9
2,423 2,423 2,318 2,318
The amount due to OLIM Property Limited comprises the monthly management fee
for March 2022, subsequently paid in April 2022.
12 Non-current liabilities 2022 2021
Group Company Group Company
£000 £000 £000 £000
Bank loans 37,000 37,000 37,000 37,000
Balance of costs incurred (473) (473) (536) (536)
Costs incurred in the year - - (22) (22)
Add : Debit to income for the year 85 85 85 85
36,612 36,612 36,527 36,527
9.375% Debenture Stock 2026 20,000 20,000 20,000 20,000
Add: Balance of premium less issue expenses 135 135 159 159
Less: Credit to income for the year (24) (24) (24) (24)
20,111 20,111 20,135 20,135
Total Borrowings 56,723 56,723 56,662 56,662
Lease liability payable in more than one year
- within 2 - 5 years 28 28 37 37
- over 5 years 2,826 2,826 2,825 2,825
Total payables 2,854 2,854 2,862 2,862
59,577 59,577 59,524 59,524
The Company has a £15,000,000 fixed term secured loan facility for a period
of up to ten years to 31 March 2026 (2021 - £15,000,000). At 31 March 2022,
£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. At 31 March
2022, £20,900,000 was drawn down at a fixed rate of 3.28099% and £1,100,000
was drawn down at a variable rate of 2.55550% (being LIBOR for the period
equal in length to the interest period of the loan plus a margin of 2.35%).
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 is repayable at par on 30
November 2026 and is secured by a floating charge over the property and assets
of the Company.
The Trust Deed of the 9.375% Debenture Stock contains restrictions and events
of default. The restrictions require that the aggregate group borrowings, £57
million, must not at any time exceed the total group capital and reserves
(equivalent to net assets of £136.9 million as at 31 March 2022).
The fair values of the loan and the debentures 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 2022 2021
£000 £000
Authorised:
56,000,000 Ordinary Shares of 10p each (2021 - 56,000,000) 5,600 5,600
Called up, issued and fully paid:
43,557,464 Ordinary Shares of 10p each (2021 - 43,557,464) 4,356 4,356
Treasury shares:
1,992,511 Ordinary Shares of 10p each (2021 - 1,992,511) 199 199
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 prior year, the Company repurchased 1,992,511 Ordinary Shares at a
cost of £4,332,281 including expenses - All of these shares were placed in
Treasury.
15 Share premium 2022 2021
Group Company Group Company
£000 £000 £000 £000
Opening balance 18,446 18,446 18,446 18,446
16 Retained earnings 2022 2021
Group Company Group Company
£000 £000 £000 £000
Opening balance at 31 March 2021 95,082 95,082 92,306 91,676
Profit for the year 24,262 24,262 12,620 13,250
Dividends paid (see Note 8) (5,445) (5,445) (5,512) (5,512)
Buyback of Ordinary Shares for Treasury (see Note 14) - - (4,332) (4,332)
Closing balance at 31 March 2022 113,899 113,899 95,082 95,082
The table below shows the movement in retained earnings analysed between
revenue and capital items.
2022 2021
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Group
Opening balance at 31 March 2021 96 94,986 95,082 3,191 89,115 92,306
Profit for the year 1,873 22,389 24,262 2,417 10,203 12,620
Dividends paid (see Note 8) (5,445) - (5,445) (5,512) - (5,512)
Buyback of Ordinary Shares for Treasury (see Note 14) - - - - (4,332) (4,332)
Closing balance at 31 March 2022 (3,476) 117,375 113,899 96 94,986 95,082
Company
Opening balance at 31 March 2021 (991) 96,073 95,082 2,070 89,606 91,676
Profit for the year 1,873 22,389 24,262 2,451 10,799 13,250
Dividends paid (see Note 8) (5,445) - (5,445) (5,512) - (5,512)
Buyback of Ordinary Shares for Treasury (see Note 14) - - - - (4,332) (4,332)
Closing balance at 31 March 2022 (4,563) 118,462 113,899 (991) 96,073 95,082
Of the Company's Retained Earnings of £113,899,000, £85,326,000 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 £136,900,000 (2021 - £118,083,000) and on the Company's net
assets attributable of £136,900,000 (2021 - £118,083,000) and on 43,557,464
(2021 - 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
£132,836,000 (2021 - £111,755,000) is 304.97p (2021 - 256.57p).
