TIDMSLI
RNS Number : 0855J
Standard Life Invs Property Inc Tst
01 April 2015
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST
ANNUAL FINANCIAL REPORT IN RESPECT OF THE YEAR ENDED 31 DECEMBER
2014
Strategic Report: Financial Highlights
-- Net Asset Value total return of 23.2% for the year ended 31 December 2014.
-- Share price increased by 11.9% over the year to 78.3p.
-- Dividend yield of 5.9% based on year end share price of 78.3p.
-- 12 properties purchased for GBP94.2m excluding costs and 4
properties sold for GBP27.0m excluding costs.
-- GBP65.9m of new equity raised over the year at an average
premium to Net Asset Value of 5.8%, increasing the number of shares
in issue by 57.6%.
Total Returns (with dividends re-invested) 31 December 31 December
2014 2013
Net Asset Value total return* +23.2% +25.2%
Share Price total return* +18.8% +29.2%
Capital Values 31 December 31 December
2014 2013 % Change
Net Asset Value per share 1 75.5p 65.5p +15.3%
EPRA** Net Asset Value per share
2 76.6p 65.6p +16.8%
Share Price 78.3p 70.0p +11.9%
Premium of Share Price to Net
Asset Value 3.7% 6.9%
Total Assets GBP278.7m GBP191.6m +45.5%
Loan to Value 3 29.2% 40.9%
Cash Balance GBP5.4m GBP12.3m
Dividends 31 December 31 December
2014 2013
Dividends per share 4 4.616p 4.532p
Dividend yield 5.9% 6.5%
Ongoing Charges 31 December 31 December
2014 2013
Ongoing Charges *** 1.6% 1.9%
Property Returns Year ended Year ended
31 December 31 December
2014 2013
Property income return 5 7.5% 7.7%
IPD property income monthly
index 6 5.6% 6.1%
Property total return (property
only) 7 18.0% 11.7%
IPD property total return monthly
index 6 17.9% 9.9%
1 Calculated under International Financial Reporting Standards
as adopted in the EU.
2 EPRA NAV represents the value of an entity's equity on a
long-term basis. Some items, such as fair value of derivatives, are
therefore excluded.
3 Calculated as bank borrowings less all cash as a percentage of
the open market value of the property portfolio as at 31 December
2014.
4 Dividends paid during the 12 months to 31 December 2014.
5 The net income receivable for the period expressed as a
percentage of the capital employed. Quarterly figures are
compounded over the period to give the rate over twelve months.
6 source: IPD quarterly version of the monthly index funds
(excludes cash).
7 The sum of capital growth and net income for the year
expressed as a percentage of capital employed excluding cash.
* The percentage change in the net asset value or share price
over a given time period with income reinvested.
** The European Public Real Estate Association (EPRA) is a
common interest group, which aims to promote, develop and represent
the European public real estate sector.
*** Calculated as Investment management fees, auditor's fees,
directors' fees and other administration expenses divided by the
average NAV for the year to 31 December 2014.
Strategic Report: Chairman's Statement
2014 has been a watershed year for the Company with the
conclusion of the REIT conversion project, approved by shareholders
in November 2014, and the significant increase in the net assets
following successful fund raisings. Indeed the market
capitalisation of the Company increased by 76% during the period to
end the year at GBP191m with total assets increased to GBP278.7m.
The share price rose by 11.9% and the net asset value per share
('NAV') increased by 15.3%. The NAV total return to shareholders
was 23.2%. As a result of the solid performance of the Company, the
Board was able to increase the quarterly dividend in May 2014 by
2.5%. Overall, performance was ahead of the most commonly accepted
benchmarks.
Awards
I am delighted to report to shareholders that the Company won
two awards in 2014 in recognition of the Company's strong
investment performance track record. Both Investment Week and
Investment Adviser 100 Club awarded the Company "Property Trust of
the Year".
The Property Portfolio and Performance
The Investment Manager's report provides detailed information on
the portfolio. At the end of the year, it was valued at GBP270.2m.
Additionally, there was a positive cash balance of GBP5.4m. Total
assets were GBP278.7m (2013: GBP191.6m). The Company's NAV at year
end was 75.5p per share (2013: 65.5p), an uplift of 15.3% over the
period. The table below sets out the components of the movement in
the NAV.
Pence per % of opening
share NAV
NAV as at 31 December 2013 65.5 100.0
Increase in valuation of property
portfolio 10.5 16.0
Increase in interest rate SWAP liability (1.4) (2.1)
Other reserve movements 0.9 1.4
NAV as at 31 December 2014 75.5 115.3
The net income return on capital invested at year end was 7.5%
and there were no material arrears of rent. On average, 99% of
rents were received within 21 days of the relevant quarter date and
voids are at 1.4% of the income stream. The IPD average void rate
is reported as being 7.0%.
The most significant changes to the portfolio during the year
were the sales of the largest asset for GBP16.1m, a logistics unit
in Bolton let to Tesco, and three retail warehouses for GBP10.9m.
The major acquisitions included a Grade A office in Farnborough for
GBP14.9m, three logistics units in Derbyshire for GBP27.3m, a
logistics and industrial investment in Rotherham for GBP14.6m, five
industrial and logistics units for GBP23.7m and a mixed use retail
and leisure investment in Glossop for GBP10.1m. Important asset
management agreements were completed for Bourne House Staines and
St James House Cheltenham. The Managers have been active in
managing expiry risk and improving the quality of the rental income
at attractive valuations. 2014 represented a very busy year with
GBP94.2m of purchases and GBP27.0m of sales (excluding costs).
Shares and Share Price
At the year end, there were 244,216,165 shares in issue, an
increase of 57.6% over the year. Our plans for the size of the
Company are set out in the Strategic Overview.
The share price on 31 December 2014 was 78.3p, an uplift of
11.9% over the 12 month period, and represented a premium of 5.4%
over NAV at the year end, after adjusting for the Q4 dividend.
Earnings and Dividends
During the year the Board increased the quarterly dividend by
2.5% to 1.161p per share reflecting a combination of lower interest
costs, improving outlook for rents and lower void rates. The shares
provided a dividend yield of 5.9% based upon the current annualised
dividend of 4.644p per share and the share price at year end.
Management Expenses
As reported in the Prospectus and the Interim Report the Board
negotiated a new tiered management fee structure that will improve
the Company's ongoing charges ratio. For total assets above GBP200m
the fee is now 0.7% and for total assets above GBP300m the fee
reduces to 0.65%.
Loan to Value ratio
At 31 December 2014, the LTV ratio was 29.2%, which is within
the parameter of up to 45% determined by the Board. Our loan
agreement with RBS sets out an upper limit of 65% until December
2016, reducing to 60% for the remaining two years.
The Board and Corporate Governance
Following the retirement of the past chairman Paul Orchard
Lisle, Robert Peto was elected as a director and he has a wealth of
experience in UK commercial real estate. Following the conversion
of the Company to a REIT, Shelagh Mason decided to retire at the
year end. The Board would like to thank Shelagh for her excellent
contribution to the Company since its formation in 2003.
The Board agreed to appoint Standard Life Investments as the
Company's Alternative Investment Fund Manager ('AIFM'). The manager
will not be increasing their fees for their additional regulatory
responsibilities. However there will be additional expenses for the
Company in the form of depository costs.
REIT Conversion
On 20 November 2014 shareholders approved the proposals for the
Company to make the necessary changes to the Articles to become tax
resident in the UK for the purposes of entering the UK REIT regime.
Following notification being given to HMRC this change was
effective from 1 January 2015.
Fund Raising
The Company published a Prospectus on 1 July 2014 seeking to
issue up to 100m new shares via an Initial Placing and Offer for
Subscription for up to 50m shares and a Placing Programme for up to
a further 50m shares. On 28 July 2014 the Company announced that
the first tranche had been fully subscribed with the issue of 50m
new shares that raised GBP36.5m. Subsequently, under the Placing
Programme the Company issued 7m shares on 22 September 2014 and
26.5m shares on 13 November 2014 raising a total of GBP25.3m. In
each case the new shares were issued at a 5% premium to the
prevailing NAV and the proceeds invested timeously into UK
commercial real estate properties at attractive yields. The Company
also raised a further GBP4.1m through tap issues in the first
quarter of 2014.
In February 2015 the Company raised GBP25.5m through the issue
of 16.5m shares, the balance of its Prospectus authority, and also
16.1m shares relating to the 10% disapplication of pre-emption
rights authority approved by shareholders at last year's AGM.
Outlook
UK commercial real estate capital values are continuing to rise
and rents are gathering further momentum. Investors are allocating
more capital to the sector and are prepared to take more risk. I
expect location to be particularly important for returns this year.
Prime and good quality secondary assets in better locations are
likely to provide the best opportunities in the strong economy I
anticipate in 2015. My expectations for the future have to be
tempered by the uncertainty of the outcome of the General Election
in May of this year and the length of time that low interest rates
will continue. Even so, I believe that real estate will remain a
favoured asset class.
On the whole however, the Board is confident that the Company
has a portfolio that is fit for purpose and that good investment
management and asset management will produce further growth.
Richard Barfield
Chairman
31 March 2015
Strategic Report: Strategic Overview
Objective
The objective of the Company is to provide shareholders with an
attractive level of income together with the prospect of income and
capital growth.
Investment Policy and Business Model
The Board intends to achieve the investment objective by
investing in a diversified portfolio of UK commercial properties.
The majority of the portfolio will be invested in direct holdings
within the three main commercial property sectors of retail, office
and industrial, although the Company may also invest in other
commercial property such as hotels, nursing homes and student
housing. Investment in property development and investment in
co-investment vehicles, where there is more than one investor, is
permitted up to a maximum of 10% of the property portfolio.
In order to manage risk, without compromising flexibility, the
Board applies the following restrictions to the property portfolio,
in normal market conditions:
-- No property will be greater by value than 15% of total assets.
-- No tenant (excluding the Government) will be responsible for
more than 20% of the Company's rent roll.
-- Gearing, calculated as borrowings as a percentage of gross
assets, will not exceed 65%. The Board's current intention is that
the Company's loan to value ratio (calculated as borrowings less
all cash as a proportion of property portfolio valuation) will not
exceed 45%.
As part of its strategy, the Board has contractually delegated
the management of the property portfolio, and other services, to
Standard Life Investments (Corporate Funds) Limited ('Investment
Manager').
Strategy
During the year, the Board reassessed its strategy, with the
help of its Investment Manager and other advisers.
The Board's overall intention is to continue to distribute an
attractive income return alongside growth in the NAV and to provide
a good overall total return.
At a property level, it is intended that the Company remains
primarily invested in the commercial sector, while keeping a
watching brief on other classes such as student accommodation and
care homes. The Company is principally invested in office,
industrial and retail properties and intends to remain so. In all
sectors, poor secondary and tertiary locations are regarded as high
risk and will be avoided.
The Board's preference is to buy into good, but not necessarily
prime locations, where it perceives there will be good continuing
tenant demand, and to seek out properties where the asset
management skills within the Investment Manager can be used to
beneficial effect. The Board will continue to have very careful
regard to tenant profiles.
In last year's Strategic Overview, the Board noted its intention
to seek out opportunities for further growth in the Company and
achieved this during 2014 by raising an additional GBP65.9m of
capital through an initial placing and offer for subscription.
Subsequent to the year end, a further GBP25.5m capital has been
raised. The maintenance of a tax efficient structure has also been
achieved by converting the Company to a UK REIT.
Retail Distribution
On 1 January 2014, the FCA introduced rules relating to the
restrictions on the retail distribution of unregulated collective
investment schemes and close substitutes (non-mainstream investment
products). UK REITs are excluded from these restrictions.
As a result, the Company's shares are excluded securities under
the new rules and the FCA's restrictions on retail distribution do
not apply.
The Board
The Board currently consists of a non-executive Chairman and
three non-executive Directors, with a range of property,
investment, commercial and professional experience. There is also a
commitment to achieve the proper levels of diversity. At 31
December 2014, the Board consisted of one female and three male
Directors. The Company does not have any employees.
Key Performance Indicators
The Board meets quarterly and at each meeting reviews
performance against a number of key measures:
-- Property income and total return against the Quarterly
Version of the Investment Property Databank Balanced Monthly Funds
Index ('the Index').
The Index provides a benchmark for the performance of the
Company's property portfolio and enables the Board to assess how
the portfolio is performing relative to the market. A comparison is
made of the Company's property returns against the Index over a
variety of time periods (quarter, annual, three years and five
years)
-- Property voids
Property voids are unlet properties. The Board reviews the level
of property voids within the Company's portfolio on a quarterly
basis and compares the level to the market average, as measured by
the Investment Property Databank. The Board seeks to ensure that
proper priority is being given by the Investment Manager to
replacing the Company's income.
