TIDMTRY
RNS Number : 1652G
TR Property Investment Trust PLC
25 May 2017
This announcement and the information contained herein is not
for publication, distribution or release in, or into, directly or
indirectly, the United States, Canada, Australia or Japan.
TR PROPERTY INVESTMENT TRUST PLC
Unaudited preliminary results for the year ended 31 March
2017
25 May 2017
TR Property Investment Trust plc, announces its full year
results for the year ended 31 March 2017.
Hugh Seaborn, Chairman, commented:
"I'm pleased to report another solid year of performance from
the Trust. The Board are particularly pleased to announce a final
dividend of 6.4p which brings the full year dividend to 10.5p, a
25.7% increase on the previous year. This also brings the 10 year
compound annual dividend growth rate to an impressive 9.9 %."
Financial Highlights and Performance Year ended Year
31 March ended %
2017 31 March Change
2016
--------------------------------------------- ------------- ------------- ----------
Balance Sheet
Net asset value per share 352.42p 335.56p +5.0%
Shareholders' funds (GBP'000) 1,118,424 1,065,419 +5.0%
Shares in issue at the end of the period (m) 317.4 317.5 -0.0%
Net debt 13.3% 11.9%
Share Price
Share price 314.50 297.50p +5.7%
Market capitalisation GBP998m GBP945m +5.7%
Year ended Year ended %
31 March 31 March Change
2017 2016
---------------------------------------------- ---------- ---------- -------
Revenue
Revenue earnings per share 11.38p 8.36p +36.1%
Dividends
Net Interim dividend per share 4.10p 3.15p +30.2%
Net Final dividend per share 6.40p 5.20p +23.1%
Net Total dividend per share 10.50p 8.35p +25.7%
Total Return Assets and Benchmark
Net Asset Value total return 8.0% 8.2%
Benchmark performance (total return) 6.5% 5.4%
Share price total return 9.1% -1.6%
Ongoing Charges
Excluding performance fee 0.69% 0.72%
Including performance fee 0.80% 1.06%
Excluding performance fee and direct property
costs 0.64% 0.67%
Net dividends per share are the dividends in respect of the
financial year ended 31 March 2017. An interim dividend of 4.10p
was paid in January 2017. A final dividend of 6.40p (2016: 5.20p)
will be paid on 1 August 2017 to shareholders on the register on 23
June 2017. The shares will be quoted ex-dividend on 22 June
2017.
Chairman's Statement
Introduction
The Trust's net asset value total return for the year of 8.0% is
pleasingly ahead of the benchmark as you will see below, and
similar to that of the previous 12 months at 8.2%. The other
similarity with the previous year is the positive impact of
currency movements on the Fund's total return. When viewed in local
currency terms, the total returns from pan European property
equities were broadly flat over the year. The weakening of Sterling
really began in June 2015, a year ahead of the Referendum last
June. By our year end on 31 March, the Euro had appreciated 18%
over the preceding nineteen months and this resulted in a
significant appreciation of our European assets when measured in
Sterling.
The last 12 months have been quite clearly dominated by
geopolitical risks and their unpredicted outcomes have left markets
off balance. However there has been a positive response to the most
recent results in the Dutch and French elections where centrist
politics have prevailed resulting in a collective reduction in the
risk premium.
Physical property pricing remained remarkably robust over the
period across all regions. Given the uncertainties resulting from
the Brexit Referendum result, the stability in UK commercial
property pricing, after an initial modest correction, has been
encouraging. Indeed the MSCI/IPD Monthly index has produced a
positive capital return in each of the last six months. Our own
physical portfolio which is heavily exposed to London retail and
distribution in London and the South, fell just 0.7% over the year
due primarily to a pending planning appeal affecting values at our
largest asset, the Colonnades in Bayswater.
Income remains the dominant requirement from investors seeking
exposure to this asset class and it is encouraging that the vast
majority of the businesses that the Manager has invested in have
continued to grow their earnings. Some sectors, notably German
residential companies, have been seen as 'bond proxies' and have
therefore suffered from concerns that rising yields would curtail
capital growth. Our Manager has remained resolutely of the view
that businesses with solid cash flows and the opportunity for
earnings growth, even where modest, are appealing. At the time of
writing the 10 year Bund yield to redemption was 0.4% per annum,
even though this figure is higher than the 0.06% available a year
earlier it remains paltry and investors continue to seek income
outside of traditional bond markets.
The aim of reducing the fund's exposure to Central London, which
commenced in mid-2015 and increased ahead of the Referendum,
remains in place. However exposure to the rest of the UK
particularly industrial and distribution has materially increased
and the overweight to this asset class across Europe has been a
significant contributor to performance. In general, retail property
in the UK remains a challenging environment and the Manager has
continued with his longstanding under exposure to the pure prime
shopping centre landlords. A surprise performer was the Swiss
property companies, particularly the residential development
businesses which prior to 2016 had offered investors modest returns
over many years. These stocks were outperformers and their absence
from the portfolio negatively impacted relative performance.
NAV and Share Price Performance
As mentioned earlier, the NAV total return was 8.0% which was
ahead of the benchmark at 6.5%. Encouragingly the share price total
return was 9.1% as the discount between the share price and the
asset value narrowed over the year. The discount at the year-end at
10.8% was ahead of the 10 year year end average of 11.6%.
More detail and commentary on performance is set out in the
Manager's Report.
Revenue Results and Dividend
Revenue for the year increased by over 36%. By far the most
influential factor in this growth has been the impact of weakening
Sterling on our income from Continental European stocks. This
together with solid income growth from many of our investments has
driven the income account to much higher levels than anticipated.
Timing changes of dividends paid around our year end have also
benefited the revenue account.
A final dividend of 6.40p per share results in a total dividend
for the year of 10.50p, some 26% ahead of the 2016 full year
dividend of 8.35p per share.
The Board has taken a cautious position on the final dividend in
that whilst the increase for the full year is material, it is not
fully reflective of the increase in earnings. The Board is mindful
of the potential negative impact of a reversal of the sterling
weakness experienced in the last financial year.
Revenue Outlook
The results announced by some of our investee companies in the
first few months of the financial year have largely been positive
with growth in most, but not all, the dividends paid early in the
year. As in the prior year, the most significant influence will be
currency changes, any strengthening in Sterling from its current
position will have a negative impact on the revenue account. Whilst
the timing of dividend payments around our year end had a modest
positive effect in the period just reported, it is possible that
the reverse may occur in the current period.
Debt
Gearing has increased from 11.9% to 13.3% over the year,
although the amounts drawn on our loan facilities are marginally
lower, a higher level of gearing has been accessed through the use
of CFDs, still a very cost effective means of gearing.
Currencies
As reported earlier, currency movements have been significant
over the period. We continue to use FX forward contracts to
maintain the currency exposure of our Balance Sheet broadly in line
with that of the benchmark. The resulting exposures are set out in
Note 11 to the Financial Statements.
Discount and Share Repurchases
As commented above, the discount narrowed during the year to a
level slightly ahead of the 10 year average although wider than
that seen through 2014/15. This is a trend which has been seen
across the Investment Trust sector in many specialist and
generalist funds.
A small number of shares (150,000) were repurchased during the
year at an average discount to net asset value of 15.8%.
Awards
The Trust was a joint winner in the Property category in the
Investment Week Investment Company of the Year Awards.
Board Changes
John Glen is not standing for re-election at the forthcoming
AGM. I would like to thank John for his considerable contribution
to the board over the past 3 years and wish him well for the
future.
Outlook
The UK has performed better than many commentators expected but
there are clear risks due to the uncertainty of the outcome of
negotiations for the UK's exit from the European Union. Our concern
is that businesses will be potentially less able to commit to
longer term investment (such as new leases) without clarity on key
aspects such as potential trade barriers and cross border supply
chains. For similar reasons it is possible that there will be a
deferral of the development cycle resulting in reduced speculative
construction starts.
Expectations of global growth continue to improve. Although bond
yields have risen as a result and there have been some inflationary
response, they remain at historically low levels. In this context
the income characteristics of real estate coupled to the emergence
of economic growth which provides an environment for rental growth,
will remain attractive to investors. The Manager continues to seek
to invest in businesses with strong cash flows and the potential
for earnings growth and this combined with the mitigation of risk
through a diverse portfolio invested across numerous submarkets and
geographies, is reflected in their decision to maintain gearing
levels.
Hugh Seaborn
Chairman
25 May 2017
Manager's Report
Performance
The Net Asset Value total return for the year of 8.0% was ahead
of the benchmark total return of 6.5%. The share price total return
(assuming dividend reinvestment) was 9.1% and reflects a slight
reduction in the discount relative to the net asset value.
The year under review was one in which geopolitical risk and
unexpected outcomes abounded. In local currencies, the collective
performance of pan European property stocks over the period was
virtually flat. The first half, which included the UK Referendum,
saw European stocks (in Euros) rise 3.8% whilst the UK companies
(in Sterling) fell -4.1% and all of this weakness was in the
aftermath of the Referendum. The second half saw this reverse with
Europe falling -3.8% and the UK rising 2.3% as investors began to
sense that the UK economy was not about to enter a marked slowdown.
Part of this optimism was caused by the positive economic effect of
weakened Sterling (which was a boost to exports). Sterling fell by
7.1% against the Euro over the twelve months with all of that
movement was post 24 June 2016. This currency movement was a key
driver behind the growth of the Trust's Sterling denominated asset
value.
We remind shareholders of the Trust's longstanding currency
positioning strategy which is to maintain exposure in line with
that of the benchmark. The Manager's underlying geographical
exposure may of course be (and invariably is) very different and
therefore we use currency forward contracts to maintain exposure
broadly in line with that of the benchmark. The relative
performance of the Manager versus the benchmark is, therefore,
neither aided nor diluted by such currency movements.
As always, blanket annual statistics hide a wide range of
performance both intra period and at the individual stock level.