2022 2021
Group Company Group Company
Net assets at 31 March 2022 136,900 136,900 118,083 118,083
Fair value adjustments (4,064) (4,064) (6,328) (6,328)
Net assets with borrowings at fair value 132,836 132,836 111,755 111,755
Number of shares in issue 43,557,464 43,557,464 43,557,464 43,557,464
Net asset value per share 314.30p 314.30p 271.10p 271.10p
Net asset value per share with borrowings at fair value 304.97p 304.97p 256.57p 256.57p
18 Reconciliation of income from operations before tax to net cash inflow 2022 2021
from operating activities
Group Company Group Company
£000 £000 £000 £000
Income from operations before tax 26,566 26,566 18,705 19,301
Gains on investments (19,237) (19,237) (9,773) (10,369)
Investment management fee (1,090) (1,090) (1,003) (1,003)
Other operating expenses (870) (870) (771) (771)
Decrease/(increase) in receivables 303 303 (274) (274)
Increase in other payables 218 218 391 391
Net cash from operating activities 5,890 5,890 7,275 7,275
19 Reconciliation of current and non-current liabilities arising from
financing activities
2022 2021
Group Company Group Company
£000 £000 £000 £000
Cash movements
Payment of rental (for leasing) 88 88 209 209
Repayment of debenture - - 15,000 15,000
Loan costs 32 32 22 22
Non-cash movements
Finance costs (for leasing) (78) (78) 1,179 2,407
Changes in fair value (33) (33) - 630
Amortisation of loan premium and expenses and fair value adjustment (61) (61) (61) (61)
Change in debt in the year (52) (52) 16,349 18,207
Opening debt at 31 March 2021 (59,533) (59,533) (75,882) (77,740)
Closing debt at 31 March 2022 (59,585) (59,585) (59,533) (59,533)
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 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 securities, 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 Manager has dedicated investment management processes which ensures that
the Investment Policy set out in the Annual Report is achieved. For equities,
stock selection procedures are in place based on active portfolio management
and the identification of stocks. 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 monitor the Group's
investment and borrowing powers and report to their respective Managers.
The main risks that the Group faces from its financial instruments are:
(i) market risk (comprising price risk, interest rate risk and
currency 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.
It is the Board's policy to hold an appropriate spread of investments in the
portfolio in order to reduce the risk arising from factors specific to a
particular sector. For equities, asset allocation and stock selection, as set
out in the Investment Policy in the Annual Report, both act to reduce market
risk. The Manager actively monitors market prices throughout the year and
reports to the Board, which meets regularly in order to review investment
strategy. The investments held by the Company are listed on the London Stock
Exchange.
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 2022 would
have increased/decreased by £18,271,000 (2021 - increase/decrease of
£10,971,000) 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
debenture stock and five 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 2022 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:
At 31 March 2022 Weighted average period for which rate is fixed Weighted average interest rate % Fixed rate £'000 Floating rate
£'000
Years
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 -
At 31 March 2021
Assets
Sterling - - - 65,965
Total assets - - - 65,965
At 31 March 2021
Liabilities
Sterling 7.17 5.64 57,000 -
Total liabilities 7.17 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 2022 would increase/decrease by
£31,000 (2021 - increase / decrease by £47,000). This is mainly attributable
to 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 risk
A small proportion of the Group's investment portfolio is invested in
securities whose fair value and dividend stream are affected by movements in
foreign exchange rates. It is not the Group's policy to hedge this risk.
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 comprise of readily realisable securities which can be sold
to meet commitments if required and investment properties which, by their
nature, are less readily realisable. The maturity of the Group's existing
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 3 months Due after 1 year
and 1 year
As at 31 March 2022
£'000 £'000 £'000 £'000 £'000
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
As at 31 March 2021
Borrowings 57,853 78,738 1,268 1,951 75,519
Leases 2,871 7,351 22 65 7,264
Other payables 527 527 527 - -
Total 61,251 86,616 1,817 2,016 82,783
(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.