-- Rent collection dates
The Board assesses rent collection by reviewing the percentage
of rents collected within 21 days of each quarter end.
-- Net asset value total return
The net asset value total return reflects both the net asset
value growth of the Company and also the dividends paid to
shareholders. The Board regards this as the best overall measure of
value delivered to shareholders. The Board assesses the net asset
value total return of the Company over various time periods
(quarter, annual, three years, five years) and compares the
Company's returns to those of its peer group of listed,
closed-ended property investment companies.
-- Premium or discount of the share price to net asset value
The Board closely monitors the premium or discount of the share
price to the net asset value and believes that a key driver to the
level of the premium or discount is the Company's long term
investment performance. However, there can be short term volatility
in the premium or discount and the Board takes powers at each AGM
to enable it to issue or buy back shares with a view to trying to
limit this volatility.
-- Dividend per share and dividend yield
A key objective of the Company is to provide an attractive,
sustainable level of income to shareholders and the Board reviews,
at each Board meeting, the level of dividend per share and the
dividend yield, in conjunction with detailed financial forecasts,
to ensure that this objective is being met and is sustainable.
The Board considers the performance measures both over various
time periods and against similar funds.
A record of these measures are disclosed in the Financial
Highlights, Chairman's Statement and Investment Manager's
Report.
Principal Risks and Uncertainties
The Company's assets consist of direct investments in UK
commercial property. Its principal risks are therefore related to
the commercial property market in general, but also the particular
circumstances of the properties in which it is invested, and their
tenants. The Board and Investment Manager seek to mitigate these
risks through a strong initial due diligence process, continual
review of the portfolio and active asset management initiatives.
All of the properties in the portfolio are insured, providing
protection against risks to the properties and also protection in
case of injury to third parties in relation to the properties.
The Board has also identified a number of other specific risks
that are reviewed at each Board meeting. These are as follows:
-- The Company and its objectives become unattractive to
investors. This is mitigated through regular contact with
shareholders, a regular review of share price performance and the
level of the discount or premium at which the shares trade to net
asset value and regular meetings with the Company's broker to
discuss these points and address any issues that arise.
-- Poor selection of new properties for investment. A
comprehensive and documented initial due diligence process, which
will filter out properties that do not fit required criteria, is
carried out by the Investment Manager. Where appropriate, this is
followed by detailed review and challenge by the Board prior to a
decision being made to proceed with a purchase. This process is
designed to mitigate the risk of poor property selection.
-- Tenant failure or inability to let property. Due diligence
work on potential tenants is undertaken before entering into new
lease arrangements. In addition, tenants are kept under constant
review through regular contact and various reports both from the
managing agents and the Investment Manager's own reporting process.
Contingency plans are put in place at units that have tenants that
are believed to be in financial trouble. The Company subscribes to
the Investment Property Databank Iris Report which updates the
credit and risk ranking of the tenants and income stream, and
compares it to the rest of the UK real estate market.
-- Loss on financial instruments. The Company has entered into a
number of interest rate swap arrangements. These swap instruments
are valued and monitored on a monthly basis by the counterparty
bank. The Investment Manager checks the valuation of the swap
instruments internally to ensure they are accurate. In addition,
the credit rating of the bank that the swaps are taken out with is
assessed regularly.
Other risks faced by the Company include the following:
-- Strategic - incorrect strategy, including sector and property
allocation and use of gearing, could all lead to poor return for
shareholders.
-- Tax efficiency - the structure of the Company or changes to
legislation could result in the Company no longer being a tax
efficient investment vehicle for shareholders.
-- Regulatory - breach of regulatory rules could lead to the
suspension of the Company's Stock Exchange Listing, financial
penalties or a qualified audit report.
-- Financial - inadequate controls by the Investment Manager or
third party service providers could lead to misappropriation of
assets. Inappropriate accounting policies or failure to comply with
accounting standards could lead to misreporting or breaches of
regulations.
-- Operational - failure of the Investment Manager's accounting
systems or disruption to the Investment Manager's business, or that
of third party service providers, could lead to an inability to
provide accurate reporting and monitoring, leading to loss of
shareholder confidence.
-- Economic - inflation or deflation, economic recessions and
movements in interest rates could affect property valuations and
also bank borrowings.
The implementation of AIFMD during 2014 and the conversion of
the Company to a UK REIT have introduced new regulatory risks to
the Company in the form of ensuring compliance with the respective
regulations. In relation to AIFMD, the Board has put in place a
system of regular reporting from the AIFM and the depositary to
ensure both are meeting their regulatory responsibilities in
respect of the Company. In relation to UK REIT status, the Board
has put in place a system of regular reporting to ensure that the
requirements of the UK REIT regime are being adequately monitored
and fully complied with.
The Board seeks to mitigate and manage all risks through
continual review, policy setting and enforcement of contractual
obligations. It also regularly monitors the investment environment
and the management of the Company's property portfolio, levels of
gearing and the overall structure of the Company.
Social, Community and Employee Responsibilities
The Company has no direct social, community or employee
responsibilities. The Company has no employees and accordingly no
requirement to separately report in this area as the management of
the portfolio has been delegated to the Investment Manager. In
light of the nature of the Company's business there are no relevant
human rights issues and there is thus no requirement for a human
rights policy. The Board does, however, closely monitor the
policies of its suppliers to ensure that proper provision is in
place.
Environmental Policy
The Investment Manager acquires and manages properties on behalf
of the Company. It is recognised that these activities have both
direct and indirect environmental impacts.
The Board has endorsed the Investment Manager's own
environmental policy which is to work in partnership with
contractors, suppliers, tenants and consultants to minimise those
impacts, seeking continuous improvements in environmental
performance and conducting regular reviews.
The Investment Manager's policy focuses on energy conservation,
mitigating greenhouse gas ('GHG') emissions, maximising waste
recycling and water conservation.
As an investment company, the Company's own direct environmental
impact is minimal and GHG emissions are therefore negligible.
Information on the GHG emissions in relation to the Company's real
estate portfolio is disclosed in the Standard Life Investments
annual Sustainable Real Estate Investment report, a copy of which
can be obtained on request from the Investment Manager. The Company
was awarded Green Star status from the Global Real Estate
Sustainability Benchmark for 2014.
Bank Debt
The Company has a fully drawn down debt facility of GBP84m with
RBS, expiring in December 2018. The maximum LTV under the facility
is 65% (reducing to 60% after December 2016). The Company has taken
out an interest rate swap over the full amount, with an all in cost
of debt of 3.8%.
Approval of Strategic Report
The Strategic Report of the Company and its subsidiary, Standard
Life Investments Property Holdings Limited, comprises the Financial
Highlights, Chairman's Statement, Strategic Overview and Investment
Manager's Report. The Strategic Report was approved by the Board on
31 March 2015 and signed on its behalf by:
Richard Barfield
Chairman
31 March 2015
Strategic Report: Investment Manager's Report
The economic fundamentals supporting the UK economy remain
robust with a consensus of economists expecting growth of around
2.6% in 2015. Along with economic growth, business sentiment and
consumer confidence remain at high levels. The UK commercial
property sector has been a key beneficiary of these factors as
total returns, as measured by the IPD Monthly Index, for the twelve
months to end December reached 17.9%. Capital values grew by 11.8%,
in the main still driven by yield compression as the sector
continued to attract a large amount of capital from both foreign
and domestic participants. Rental growth continued to improve on a
quarterly basis at a broad level with rents expected to pick up
further into the recovery. Rents rose by 3.6% p.a. in the twelve
months to end December.
Within the sectors, there was a change in relative performance,
with offices being knocked off the top spot, to be replaced by
industrial. Total returns in the office sector remain buoyant at
22.2% in the twelve months to end December against 17.9% for All
Property whilst industrial assets were marginally ahead of offices
with a return of 22.6%. The retail sector continued to be the
laggard with a total return of 13.1%.
The UK listed real estate equities sector remained positive over
the year with the FTSE EPRA/NAREIT UK rising by 17.7%. The UK
listed sector outperformed the FTSE All Share and FTSE 100 Indices
which declined by 2.1% and 2.7% respectively over the same
timeframe (all figures capital only). The UK listed real estate
sector was relatively volatile over the fourth quarter although the
underlying fundamentals for the sector remain robust.
Investment Outlook
A recovery is continuing to come through strongly in the All
Property commercial real estate sector with prices maintaining
reasonable growth and rents gathering further momentum. In the
favourable environment of improving confidence, reducing void rates
and falling bond yields, investors are allocating more capital to
the sector and consequently, given the increased weight of capital,
risk appetite is increasing. Our view remains that poorer quality
secondary and tertiary centres remain unattractive in general
although there will be opportunities for repositioning assets or
generating reasonably good returns on a comparable basis from some
poorer quality secondary assets. This is likely to involve a
reasonable amount of hard work and effort from investors on the
asset management side and the risk of an extended void period
continues to be elevated for these types of assets. In terms of
outlook, we expect positive total returns of around 7% per annum on
average for UK real estate on a three year holding period due to
the strong income component and modest further capital
appreciation. The sector remains attractive from a fundamental
point of view with strengthening economic drivers and a limited
pipeline of future new developments. Rising interest rates are an
emerging risk although there is a reasonable buffer in pricing to
compensate if the market prices in a further acceleration of rate
rises. The retail sector continues to face a series of headwinds
that may hold back recovery in weaker locations due to oversupply
and structural issues but the prospects for retail towards the
South East and Central London are expected to improve further as
economic recovery gains more traction. Opportunities are arising to
purchase reasonable quality secondary buildings where these assets
can be repositioned as prime. There is also likely to be a further
rebound for secondary asset prices due to the elevated margin in
pricing between prime and secondary which could reduce as risk
appetite improves. We expect locational choices to be the defining
characteristics contributing to returns over 2015. Prime, good
quality and selective poorer quality secondary assets in stronger
locations are likely to provide the best opportunities in the
robust economic environment we anticipate over 2015.
Investment Strategy
The investment strategy remains focused on achieving the
Company's objective of producing an attractive income return with
the prospect of income and capital growth.
2014 was a year of growth for the Company. An important part of
the growth strategy was to protect and enhance existing
shareholders' interests. This was done by issuing shares at a
reasonable premium to the then NAV, normally 5%, and minimising
cash drag by only raising funds when we were confident the money
could be deployed within a reasonable time period in attractive
investments.
Even during times of growth it is important to manage existing
assets, and we remained focussed on regearing leases and disposing
of assets that had specific risk to the fund. More details of these
can be found below.
Performance
During the year the NAV grew by 15.3% and the Board was able to
increase the dividend in the first quarter by 2.5%. At the year end
share price the dividend yield was 5.9%. The Board will continue to
seek to pay a covered dividend.
The income yield on the portfolio has to be sufficient to
maintain a covered dividend. The income yield from the Company's
portfolio has been consistently higher than the more general market
as recorded by the IPD monthly index.
Although income is a key focus for the Company, the NAV total
return to investors is equally important, as is raising new equity
at a reasonable premium to the then NAV so that purchase costs do
not negatively impact existing shareholders. It is also important,
when raising equity in a rising market, to try and avoid cash drag
by raising too much at one time and not being able to invest it.
The cash drag impacts both capital returns and also the ability to
maintain a covered dividend.
Portfolio Valuation
The Company's investment portfolio was valued by Jones Lang La
Salle on a quarterly basis throughout 2014. At the year end the
portfolio was valued at GBP 270.2m, and the Company held GBP5.4m of
cash. This compares to GBP176.4m and GBP12.3m respectively as at
end 2013.
Prior to the year end the Company had exchanged contracts for
the sale of an office in Chelmsford for GBP3.5m (due to be
completed in December 2015) and on a small office in Weybridge, the
sale of which completed in January 2015. The Company had also
exchanged contracts for the purchase of a retail warehouse asset in
Preston for GBP15.8m which completed on 3 March 2015 following a
further successful fund raising.
Lease Expiry Profile
The Company has an average unexpired lease term to the earliest
of lease end or tenant break of 6.5 years. This compares to the IPD
average of 7.4 years (excluding leases over 35 years). Early in the
cycle we focussed on buying short term income as we have a good
track record of renewing leases and removing breaks; indeed in 2014
only one tenant did not renew (and we already have solicitors
instructed on a new lease for the space from another tenant). At
the start of 2015 we have secured 54% of income at risk of expiry
in the next 12 months, and have actively taken some space back to
refurbish and relet at higher rents. We continue to meet with
tenants to explore lease regears that will provide the Company with
security of income.