The large number of national elections across Continental Europe in
2017 led to increased volatility given the collective difficulty in
predicting results with any certainty. Dutch and French property
companies were amongst the worst performers in the second half of
the financial year as investors fretted about their respective
elections and the risk of political gains by nationalistic parties.
At the same time the traditional safe haven of domestic Swiss
stocks performed well, particularly the residential businesses of
Allreal and Mobimo both returning over 20% in the year.
German property companies have again proved robust; collectively
delivering over 5% total return over the period but the valuation
movements were not smooth. The Trust has considerable exposure to
both residential and commercial property in Germany and performance
suffered last Autumn as investors moved aggressively away from
defensives and into cyclicals as the 'reflation' tidal wave of the
Trump election washed through European as well as US markets.
German residential businesses with partially regulated rents and
little exposure to the development cycle were viewed as 'bond
proxies' and sold off heavily between June and December as the 10
year Bund redemption yield moved from -0.1% to +0.3%. Even after
this rise in yields (which was painful for existing holders), the
yield on offer still guarantees a negative real return to maturity
if there is inflation over the decade. Such small returns remind us
of the ongoing distortions created by the central banks'
determination to assist in keeping borrowing costs at a minimum. We
remain firmly committed to the view that these large, liquid listed
German residential businesses offering both earnings growth and
income stability with dividend yields over 3.5% are attractive.
Income remains a crucial consideration and as investors'
appetite for risk has waned so has the appetite for stocks or
sectors which are seen as being ex growth or where the cycle has
peaked. Having reduced our exposure to Central London offices and
prime UK retail during 2015 and early 2016 we maintained that
underweight position throughout the year generating positive
performance. Likewise our overweight to industrial/logistics across
Europe has continued to expand and exposure to this asset class was
the largest driver of performance. As both Continental Europe and
the UK experienced improving economic conditions we continued to
add to our most cyclical sectors, hotels and self storage. Hispania
which owns a EUR1.3bn portfolio of hotels situated on mainland
Spain, the Balearics and Canaries returned 17% over the year whilst
Safestore, the UK and French self storage operator, returned
16.3%.
Alongside the reduced exposure to London offices there has been
an increased exposure to a small number of Continental cities,
Paris, Stockholm, Madrid and Berlin. The positioning in Paris is a
useful illustration of the divergence of returns across stocks even
when they are focused on (broadly) similar markets. Terreis, our
favoured Paris small cap focuses entirely on prime Central Paris
locations, the stock returned 28.1% whilst the much larger
competitors, Gecina and Icade who both own more diverse office
portfolios rose 9.3% and 7.5% respectively.
Property Investment Markets
UK commercial property transaction volumes were, unsurprisingly,
considerably lower in 2016 at GBP46.5bn than the record year of
2015 (GBP66.3bn). What was encouraging was the pace of recovery
post the summer. In fact Q4 2016 volumes were 31% ahead of Q3 and
the highest quarterly figure of 2016. Investors had clearly been
reluctant to engage prior to June but even with the uncertainty
created by the outcome they have subsequently committed. The
weakness of Sterling has played its part, particularly in Central
London where transaction volumes doubled between Q3 and Q4 and
international investors accounted for more than 80% of volume.
However the slowdown ahead of June did drag overall London
transaction volumes down to 16% below the five year average.
UK institutions have been net sellers, particularly the
open-ended funds whose combined portfolios are significant at
c.GBP35bn (this compares to the entire UK listed sector's value of
cGBP65bn). The post Referendum redemption 'debacle' resulted in
forced sales in the immediate aftermath. Collectively these funds
have continued to be net sellers, building substantial cash
positions to cope with their structural liquidity concerns. Such
high cash positions are a drag on performance but it is encouraging
that the FCA have recently published a paper with recommendations
on potential investor safeguards within these structures.
Regional markets were encouragingly busy with volumes ahead of
the five year average. We also saw international investment in
regional markets at an all time high with GBP5.3bn of single asset
deals. Another significant cohort of buyers has been the UK local
authorities. Fuelled by access to cheap finance from HM Treasury
through the Public Works Loan Board they have been attracted by the
high margins providing them with a valuable income stream.
Investment by English public sector bodies reached GBP1.2bn in 2016
alone.
The capital movement of the IPD All Property Monthly Index saw a
fall of -3.7% in the six months to the end of September. However
this correction reversed with a gain of +2% in the six months to
March 2017. The initial yield has moved modestly from 4.9% in March
2016 to 5.3% in March 2017 and this reflects the ongoing demand for
the asset class. Although transaction volumes are lower overall
than last year, the pick up post the Referendum is crucial evidence
as to the health of the market.
Although we don't have the same depth of transaction data for
much of Europe, we do see clear evidence of yields tightening in
core city centre office markets, prime shopping centres and
logistics. Funding remains liquid and at attractive rates ensuring
that acquisitions are highly cash flow generative. With rents
recovering in so many of these markets the ability to buy rental
growth coupled with a cushion of initial income is an attractive
proposition. Bond yields are rising but from extremely low levels
and remain historically subdued. The ECB has reduced its bond
buying programme and will undoubtedly reduce it further in the
coming months but stable bank margins and bond spreads illustrate
the appetite to lend to high quality real estate even in these
politically charged times.
Offices
Take up of space in Central London was, as expected, lower than
in 2015. The City saw total take up of 5.8m sq ft which was 21%
below the previous year but still 6% ahead of the ten year average.
The West End was more positive at 4.0m sq ft, just 9% below 2015
but 7% ahead of the ten year average. Tech and Media firms continue
to dominate and this is set to continue as the financial services
sector grapples with its post Brexit location requirements. Our
concerns remain focused on the City as opposed to the West End or
Midtown. It should be noted that the largest single acquirer of
space in the City in both 2015 and 2016 was WeWork, a new entrant
to the UK serviced office market with a successful track record in
the US. In 2016, they acquired 345,000 sq ft (6% of all take up) on
top of 550,000 sq ft in 2015. Serviced office occupiers have always
been a key part of any core office market providing flexibility but
when they are the single largest driver of demand we see that as a
risk. The better news remains the lack of supply and the pre-let
status of the development pipeline. This theme of benign supply
runs through most markets and the City is no exception. The good
news is that over 30% of the 2017-2020 pipeline is already pre-let
with new build completions of c2.5m sq ft for the next three years.
We maintain our position of reduced exposure to the City market
because of risk to demand rather than over expansion of supply.
The dynamics in the West End remain stronger, both in the
context of a broader tenant base which is less exposed to the
regulatory difficulties of doing business outside of the European
Union but also from a net supply perspective. Although supply rose
in Q4 2016 with some high profile completions and vacancy reaching
3.9%, (its highest since 2013) over 50% of all completions set for
2017/18 are pre-let. The recent commitments by global tech giants,
such as Facebook and Apple as well as newly listed Snapchat,
continues to reinforce London's dominance for Tech and Media who
accounted for 35% of all take up.
Most commentary on UK office markets is directed towards Central
London but the health of both London's hinterland and the big 6 key
regional cities are crucial national indicators. For the fourth
year in a row office take up, ex Central London, has surpassed the
long term average. An impressive statistic given the political
uncertainties. Importantly, supply levels have continued to fall
with speculative development unable to match take up particularly
when combined with the impact of Permitted Development Rights
(PDR). PDR allows owners of commercial property (principally
offices) to convert their buildings into residential regardless of
the local planning authority's stance. The continuing demand for
new, state of the art office space has driven pre-lets to an all
time high across the regions, 44% of the 3.6m sq ft is pre-let and
rents are responding with Cardiff now over GBP25 per sq ft and
Birmingham exceeding GBP32 per sq ft.
Investors have also taken note and 28% of the UK's total office
investment turnover was regional, well ahead of the 10 year average
of 23%. International investors are not confining their interest to
London and high profile purchases such as Green Park in Reading
acquired by Mapletree (Singaporean based) for GBP560m and HSBC
buying parts of Brindley Place, Birmingham's premier city centre
office location for GBP260m are testament to this.
It is fair to point out that access to regional office markets
through the listed sector is difficult as so few companies have
exposure. Where we do get exposure is the western quadrants of the
M25 and the London suburban markets through Mckay Securities and
CLS Holdings. Take up has remained in line with the ten year
average and encouragingly Q1 2017 has seen an upturn when compared
with a year earlier. Vacancy has risen slightly to 6.1% (M25) and
supply is up 8% on the previous year but crucially still well below
long run averages. Both these companies have reported new lettings
and renewals comfortably ahead of ERV which reinforces our
commitment to these markets.
Paris continues to see robust activity with the 2016
Ile-de-France lettings reaching 25m sq ft, 7% ahead of 2015. Within
such a large geographical area as Paris there are always huge
variations in performance and 2016 was no exception. The core
central market (Paris Centre West) where we are invested through
Terreis (total return 28.1% year to March 2017) performed very well
with vacancy now at record low levels (3.1%). The most encouraging
statistics were from Southern Paris and La Defense where a number
of large transactions (defined as over 50,000 sq ft) were crucial.
Although vacancy remains over 9% in La Defense the amount of new
build space is much smaller and we are confident that this will
support rents near term. Madrid is a good example of a recovering
market. Take up was slightly lower in 2016 than 2015 but the
political environment must shoulder at least partial responsibility
and therefore we are positive that 2017 will see an improvement
given greater political stability. Whilst we are confident about
the improving Spanish economic outlook which will directly impact
the Madrid office market, our concern is supply. The city has an
overall vacancy rate of 12.5%, there is over 10m sq ft of space
available for immediate occupation. A significant amount is in
tertiary locations but even in the core we need to see strong take
up to reduce availability. The worry is growth in supply with five
high quality refurbished buildings amounting to another 330,000 sq
ft. coming onto the market in Q4 2016 alone.
Stockholm continues to astonish with MSCI data showing capital
growth of over 13% for the central markets driven by both rental
growth and yield compression. Vacancy remains below 7% with new
build a tiny proportion of that, hence our ongoing overweight to
this market through Fabege and Kungsladen.