The risk is not significant and is managed as follows:
- investment transactions are carried out on behalf of VIP by an
outsourced dealing agent. Settlement of these transactions is executed by a
large investment bank whose credit standing is reviewed periodically by OLIM
Property (which reports to VIS).
- the risk of counterparty exposure due to failed trades causing a
loss to the Group is mitigated by the review of failed trade reports on a
daily basis. In addition, a stock reconciliation to third party
administrators' records is performed on a daily basis to ensure that
discrepancies are picked up on a timely basis.
- cash is held only with reputable banks with high quality external
credit ratings 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:
2022 2021
Statement of Financial Statement of Financial
Position Maximum exposure Position Maximum exposure
£'000 £'000 £'000 £'000
Current assets
Cash and cash equivalents 5,153 58,689 65,965 83,209
Other receivables 4,709 5,186 597 7,733
9,862 63,875 66,562 90,942
(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 average unexpired
lease length is 20 years (2021 - 17 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 2022, the future minimum lease receipts under
non-cancellable leases are as follows:-
2022 2021
£000 £000
Due within 1 year 8,159 5,152
Due between 2 and 5 years 32,525 20,362
Due after more than 5 years 78,686 63,155
119,370 88,669
This amount comprises the total contracted rent receivable as at 31 March
2022.
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
At 31 March 2022 £000 £000 £000 £000
Equity investments 26,871 - - 26,871
Investment properties - - 155,838 155,838
26,871 - 155,838 182,709
At 31 March 2021
Equity investments 28,581 - - 28,581
Investment properties - - 81,132 81,132
28,581 - 81,132 109,713
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 £61,064,000 as at 31
March 2022 (2021 - £62,652,000) compared to a Statement of Financial Position
value in the Financial Statements of £56,723,000 (2021 - £56,662,000) per
Notes 11 and 12.
The fair value of the debenture is determined by comparison with the fair
value of an equivalent gilt edged security, discounted to reflect the
differing levels of credit worthiness of the borrowers. 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
2022 2021 2022 2021
£000 £000 £000 £000
9.375% Debenture Stock 2026 23,592 25,517 20,111 20,135
23,592 25,517 20,111 20,135
Bank loans 37,472 37,135 36,612 36,527
61,064 62,652 56,723 56,662
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
through the optimisation of the debt and equity balance.
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
Managers' views on 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
At the Statement of Financial Position date, the Company had entered into
capital expenditure commitments on a land asset within the property portfolio.
This undertaking is dependent on a number of outcomes and independent
valuations.
Property
£000
Alnwick - Land at Willowburn Trading Estate, Willowburn
Avenue 6,000
24 Events after the Statement of Financial Position Date
The Company announced on 9 May 2022 an increase of £8 million on an existing
loan at a net effective interest rate of 3.65% and an extension in its
maturity to 31 March 2033 from 31 March 2031.
The Company announced on 24 May 2022 that its 2026 Debenture Stock will be
redeemed early on 28 June 2022, under and in terms of the trust deed
constituting the 2026 Debenture Stock (the Trust Deed). The redemption price
for the 2026 Debenture Stock will be determined in accordance with the terms
of the Trust Deed and will be communicated to holders of the 2026 Debenture
Stock shortly before the redemption date.
The Board is recommending the payment of a final dividend of 3.6p per Ordinary
Share (2021: 3.6p) and, subject to receiving Shareholder approval at the 2022
AGM, will be paid on 29 July 2022 to all Shareholders on the register on 1
July 2022.
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 2022 but is derived from these Financial Statements. The statutory
Financial Statements for the year ended 31 March 2021 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 2022 have been prepared
in accordance with UK adopted international accounting standards. The
Financial Statements for the period ended 31 March 2022 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 2022 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 2022 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 Friday, 8 July 2022 at 12.30pm at the offices of
Shepherd and Wedderburn LLP, 1 Exchange Crescent, Conference Square, Edinburgh
EH3 8UL.
For Value and Indexed Property Income Trust PLC
Maven Capital Partners UK LLP
Company Secretary
10 June 2022
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