Purchases
The purchase philosophy of the Company is to acquire assets that
offer an attractive income return and have good medium or long term
prospects for capital growth. During 2014 we generally bought
slightly longer dated income as we found that provided more
attractive prospects than the short let / active management stock
we had previously targeted because the pricing arbitrage had
shifted.
During the course of 2014, 12 properties were purchased
totalling GBP94.2m excluding costs, and we exchanged on another for
GBP15.8m excluding costs.
Cullen Sq Livingston Scotland: GBP3.6m, 10.5% yield - two highly
specified logistics units let for just over 5 years to two good
covenants.
Chester House Farnborough: GBP14.9m, 8.1% yield - a modern grade
A office on an established business park let to BAE for a further 9
years.
Tetron 93,Tetron 141 Swadlincote and Denby 242 Derby: GBP27.3m,
7% yield - three modern logistics units let for terms certain of 3
1/2 to 6 years purchased as a portfolio.
Symphony Rotherham: GBP14.6m, 7% yield - three industrial and
logistics units on one site and let to the Symphony Group for 20
years with a tenant break in year 15 and fixed uplifts every five
years.
Howard Town Retail Park Glossop: GBP10.1m, 6.6% yield - the
property forms a mixed use retail and leisure development adjacent
to the town centre. The main tenants are M&S Simply Food,
Weatherspoons and Travelodge, all on long leases.
Rio Portfolio: GBP23.7m, 7.3% yield - 5 industrial and logistics
units located in Milton Keynes (x2), Cheltenham, Oldham, and
Birmingham. The units are well located and let with an average
income profile of over 5 years duration.
DSG Preston: GBP15.8m, 7% yield - completed March 2015 - stand
alone modern retail warehouse located adjacent to the dominant park
and opposite a major foodstore, and let to DSG for a further 16
years with five yearly fixed increases in rent.
Sales
The Company undertook several sales to reduce specific expiry
risk and to capture profit.
Tesco Logistics Unit Bolton: GBP16.1m, 7.25% yield - a large
logistics unit with a lease expiry in 2016 and the Company's
largest rental income - sold early in 2014 to avoid expiry risk and
capture profit.
Halfords Paisley, Poundland Wymondham, and Clough Rd Retail Park
Hull - portfolio of three retail warehouses sold for GBP10.9m. The
investments had poor growth prospects and some voids, so were sold
in early 2014 to improve portfolio quality and return
expectations.
Chancellors Place Chelmsford: GBP3.5m, 13.5% yield - over rented
offices with lease expiries in December 2015 and requirement for a
full refurbishment. The property was sold to a residential
developer with a delayed completion, the Company receiving all rent
to lease end in Dec 2015.
De Ville Court Weybridge: GBP3.2m, 8.5% yield - over rented
office with a lease expiry in March 2015 and tenant will be
vacating, with capital expenditure required. Sold to a residential
developer (Completed January 2015).
Asset management
Asset management is central to how we run the portfolio. We like
to meet with our tenants and make sure that the property we own
meets occupiers' needs. During the course of 2014 we completed five
new lettings and nine lease regears. As a result we ended the year
with voids of just 1.4%, well below the IPD benchmark level
7.0%.
It is noticeable that in many parts of the UK the supply of good
quality accommodation is low, with increasing tenant demand. This
is leading to rental growth and in some cases best bids being
called. In this environment it is important to understand tenant
needs not just to maintain income security, but also to add value
through lease regears and taking surrenders to refurbish space and
upgrade it.
Jason Baggaley
Fund Manager
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the Group financial statements for each year which give a true
and fair view, in accordance with the applicable Guernsey law and
those International Financial Reporting Standards ("IFRSs") as
adopted by the European Union.
The Directors are required to prepare Group financial statements
for each financial year which give a true and fair view of the
state of affairs of the Group and of the financial performance and
cash flows of the Group for that period. In preparing those
Financial Statements, the Directors are required to:
-- select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
-- make judgement and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs as adopted by the European Union is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Group's financial
position and financial performance;
-- state that the Group has complied with IFRSs as adopted by
the European Union, subject to any material departures disclosed
and explained in the Group financial statements; and
-- prepare the Group Financial Statements on a going concern
basis unless it is inappropriate to presume that the Group will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Financial Statements.
The Directors are responsible for keeping adequate accounting
records, that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time, the
financial position of the Group and to enable them to ensure that
the Financial Statements comply with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention and
detection of fraud, error and non compliance with law and
regulations.
The maintenance and integrity of the Company's website is the
responsibility of the Directors; the work carried out by the
auditors does not involve considerations of these matters and,
accordingly, the auditors accept no responsibility for any change
that may have occurred to the Financial Statements since they were
initially presented on the website. Legislation in Guernsey
governing the preparation and dissemination of the financial
statements may differ from legislation in other jurisdictions.
Responsibility Statement of the Directors' in respect of the
Consolidated Annual Report
Statement under the Disclosure and Transparency Rules
The Directors each confirm to the best of their knowledge
that:
-- the Consolidated Financial Statements, prepared in accordance
with IFRSs as adopted by European Union, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Group; and
-- the management report, which is incorporated into the
Strategic Report, Directors' Report and Investment Manager's
Report, includes a fair review of the development and performance
of the business and the position of the Group, together with a
description of the principal risks and uncertainties that they
face.
Statement under the UK Corporate Governance Code
The Directors each confirm to the best of their knowledge and
belief that:
-- the Annual Report and Consolidated Financial Statements taken
as a whole are fair, balanced and understandable and provide the
information necessary to assess the Group's performance, business
model and strategy.
Approved by the Board on
31 March 2015.
Richard Barfield
Chairman
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3Ql
Tel: 01481 745001
Fax: 01481 745051
Gordon Humphries
Standard Life Investments Limited
Tel: 0131 245 2735
Jason Baggaley
Standard Life Investments Limited
Tel: 0131 245 2833
AUDITED FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2014
Notes 2014 2013
GBP GBP
Rental income 16,145,930 13,395,478
Surrender premium income 38,469 -
Valuation gain from investment
properties 7 21,197,869 5,795,851
Gain on asset acquisition 9 136,938 -
(Loss) / profit on disposal of
investment properties (1,840,412) 430,205
Investment management fees 4 (1,690,233) (1,327,746)
Other direct property operating
expenses (1,000,785) (1,258,515)
Directors' fees and expenses 22 (145,997) (135,693)
Valuer's fee 4 (56,542) (30,260)
Auditor's fee 4 (46,513) (45,800)
Non-audit fee 4 (94,000) (6,000)
Other administration expenses (264,161) (222,000)
Operating profit 32,380,563 16,595,520
Finance income 5 72,326 75,193
Finance costs 5 (3,282,172) (5,433,993)
Profit for the year before taxation 29,170,717 11,236,720
Taxation
Tax (charge) / credit 6 (587,315) 587,315
Profit for the year, net of tax 28,583,402 11,824,035
Other comprehensive income
Valuation (loss) / gain on cash
flow hedges 14 (2,643,942) 6,829,111
Total comprehensive income for
the year,
net of tax 25,939,460 18,653,146
Earnings per share: pence pence
Basic and diluted earnings per
share 18 15.40 7.95
Adjusted (EPRA) earnings per share 18 4.90 3.77
All items in the above Consolidated Statement of Comprehensive
Income derive from continuing operations.
Consolidated Balance Sheet
as at 31 December 2014
Notes 2014 2013
GBP GBP
ASSETS
Non-current assets
Investment properties 7 261,672,121 172,886,556
Lease incentives 7 2,436,976 3,269,593
Interest rate swaps 14 - 1,207,299
Deferred tax 6 - 587,315
264,109,097 177,950,763
Current assets
Investment properties held for
sale 8 6,550,100 -
Trade and other receivables 10 2,660,440 1,305,524
Cash and cash equivalents 11 5,399,095 12,303,310
14,609,635 13,608,834
Total assets 278,718,732 191,559,597
LIABILITIES
Current liabilities
Trade and other payables 12 7,205,415 4,519,722
Interest rate swaps 14 1,386,451 1,238,296
Other liabilities 500 500
8,592,366 5,758,518
Non-current liabilities
Bank borrowings 13 83,980,382 83,866,594
Interest rate swaps 14 1,288,488 -
Other liabilities 6,094 6,094
Rental deposits due to tenants 483,880 336,596
85,758,844 84,209,284
Total liabilities 94,351,210 89,967,802
Net assets 184,367,522 101,591,795
EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital 16 96,188,648 31,337,024
Retained earnings 17 7,634,503 6,560,853
Capital reserves 17 (17,294,001) (34,144,454)
Other distributable reserves 17 97,838,372 97,838,372
Total equity 184,367,522 101,591,795
Net Asset Value (NAV) per share
NAV 20 75.5p 65.5p
EPRA NAV 20 76.6p 65.6p
Approved by the Board of Directors on 31 March 2015.
Richard Barfield
Chairman
Consolidated Statement of Changes in Equity
for the year ended 31 December 2014
Other
Share Retained Capital distributable
Notes Capital earnings reserves reserves Total equity
GBP GBP GBP GBP GBP
Opening balance
1 January 2014 31,337,024 6,560,853 (34,144,454) 97,838,372 101,591,795
Profit for the
year - 28,583,402 - - 28,583,402
Valuation loss
on cash
flow hedges 14 - - (2,643,942) - (2,643,942)
Total comprehensive
gain for the
year - 28,583,402 (2,643,942) - 25,939,460
Ordinary shares
issued
net of issue
costs 16 64,851,624 - - - 64,851,624
Dividends Paid 19 - (8,015,357) - - (8,015,357)
Valuation gain
of
investment properties 7 - (21,197,869) 21,197,869 - -
Gain on asset
acquisition 9 - (136,938) 136,938 - -
Loss on disposal
of investment
properties - 1,840,412 (1,840,412) - -
Balance at 31
December 2014 96,188,648 7,634,503 (17,294,001) 97,838,372 184,367,522
Consolidated Statement of Changes in Equity
for the year ended 31 December 2013
Other
Share Retained Capital distributable
Notes Capital earnings reserves reserves Total equity
GBP GBP GBP GBP GBP
Opening balance
1 January 2013 22,280,186 7,711,894 (47,199,621) 97,838,372 80,630,831
Profit for
the year - 11,824,035 - - 11,824,035
Valuation gain
on
cash flow hedges 14 - - 6,829,111 - 6,829,111
Total comprehensive
gain for the
year - 11,824,035 6,829,111 - 18,653,146
Ordinary shares
issued net
of issue
costs 16 9,056,838 - - - 9,056,838
Dividends Paid 19 - (6,749,020) - - (6,749,020)
Valuation gain
of
investment
properties 7 - (5,795,851) 5,795,851 - -
Profit on disposal
of investment
properties - (430,205) 430,205 - -
Balance at
31 December
2013 31,337,024 6,560,853 (34,144,454) 97,838,372 101,591,795
Consolidated Cash Flow Statement
for the year ended 31 December 2014
Notes 2014 2013
GBP GBP
Cash flows from operating activities
Profit for the year before taxation 29,170,717 11,236,720
Movement in non-current lease incentives (1,290,976) (22,886)
Movement in trade and other receivables (1,354,916) (133,682)
Movement in trade and other payables 2,917,533 352,023
Finance costs 5 3,282,172 5,433,993
Finance income 5 (72,326) (75,193)
Valuation (gain) from investment properties 7 (21,197,869) (5,795,851)
Gain on asset acquisition 9 (136,938) -
Loss / (profit) on disposal of investment
properties 1,840,412 (430,205)
Net cash inflow from operating activities 13,157,809 10,564,919
Cash flows from investing activities
Interest received 5 72,326 75,193
Purchase of investment properties 7 (97,853,799) (23,840,453)
Capital expenditure on investment properties 7 (2,708,022) (326,840)
Net proceeds from disposal of investment
properties 7 26,759,588 15,580,205
Net cash used in investing activities (73,729,907) (8,511,895)
Cash flows from financing activities
Proceeds on issue of ordinary shares 16 65,868,956 9,129,170
Transaction costs of issue of shares 16 (1,017,332) (72,332)
Interest paid on bank borrowings 5 (1,931,665) (2,164,092)
Payment on interest rate swaps 5 (1,236,719) (3,420,626)
Dividends paid to the Company's shareholders 19 (8,015,357) (6,749,020)
Net cash used in financing activities 53,667,883 (3,276,900)
Net decrease in cash and cash equivalents
in the year (6,904,215) (1,223,876)
Cash and cash equivalents at beginning
of the year 12,303,310 13,527,186
Cash and cash equivalents at end of year 11 5,399,095 12,303,310
Standard Life Investments Property Income Trust Limited
Notes to the Consolidated Financial Statements
for the year ended 31 December 2014
1 GENERAL INFORMATION
Standard Life Investments Property Income Trust Limited ("the
Company") and its subsidiaries (together the "Group") carries on
the business of property investment through a portfolio of freehold
and leasehold investment properties located in the United Kingdom.