Retail
The retail sector continues to be buffeted by the structural
headwinds of multi channel retailing, a subject which has been
aired many times in previous reports and will, no doubt, continue
to feature for many years to come. Quite simply the way we all shop
is now constantly evolving as technology and fulfilment offers
increasing ways of satisfying our retail demand without venturing
to a shop - unless we want to. Increasing those visits is the sole
aim of shopping centre landlords as they seek to persuade retailers
that a physical presence in multiple locations is an economically
sound strategy.
The UK continues to have the highest penetration of online sales
as a percentage of total sales (ex food and fuel) at 15%, it is
also growing at 15% per annum when total sales are growing at 2%.
Online is, therefore, continuing to take overall market share from
physical stores. As identified in the interim report the rest of
Europe's online market share is much lower than the UK. That is not
to say they won't catch up, we think that is inevitable but that
landlords appear to have more time to develop strategies with
tenants. The other safety net for European landlords is that
overall costs for tenants (the occupancy cost ratio) is lower
across much of Europe than the UK.
Another rapidly pressing issue which is impacting UK retailers
(and therefore shopping centre landlords) is the burden of consumer
credit which has been growing at over 10% over the last year (BoE)
and stands at a record GBP196bn. With interest rates at
historically low levels and the resumption of real wage growth such
amounts, whilst huge, are sustainable. However, inflation caused by
rising food prices and the rising costs of imports due to weakened
Sterling will mean that real as opposed to nominal wage growth will
be negative over the near term. In addition, house prices (ex
Central London) have risen consistently since 2011 and the UK house
price to income ratio is almost back to the 2007 peak of 4.5x. None
of this is good news for retailing.
Across Continental Europe the average level of personal
indebtness is much lower and whilst real wages are not rising fast,
we have seen dramatic reductions (albeit from a poor starting
point) in levels of unemployment particularly in Southern Europe
which is clearly helping consumption. Germany and Sweden have both
experienced consistent real wage inflation as their economies
continue to improve.
The focus has not changed from that reported at the interim, our
UK exposure remains concentrated on higher yielding local shopping
where, crucially, rents are affordable for tenants and where
incremental asset management improvements add value. We continue to
hold Capital & Regional (12 month total return -9.3%) and New
River Retail (12 month total return 8.2%). We remain concerned that
whilst the larger UK companies own the best and dominant centres,
the affordability for retailers is an ongoing issue and the lack of
overall deal transparency is also an issue. We therefore view
Hammerson (12 month return 2.8%) expanding their outlet centres and
Intu's (12 month return -6.7%) buying Spanish centres as positive
initiatives. However we think that this diversification is
recognition that further large scale investment in their existing
core portfolios has become increasingly unattractive.
The exception in the UK has been Central London where the mix of
leisure, retailing and dining has proved highly resilient. The
weakness of Sterling has turbocharged tourism. London hotels,
retailers and restaurants have all been beneficiaries.
One strong positive for retail landlords has been the dramatic
reduction in supply of additional shopping centre space. The market
is always eventually self correcting and speculative development
dries up in response to weak demand. This year the only two new
centres to open are Oxford and Bracknell. Both have large wealthy
catchments in need of good quality in town retail offerings. Land
Securities is developing Oxford and we are confident it will let up
quickly, even so their estimated yield on cost of 5.9% reflects the
low returns even when there is demand from retailers to open new
stores.
Distribution and Industrial
MSCI's UK Monthly index recorded capital growth of 3.3% in the
Industrial/Logistics sector for 2016 compared to -3.2% for offices.
We fully expect this performance gap to continue as rental growth
accelerates for distribution assets. Investors are chasing the
asset class and yields are falling particularly where there is
perceived shortage of sites as well as snapping up large sheds on
the principal distribution networks/hubs. Drilling into the data in
more detail reveals that capital growth for London
industrial/distribution rose 8% and for the South East was
6.2%.
As I wrote last year, the growth in online retailing continues
to drive a reorganisation of the distribution landscape. Amazon
alone has been responsible for 23% of the entire take up in UK
distribution space in 2016 helping to drive a surge which reached
34.6m sq ft. Online retailers directly accounted for 29% of this as
we witness the transformation of retailing from 'shops to sheds'.
Supply continues to struggle with the pace of demand and it reached
its lowest ever level of 22.7m sq ft in Q4 2016. Although new
speculative supply has pushed this figure back up to 27.6m sq ft in
Q1 2017 we still see a market where rents continue to rise
particularly for units offering proximity to larger conurbations.
Segro was the outstanding performer amongst the Big Five UK
property companies, returning 20.5% in the year to March 2017. In
hindsight no real surprise given its portfolio of 22.3m sq ft in
the UK and 27.3m sq ft in Europe of high quality logistics and
industrial space.
The picture across Continental Europe is much the same. Our
preferred French logistics developer Argan, returned 32.7% on the
back of their portfolio of 25m sq ft of Class A logistics property.
Elsewhere, our exposure to Southern German logistics and industrial
space is through VIB Vermogen which returned 26.9% again on the
back of strong rental and capital growth.
Residential
The performance of the residential sector in the UK needs to be
separated into Central London and remainder. The change in stamp
duty thresholds combined with Osborne's efforts to remove the tax
shield for higher rate payers owning 'buy to lets' has impacted
growth particularly in higher value markets. The Referendum result
compounded concerns about demand from EU nationals employed in
financial services just as the new build Central London market
experiences a spike in supply. Whilst we continue to have no
exposure to luxury apartments (GBP1,000 per sq ft and above) we do
remain confident about the ability of house builders to sell in
more affordable locations. Our investment in Telford Homes, a South
East London focused developer who's average lot size is less than
GBP600,000 has been profitable with a 12 month total return of
12.5%. Through our holdings in St Modwen and CLS we did retain
exposure to the regeneration of Nine Elms. However, CLS announced
(just post our year end) the sale of their entire Nine Elms site
for GBP148m, 40% premium to the December 2016 valuation. The
purchaser was a Hong Kong listed developer and the deal provides a
useful reminder that, particularly when viewed from afar, the break
from Europe may not be viewed quite so negatively.
Outside of London residential markets continue to be robust but
with real wages stagnating and the elevated level of consumer
indebtness we remain cautious and have very little exposure. The
private rented sector (PRS) remains a market which will grow but we
prefer to own those firms creating the product such as Telford
Homes (who recently sold two blocks to an institutional PRS
operator) rather than the underlying asset which by its nature is
very low yielding.
German residential has been a firm favourite for many years and
at the underlying asset level performance remains robust with
occupational demand remaining firm, continuing to be buoyed by both
domestic household growth and net migration (1.2 million people in
2015). Investor demand has also remained strong and prime Berlin
has set a new record price level of 30x the gross rent (a year ago
the level was closer to 26x). The average capital value per sq ft
has risen 35% in the last year but it still remains relatively
affordable when compared with other major European cities.
Elsewhere in Europe we see continuing growth in residential
values. Sweden has shown impressive capital growth, particularly in
the metropolitan areas in spite of the introduction of
macro-prudential tools by the central bank (aiming to restrict
borrowing availability).
Hotels and Self Storage
With the ongoing recovery in many European economies we have
focused our attention on the more cyclical sectors particularly
hotels and self-storage. In the hotel sector we are not seeking
exposure to pure operators but businesses which blend ownership and
management. Focusing on where they have the ability to manage and
improve a hotel but also where the bulk of the income is from
leased assets. Our largest exposure is Hispania, which has 65% of
its assets in hotels and we expect that to increase further
following non core disposals and further acquisitions. This
business is focused on tourist destinations in both mainland
coastal markets and the islands. A consequence of the rise in
terrorist atrocities has been the collapse of tourism in North
Africa and Turkey. Foreign visitors to Turkey are down 30% in the
twelve months to February and the statistics for Egypt are even
worse. Northern Europeans are not abandoning their summer sun but
instead 'safecationing' with bookings massively ahead of last year
in Greece, France, and Spain. Hispania's 12 month total return was
18.4%.
Our self storage focus remains very UK centric due to a lack of
opportunity in Continental Europe. Our preferred stock, Safestore
have comfortably beaten the broader benchmark this year with total
return of 16.6% and its mix of UK and Paris assets remains
attractive. Our positive view is driven by an expectation of a
steady increase in business usage of short term storage space for
'last mile' distribution purposes. The irreplaceable network of
urban and suburban locations for both Safestore and Big Yellow
bodes well for demand as online fulfilment delivery times shorten
further.
Debt and Equity Capital Markets
The era of unorthodox stimulus by all European central banks
continued throughout the period. Whilst markets have anticipated a
continuing reduction in the amount of asset purchases by the ECB
through 2017 the current level of support has allowed many
companies to continue to issue debt at record low cost. Not
surprisingly the period saw record debt issuance in our sector.
However much of this was debt restructuring as companies,
particularly European ones, took the opportunity to retire existing
bonds and fix for longer periods at these historic low levels. A
strategy we applaud wholeheartedly and one which some of the larger
UK companies should heed before it becomes more expensive. In total
pan European property companies raised EUR19.3bn in the twelve
months to March 2017 compared to EUR13.7bn in the previous period.
The average LTV, as calculated by EPRA, the industry trade body,
has continued to fall over the period which is reassuring.
In previous reports we have sought to provide one clear example
of how the cost of debt was still falling in the period. In
November last year, Unibail Rodamco, the largest property company
in Europe announced a EUR500m 8 year bond with a fixed coupon of
0.85%, the lowest ever achieved by a listed property company.
Convertibles have also proved popular particularly amongst the
residential businesses. Buwog issued a EUR300m 5 year convertible
bond with a zero coupon whilst Deutsche Wohnen placed convertible
bonds totalling EUR800m with an aggregate coupon of 0.325%.
Unsurprisingly given the geopolitical risks of multiple
elections across Europe and the Referendum in the UK, equity
capital markets were more subdued with GBP5.7bn raised through
rights issues and placings but without a single new IPO into the
benchmark index. Germany dominated with raisings from ADO and
Deutsche Wohnen in the residential space. We also saw issuance from
Deutsche Euroshop, Hamborner and TLG. In the UK the raisings were
dominated by companies focused on either industrial/logistics,
student housing or healthcare. Tritax Bigbox were once again on the
roster raising GBP250m in October bringing their total raised since
IPO to GBP1.3bn. Post the year end they have announced a further
raising of up to GBP350m.
Property Shares
As highlighted in the Interim, the first half of the year saw a
very sharp divergence in the performance of the UK and Continental
Europe. The 6.5% return from UK property companies between the
beginning of the financial year and 23 June sums up the optimism
and expectation of a Remain vote. Over that period, Continental
Europe returned just 2.2% in EUR terms. From 23rd June to the end
of the first half, 30 September, UK stocks fell -8.2% whilst the
Continental names rose 3.9% in EUR terms. These summary figures
mask a period of extraordinary volatility in the aftermath of the
Referendum result.
The second half of the year saw property shares experiencing an
autumnal sell off as investors rotated from defensives and
companies seen as 'bond proxies' into cyclicals offering greater
exposure to an improving global recovery. This rotation gathered
pace post the US presidential election as markets priced in a
tailwind of fiscal support. Bond yields across all developed
markets rose and sub sectors such as German residential which are
perceived as stable income streams with restricted growth due to
regulated rents fared very poorly in the last quarter of the year.
The German element of the benchmark fell over 15% between September
and November.
The last quarter of the financial year saw a stabilising of
share prices after a strong recovery in December. Investors began
to realise that the US had not only embarked on an interest rate
normalisation phase but may well now receive an injection of fiscal
largesse with the potential lowering of tax rates. However, Europe
is not travelling at the same speed and there is no expectation
that the ECB is going to lift the base rate soon. Longer dated bond
yields have continued to rise modestly, the 10 year Bund rose from
-10 bps to +34 bps in the second half of the financial year, but
they remain at historic low levels. Investors continue to seek
alternative sources of (higher) income than the miserable returns
from fixed income. The last quarter of the financial year coincides
with the reporting season for companies with a December year end
and share prices responded to a steady stream of results which
matched or exceeded earnings expectations. The message from
companies was one of continued focus on revenue and a broad
expectation that the improvements in the underlying economic
environment would translate into tenant demand and rental growth.
One important distinction between the UK and Continental Europe was
the direction of capitalisation rates. The UK listed sector,
dominated by exposure to London and large shopping centres is now
experiencing rising capitalisation rates as rental growth prospects
recede, whilst much of the Continent is still reporting yield
compression particularly in prime office markets reflecting the
prospect of rental growth.
Investment Activity
Investment turnover (purchases and sales divided by two) equated
to 31.6% of the average assets over the period. Whilst investment
activity reflected a heightened level of tactical repositioning due
to a range of macro factors, the strategic positioning particularly
at the asset and sub-sector level saw a continuation of a number of
themes which have been running for a while. Our approach to retail
exposure is a case in point. We no longer hold either of the UK's
largest pure retail landlords, Intu and Hammerson. Our exposure is
through Capital & Regional and New River Retail, where we
increased the former but decreased the latter. We continue to focus
on stocks where rents have rebased to affordable levels and where
investors are being rewarded through higher income returns in an
area of the market which is suffering huge structural headwinds.
Asset management gains are a key part of the overall returns from
these businesses and a small number of initiatives can make a large
difference in these smaller companies. In the case of the larger
stocks, they both have large development and repositioning
pipelines but we don't believe the returns offered justify the risk
on such large schemes.
We remain more confident about retail in Europe and our exposure
has consolidated into four names, Unibail and Klepierre focused on
prime and Mercialys and Eurocommercial in the sub-regional space.
We have therefore exited (or are close to completing our exit) from
Citycon (Finland), Wereldhave (Netherlands, Finland and France),
Vastned Retail (Netherlands, France and Spain) and Deutsche
Euroshop (Germany and Central Eastern Europe).
As discussed earlier in the report, the winners in the game of
omni channel retailing are the warehouse landlords and developers.
We have been increasing our exposure to this sector for several
years (as the other side of the reduction in retail) and this
accelerated both in the UK and Continental Europe. Segro is now the
second largest UK position and the capital raises in September 2016
and March 2017 enabled significant expansion in our position. The
stock was the top performing UK large cap in the period, returning
20.5%. Hansteen has been a stock we have traded in over many years
and undue share price weakness early last year enabled us to
rebuild the position. We were pleased with the announcement of the
sale of the entire European portfolio allowing management to
concentrate on the UK. London Metric announced their intention to
exit over time from retail warehousing and focus on distribution
and the company is now 2% of our assets. Tritax Bigbox gives us
exposure to this sector but their addiction to raising equity will
result in a cash drag and sub par earnings growth hence our modest
position. This is not the issue at Argan, our preferred logistics
play in France, where the CEO and his family own half the business
and are focused on organic growth. The stock returned 32.7% in the
period.
In last year's report I commented on the reduced London exposure
and that strategic move continued up to the Referendum. However we
were still exposed into June and that resulted in some weak
relative performance in the aftermath. The London office
specialists, Derwent London, Great Portland Estates and Workspace
are well run businesses with solid balance sheets and low leverage.
As a group we did not reduce exposure further post the result. The
surprising weakness was in both St Modwen and CLS Holdings, two
large holdings. We reduced exposure in the former but the
subsequent resilience of the UK regional markets and the
appointment of a well regarded new CEO led to a strong recovery in
the share price. On a happier note, we held the CLS position and
then added to it. Alongside the Vauxhall site (now sold), the
business had one of the highest cashflows per share in the sector
with a portfolio of edge of city centre and suburban offices in the
UK, France and Germany. The total return for the year was
18.4%.
With bond yields across Europe set to rise further as the
Eurozone economies improve we have rotated our residential focus to
the higher yielding businesses, (Vonovia and LEG) and those with
development pipelines (Buwog).
Our renewed interest in Spain evolved further with additional
investment in Hispania. The business will be wound up by 2020 and
importantly management's carried interest is paid only on the
exit.
Revenue and Revenue Outlook
As highlighted in the Chairman's Statement revenue for the year
is up by over 36% with currency being a significant factor as our
European earnings became worth more in Sterling terms. Other
factors did play a part, with some ex-dividend date changes around
the year end being brought forward and some companies moving from
annual to more regular dividends in the period. We expect most of
these dates to be maintained for the current year but companies
will not commit to ex-dividend dates until they make their
individual announcements, so these can always change again.
This step change in the level of earnings can be expected to be
maintained whilst Sterling remains at current levels. Results
announced year to date have been positive in the main with dividend
growth in many of the stocks in which we invest. As expressed
earlier, strength of income is an important part of our investment
decision process and we remain upbeat about the income account. The
big caveat is currencies, if Sterling begins to strengthen from
current levels this could have a significant negative impact
depending on timing and quantum.
Gearing and Debt
Gearing increased from 11.9% to 13.3% over the year. With our
private placement long-term debt in place and funding levels
through CFDs still providing very competitively priced gearing, we
reduced the amount available under one of our revolving credit
facilities which renewed in January, from GBP50m to GBP40m. This is
a modest reduction but undrawn debt under these facilities does
carry a non-utilisation fee, as we have sufficient capacity to gear
with this reduced facility level we opted to make the small
saving.
Under new legislation effective from the beginning of April
2017, the amount of interest deductible when calculating tax
payable has been restricted. Even at low levels of gearing, we will
be caught by this to a small extent and the result will be a modest
increase in the tax charge. This will be evaluated as a cost of
debt when considering gearing levels but is not likely to influence
gearing decisions when interest rates remain at current low levels.
There are exemptions to these restrictions for some categories of
business and Real Estate Investment Trusts are one example, so most
of our investee companies will not suffer the restriction, however
some non-REIT businesses may and they are engaging with their
advisers. The Investment Trust industry lobbied HMRC through the
AIC to extend the exemptions to regular Investment Trusts, but this
was rejected.
Direct Physical Portfolio
The physical property portfolio produced a total return of 2.6%
for the twelve months to March 2017 with an income return of 3.4%
and a capital return of -0.7%.
At our industrial estate in Wandsworth, London we have completed
our programme of lease renewals, extending the expiry profile for
the estate so all leases now expire in 2019. This facilitates a
redevelopment of the estate at that time. Overall 11 leases were
extended and 1 new letting was concluded with the rents received on
those units increasing by 25%. Only 2 units are vacant and one of
those is under offer. Our other industrial assets in Gloucester,
Bristol and Plymouth have performed well over the year with the new
lettings in Gloucester delivering further rental growth with a void
period of only 2 months.
At the Colonnades in Bayswater, we have experienced a delay in
the letting of the ground floor retail units. Our planning
application merging two units to facilitate the letting to Babaji,
the restaurant operator, was turned down by the City of Westminster
planning committee. We believe that Babaji would be an excellent
restaurant operator and we have therefore made an appeal to the
Planning Inspectorate with a decision expected in late September.
At the time of writing we have strong interest in the two remaining
units from a range of occupiers. We are keen to ensure that the
tenant mix is complementary as this will be essential to the
success of the overall development and therefore we are not rushing
to secure the first possible party. The number of residential lease
extensions was modest with only 5 flats extending their tenure.
This is not a surprise and reflects the uncertainty generated by
the Referendum result. We are in no rush to complete lease
extensions as the effluxion of time towards each lease expiry
merely increases the landlord's residual value and the ultimate
extension premium which must be paid.