The Company is a limited liability company incorporated and
domiciled in Guernsey, Channel Islands. The Company has its listing
on the London Stock Exchange.
The address of the registered office is Trafalgar Court, Les
Banques, St Peter Port, Guernsey.
These audited Consolidated Financial Statements were approved
for issue by the Board of Directors on 31 March 2015.
2 ACCOUNTING POLICIES
2.1 Basis of preparation
The audited Consolidated Financial Statements of the Group have
been prepared in accordance with and comply with International
Financial Reporting Standards as adopted by the European Union
("IFRS"), and all applicable requirements of The Companies
(Guernsey) Law, 2008. The audited Consolidated Financial Statements
of the Group have been prepared under the historical cost
convention as modified by the measurement of investment properties
and derivative financial instruments at fair value. The
consolidated financial statements are presented in pound sterling
and all values are not rounded except when otherwise indicated.
Changes in accounting policy and disclosure
The accounting policies adopted are consistent with those of the
previous financial year. There have been other new and amended
standards issued or have come into effect from 1 January 2014 but
either these were not applicable or did not have a material impact
on the annual consolidated financial statements of the Group and
hence not discussed.
The following new and amended standards and interpretations in
issue are not yet effective and have not been adopted by the
Group:
-- Amendment to IAS 19 regarding defined benefit plans
-- Annual improvements to IFRSs 2010-2012 Cycle
-- Annual Improvements to IFRSs 2011-2013 Cycle
The directors do not expect the adoption of these EU adopted
standards and interpretations to have a material impact on the
consolidated or company financial statements in the period of
initial application.
2.2 Significant accounting judgements, estimates and
assumptions
The preparation of the Group's financial statements requires
management to make judgements, estimates and assumptions that
affect the reported amounts of revenues, expenses, assets and
liabilities, and the disclosure of contingent liabilities, at the
reporting date. However, uncertainty about these assumptions and
estimates could result in outcomes that could require a material
adjustment to the carrying amount of the asset or liability
affected in the future periods. The most significant estimates and
judgements are set out below.
Judgements other than estimates
Fair value of investment properties
Investment properties are stated at fair value as at the Balance
Sheet date. Gains or losses arising from changes in fair values are
included in the Consolidated Statement of Comprehensive Income in
the year in which they arise. The fair value of investment
properties is determined by independent real estate valuation
experts using recognised valuation techniques. The fair values are
determined based on recent real estate transactions with similar
characteristics and locations to those of the Group's assets.
The determination of the fair value of investment properties
requires the use of valuation models which use a number of
judgements and assumptions. The only model used was the income
capitalisation method. Under the income capitalisation method, a
property's fair value is judged based on the normalised net
operating income generated by the property, which is divided by the
capitalisation rate (discounted by the investor's rate of return).
Under the income capitalisation method, over (above market rent)
and under-rent situations are separately capitalised
(discounted).
The sensitivity analysis in note 7 details the decrease in the
valuation of investment properties if equivalent yield increases by
25 basis points or rental rates (ERV) decreases by 5%.
Fair value of financial instruments
When the fair value of financial assets and financial
liabilities recorded in the Consolidated Balance Sheet cannot be
derived from active markets, they are determined using a variety of
valuation techniques that include the use of mathematical models.
The input to these models are taken from observable markets where
possible, but where this is not feasible, a degree of judgement is
required in establishing fair value. The judgements include
considerations of liquidity and model inputs such as credit risk
(both own and counterparty's), correlation and volatility. Changes
in assumptions about these factors could affect the reported fair
value of financial instruments. The models are calibrated regularly
and tested for validity using prices from any observable current
market transactions in the same instrument (without modification or
repackaging) or based on any available observable market data.
The valuation of interest rate swaps used in the Balance Sheet
is provided by The Royal Bank of Scotland. These values are
validated by comparison to internally generated valuations prepared
using the fair value principles outlined above.
The sensitivity analysis in note 3 details the increase and
decrease in the valuation of interest rate swaps if market rate
interest rates had been 100 basis points higher and 100 basis
points lower.
Estimates
Deferred Tax Asset
The Group recognised a deferred tax asset for the year ending 31
December 2013 as detailed in note 6. As a result of the Group
converting to a UK REIT on 1 January 2015 the deferred tax asset
was fully utilised at the Balance Sheet date. The deferred tax
asset utilisation is recognised as an expense in the Statement of
Comprehensive Income for the year ended 31 December 2014. See note
6 for further details.
2.3 Summary of significant accounting policies
A Basis of consolidation
The audited consolidated financial statements comprise the
financial statements of Standard Life Investments Property Income
Trust Limited and its only material wholly owned subsidiary
undertaking, Standard Life Investments Property Holdings Limited, a
company with limited liability incorporated and domiciled in
Guernsey, Channel Islands.
During the year the Group, through its subsidiary Standard Life
Investments Property Holdings Limited, acquired two wholly owned
subsidiaries as detailed in note 9, both of which are not
considered as being material as at the Balance Sheet date.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with subsidiaries and has the
ability to affect those returns through its power over the
subsidiary. Specifically, the Group controls a subsidiary if, and
only if, it has:
- Power over the subsidiary (i.e., existing rights that give it
the current ability to direct the relevant activities of the
subsidiary)
- Exposure, or rights, to variable returns from its involvement
with the subsidiary - The ability to use its power over the
subsidiary to affect its returns
The Group assesses whether or not it controls a subsidiary if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary.
Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the
consolidated statement of other comprehensive income from the date
the Group gains control until the date when the Group ceases to
control the subsidiary.
The financial statements of the subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies. All intra-group balances, transactions and
unrealised gains and losses resulting from intra-group transactions
are eliminated in full.
B Functional and presentation currency
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates ("the functional
currency"). The consolidated financial statements are presented in
pound sterling, which is also the Company's functional
currency.
C Revenue recognition
Revenue is recognised as follows;
i) Bank interest
Bank interest income is recognised on an accruals basis.
ii) Rental income
Rental income from operating leases is net of sales taxes and
value added tax ("VAT") recognised on a straight line basis over
the lease term for lease agreements with stepped rent increases.
The initial direct costs incurred in negotiating and arranging an
operating lease are recognised as an expense over the lease term on
the same basis as the lease income. The cost of any lease
incentives provided are recognised over the lease term, on a
straight line basis as a reduction of rental income. The resulting
asset is reflected as a receivable in the Consolidated Balance
Sheet. The valuation of investment properties is reduced by the
total of the unamortised lease incentive balances. Any remaining
lease incentive balances in respect of properties disposed of are
included in the calculation of the profit or loss arising at
disposal.
Contingent rents, being those payments that are not fixed at the
inception of the lease, for example increases arising on rent
reviews, are recorded as income in periods when they are earned.
Rent reviews which remain outstanding at the year end are
recognised as income, based on estimates, when it is reasonable to
assume that they will be received.
The surrender premiums received for the year ended 2014 were
GBP38,469 (2013: GBPnil) as detailed in the Statement of
Comprehensive Income and related to two tenant breaks during the
year.
iii) Property disposals
Where revenue is obtained by the sale of properties, it is
recognised when the significant risks and returns have been
transferred to the buyer. This will normally take place on exchange
of contracts unless there are significant conditions attached. For
conditional exchanges, sales are recognised when these conditions
are satisfied.
D Expenditure
All expenses are accounted for on an accruals basis. The
investment management and administration fees, finance and all
other revenue expenses are charged through the Consolidated
Statement of Comprehensive Income as and when incurred. The Group
also incurs capital expenditure which can result in movements in
the capital value of the investment properties. The movements in
capital expenditure are reflected in the Statement of Comprehensive
Income as a valuation gain/(loss). The Group had no properties
during the year that did not earn any income during the 12 months
to 31 December 2014 (2013: no non-income producing properties).
E Taxation
i) Taxes
The Group is subject to income tax in the United Kingdom and is
exempt from capital gains tax. Significant judgement is required to
determine the total provision for current and deferred taxes.
The Group recognises liabilities for current taxes based on
estimates of whether additional taxes will be due. Where the final
tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income
and deferred tax provisions in the period in which the
determination is made. Deferred tax assets and liabilities are
recognised on a net basis to the extent they relate to the same
fiscal unity and fall due in approximately the same period.
ii) Current income tax
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted by the
reporting date. Current income tax relating to items recognised
directly in equity is recognised in equity and not in the income
statement. Positions taken in tax returns with respect to
situations in which applicable tax regulations are subject to
interpretation are reviewed periodically and provisions are
established where appropriate.
iii) Deferred income tax
Deferred income tax is provided using the liability method on
all temporary differences at the reporting date between the tax
bases of assets and liabilities and their carrying amounts for
financial reporting purposes, with the following exceptions:
-- Where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that, at the time of
the transaction, affects neither accounting nor taxable profit or
loss.
-- In respect of taxable temporary differences associated with
investments in subsidiaries where the timing of the reversal of the
temporary differences can be controlled by the parent, and it is
probable that the temporary differences will not reverse in the
foreseeable future.
Deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available against
which deductible temporary differences, carried forward tax credits
or tax losses can be utilised.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities. In determining the expected manner of
realisation of an investment property measured at fair value a
rebuttable presumption exists that its carrying amount will be
recovered through sale. For more details on the judgements used to
determine the deferred tax asset please see note 6.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date. Deferred income tax relating to items recognised
directly in equity is recognised in equity and not in profit or
loss. Deferred tax items are recognised in correlation to the
underlying transaction either in other comprehensive income or
directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a
legally enforceable right exists to set off current tax assets
against current income tax liabilities and the deferred taxes
relate to the same taxable entity and the same taxation
authority.
F Investment properties
Investment properties comprise completed property and property
under construction or re-development that is held to earn rentals
or for capital appreciation or both. Property held under a lease is
classified as investment property when the definition of an
investment property is met.
Investment properties are measured initially at cost including
transaction costs. Transaction costs include transfer taxes,
professional fees for legal services and initial leasing
commissions to bring the property to the condition necessary for it
to be capable of operating. The carrying amount also includes the
cost of replacing part of an existing investment property at the
time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment properties are
stated at fair value. Fair value is based upon the market valuation
of the properties as provided by the independent valuers as
described in note 2.2. Gains or losses arising from changes in the
fair values are included in the Consolidated Statement of
Comprehensive Income in the year in which they arise. For the
purposes of these financial statements, in order to avoid double
counting, the assessed fair value is:
i) Reduced by the carrying amount of any accrued income
resulting from the spreading of lease incentives and/or minimum
lease payments.
ii) Increased by the carrying amount of any liability to the
superior leaseholder or freeholder that has been recognised in the
Balance Sheet as a finance lease obligation.
Acquisitions of investment properties are considered to have
taken place on exchange of contracts unless there are significant
conditions attached. For conditional exchanges acquisitions are
recognised when these conditions are satisfied.
Investment properties are derecognised when it has been disposed
of or permanently withdrawn from use and no future economic benefit
is expected from its disposal. Any gains or losses on the
retirement or disposal of investment properties are recognised in
the Consolidated Statement of Comprehensive Income in the year of
retirement or disposal.
Gains or losses on the disposal of investment properties are
determined as the difference between net disposal proceeds and the
carrying value of the asset in the previous full period financial
statements.
G Non-current assets held for sale
Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of carrying amount and fair value
less costs to sell.
Non-current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the asset
(or disposal group) is available for immediate sale in its present
condition. Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one
year from the date of classification.
When the Group is committed to a sale plan involving loss of
control of a subsidiary, all of the assets and liabilities of that
subsidiary are classified as held for sale when the criteria
described above are met, regardless of whether the Group will
retain a non-controlling interest in its former subsidiary after
the sale.
H Trade and other receivables
Trade receivables are recognised and carried at the lower of
their original invoiced value and recoverable amount. Where the
time value of money is material, receivables are carried at
amortised cost. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will
not be able to collect all amounts due according to the original
terms of the receivables. Significant financial difficulties of the
debtor, probability that the debtor will enter bankruptcy or
financial reorganisation, and default or delinquency in payments
(more than 30 days overdue) are considered indicators that the
trade receivable is impaired. The amount of the provision is the
difference between the asset's carrying amount and the present
value of estimated future cash flows, discounted at the original
effective interest rate. The carrying amount of the asset is
reduced through use of an allowance account, and the amount of the
loss is recognised in the Consolidated Statement of Comprehensive
Income. When a trade receivable is uncollectible, it is written off
against the allowance account for trade receivables. Subsequent
recoveries of amounts previously written off are credited in the
Consolidated Statement of Comprehensive Income.
I Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits, and other short-term highly liquid investments readily
convertible within three months or less to known amounts of cash
and subject to insignificant risk of changes in value.
J Borrowings and interest expense
All loans and borrowings are initially recognised at the fair
value of the consideration received, less issue costs where
applicable. After initial recognition, 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. Borrowing costs are recognised within
finance costs in the Consolidated Statement of Comprehensive Income
as incurred.
K Accounting for derivative financial instruments and hedging
activities
Derivatives are initially recognised at fair value on the date a
derivative contract is entered into and are subsequently remeasured
at their fair value. The method of recognising the resulting gain
or loss depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being hedged.
The Group documents at the inception of the transaction the
relationship between hedging instruments and hedged items, as well
as its risk management objective and strategy for undertaking
various hedging transactions. The Group also documents its
assessment both at hedge inception and on an ongoing basis of
whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows
of hedged items. The effective portion of changes in the fair value
of derivatives that are designated and qualify as cash flow hedges
are recognised in other comprehensive income in the Consolidated
Statement of Comprehensive Income. The gains or losses relating to
the ineffective portion are recognised in operating profit in the
Consolidated Statement of Comprehensive Income.
Amounts taken to equity are transferred to profit or loss when
the hedged transaction affects profit or loss, such as when the
hedged financial income or financial expenses is recognised.
When a derivative is held as an economic hedge for a period
beyond 12 months after the end of the reporting period, the
derivative is classified as non-current consistent with the
classification of the underlying item. A derivative instrument that
is a designated and effective hedged instrument is classified
consistent with the classification of the underlying hedged
item.
L Service charge
The Company has appointed a managing agent to deal with the
service charge at the investment properties and the Company is
acting as an agent for the service charge and not a principal. As a
result the Group recognises void expenses in the Consolidated
Statement of Comprehensive Income. The table in note 21 is a
summary of the service charge during the year. It shows the amount
the service charge has cost the tenants for the 12 months to 31
December 2014, the amount the tenants have been billed based on the
service charge budget and the amount the Group has paid in relation
to void units over the year. The table also shows the balancing
service charge that is due back to the tenants as at the Balance
Sheet date.
M Other financial liabilities
Trade and other payables are recognised and carried at invoiced
value as they are considered to have payment terms of 30 days or
less and are not interest bearing. The balance of trade and other
payables are considered to meet the definition of an accrual and
have been expensed through the income statement or Balance Sheet
depending on classification. VAT payable at the Balance Sheet date
will be settled within 31 days of the Balance Sheet date with Her
Majesty's Revenue and Customs ("HMRC") and deferred rental income
is rent that has been billed to tenants but relates to the period
after the Balance Sheet date. Rent deposits recognised in note 12
are those that are due within one year as a result of upcoming
tenant expiries.
3 FINANCIAL RISK MANAGEMENT
The Group's principal financial liabilities, other than
derivatives, are loans and borrowings. The main purpose of the
Group's loans and borrowings is to finance the acquisition and
development of the Group's property portfolio. The Group has rent
and other receivables, trade and other payables and cash and
short-term deposits that arise directly from its operations.
The Group is exposed to market risk (including interest rate
risk and real estate risk), credit risk, capital risk and liquidity
risk. The Group is not exposed to currency risk or price risk. The
Group is engaged in a single segment of business, being property
investment in one geographical area, the United Kingdom. Therefore
the Group only engages in one form of currency being pound
sterling. The Group currently invests in direct non-listed property
and is therefore not exposed to price risk.
The Board of Directors reviews and agrees policies for managing
each of these risks which are summarised below.
Market risk
Market risk is the risk that the fair values of financial
instruments will fluctuate because of changes in market prices. The
financial instruments held by the Group that are affected by market
risk are principally the derivative financial instruments.
i) Interest Rate risk
As described below the Group invests cash balances with RBS and
Citibank. These balances expose the Group to cash flow interest
rate risk as the Group's income and operating cash flows will be
affected by movements in the market rate of interest. There is
considered to be no fair value interest rate risk in regard to
these balances.
The bank borrowings as described in note 13 also expose the
Group to cash flow interest rate risk. The Group's policy is to
manage its cash flow interest rate risk using interest rate swaps,
in which the Group has agreed to exchange the difference between
fixed and floating interest amounts based on a notional principal
amount (see note 14). The Group has floating rate borrowings of
GBP72,000,000 and GBP12,432,692, all of which has been fixed via
interest rate swaps.
The bank borrowings are carried at amortised cost and the Group
considers this to be a close approximation to fair value. The fair
value of the bank borrowings is affected by changes in the market
interest rate. The fair value of the interest rate swaps is exposed
to changes in the market interest rate as their fair value is
calculated as the present value of the estimated future cash flows
under the agreements. The accounting policy for recognising the
fair value movements in the interest rate swaps is described in
note 2.3.
Trade and other receivables and trade and other payables are
interest free and have settlement dates within one year and
therefore are not considered to present a fair value interest rate
risk.
The following tables set out the carrying amount of the Group's
financial instruments excluding the amortisation of borrowing costs
as outlined in note 5. Bank borrowings have been fixed due to
interest rate swaps and are detailed further in note 14:
As at 31 December 2014:
Weighted average
Fixed Variable interest rate
Rate rate GBP
GBP GBP
Cash and cash equivalents - 5,399,095 0.645%
Bank borrowings 72,000,000 - 3.802%
Bank borrowings 12,432,692 - 3.521%
As at 31 December 2013:
Weighted average
Fixed Variable interest rate
Rate rate GBP
GBP GBP
Cash and cash equivalents - 12,303,310 0.576%
Bank borrowings 72,000,000 - 6.765%
Bank borrowings 12,432,692 - 3.521%
At 31 December 2014, if market rate interest rates had been 100
basis points higher with all other variables held constant, the
profit for the year would have been GBP182,269 higher (2013:
GBP118,666 higher profit) as a result of the higher interest income
on cash and cash equivalents. Other Comprehensive Income and the
Capital Reserve would have been GBP2,313,008 higher (2013:
GBP3,737,770 higher) as a result of an increase in the fair value
of the derivative designated as a cash flow hedge of floating rate
borrowings.
At 31 December 2014, if market rate interest rates had been 100
basis points lower with all other variables held constant, the
profit for the year would have been GBP127,268 lower (2013:
GBP127,400 lower profit) as a result of the lower interest income
on cash and cash equivalents. Other Comprehensive Income and the
Capital Reserve would have been GBP3,254,898 lower (2013:
GBP3,921,801 lower) as a result of a decrease in the fair value of
the derivative designated as a cash flow hedge of floating rate
borrowings.
ii) Real estate risk
The Group has identified the following risks associated with the
real estate portfolio:
a) The cost of the development schemes may increase if there are
delays in the planning process. The Group uses advisers who are
experts in the specific planning requirements in the scheme's
location in order to reduce the risks that may arise in the
planning process.
b) A major tenant may become insolvent causing a significant
loss of rental income and a reduction in the value of the
associated property (see also credit risk below). To reduce this
risk, the Group reviews the financial status of all prospective
tenants and decides on the appropriate level of security required
via rental deposits or guarantees.
c) The exposure of the fair values of the portfolio to market
and occupier fundamentals.
The Group aims to manage such risks by taking an active approach
to asset management (working with tenants to extend leases and
minimise voids), capturing profit (selling when the property has
delivered a return to the Group that the Group believes has been
maximised and the proceeds can be reinvested into more attractive
opportunities) and identifying new investments (generally at yields
of 8% plus that are accretive to the revenue account and where the
Group believes there will be greater investment demand in the
medium term).
Credit risk
Credit risk is the risk that a counterparty will be unable to
meet a commitment that it has entered into with the Group. In the
event of default by an occupational tenant, the Group will suffer a
rental income shortfall and incur additional related costs. The
Investment Manager regularly reviews reports produced by Dun and
Bradstreet and other sources, including the IPD IRIS report, to be
able to assess the credit worthiness of the Group's tenants and
aims to ensure that there are no excessive concentrations of credit
risk and that the impact of default by a tenant is minimised. In
addition to this, the terms of the Group's bank borrowings require
that the largest tenant accounts for less than 20% of the Group's
total rental income, that the five largest tenants account for less
than 50% of the Group's total rental income and that the ten
largest tenants account for less than 75% of the Group's total
rental income. The maximum credit risk from the tenant arrears of
the Group at the financial year end was GBP1,738,063 (2013:
GBP410,679) as detailed in note 10.
With respect to credit risk arising from other financial assets
of the Group, which comprise cash and cash equivalents, the Group's
exposure to credit risk arises from default of the counterparty
bank with a maximum exposure equal to the carrying value of these
instruments. As at 31 December 2014 GBP4,634,184 (2013:
GBP11,669,292) was placed on deposit with The Royal Bank of
Scotland plc ("RBS") and GBP764,911 (2013: GBP634,018) was held
with Citibank. The credit risk associated with the cash deposits
placed with RBS is mitigated by virtue of the Group having a right
to off-set the balance deposited against the amount borrowed from
RBS should RBS be unable to return the deposits for any reason.
Citibank is rated A-2 Negative by Standard & Poor's and P-2
Stable by Moody's, as at the Balance Sheet date.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. The investment properties in which the Group
invests are not traded in an organised public market and may be
illiquid. As a result, the Group may not be able to liquidate its
investments in these properties quickly at an amount close to their
fair value in order to meet its liquidity requirements. The
following table summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
Year ended 31 December 2014
On demand 12 months 1 to 5 >5 years Total
years
GBP GBP GBP GBP GBP
Interest-bearing
loans - 1,868,495 90,038,178 - 91,906,673
Interest rate
swaps - 1,223,953 3,665,814 - 4,889,767
Leasehold
obligations - 500 2,000 52,500 55,000
Trade and
other payables 2,066,393 - - - 2,066,393
Rental deposits
due
to tenants - 155,728 386,380 97,500 639,608
2,066,393 3,248,676 94,092,372 150,000 99,557,441
Year ended 31 December 2013
On demand 12 months 1 to 5 >5 years Total
years
GBP GBP GBP GBP GBP
Interest-bearing
loans - 1,921,899 92,120,289 - 94,042,188
Interest rate
swaps - 1,254,981 5,011,868 - 6,266,849
Leasehold
obligations - 500 2,000 53,000 55,500
Trade and
other payables 1,059,392 - - - 1,059,392
Rental deposits
due
to tenants - 39,893 302,996 33,600 376,489
1,059,392 3,217,273 97,437,153 86,600 101,800,418
The disclosed amount for interest rate swaps in the above table
are the estimated net undiscounted cash flows.
The Group's liquidity position is regularly monitored by
management and is reviewed quarterly by the Board of Directors.
Capital risk
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares, increase or decrease
borrowings or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio.
This ratio is calculated as net debt divided by total capital. Net
debt is calculated as total borrowings less cash and cash
equivalents. Total capital is calculated as equity, as shown in the
Consolidated Balance Sheet, plus net debt.
The gearing ratios at 31 December 2014 and at 31 December 2013
were as follows:
2014 2013
GBP GBP
Total Borrowings (excluding amortisation
of arrangement fees) 84,432,692 84,432,692
Less: cash and cash equivalents (5,399,095) (12,303,310)
Net debt 79,033,597 72,129,382
Total equity 184,367,522 101,591,795
Total capital 263,401,119 173,721,177
Gearing ratio 30% 42%
Gearing, calculated as borrowings as a percentage of gross
assets at 31 December 2014 was 31% and must not exceed 65%. The
Board's current intention is that the Company's loan to value ratio
(calculated as borrowings less all cash as a proportion of the
property portfolio valuation) will not exceed 45%.
Fair values
Set out below is a comparison by class of the carrying amounts
and fair value of the Group's financial instruments that are
carried in the financial statements.
Carrying Amount Fair Value
2014 2013 2014 2013
Financial Assets GBP GBP GBP GBP
Cash and cash equivalents 5,399,095 12,303,310 5,399,095 12,303,310
Interest rate swaps - 1,207,299 - 1,207,299
Trade and other
receivables 2,660,440 1,305,524 2,660,440 1,305,524
Financial Liabilities
Bank borrowings 83,980,382 83,866,594 84,202,020 84,032,782
Interest rate swaps 2,674,939 1,238,296 2,674,939 1,238,296
Trade and other
payables 2,706,001 1,435,881 2,706,001 1,435,881
The fair value of the financial assets and liabilities are
included at an estimate of the amount at which the instrument could
be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The following methods
and assumptions were used to estimate the fair value:
- Cash and cash equivalents, trade and other receivables are the
same as fair value due to the short-term maturities of these
instruments.