Outlook
Property is a pro-cyclical asset class, without economic growth
market rents can't rise. Whilst that is an obvious point it is
worth reiterating as investors have become overly (in our view)
concerned about the threat of rising bond yields. Given the
improving economic backdrop across Europe, bond yields need to
begin the slow path to normalisation following the almost decade
long effort by central banks to reduce the cost of debt through
ultra loose monetary policy. The economic survey data amongst the
major euro-zone economies has converged, they are all benefiting
from low borrowing costs, good debt availability, a competitive
Euro/Dollar rate, a pick up in global demand and improving labour
markets. Headline inflation has ticked up but core consumer prices
and broad money growth remain muted. If core inflation remains
below 2% then the ECB have the latitude to elongate the 'glide
path' of reducing their bond buying programme. Few are predicting
an increase in the base rate before late 2018 or even into 2019.
Meanwhile the gap between property yields and real interest rates
remains at an all time high. The combination of the improving
economic outlook within Continental Europe, the reduction in short
term political risk and the modest performance of property equities
(they are not overvalued) reinforces our positive outlook.
The UK has performed much better than many observers expected
since the Referendum. Values of commercial property as measured by
the MSCI/IPD data remain robust. The very high proportion of
international buyers in the Central London office investment market
is both a positive (they see an opportunity) and a negative (how
far is currency weakness the driver). We are concerned that demand,
particularly from financial services, will weaken further as
negotiations with Brussels drag on. The good news is that equity
prices have quickly adjusted and now represent fair value. The
outperformance of the UK economy versus most European economies
over the last nine months has been strong but that gap will narrow.
The UK has experienced a credit boom and the UK consumers remain
far more indebted than their Continental counterpart. We think
stagnating real wage growth will be an additional headwind for
retail sales growth.
Property will continue to be a valuable source of income for so
many investors and whilst we see risks to some sub-sectors capital
growth prospects, there are many parts of the market both in the UK
and Continental Europe which we view as attractive opportunities
for growth. Underpinning the vast majority of markets is the benign
backdrop of low levels of speculative construction in commercial
property markets and coupled with the strong financial position of
most listed property companies leads us to feel confident that the
asset class will remain a relative outperformer.
Marcus Phayre-Mudge
Fund Manager
25 May 2017
Overview of strategy, performance measurement and risk
management
Investment Objective and Benchmark
The Company's Objective is to maximise shareholders' total
return by investing in the shares and securities of property
companies and property related businesses internationally and also
in investment property located in the UK.
The benchmark is the FTSE EPRA/NAREIT Developed Europe Capped
Net Total Return Index in Sterling. The index, calculated by FTSE,
is free-float based and currently has 103 constituent companies.
The index limits exposure to any one company to 10% and reweights
the other constituents pro-rata. The benchmark website www.epra.com
contains further details about the index and performance.
Business Model
The Company's business model follows that of an externally
managed investment trust.
The Company has no employees. Its wholly non-executive Board of
five Directors retains responsibility for corporate strategy;
corporate governance; risk and control assessment; the overall
investment and dividend policies; setting limits on gearing and
asset allocation and monitoring investment performance.
The Board has appointed F&C Investment Business Limited as
the Alternative Investment Fund Manager with portfolio management
delegated to Thames River Capital LLP. Marcus Phayre-Mudge acts as
Fund Manager to the Company on behalf of Thames River Capital LLP
and Alban Lhonneur is Deputy Fund Manager. George Gay is the Direct
Property Manager and Joanne Elliott the Finance Manager. They are
supported by a team of equity and portfolio analysts.
Further information in relation to the Board and the
arrangements under the Investment Management Agreement can be found
in the Report of the Directors below.
In accordance with the AIFMD, BNP Paribas has been appointed as
Depository to the Company. BNP Paribas also provide custodial and
administration services to the Company. Company secretarial
services are provided by Capita Company Secretarial Services.
The specific terms of the Investment Management Agreement are
set out in the Directors' Report.
Strategy and Investment Policies
The investment selection process seeks to identify well managed
companies of all sizes. The Manager generally regards future growth
and capital appreciation potential more highly than immediate yield
or discount to asset value.
Although the investment objective allows for investment on an
international basis, the benchmark is a Pan-European Index and the
majority of the investments will be located in that geographical
area. Direct property investments are located in the UK only.
As a dedicated investor in the property sector the Company
cannot offer diversification outside that sector, however, within
the portfolio there are limitations, as set out below, on the size
of individual investments held to ensure diversification within the
portfolio.
Asset allocation guidelines
The maximum holding in the stock of any one issuer or of a
single asset is limited to 15% of the portfolio at the point of
acquisition. In addition, any holdings in excess of 5% of the
portfolio must not in aggregate exceed 40% of the portfolio.
The Manager currently applies the following guidelines for asset
allocation;
UK listed equities 25 - 50%
Continental European listed equities 45 - 75%
Direct Property - UK 5 - 20%
Other listed equities 0 - 5%
Listed bonds 0 - 5%
Unquoted investments 0 - 5%
Gearing
The Company may employ levels of gearing from time to time with
the aim of enhancing returns, subject to an overall maximum of 25%
of the portfolio value.
In certain market conditions the Manager may consider it prudent
not to employ gearing on the balance sheet at all, and to hold part
of the portfolio in cash.
The current asset allocation guideline is 10% net cash to 25%
net gearing (as a percentage of portfolio value).
Property Valuation
Investment properties are valued every six months by an external
independent valuer. If a material event occurs in the intervening
period, then an interim valuation will be instructed on the
property in question. Valuations of all the Group's properties as
at 31 March 2017 have been carried out on a "Red Book" basis and
these valuations have been adopted in the accounts.
Allocation of costs between Revenue & Capital
On the basis of the Board's expected long-term split of returns
in the form of capital gains and income, the Group charges 75% of
annual base management fees and finance costs to capital. All
performance fees are charged to capital.
Key Performance Indicators
The Board assesses the performance of the Manager in meeting the
Trust's objective against the following Key Performance Indicators
("KPIs"):
KPI Board monitoring and outcome
-------------------------------- ----------------------------------------------------------------
Net Asset Value Total
Return Relative to the * The Board reviews the performance in detail at each
benchmark. meeting and discusses the results and outlook with
The Directors regard the Manager
the Company's net asset
value total return performance Outcome
in comparison with the ------------------ -----------------
benchmark as being an 1 year 5 years
overall measure of value ------------------ ------- --------
delivered to the shareholders' 8.0 122.7
over the longer term NAV Total Return % %
------------------ ------- --------
Benchmark Total 6.5 87.3
Return % %
------------------ ------- --------
-------------------------------- ----------------------------------------------------------------
Delivering a reliable
dividend which is growing * The Board reviews statements on income received to
over the longer term date and income forecasts at each meeting.
The principal objective
of the Company is a Outcome
total return objective, ------------------- -----------------
however, the Manager 1 year 5 years
aims to deliver a reliable ------------------- ------- --------
dividend with growth Compound Dividend
over the longer term. Growth 25.7% 9.7%
------------------- ------- --------
3.1 11.8
RPI % %
------------------- ------- --------
-------------------------------- ----------------------------------------------------------------
The Discount or Premium
at which the Company's * The Board takes powers at each AGM to buy-back and
shares trade compared issue shares. When considering the merits of share
with Net Asset Value buy-back or issuance, the Board looks at a number of
Whilst investment performance factors in addition to the short and longer-term
is expected to be a discount or premium to NAV to assess whether action
key driver of the share would be beneficial to the shareholders overall.
price discount or premium Particular attention is paid to the potential impact
to the net asset value of any share buy-back activity on the liquidity if
of an investment trust the shares and on ongoing charges over the longer
over the longer-term, term.
there are periods of
volatility when the Outcome
discount can widen. ------------------------ ------------------
The Board is aware of 1 year 5 years
the vulnerability of ------------------------ -------- --------
a sector-specialist Average discount 11.9% 6.8%
trust to a change of ------------------------ -------- --------
investor sentiment towards Total number
that sector. of shares repurchased 150,000 525,000
------------------------ -------- --------
-------------------------------- ----------------------------------------------------------------
Level of Ongoing Charges
The Board is conscious * Expenses are budgeted for each financial year and the
of expenses and aims Board reviews regular reports on actual and forecast
to deliver a balance expenses throughout the year.
between strong service
and costs. Outcome
The AIC definition of ------------------------ ------------------
Ongoing Charges includes 1 year 4 years*
any direct property ------------------------ ------- ---------
costs in addition to Ongoing Charges
the management fees excluding Performance
and all other expenses Fees and Property
incurred in running Costs 0.64% 0.69%
a publicly listed company. ------------------------ ------- ---------
As no other investment
trusts hold part of
their portfolio in direct *Ongoing Charges calculation
property (they either introduced in 2013 therefore
hold 100% of their portfolio this statistic has only been
as property securities produced for four years.
or as direct property),
this statistic is shown
without direct property
costs to allow a clearer
comparison of overall
administration costs
with other funds investing
in securities.
-------------------------------- ----------------------------------------------------------------
Investment Trust Status
The Company must continue * The Board reviews financial information and forecasts
to operate in order at each meeting which set out the requirements.
to meet the requirements
for Section 1158 of
the Corporation Tax * The Directors believe that the conditions and ongoing
Act 2010. requirements have been met in respect of the year to
31 March 2017 and that the Company will continue to
meet the requirements.
-------------------------------- ----------------------------------------------------------------
Principal Risks and Uncertainties
In delivering long-term returns to shareholders, the Board must
also identify and monitor the risks that have been taken in order
to achieve that return. The Board has included below details of the
principal risks and uncertainties facing the Company and the
appropriate measures taken in order to mitigate these risks as far
as practicable.
Risk Identified Board monitoring and mitigation
----------------------------------------------------------------- -----------------------------------------------------------------
Share price performs
poorly in comparison * The Board monitors the level of discount or premium
to the underlying NAV at which the shares are trading over the short and
The shares of the Company longer-term
are listed on the London
Stock Exchange and the
share price is determined * The board encourages engagement with the
by supply and demand. shareholders. The Board receives reports at each
The shares may trade meeting on the activity of the company's broker, PR
at a discount or premium agent and meetings and events attended by the Fund
to the Company's underlying Manager.