- The fair value of bank borrowings is estimated by discounting
future cash flows using rates currently available for debt on
similar terms and remaining maturities. The fair value approximates
their carrying values gross of unamortised transaction costs. This
is considered as being valued at level 2 of the fair value
hierarchy and has not changed level since 31 December 2013.
- The fair value of the interest rate swap contract is estimated
by discounting expected future cash flows using current market
interest rates and yield curve over the remaining term of the
instrument. This is considered as being valued at level 2 of the
fair value hierarchy and has not changed level since 31 December
2013. The definition of the valuation techniques are explained in
the significant accounting judgements, estimates and assumptions in
note 2.2.
The following table shows an analysis of the fair values of
financial instruments recognised in the Balance Sheet by the level
of the fair value hierarchy*:
Level Level 2 Level Total
1 3 fair value
31 December 2014 GBP GBP GBP GBP
Interest rate swaps - 2,674,939 - 2,674,939
31 December 2013
Interest rate swaps - 30,997 - 30,997
*Explanation of the fair value hierarchy:
Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
4 FEES
Investment management fees
On 19 December 2003 Standard Life Investments (Corporate Funds)
Limited ("the Investment Manager") was appointed as Investment
Manager to manage the property assets of the Group. A new
Investment Management Agreement ("IMA") was entered into on 7 July
2014, appointing the Investment Manager as the AIFM ("Alternative
Investment Fund Manager").
Under the terms of the IMA dated 19 December 2003, the
Investment Manager was entitled to receive a fee at the annual rate
of 0.85% of the total assets, payable quarterly in arrears except
where cash balances exceed 10% of the total assets. The fee
applicable to the amount of cash exceeding 10% of total assets was
altered to be 0.20% per annum, payable quarterly in arrears. The
Investment Manager also agreed to reduce its charge to 0.75% of the
total assets of the Group until such time as the net asset value
per share returns to the launch level of 97p. This was applicable
from the quarter ending 31 December 2008 onwards and did not affect
the reduced fee of 0.20% on cash holdings above 10% of total
assets.
Under the terms of the IMA dated 7 July 2014, the above fee
arrangements apply up to 31 July 2014. From 1 August 2014, the fee
was changed to 0.75% of total assets up to GBP200 million; 0.70% of
total assets between GBP200 million and GBP300 million; and 0.65%
of total assets in excess of GBP300 million. The total fees charged
for the year ended 31 December 2014 amounted to GBP1,690,233 (year
ended 31 December 2013: GBP1,327,746). The amount due and payable
at the year end amounted to GBP500,165 excluding VAT (year ended 31
December 2013: GBP347,343 excluding VAT).
Administration, secretarial and registrar fees
On 19 December 2003 Northern Trust International Fund
Administration Services (Guernsey) Limited ("Northern Trust") was
appointed administrator, secretary and registrar to the Group.
Northern Trust is entitled to an annual fee, payable quarterly in
arrears, of GBP65,000. Northern Trust is also entitled to
reimbursement of reasonable out of pocket expenses. Total fees and
expenses charged for the year ended 31 December 2014 amounted to
GBP82,927 (2013: GBP80,899). The amount due and payable at the year
end amounted to GBPnil (2013: GBPnil).
Valuer's fee
On 4 December 2007, Jones Lang LaSalle ("the Valuer"),
independent international real estate consultants, was appointed as
valuer in respect of the assets comprising the property portfolio.
The Valuer is entitled to an annual fee of 0.017% of the average
portfolio value calculated over the preceding quarter and a start
up fee of 0.0225% (with a minimum fee of GBP2,500) of the value of
each property added to the portfolio. The total valuation fees
charged for the year ended 31 December 2014 amounted to GBP56,542
(2013: GBP30,260) of which minimum fees of GBP2,500 per property
(2013: GBP2,500) were incurred due for new properties added to the
portfolio. The amount due and payable at the year end amounted to
GBP10,590 excluding VAT (2013: GBP7,071 excluding VAT).
Auditor's fee
At the year end date Ernst & Young LLP continued as
independent auditor of the Group. The auditor's fees for the year
ended 31 December 2014 amounted to GBP46,513 (2013: GBP45,800) and
relate to audit services provided for the 2014 financial year.
Ernst & Young LLP also provided non-audit services in respect
of advice relating to the potential consequences of REIT conversion
for the company in 2014 of GBP94,000 (2013: GBP6,000) recognised as
an expense in the Consolidated Statement of Comprehensive Income.
Ernst & Young LLP also carried out due diligence work for the
Group in 2014 recognised as a valuation loss on investment
properties in the Consolidated Statement of Comprehensive Income
totalling GBP32,000 (2013: GBPnil). Total non-audit fees incurred
up to the Balance Sheet date amounted to GBP126,000 (2013:
GBP6,000). A competitive tender process was carried out for legal
and tax advice and other third party services in connection with
the REIT conversion and fund raising projects.
5 FINANCE INCOME AND COSTS
2014 2013
GBP GBP
Interest income on cash and
cash equivalents 72,326 75,193
Finance income 72,326 75,193
Interest expense on bank borrowings 1,931,665 1,899,732
Payments on interest rate
swaps 1,236,719 3,420,626
Amortisation of arrangement
costs (See Note 13) 113,788 113,635
Finance costs 3,282,172 5,433,993
6 TAXATION
Current income tax
The major components of income tax expense for the years ended
31 December are:
2014 2013
GBP GBP
Consolidated Income Statement
Current Income Tax
Current Income Tax Charge - -
Deferred Income Tax
Utilisation / (recognition) of deferred
tax asset 587,315 (587,315)
Income Tax charge/(credit) reported
in the income statement 587,315 (587,315)
A reconciliation between the tax charge / (credit) and the
product of accounting profit multiplied by the applicable tax rate
for the year ended 31 December 2014 and 2013 is, as follows:
2014 2013
GBP GBP
Profit before tax 29,170,717 11,236,720
Tax calculated at UK statutory income
tax rate of 20% (2013: 20%) 5,834,143 2,247,344
Valuation gain from investment properties
not subject to tax (4,266,961) (1,159,170)
Loss / (profit) on disposal of investment
properties not subject to tax 368,082 (86,041)
Income not subject to tax (716,760) (155,673)
Expenditure not allowed for income
tax purposes 86,711 57,914
Tax loss utilised (1,305,215) (904,374)
Utilisation / (recognition) of Deferred
Tax Asset 587,315 (587,315)
Total income tax charge / (credit) 587,315 (587,315)
Consolidated Consolidated Income
Balance Sheet Statement
2014 2013 2014 2013
GBP GBP GBP GBP
Deferred income tax
Losses available
for offset against
future taxable
income - 587,315 587,315 (587,315)
Deferred income tax asset/
(credit) - 587,315 587,315 (587,315)
The Group has available deferred tax assets of GBP2,075,946
(2013: GBP2,954,557) due to tax losses which arose in Guernsey that
are available for offset against future taxable profits of the
Company in which the losses arose. The deferred tax asset of
GBP587,315 recognised at the year ended 31 December 2013 has been
utilised in calculation of these losses.
The Company converted from a Guernsey Investment Company to a
Real Estate Investment Trust (REIT) on 1 January 2015. As a result,
tax losses of the Guernsey Investment Company can no longer be
utilised.
The Company and its subsidiary have obtained exempt company
status in Guernsey so that they are exempt from Guernsey taxation
on income arising outside Guernsey and bank interest receivable in
Guernsey. The Board intend to conduct the Group's affairs such that
the Company and its subsidiary continue to remain eligible for
exemption.
7 INVESTMENT PROPERTIES
Country UK UK UK UK
Class Industrial Office Retail Total
2014 2014 2014
GBP GBP GBP 2014
Market value as
at 1 January 48,175,000 79,945,000 48,295,000 176,415,000
Purchase of investment
properties 72,084,707 15,097,439 10,671,653 97,853,799
Capital expenditure
on investment
properties 29,971 2,779,559 (101,508) 2,708,022
Carrying value
of disposed investment
properties (14,550,000) - (14,050,000) (28,600,000)
Valuation gain
from investment
properties 2,961,019 16,132,344 2,104,506 21,197,869
Movement in lease
incentives receivable (40,697) 310,758 205,349 475,410
Investment properties
recategorised
as held for sale - (6,550,100) - (6,550,100)
Market value at
31 December 108,660,000 107,715,000 47,125,000 263,500,000
Adjustment for
lease incentives* (462,673) (800,767) (571,033) (1,834,473)
Adjustment for
finance lease
obligations - 6,594 - 6,594
Carrying value
at 31 December 108,197,327 106,920,827 46,553,967 261,672,121
*Lease incentives incentives totalling GBP1,834,473 are split
between non current assets of GBP2,436,976 and current liabilities
of GBP602,503 (note 12).
The valuations were performed by Jones Lang Lasalle, an
accredited independent valuer with a recognised and relevant
professional qualification and recent experience of the location
and category of the investment properties being valued. The
valuation model in accordance with Royal Institute of Chartered
Surveyors ('RICS') requirements on disclosure for Regulated Purpose
Valuations has been applied (RICS Valuation - Professional
Standards January 2014 published by the Royal Institution of
Chartered Surveyors). These valuation models are consistent with
the principles in IFRS 13. The market value provided by Jones Lang
Lasalle at the year end was GBP270,225,000 (2013: GBP176,415,000)
however an adjustment has been made for lease incentives of
GBP1,834,473* (2013: GBP3,535,038) that are already accounted for
as an asset. In accordance with the accounting policy in note 2.3,
in order to arrive at fair value the market values of leasehold
investment properties have been adjusted to reflect the fair value
of finance lease obligations. The year end valuation of
GBP270,225,000 includes GBP3,150,000 in relation to De Ville Court
and GBP3,575,000 in relation to Chancellors Place, two investment
properties held for sale at the Balance Sheet date (see note
8).
Valuation gains and losses from investment properties are
recognised in the Consolidated Statement of Comprehensive Income
for the period and are attributable to changes in unrealised gains
or losses relating to investment properties (completed and under
construction) held at the end of the reporting period.
Country UK UK UK
Class Industrial Office Retail Total
2013 2013 2013 2013
GBP GBP GBP GBP
Market value as
at 1 January 44,695,000 78,895,000 38,010,000 161,600,000
Purchase of investment
properties - 10,375,567 13,464,886 23,840,453
Capital expenditure
on investment
properties 10,505 316,335 - 326,840
Carrying value
of disposed investment
properties - (14,250,000) (900,000) (15,150,000)
Valuation gain
/ (loss) from
investment properties 3,469,495 4,606,242 (2,279,886) 5,795,851
Movement in lease
incentives receivable - 1,856 - 1,856
Market value at
31 December 48,175,000 79,945,000 48,295,000 176,415,000
Adjustment for
lease incentives (503,369) (490,009) (2,541,660) (3,535,038)
Adjustment for
finance lease
obligations - 6,594 - 6,594
Carrying value
at 31 December 47,671,631 79,461,585 45,753,340 172,886,556
In the Consolidated Cash Flow Statement, proceeds from disposal
of investment properties comprise:
2014 2013
GBP GBP
Carrying value of disposed investment properties 28,600,000 15,150,000
(Loss) / profit on disposal of investment
properties (1,840,412) 430,205
Net proceeds from disposal of investment
properties 26,759,588 15,580,205
Valuation Methodology
The fair value of completed investment properties are determined using
the income capitalisation method.
The income capitalisation method is based on capitalising the net income
stream at an appropriate yield. In establishing the net income stream
the valuer has reflected the current rent (the gross rent) payable to
lease expiry, at which point the valuer has assumed that each unit will
be re-let at their opinion of ERV. The valuer has made allowances for
voids and rent free periods where appropriate, as well as deducting non
recoverable costs where applicable. The appropriate yield is selected
on the basis of the location of the building, its quality, tenant credit
quality and lease terms amongst other factors.
Two properties have changed valuation technique during the year. As at
31 December 2013 the industrial estate in Swindon and the office building
in Staines had been valued using the development appraisal method, as
the valuer determined this was the technique most suited to valuing both
assets. At that time, neither of these properties were considered to be
development properties as the property in Swindon was still generating
income for the Group but had development potential in the future. The
property in Staines was undergoing a refurbishment due to complete in
June 2014 and had an agreement for lease in place. Leases were agreed
on the property in Staines in September 2014 and in Swindon in December
2014. Therefore at the balance sheet date the income capitalisation method
is now more appropriate for valuing both assets.