NAV and this discount
or premium may fluctuate
over time. * The Company's shares are available through the F&C
share schemes and the company participates in the
active marketing of these schemes. The shares are
also widely available on open architecture platforms
and can be held directly through the Company's
registrar.
* The Board takes the powers to buy-back and issue
shares at each AGM.
----------------------------------------------------------------- -----------------------------------------------------------------
Poor investment performance
of the portfolio relative * The Manager's objective is to outperform the
to the benchmark. benchmark. The Board regularly reviews the Company's
The Company's portfolio long term strategy and investment guidelines and the
is actively managed. manager's relative positions against these
In addition to investment
securities the Company
also invests in commercial
property and accordingly, * The Management Engagement Committee reviews the
the portfolio may not Managers performance annually. The Board has the
follow or outperform powers to change the Manager if deemed appropriate.
the return of the benchmark
----------------------------------------------------------------- -----------------------------------------------------------------
Market risk
Both share prices and * The Board receives and considers a regular report
exchange rates may move from the Manager detailing asset allocation,
rapidly and adversely investment decisions, currency exposures, gearing
impact the value of levels and rationale in relation to the prevailing
the Company's portfolio. market conditions
Although the portfolio
is diversified across
a number of geographical
regions, the investment
mandate is focused on
a single sector and
therefore the portfolio
will be sensitive towards
the property sector,
as well as global equity
markets more generally.
Property companies are
subject to many factors
which can adversely
affect their investment
performance, these include
the general economic
and financial environment
in which their tenants
operate, interest rates,
availability of investment
and development finance
and regulations issued
by governments and authorities
The UK property market
may be adversely affected
by Brexit. The market
will respond as the
negotiations unfold
and the impact on occupation
across each sector and
geographical location
becomes clear.
----------------------------------------------------------------- -----------------------------------------------------------------
The Company is unable
to maintain its progressive * The Board receives and considers regular income
policy on dividends forecasts.
progressive policy on
dividends
Lower earnings in the
underlying portfolio * Income forecast sensitivity to changes in FX rates is
may put pressure on also monitored.
the Company's ability
to maintain a progressive
dividend could result
from a number of factors;
l lower earnings and * The Company has revenue reserves which can be drawn
distributions in investee upon when required.
companies
* prolonged vacancies in the direct property portfolio
* strengthening sterling reducing the value of overseas
dividend receipts in sterling terms
* adverse changes in the tax treatment of dividends or
other income received by the company
* changes in the timing of dividend receipts from
investee companies.
The Company has seen
a material increase
in the level of earnings
in the current year
and a significant factor
in this has been the
weakening of sterling
following the Brexit
decision. This may reverse
in the near or medium
term as the negotiations
progress, leading to
a fall in earnings.
----------------------------------------------------------------- -----------------------------------------------------------------
Accounting and operational
risks * Third party service providers produce periodic
Disruption or failure reports to the Board on their control environments
of systems and processes and business continuation provisions on a regular
underpinning the services basis.
provided by third parties
and the risk that these
suppliers provide a * The Management Engagement Committee considers the
sub-standard service. performance of each of the service providers on a
regular basis and considers their ongoing
appointment.
* The Custodian and Depository are responsible for the
safeguarding of assets. In the event of a loss of
assets the Depository must return assets of an
identical type or corresponding amount unless able to
demonstrate that the loss was the result of an event
beyond their reasonable control.
----------------------------------------------------------------- -----------------------------------------------------------------
Financial risks
The Company's investment * Details of these risks together with the policies for
activities expose it managing these risks are found in the Notes to the
to a variety of financial Financial Statements.
risks which include,
counterparty credit
risk, liquidity risk
and the valuation of
financial instruments.
----------------------------------------------------------------- -----------------------------------------------------------------
Loss of Investment Trust
Status * The Investment Manager monitors the investment
The Company has been portfolio, income and proposed dividend levels to
accepted by HM Revenue ensure that the provisions of CTA 2010 are not
& Customs as an investment breached. The results are reported to the Board at
trust, subject to continuing each meeting.
to meet the relevant
eligibility conditions.
As such the Company * The income forecasts are reviewed by the Company's
is exempt from capital tax advisor through the year who also reports to the
gains tax on the profits Board on the year-end tax position and reports on CTA
realised from the sale 2010 compliance.
of investments.
Any breach of the relevant
eligibility conditions
could lead to the Company
losing investment trust
status and being subject
to corporation tax on
capital gains realised
within the company's
portfolio.
----------------------------------------------------------------- -----------------------------------------------------------------
Legal, regulatory and
reporting risks * The Board receives regular regulatory updates from
Failure to comply with the Manager, Company Secretary, legal advisors and
the London Stock Exchange Auditors. The Board considers these reports and
Listing Rules and Transparency recommendations and takes action accordingly.
and Disclosure rules;
failing to meet the
requirements under the * The Board receives an annual report and update from
Alternative Investment the Depository.
Funds Directive, the
provisions of the Companies
Act 2006 and other UK, * Internal checklists and review procedures are in
European and overseas place at service providers.
legislation affecting
UK companies. Failure
to meet the required * External auditors review Interim & Annual Reports and
accounting standards audit year end Financial Statements.
or make appropriate
disclosures in the Interim
and Annual Reports.
----------------------------------------------------------------- -----------------------------------------------------------------
Inappropriate use of
gearing * The Board receives regular reports from the Manager
Gearing, either through on the levels of gearing in the portfolio. These are
the use of bank debt considered against the gearing limits set in the
or through the use of Investment Guidelines and also in the context of
derivatives may be utilised current market conditions and sentiment.
from time to time. Whilst
the use of gearing is
intended to enhance
the NAV total return,
it will have the opposite
effect when the return
of the Company's investment
portfolio is negative.
----------------------------------------------------------------- -----------------------------------------------------------------
Personnel changes at
Investment Manager * The Chairman conducts regular meetings with the Fund
Loss of portfolio manager Management team.
of other key staff.
* The fee basis protects the core infrastructure and
depth and quality resources. The fee structure
incentivises good performance and is fundamental in
the ability to retain staff.
----------------------------------------------------------------- -----------------------------------------------------------------
Exercise of voting power
The Board has approved a corporate governance voting policy
which, in its opinion, accords with current best practice whilst
maintaining a primary focus on financial returns.
The exercise of voting rights attached to the Company's
portfolio has been delegated to the Manager who take a global
approach to engagement with issuers and their management in all of
the jurisdictions in which it invests. The Manager is required to
include disclosure about the nature of their commitment to the
Financial Reporting Committee's Stewardship Code and details may be
found at www.fandc.com
Environmental policy & Socially Responsible Investment
The Company considers that good corporate governance extends to
policies on the environment, employment, human rights and community
relationships. Corporates are playing an increasingly important
role in global economic activity and the adoption of good corporate
governance enhances a company's economic prospects by reducing the
risk of government and regulatory intervention and any ensuing
damage to its business or reputation.
The Company has adopted an environmental policy in respect of
its investments in both physical property and listed property
companies. Within the context of the overall aim of the Company to
maximise shareholders' returns the Directors will seek to limit the
Company's and its investee companies' impact on the environment and
will comply with all relevant legislation relating to its
operations and activities.
The environmental policies and behaviour of all the companies in
which the Company invests are taken into account in decision
making.
Good environmental management can play a role in overall risk
management and also have a financial impact in terms of savings
through energy and water efficiency. Where appropriate the Manager
will engage with investee companies to raise concerns about
environmental matters.
So far as direct property investments are concerned, the Company
conducts environmental audits prior to purchase to identify
contamination or materials considered environmentally harmful. The
Company will take remedial action or enforce tenant obligations to
do so wherever appropriate. The Company's advisers assess the
environmental impact of its properties on an ongoing basis and will
take all necessary action to comply with environmental
responsibilities.
The Company has no greenhouse gas emissions to report from the
operations of the Company, nor does it have responsibility for any
other emissions producing sources under the Companies Act 2006
(Strategic Report and Directors' Reports) Regulations 2013,
including those within its underlying investment portfolio.
Diversity, Gender Reporting and Human Rights Policy
The Board recognises the requirement under Section 414 of the
Companies Act 2006 to detail information about employee and human
rights; including information about any policies it has in relation
to these matters and effectiveness of these policies. As the Trust
has no employees, this requirement does not apply. The Directors
are also satisfied that, to the best of their knowledge, the
Company's principal suppliers, comply with the provisions of the UK
Modern Slavery Act 2015.
The Board currently comprises four male and one female
Directors. The Board's diversity policy is outlined in more detail
in the Corporate Governance Report. The Manager has an equal
opportunity policy which is set out on its website
www.fandc.com.
Statement of directors' responsibilities in relation to the
Group financial statements
The directors are responsible for preparing the Report and
Accounts in accordance with applicable United Kingdom law and those
International Financial Reporting Standards as adopted by the
European Union.
Under Company Law the directors must not approve the Group and
Company financial statements unless they are satisfied that they
present fairly the financial position, financial performance and
cash flows of the Group and Company for that period.