The Company appoints a suitable valuer (such appointment is reviewed on
a periodic basis) to undertake a valuation of all the direct real estate
investments on a quarterly basis. The valuation is undertaken in accordance
with the then current RICS guidelines and requirements as mentioned above.
The Investment Manager meets with the valuer on a quarterly basis to ensure
the valuer is aware of all relevant information for the valuation and
any change in the investment over the quarter. The Investment Manager
then reviews and discusses the draft valuations with the valuer to ensure
correct factual assumptions are made. The valuer reports a final valuation
that is then reported to the Board.
The management group that determines the Company's valuation policies
and procedures for property valuations is the Property Valuation Committee.
The Committee reviews the quarterly property valuation report produced
by the Valuer (or such other person as may from time to time provide such
property valuation services to the Company) before its submission to the
Board, focussing in particular on:
-- significant adjustments from the previous property valuation report
-- reviewing the individual valuations of each property
-- compliance with applicable standards and guidelines including those
issued by RICS and the UKLA Listing Rules
-- reviewing the findings and any recommendations or statements made
by the valuer
-- considering any further matters relating to the valuation of the properties
The Chairman of the Committee makes a brief report of the findings and
recommendations of the Committee to the Board after each Committee meeting.
The minutes of the Committee meetings are circulated to the Board. The
Chairman submits an annual report to the Board summarising the Committee's
activities during the year and the related significant results and findings.
All investment properties are classified as Level 3 in the fair value
hierarchy. There were no movements between levels during the year.
There are currently no restrictions on the realisability of investment
properties or the remittance of income and proceeds of disposal.
The table below outlines the valuation techniques used to derive Level
3 fair values for each class of investment properties:
-- The fair value measurements at the end of the reporting period.
-- The level of the fair value hierarchy (e.g. Level 3) within which the
fair value measurements are categorised in their entirety.
-- A description of the valuation techniques applied.
-- Fair value measurements, quantitative information about the significant
unobservable inputs used in the fair value measurement.
-- The inputs used in the fair value measurement, including the ranges
of rent charged to different units within the same building.
Country & Fair value Valuation technique Key unobservable Range (weighted
Class GBP input average)
UK Industrial 108,197,327 -- Income Capitalisation -- Initial Yield --0% to 9.45% (6.42%)
Level 3 -- Reversionary --5.83% to 9.16%
Yield (7.31%)
-- Equivalent --5.83% to 8.69%
Yield (7.15%)
-- Estimated --GBP40.83 to GBP186.03
rental value (GBP76.16)
per Sq.m
UK Office 113,470,928 -- Income Capitalisation -- Initial Yield --0% to 13.29% (6.69%)
Level 3 -- Reversionary --5.42% to 14.94%
Yield (7.09%)
-- Equivalent --5.34% to 11.05%
Yield (6.86%)
-- Estimated --GBP51.13 to GBP340.16
rental value (GBP132.52)
per Sq.m
UK Retail 46,553,966 -- Income Capitalisation -- Initial Yield --6.13% to 7.46%
Level 3 -- Reversionary (6.75%)
Yield --5.38% to 7.41%
-- Equivalent (6.45%)
Yield --6.51% to 7.45%
-- Estimated (6.98%)
rental value --GBP31.85 to GBP522.60
per Sq.m (GBP183.66)
268,222,221**
**includes the market values of the two properties held for sale
as detailed in note 8.
Descriptions and definitions
The table above includes the following descriptions and definitions relating
to valuation techniques and key unobservable inputs made in determining
the fair values:
Estimated rental value (ERV)
The rent at which space could be let in the market conditions prevailing
at the date of valuation.
Equivalent yield
The equivalent yield is defined as the internal rate of return of the
cash flow from the property, assuming a rise to ERV at the next review,
but with no further rental growth.
Initial yield
Initial yield is the annualised rents of a property expressed as a percentage
of the property value.
Reversionary yield
Reversionary yield is the anticipated yield to which the initial yield
will rise (or fall) once the rent reaches the ERV.
The table below shows the ERV per annum, area per square foot, average
ERV per square foot, initial yield and reversionary yield as at the Balance
Sheet date.
2014 2013
GBP GBP
ERV p.a. 20,460,185 15,202,884
Area sq. ft. 2,736,927 1,734,445
Average ERV per sq. ft. GBP7.48 GBP8.77
Initial Yield 6.59% 7.67%
Reversionary Yield 5.13% 6.59%
The table below presents the sensitivity of the valuation to
changes in the most significant assumptions underlying the
valuation of completed investment properties.
2014 2013
GBP GBP
Increase in equivalent yield
of 25 bps (10,100,000) (6,200,000)
Decrease in rental rates of
5% (ERV) (10,100,000) (6,700,000)
Below is a list of how the interrelationships in the sensitivity
analysis above can be explained.
In both cases outlined in the sensitivity table the estimated
Fair Value would increase (decrease) if:
-- The ERV is higher (lower)
-- Void periods were shorter (longer)
-- The occupancy rate was higher (lower)
-- Rent free periods were shorter (longer)
-- The capitalisation rates were lower (higher)
8 INVESTMENT PROPERTIES HELD FOR SALE
As at 31 December 2014 the Group had exchanged contracts with third parties
for the sale of De Ville Court, Weybridge for a price of GBP3,150,000
and Chancellors Place, Chelmsford for GBP3,525,000. The sale of De Ville
Court completed on 20 January 2015 and the sale of Chancellors Place is
due to complete in December 2015. The independently assessed market value
of De Ville Court as at 31 December 2014 was GBP3,150,000 and the independently
assessed market value of Chancellors Place as at 31 December 2014 was
GBP3,575,000. As at 31 December 2014 the carrying value of De Ville Court
is GBP3,038,250 (net of transaction costs of GBP111,750) and the carrying
value of Chancellors Place is GBP3,511,850 (net of transaction costs of
GBP63,150). No investment properties were held for sale at 31 December
2013.
Reconciliation of investment properties held for sale to independent valuers
report
2014 2013
GBP GBP
De Ville Court 3,150,000 -
Chancellors Place 3,575,000 -
Less: transaction costs (174,900) -
Adjusted Market Value at 31 6,550,100 -
December
9 INVESTMENT IN SUBSIDIARY UNDERTAKINGS
The Company owns 100 per cent of the issued ordinary share
capital of Standard Life Investments Property Holdings Limited, a
company with limited liability incorporated and domiciled in
Guernsey, Channel Islands, whose principal business is property
investment.
The Group, through its subsidiary, acquired 100 per cent of the
issued ordinary share capital of Huris (Farnborough) Limited in
June 2014, a company incorporated in the Cayman Islands whose
principal business is property investment.
The Group, through its subsidiary, acquired 100 per cent of the
issued ordinary share capital of HEREF Eden Main Limited in
November 2014, a company incorporated in Jersey whose principal
business is property investment.
The two companies were acquired because the vendors were selling
the companies and not the individual assets. This provided enhanced
returns to the Group in the form of lower purchase costs. The
companies were only purchased after full due diligence to ensure
the Group is not exposed to unexpected liabilities.
The above acquisitions were accounted for as acquisitions of
assets (investment properties of GBP39,364,944) which generated a
gain of GBP136,938 in the year ended 31 December 2014 as detailed
in the Consolidated Statement of Comprehensive Income on page 36.
The directors believe that such treatment is appropriate as it
better reflects the substance of the transactions i.e. the acquired
companies are shell companies which hold investment properties and
had immaterial other net assets. The Group intends to liquidate
both companies early in the next financial year. As at the balance
sheet date the investment properties owned by Huris (Farnborough)
Limited and HEREF Eden Main Limited have been transferred to
Standard Life Investments Property Holdings Limited. The remaining
liabilities of both companies total GBP44,273 (2013: GBPnil) at the
balance sheet date and have been included in trade and other
payables.
10 TRADE AND OTHER RECEIVABLES
2014 2013
GBP GBP
Trade receivables 1,745,004 525,301
Less: provision for impairment
of trade receivables (6,941) (114,622)
Trade receivables (net) 1,738,063 410,679
Lease incentives due within
one year - 265,445
Rental deposits held on behalf
of tenants 639,608 376,489
Other receivables 282,769 252,911
Total trade and other receivables 2,660,440 1,305,524
Reconciliation for changes in the provision for impairment of
trade receivables:
2014 2013
GBP GBP
Opening balance (114,622) (34,917)
Charge for the year (6,941) (114,622)
Reversal of provision 114,622 34,917
Closing balance (6,941) (114,622)
The estimated fair values of receivables are the discounted amount of
the estimated future cash flows expected to be received and approximate
their carrying amounts.
The trade receivables above relate to rental income receivable from tenants
of the investment properties. When a new lease is agreed with a tenant
the Investment Manager performs various money laundering checks and makes
a financial assessment to determine the tenant's ability to fulfil it's
obligations under the lease agreement for the foreseeable future. The
majority of tenants are invoiced for rental income quarterly in advance
and are issued with invoices at least 21 days before the relevant quarter
starts. Invoices become due on the first day of the quarter and are considered
past due if payment is not received by this date. Other receivables are
considered past due when the given terms of credit expire.
Amounts are considered impaired when it becomes unlikely that the full
value of a receivable will be recovered. Movement in the balance considered
to be impaired has been included in other direct property costs in the
Consolidated Statement of Comprehensive Income. As of 31 December 2014,
trade receivables of GBP6,941 (2013: GBP114,622) were considered impaired
and provided for.
The ageing of these receivables is as follows:
2014 2013
GBP GBP
0 to 3 months 1,562 66,476
3 to 6 months 5,379 48,146
6,941 114,622
As of 31 December 2014, trade receivables of GBP1,738,063 (2013:
GBP410,679) were less than 3 months past due but considered not
impaired.
11 CASH AND CASH EQUIVALENTS
2014 2013
GBP GBP
Cash held at bank 764,911 634,018
Cash held on deposit with RBS
(see note 13) 4,634,184 11,669,292
5,399,095 12,303,310
Cash held at banks earns interest at floating rates based on
daily bank deposit rates. Deposits are made for varying periods of
between one day and three months, depending on the immediate cash
requirements of the Group, and earn interest at the applicable
short-term deposit rates.
12 TRADE AND OTHER PAYABLES
2014 2013
GBP GBP
Trade payables 553,969 442,890
Other payables 1,512,424 616,502
VAT payable 473,469 348,711
Deferred rental income 3,907,322 3,071,726
Rental deposits due to tenants 155,728 39,893
Lease incentives due within 602,503 -
one year
7,205,415 4,519,722
Trade payables are non-interest bearing and are normally settled
on 30-day terms.
13 BANK BORROWINGS
2014 2013
GBP GBP
Loan facility and drawn down
outstanding balance 84,432,692 84,432,692
Opening carrying value 83,866,594 83,752,959
Amortisation of arrangement
costs 113,788 113,635
Closing carrying value 83,980,382 83,866,594
On 20 January 2012 the Company completed the drawdown of GBP84,432,692
loan with The Royal Bank of Scotland plc ("RBS"). The new facility is
repayable on 16 December 2018. Interest is payable at a rate equal to
the aggregate of 3 month Libor, a margin of 1.65% (below 40% LTV) or 1.75%
(40% to 60% LTV inclusive) or 1.95% (above 60% LTV).
Under the terms of the loan facility there are certain events which would
entitle RBS to terminate the loan facility and demand repayment of all
sums due. Included in these events of default is the financial undertaking
relating to the loan to value percentage. The loan agreement notes that
the loan to value percentage is calculated as the loan amount less the
amount of any sterling cash deposited within the security of RBS divided
by the gross secured property value, and that this percentage should not
exceed 65% for the first five years and then 60% from the fifth anniversary
to maturity.
2014 2013
GBP GBP
Loan amount 84,432,692 84,432,692
Cash deposited within the security
of RBS (4,634,184) (11,669,292)
79,798,508 72,763,400
Investment properties valuation
including properties
held for sale (note 7) 270,225,000 176,415,000
Loan to value percentage 29.5% 41.2%
Loan to value percentage covenant 65.0% 65.0%
Loan to value percentage if
all cash is deposited within
the security of RBS 29.2% 40.9%
Other loan covenants that the Group is obliged to meet include
the following:
-- that the net rental income is not less than
- 150% of the finance costs for any three month
period
-- that the largest single asset accounts for
- less than 15% of the Gross Secured Asset Value
-- that the largest ten assets accounts for less
- than 75% of the Gross Secured Asset Value
-- that sector weightings are restricted to 55%,
- 45% and 45% for the Office, Retail and Industrial
sectors respectively
-- that the largest tenant accounts for less
- than 20% of the Group's annual net rental
income
-- that the five largest tenants account for
- less than 50% of the Group's annual net rental
income
-- that the ten largest tenants account for less
- than 75% of the Group's annual net rental
income
During the year the Group exceeded its sector weighting threshold in offices
of 55%. The exception was waived by RBS in the event that the cash holding
would be utilised to return the weighting below the 55% threshold once
the Group had undertaken planned property purchases. The Group did not
default on any other of its obligations under its loan agreement.