In preparing the Group financial statements the directors are
required to:
o select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
o present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
o provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group and Company's financial position and
financial performance;
o state that the Group and Company has complied with IFRSs,
subject to any material departures disclosed and explained in the
financial statements; and
o make judgements and estimates that are reasonable and
prudent.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the Group and Company financial statements
comply with the Companies Act 2006 and Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Group Consolidated Statement of Comprehensive Income
For the year ended 31 March 2017
Year ended 31 March Year ended 31 March
2017 2016
Capital Revenue
Revenue Return Return Total Return Capital Return Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------------- --------- --------- --------- -------------- ----------
Income
Investment income 35,574 - 35,574 27,358 - 27,358
Other operating income 62 - 62 74 - 74
Gross rental income 3,781 - 3,781 3,330 - 3,330
Service charge income 1,549 - 1,549 1,023 - 1,023
Gains on investments
held at fair value - 52,693 52,693 - 64,087 64,087
Net movement on foreign
exchange; investments
and loan notes
Net movement on foreign
exchange; cash and
cash equivalents - (1,130) (1,130) - 1,768 1,768
Net returns on contracts
for difference
- 2,450 2,450 - 709 709
4,457 (1,487) 2,970 2,905 (4,166) (1,261)
---------------------------- -------------- --------- --------- --------- -------------- ----------
Total Income 45,423 52,526 97,949 34,690 62,398 97,088
---------------------------- -------------- --------- --------- --------- -------------- ----------
Expenses
Management and performance
fees (1,314) (5,092) (6,406) (1,229) (7,042) (8,271)
Direct property expenses,
rent payable and
service charge costs
Other administrative
expenses (2,078) - (2,078) (1,533) - (1,533)
(1,213) (546) (1,759) (1,269) (481) (1,750)
---------------------------- -------------- --------- --------- --------- -------------- ----------
Total operating expenses (4,605) (5,638) (10,243) (4,031) (7,523) (11,554)
---------------------------- -------------- --------- --------- --------- -------------- ----------
Operating profit 40,818 46,888 87,706 30,659 54,875 85,534
Finance costs (621) (1,842) (2,463) (894) (2,682) (3,576)
---------------------------- -------------- --------- --------- --------- -------------- ----------
Profit from operations
before tax 40,197 45,046 85,243 29,765 52,193 81,958
---------------------------- -------------- --------- --------- --------- -------------- ----------
Taxation (4,080) 1,822 (2,258) (3,221) 1,720 (1,501)
---------------------------- -------------- --------- --------- --------- -------------- ----------
Total comprehensive
income 36,117 46,868 82,985 26,544 53,913 80,457
---------------------------- -------------- --------- --------- --------- -------------- ----------
Earnings per Ordinary
share 11.38p 14.76p 26.14p 8.36p 16.98p 25.34p
---------------------------- -------------- --------- --------- --------- -------------- ----------
The Total column of this statement represents the Group's
Statement of Comprehensive Income, prepared in accordance with
IFRS.
The Revenue Return and Capital Return columns are supplementary
to this and are prepared under guidance published by the
Association of Investment Companies. All items in the above
statement derive from continuing operations.
All income is attributable to the shareholders of the parent
company. There are no minority interests.
Group and Company Statement of Changes in Equity
Group
Capital Retained
For the year ended Share Capital Share Premium Redemption Earnings
31 March 2017 Ordinary Account Reserve Ordinary Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------- ------------- ----------- --------- ---------
At 31 March 2016 79,375 43,162 43,934 898,948 1,065,419
Net profit for the
year - - - 82,985 82,985
Shares repurchased (37) - 37 (459) (459)
Dividends paid - - - (29,521) (29,521)
--------------------- ------------- ------------- ----------- --------- ---------
At 31 March 2017 79,338 43,162 43,971 951,953 1,118,424
--------------------- ------------- ------------- ----------- --------- ---------
Company
Capital Retained
For the year ended Share Capital Share Premium Redemption Earnings
31 March 2017 Ordinary Account Reserve Ordinary Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------- ------------- ----------- --------- ---------
At 31 March 2016 79,375 43,162 43,934 898,948 1,065,419
Net profit for the
year - - - 82,985 82,985
Shares repurchased (37) - 37 (459) (459)
Dividends paid - - - (29,521) (29,521)
--------------------- ------------- ------------- ----------- --------- ---------
At 31 March 2017 79,338 43,162 43,971 951,953 1,118,424
--------------------- ------------- ------------- ----------- --------- ---------
Group
For the year ended 31 March Capital Retained
2016 Share Capital Share Premium Redemption Earnings
Ordinary Account Reserve Ordinary Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 March 2015 79,375 43,162 43,934 843,574 1,010,045
Net profit for the period -- -- -- 80,457 80,457
Dividends paid -- -- -- (25,083) (25,083)
At 31 March 2016 79,375 43,162 43,934 898,948 1,065,419
----------------------------- ------------- ------------- ----------- --------- ----------
Company
For the year ended 31 March Share Capital Retained
2016 Share Capital Premium Redemption Earnings
Ordinary Account Reserve Ordinary Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 March 2015 79,375 43,162 43,934 843,574 1,010,045
Net profit for the period -- -- -- 80,457 80,457
Dividends paid -- -- -- (25,083) (25,083)
At 31 March 2016 79,375 43,162 43,934 898,948 1,065,419
============================= ============= ======== =========== ========= ==========
Group and Company Balance Sheets
as at 31 March 2017
Group Company Group Company
2017 2017 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ----------- ----------- -----------
Non-current assets
Investments held at
fair value 1,144,776 1,144,776 1,098,560 1,098,560
Investments in subsidiaries - 50,531 - 53,052
----------------------------------- ----------- ----------- ----------- -----------
1,144,776 1,195,307 1,098,560 1,151,612
-----------------------------------
Deferred taxation
asset 243 243 243 243
----------------------------------- ----------- ----------- ----------- -----------
1,145,019 1,195,550 1,098,803 1,151,855
----------------------------------- ----------- ----------- ----------- -----------
Current assets
Debtors 38,809 38,687 28,978 28,579
Cash and cash equivalents 6,445 6,420 22,754 22,741
----------------------------------- ----------- ----------- ----------- -----------
45,254 45,107 51,732 51,320
Current liabilities (14,081) (64,465) (30,473) (83,113)
----------------------------------- ----------- ----------- ----------- -----------
Net current assets/(liabilities) 31,173 (19,358) 21,259 (31,793)
Total assets less
current liabilities 1,176,192 (1,176,192) 1,120,062 1,120,062
Non-current liabilities (57,768) (57,768) (54,643) (54,643)
----------------------------------- ----------- ----------- ----------- -----------
Net assets 1,118,424 1,118,424 1,065,419 1,065,419
----------------------------------- ----------- ----------- ----------- -----------
Capital and reserves
Called up share capital 79,338 79,338 79,375 79,375
Share premium account 43,162 43,162 43,162 43,162
Capital redemption
reserve 43,971 43,971 43,934 43,934
Retained earnings 951,953 951,953 898,948 898,948
----------------------------------- ----------- ----------- ----------- -----------
Equity shareholders'
funds 1,118,424 1,118,424 1,065,419 1,065,419
----------------------------------- ----------- ----------- ----------- -----------
Net Asset Value per:
----------------------------------- ----------- ----------- ----------- -----------
Ordinary share 352.42p 352.42p 335.56p 335.56p
----------------------------------- ----------- ----------- ----------- -----------
Group and Company Cash Flow Statements
as at 31 March 2017
Group Company Group Company
2017 2017 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ----------- ----------- ----------- -----------
Reconciliation of profit from
operations before tax to net
cash inflow from operating
activities
Profit from operations before
tax 85,243 85,050 81,958 81,958
Financing costs 2,463 3,455 3,752 3,140
Gains on investments and derivatives
held at fair value through
profit or loss (51,206) (48,671) (59,921) (59,456)
Net movement on foreign exchange;
cash and cash equivalents
and loan notes 669 669 223 223
(Increase) / decrease in accrued
income (624) (1,016) 645 646
Net sales of investments 4,606 4,606 28,848 28,848
Increase in sales settlement
debtor (5,591) (5,591) (415) (415)
(Decrease) / increase in purchase
settlement creditor (3,216) (3,216) 523 523
Increase in other debtors (1,595) (1,602) (18,631) (18,631)
Decrease in other creditors (1,575) (4,237) (5,634) (21,097)
Scrip dividends included in
investment income and net
returns on contracts for difference (1,450) (1,450) (1,223) (1,223)
-------------------------------------- ----------- ----------- ----------- -----------
Net cash inflow from operating
activities before interest
and taxation 27,724 27,997 30,125 14,516
Interest paid (2,437) (3,042) (3,752) (3,140)
Taxation paid (4,066) (3,746) (1,383) (1,383)
-------------------------------------- ----------- ----------- ----------- -----------
Net cash inflow from operating
activities 21,221 21,209 24,990 9,993
Financing activities
Equity dividends paid (29,521) (29,521) (25,083) (25,083)
Repayment of loans (10,000) (10,000) (38,000) (38,000)
Repayment of debenture stock - - (15,000) -
Repurchase of shares (459) (459) - -
Issue of loan notes - - 53,711 53,711
Net cash used in financing
activities (39,980) (39,980) (24,372) (9,372)
-------------------------------------- ----------- ----------- ----------- -----------
(Decrease) / Increase in cash (18,759) (18,771) 618 621
Cash and cash equivalents
at start of year 22,754 22,741 21,427 21,411
Net movement in foreign exchange;
cash and cash equivalents 2,450 2,450 709 709
-------------------------------------- ----------- ----------- ----------- -----------
Cash and cash equivalents
at end of year 6,445 6,420 22,754 22,741
-------------------------------------- ----------- ----------- ----------- -----------
Note
Dividends received 35,834 35,820 30,199 30,199
Interest received 41 41 194 194
Notes to the Preliminary Announcement
1 Accounting Policies
The financial statements for the year ended 31 March 2017 have been
prepared on a going concern basis, in accordance with International
Financial Reporting Standards (IFRS), which comprise standards and
interpretations approved by the International Accounting Standards
Board (IASB), together with interpretations of the International
Accounting Standards and Standing Interpretations Committee approved
by the International Accounting Standards Committee (IASC) that remain
in effect, to the extent that they have been adopted by the European
Union and as regards the Company financial statements, as applied
in accordance with the provisions of the Companies Act 2006. The
financial statements have also been prepared in accordance with the
Statement of Recommended Practice (SORP), "Financial Statements of
Investment Trust Companies and Venture Capital Trusts," to the extent
that it is consistent with IFRS.
The Group and Company financial statements are expressed in Sterling,
which is their functional and presentational currency. Sterling is
the functional currency because it is the currency of the primary
economic environment in which the Group operates. Values are rounded
to the nearest thousand pounds (GBP'000) except where otherwise indicated.
2 Investment income
2017 2016
GBP'000 GBP'000
---------------------------------- -------- --------
Dividends from UK listed
investments 2,660 2,025
Dividends from overseas
listed investments 26,018 18,063
Scrip dividends from listed
investments 935 1,223
Interest from listed investments 21 109
Property income distributions 5,940 5,938
-------------------------------------- -------- --------
35,574 27,358
-------------------------------------- -------- --------
3 Earnings per share
Earnings per Ordinary share
The earnings per Ordinary share can be analysed between revenue
and capital, as below.
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------------------------------- ----------------------------- -------------------------------
Net revenue profit 36,117 26,544
Net capital profit 46,868 53,913
_________ _________
Net total profit 82,985 80,457
_________ _________
Weighted average number
of Ordinary shares in
issue during the year 317,435,090 317,500,980
_________ _________
pence pence
Revenue earnings per
share 11.38 8.36
Capital earnings per
share 14.76 16.98
_________ _________
Earnings per Ordinary
share 26.14 25.34
_________ _________
4 Net asset value per Ordinary share
Net asset value per Ordinary share is based on the net assets
attributable to Ordinary shares of GBP1,118,424,000 (2016: GBP1,065,419,000)
and on 317,350,980 (2016: 317,500,980) Ordinary shares in issue
at the year end.
5 Share capital changes
During the year, the Company made market purchases for cancellation
of 150,000 Ordinary shares of 25p each, representing 0.05% of
the number of shares in issue at 31 March 2016. The aggregate
consideration paid by the Company for the shares was GBP459,000.
Since 31 March 2017 no Ordinary shares have been purchased and
cancelled.
6 Status of preliminary announcement
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2017
or 2016. The financial information for 2016 is derived from the
statutory accounts for 2016 which have been delivered to the registrar
of companies. The auditor has reported on the 2016 accounts; their
report was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006. The statutory
accounts for 2017 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement
and will be delivered to the registrar of companies in due course.
7 Fair value of financial assets and financial liabilities
Financial assets and financial liabilities are carried in the
Balance Sheet either at their fair value (investments) or the
balance sheet amount is a reasonable approximation of fair value
(due from brokers, dividends and interest receivable, due to brokers,
accruals and cash at bank).
Fair value hierarchy disclosures
The table below sets out fair value measurements using IFRS 13
fair value hierarchy.
Financial assets at fair value through profit or loss
At 31 March Level 1 Level Level Total
2017 GBP'000 2 3 GBP'000
GBP'000 GBP'000
---------------------- -------------- ------------ ----------- -------------
Equity investments 1,047,470 - 2 1,047,472
Investment Properties - - 97,304 97,304
Contracts for
difference - 2,146 - 2,146
---------------------- -------------- ------------ ----------- -------------
1,047,470 2,146 97,306 1,146,922
Level 1 Level Level Total
At 31 March GBP'000 2 3 GBP'000
2016 GBP'000 GBP'000
============ =============================== =========== =========== ================
Equity
investments 999,843 - 2 999,845
Investment
Properties - - 97,764 97,764
Fixed
interest
investments 951 - - 951
Contracts
for
difference - 329 - 329
Foreign
exchange
forward
contracts - 809 - 809
============ =============================== =========== =========== ================
1,000,794 1,138 97,766 1,099,698
============ =============================== =========== =========== ================
The table above represents the Group's fair value hierarchy. The
Company's fair value hierarchy is identical except for the inclusion
of the fair value of the investment in Subsidiaries which at 31
March 2017 was GBP50,531,000 (2016: GBP53,052,000) these have
been categorised as level 3 in both years. The total financial
assets at fair value for the Company at 31 March 2017 was GBP1,197,453,000
(2016: GBP1,151,941,000).
The movement from 31 March 2016 of GBP2,521,000 represents a reclassification
of GBP2,100,000 to a subsidiary intercompany account together
with depreciation of GBP421,000 (2016: GBP465,000 depreciation)
in the period.
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset as follows:
Level 1 - valued using quoted prices in an active market for identical
assets.
Level 2 - valued by reference to valuation techniques using observable
inputs other than quoted prices within Level 1.
Level 3 - valued by reference to valuation techniques using inputs
that are not based on observable market data.
The valuation techniques used by the Group are explained in the
accounting policies in the full Annual Report and Accounts.
Reconciliation of movements in financial assets categorised as
level 3
31 Appreciation
March / 31 March
2016 Purchases Sales (Depreciation) 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============ ========================= ============ =========== ================ ===========
Unlisted
equity
investments 2 - - - 2
------------ ------------------------- ------------ ----------- ---------------- -----------
Investment
Properties
- Mixed use 54,152 773 (755) (1,083) 53,087
- Industrial 30,290 15 - 964 31,269
- Offices 13,322 328 - (702) 12,948
------------ ------------------------- ------------ ----------- ---------------- -----------
97,764 1,116 (755) (821) 97,304
============ ========================= ============ =========== ================ ===========
97,766 1,116 (755) (821) 97,306
============ ========================= ============ =========== ================ ===========
All appreciation/(depreciation) as stated above relates to unlisted
equity investments and investment properties held at 31 March
2017.
Transfers between hierarchy levels
There were no transfers during the year between level 1 and level
2 nor between levels 1 or 2 and level 3.
Key assumptions used in value in use calculations are explained
in the accounting policies in the full Annual Report and Accounts.
Sensitivity information
The significant unobservable inputs used in the fair value measurement
categorised within Level 3 of the fair value hierarchy of investment
properties are:
* Estimated rental value: GBP4-GBP50 per sq ft (2016:
same)
* Capitalisation rates: 3.5%-9.75% (2016: 4.0%-9.0%)
Significant increases (decreases) in estimated rental value in
isolation would result in a significantly higher (lower) fair
value measurement. A significant increase (decrease) in Capitalisation
Rates in isolation would result in a significantly lower (higher)
fair value measurement.
8 Business segment reporting
Gross Gross
Valuation Net Net Valuation revenue revenue
31 March additions/ appreciation/ 31 March 31 March 31 March
2016 (disposals) (depreciation) 2017 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ==================== ============= ============== ============= ============ ============
Listed
investments 1,000,796 (7,555) 54,231 1,047,472 35,574 27,358
Direct
property 97,764 361 (821) 97,304 5,330 4,353
------------ ==================== ============= ============== ============= ============ ============
1,098,560 (7,194) 53,410 1,144,776 40,904 31,711
Contracts
for
difference 329 3,304 (1,487) 2,146 4,457 2,905
------------ ==================== ============= ============== ============= ============ ============
1,098,889 (3,890) 51,923 1,146,922 45,361 34,616
------------ ==================== ============= ============== ============= ============ ============
In seeking to achieve its investment objective, the Company invests
in the shares and securities of property companies and property
related businesses internationally and also in investment property
located in the UK. The Company therefore considers that there
are two distinct reporting segments, listed investments and direct
property, which are used for evaluating performance and allocation
of resources. The Board, which is the principal decision maker,
receives information on the two segments on a regular basis. Whilst
revenue streams and direct property costs can be attributed to
the reporting segments, general administrative expenses cannot
be split to allow a profit for each segment to be determined.
The assets and gross revenues for each segment are shown above.
The property costs included within note 3 to the Financial Statements
are GBP2,078 (2016: GBP1,533) and deducting these costs from the
direct property gross revenue above would result in net income
of GBP3,252 (2016: GBP2,820) for the direct property reporting
segment.
9 Dividends
An interim dividend of 4.10p was paid in January 2017. A final
dividend of 6.40p (2016: 5.20p) will be paid on 1 August 2017 to
shareholders on the register on 23 June 2017. The shares will be
quoted ex-dividend on 22 June 2017.
10 Annual Report and AGM
The Annual Report will be posted to shareholders in June 2017 and
will be available thereafter from the Company Secretary at the
Registered Office, 11 Hanover Street, London, W1S 1QY. The Annual
General Meeting of the Company will be held at Grosvenor House,
Park Lane, London W1K 7TN on 25 July 2017 at 2pm.
This announcement and the information contained herein is not
for publication, distribution or release in, or into, directly or
indirectly, the United States, Canada, Australia or Japan and does
not constitute, or form part of, an offer of securities for sale in
or into the United States, Canada, Australia or Japan.
The securities referred to in this announcement have not been
and will not be registered under the U.S. Securities Act of 1933,
as amended (the "Securities Act") and may not be offered or sold in
the United States unless they are registered under the Securities
Act or pursuant to an available exemption therefrom. The Company
does not intend to register any portion of securities in the United
States or to conduct a public offering of the securities in the
United States. The Company will not be registered under the U.S.
Investment Company Act of 1940, as amended, and investors will not
be entitled to the benefits of that Act.
This announcement does not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of the
securities referred to herein in any jurisdiction in which such
offer, solicitation or sale would be unlawful prior to
registration, exemption from registration or qualification under
the securities law of any such jurisdiction.
The contents of this announcement include statements that are,
or may be deemed to be "forward looking statements". These
forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes",
"estimates", "anticipates", "expects", "intends", "may", "will" or
"should". They include the statements regarding the target
aggregate dividend. By their nature, forward looking statements
involve risks and uncertainties and readers are cautioned that any
such forward-looking statements are not guarantees of future
performance. The Company's actual results and performance may
differ materially from the impression created by the
forward-looking statements. The Company undertakes no obligation to
publicly update or revise forward-looking statements, except as may
be required by applicable law and regulation (including the Listing
Rules). No statement in this announcement is intended to be a
profit forecast.
For further information please contact:
Marcus Phayre-Mudge
Fund Manager
TR Property Investment Trust plc
Telephone: 020 7011 4711
This information is provided by RNS
The company news service from the London Stock Exchange
END
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