The loan facility is secured by fixed and floating charges over the assets
of the Company and its wholly owned subsidiary, Standard Life Investments
Property Holdings Limited.
14 INTEREST RATE SWAPS
The Company has two interest rate swap agreements with RBS which both
have a maturity date of 16 December 2018.
On 20 January 2012 the Company completed an interest rate swap of a notional
amount of GBP12,432,692 with RBS. This interest rate swap has a maturity
of 16 December 2018. Under the swap the Company has agreed to receive
a floating interest rate linked to 3 month Libor and pay a fixed interest
rate of 1.77125%.
On 20 January 2012 the Company completed an interest rate swap of a notional
amount of GBP72,000,000 with RBS which replaces the interest rate swap
entered into on 29 December 2003. This interest rate swap effective date
is 29 December 2013 and has a maturity date of 16 December 2018. Under
the swap the Company has agreed to receive a floating interest rate linked
to 3 month Libor and pay a fixed interest rate of 2.0515%.
2014 2013
GBP GBP
Opening fair value of interest
rate swaps at 1 January (30,997) (6,860,108)
Valuation (loss) / gain on interest
rate swaps (2,643,942) 6,829,111
Closing fair value of interest
rate swaps at 31 December
Interest rate swaps due: (2,674,939) (30,997)
Less than one year (1,386,451) (1,238,296)
Between one and five years (1,288,488) 1,207,299
Closing fair value of interest
rate swaps at 31 December (2,674,939) (30,997)
The individual swap assets and liabilities are listed below:
Interest rate swap with a start
date of 20 January 2012 maturing
on 16 December 2018 (278,270) 137,469
Interest rate swap with a start
date of 29 December 2013 maturing
on 16 December 2018 (2,396,669) (168,466)
(2,674,939) (30,997)
15 LEASE ANALYSIS
Lease length
The Group has entered into leases on its property portfolio. This property
portfolio as at 31 December 2014 had an average lease expiry of 6 years
and 5 months. Leases include clauses to enable periodic upward revision
of the rental charge according to prevailing market conditions. Some leases
contain options to break before the end of the lease term.
Future minimum rentals receivable under non-cancellable operating leases
as at 31 December are as follows:
2014 2013
GBP GBP
Within one year 17,200,407 12,698,386
After one year, but not more
than five years 54,964,023 33,865,858
More than five years 48,214,243 30,525,848
Total 120,378,673 77,090,092
The largest single tenant at the year end accounts for 6.7%
(2013: 8.6%) of the current annual passing rent.
16 SHARE CAPITAL
Under the Company's Articles of Incorporation, the Company may
issue an unlimited number of ordinary shares of 1 pence each. As at
31 December 2014 there were 244,216,165 ordinary shares of 1p each
in issue. All ordinary shares rank equally for dividends and
distributions and carry one vote each. There are no restrictions
concerning the transfer of ordinary shares in the Company, no
special rights with regard to control attached to the ordinary
shares, no agreements between holders of ordinary shares regarding
their transfer known to the Company and no agreement which the
Company is party to that affects its control following a takeover
bid.
Allotted, called up and fully 2014 2013
paid:
GBP GBP
Opening balance 31,337,024 22,280,186
Shares issued between 7 March 65,868,956 -
2014 and 19 November 2014 at
a price of between 71.5p and
76.0p per share
Shares issued between 6 February
2013 and 6 November 2013 at
a price of between 58.5p and
67.0p per share - 9,129,170
Issue costs associated with
new ordinary shares (1,017,332) (72,332)
Closing balance 96,188,648 31,337,024
2014 2013
Number Number of
of shares shares
Opening balance 154,994,237 139,631,746
Issued during the year 89,221,928 15,362,491
Closing balance 244,216,165 154,994,237
17 RESERVES
Retained earnings
This is a distributable reserve and represents the cumulative
revenue earnings of the Group less dividends declared as payable to
the Company's shareholders.
Capital reserves
This reserve represents realised gains and losses on disposed
investment properties and unrealised valuation gains and losses on
investment properties and cash flow hedges since the Company's
launch. This reserve also represents the realised gain on the
acquisition of two subsidiaries during the year to 31 December 2014
as detailed in note 9.
Other distributable reserves
This reserve represents the share premium raised on launch of
the Company which was subsequently converted to a distributable
reserve by special resolution dated 4 December 2003. This balance
has been reduced by the allocation of preference share finance
costs.
The detailed movement of the above reserves for the years to 31
December 2014 and 31 December 2013 can be found in the Statement of
Changes in Equity.
18 EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing profit for
the year net of tax attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the year. As there
are no dilutive instruments outstanding, basic and diluted earnings per
share are identical.
The following reflects the income and share data used in the basic and
diluted earnings per share computations:
2014 2013
GBP GBP
Profit for the year net of tax 28,583,402 11,824,035
2014 2013
Number Number of
of shares shares
Weighted average number of ordinary
shares outstanding during the
year 185,548,062 148,648,972
Earnings per ordinary share 15.40p 7.95p
EPRA (as defined in the Financial Highlights) publishes
guidelines for calculating adjusted earnings that represent
earnings from the core operational activities. Therefore, it
excludes the effect of movements in the fair value of, and results
from sales of investment properties together with the effect of
movements in the fair value of financial instruments.
2014 2013
GBP GBP
Profit for the year net of tax 28,583,402 11,824,035
Less: revaluation movements
on investment properties (21,197,869) (5,795,851)
Less: Gain on asset acquisition (136,938) -
Less: loss / (profit) on disposal
of investment properties 1,840,412 (430,205)
Adjusted (EPRA) profit for the
year 9,089,007 5,597,979
2014 2013
Number Number of
of shares shares
Weighted average number of ordinary
shares outstanding during the
year 185,548,062 148,648,972
Adjusted (EPRA) earnings per
share 4.90p 3.77p
19 DIVIDENDS
2014 2013
GBP GBP
1.133p per ordinary share paid
in February relating to the
quarter ending 31 December (2013:
1.133p) 1,756,085 1,599,022
1.161p per ordinary share paid
in May relating to the
quarter ending 31 March (2013:
1.133p) 1,865,834 1,665,870
1.161p per ordinary share paid
in August relating to the quarter
ending 30 June (2013: 1.133p) 1,865,834 1,728,043
1.161p per ordinary share paid
in November relating to the
quarter ending 30 September
(2013: 1.133p) 2,527,604 1,756,085
8,015,357 6,749,020
20 RECONCILIATION OF CONSOLIDATED NET ASSET VALUE TO
PUBLISHED NET ASSET VALUE
The net asset value attributable to ordinary shares is published
quarterly and is based on the most recent valuation of the
investment properties and calculated on a basis which adjusts the
underlying reported IFRS numbers. The adjustment made is to include
a provision for payment of a dividend in respect of the quarter
then ended.
2014 2013
Number Number of
of shares shares
Number of ordinary shares at
the reporting date 244,216,165 154,994,237
2014 2013
GBP GBP
Total equity per audited consolidated
financial
statements 184,367,522 101,591,795
Net asset value per share 75.5p 65.5p
The EPRA publishes guidelines for calculating adjusted NAV. EPRA
NAV represents the fair value of an entity's equity on a long-term
basis. Items that EPRA considers will have no impact on the long
term, such as fair value of derivatives, are therefore
excluded.
2014 2013
GBP GBP
Total equity per audited consolidated
financial
statements 184,367,522 101,591,795
Adjustments:
Less: fair value of derivatives 2,674,939 30,997
EPRA net asset value 187,042,461 101,622,792
EPRA net asset value per share 76.6p 65.6p
21 SERVICE CHARGE
The Company has appointed a managing agent to deal with the
service charge at the investment properties. The table below is a
summary of the service charge during the year. The table shows the
amount the service charge cost the tenants, the amount the tenants
have been billed based on the service charge budget and the amount
the Company has paid in relation to void units over the year. The
table also shows the balancing service charge that is due back to
the tenants as at the Balance Sheet date.
2014 2013
GBP GBP
Total service charge expenditure
incurred 1,557,269 1,620,103
Total service charge billed to
tenants 1,663,864 1,709,678
Service charge billed to the Group
in respect of void units 120,164 60,870
Service charge due to tenants
as at 31 December (226,759) (150,445)
1,557,269 1,620,103
22 RELATED PARTY DISCLOSURES
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party
in making financial or operational decisions.
Ordinary share capital
Standard Life Assurance Limited held 19,644,001 (2013: 14,982,501) of
the issued ordinary shares at the Balance Sheet date on behalf of its
Unit Linked Property Funds. This equates to 8.0% (2013: 9.7%) of the ordinary
share capital in issue at the Balance Sheet date. Standard Life Assurance
Limited held nil (2013: 14,724,580) of the issued ordinary shares at the
Balance Sheet date on behalf of its Heritage with profits fund. This equates
to nil% (2013: 9.5%) of the ordinary share capital in issue at the Balance
Sheet date. Standard Life Assurance Limited is not considered to exercise
control of the Group.
Directors remuneration
The remuneration of the key management personnel is detailed below. Further
details on the key management personnel can be found in the Director's
Remuneration Report and The Corporate Governance Report.
2014 2013
GBP GBP
Richard Barfield (appointed
chairman 29th May 2014) 31,223 24,000
Sally-Ann Farnon 29,500 25,000
Shelagh Mason (retired 31st
December 2014) 26,500 24,000
Huw Evans (appointed 11th April
2013) 26,500 17,063
Robert Peto (appointed 28th 16,736 -
May 2014)
Paul Orchard-Lisle (retired
28th May 2014) 13,107 32,000
David Moore (retired 14th May
2013) - 8,893
143,566 130,956
Directors expenses 2,431 4,737
145,997 135,693
Investment Manager
Management of the property portfolio is contractually delegated
to Standard Life Investments (Corporate Funds) Limited as
Investment Manager and the contract with the Investment Manager can
be terminated by the Company. Transactions with the Investment
Manager in the year are detailed in note 4.
23 SEGMENTAL INFORMATION
The Board has considered the requirements of IFRS 8 'operating
segments'. The Board is of the view that the Group is engaged in a
single segment of business, being property investment and in one
geographical area, the United Kingdom.
24 EVENTS AFTER THE BALANCE SHEET DATE
On 1 January 2015 the Group converted to a UK REIT.
On 20 January 2015 the Group completed the sale of De Ville
Court, an office investment in Weybridge for GBP3.15m excluding
costs.
On 20 February 2015 a dividend of GBP2,835,350 in respect of the
quarter to 31 December 2014 was paid.
On 25 February 2015 the Group raised GBP24.5m through the issue
of 31.3m new ordinary shares at a price of 78.1p per share under
its placing programme.
On 3 March 2015 the Group completed the purchase of an
industrial investment in Preston for GBP15.8m excluding costs.
On 4 March 2015 the Group raised GBP1.0m through the issue of
1.3m new ordinary shares at a price of 80.2p per share.
The Group has entered into a contract with third parties after
the Balance Sheet date for a refurbishment at Ocean Trade Centre,
Aberdeen for GBP1.0m net of dilapidations.
The Board has approved expenditure of GBP1.3m after the Balance
Sheet date for a refurbishment including the provision of air
conditioning to the ground floor at White Bear Yard, London.
Additional Notes to the Annual Financial Report
This Annual Financial Report announcement is not the Company's
statutory accounts for the year ended 31 December 2014. The
statutory accounts for the year ended 31 December 2014 received an
audit report which was unqualified and did not include a reference
to any matters to which the auditors drew attention by way of
emphasis without qualifying their report.
The statutory accounts for the financial year ended 31 December
2014 were approved by the Directors on 31 March 2015. The Company's
AGM is to be held on 27 May 2015. The Annual Report and Notice of
AGM will be sent to shareholders in April 2015 and will be
available for download from the Company's website hosted by the
Investment Manager (www.standardlifeinvestments.com/its).
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise. Investors may not get back the
amount they originally invested.
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DFLFXEXFZBBF
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