TIDMVIN
RNS Number : 5368O
Value and Indexed Prop Inc Tst PLC
10 June 2022
VALUE AND INDEXED PROPERTY INCOME TRUST PLC
ANNUAL FINANCIAL REPORT
FOR THE YEARED 31 MARCH 2022
Chairman's Statement
You will see from the Manager's Report that VIP has been
successful in continuing with its plan, that I wrote about last
year, to establish a portfolio of properties on long leases with
inflation linked rent reviews. This has involved greater investment
activity than usual, but the re-arrangement of our portfolio has
now broadly been completed. Since VIP's year end, we have borrowed
an additional GBP8 million from an existing lender. The net
decrease in cash is due to the purchase of additional properties,
in line with the Company's investment policy.
Many of the Company's index-linked leases provide for maximum
and minimum increases at future rent review, often described as
'caps and collars'. The details of these are shown in Note 9 to the
Financial Statements. The Financial Statements have been prepared
under IFRS (International Financial Reporting Standards) and IFRS
16 requires that these minimum rent increases, which may arise only
many years in the future, are averaged over the whole life of the
lease. As detailed in Note 10 to the Financial Statements, an
increase in amounts due from brokers this year has arisen due to
the sale of an investment in the quoted portfolio which straddled
the year end and the cash was received in full two days later.
The Board is recommending a final dividend of 3.6p per share
making total dividends of 12.6p per share for the year to 31 March
2022, compared to 12.3p per share in the previous year, an increase
of 2.4%. Subject to Shareholder approval at the Annual General
Meeting (AGM), the final dividend will be paid on 29 July 2022 to
Shareholders on the register on 1 July 2022. The ex-dividend date
is 30 June 2022. It will be the 35(th) year of dividend increases
following the reconstruction of the Company. In the short term this
will require some use of our capital reserves. In the medium term,
however, the Board will aim to ensure that the dividend is paid
from rents and dividends received (after interest costs and
management expenses) and that the indexed leases permit future
increases in line with inflation.
Net Asset Value total return (with debt at par) and Share Price
total return are considered by the Board to be Alternative
Performance Measures (APMs) as explained further in the Business
Review in the Annual Report and defined in the Glossary in the
Annual Report. Over the year, the Net Asset Value total return
(with debt at par) was 15.6% (2021: 12.3%) and the Share Price
total return was 15.8% (2021: 39.3%). This compares with the FTSE
All-Share Index total return of 13.0% (2021: 26.7%). The total
return from the property portfolio was 20.2% (2021: 2.3%) (the MSCI
UK Quarterly Property Index total returns were 19.6% (2021: 0.9%))
and from the equity portfolio was 24.1% (2021: 26.6%). From 1 April
2021, our performance comparator was changed from the FTSE
All-Share Index to the MSCI UK Quarterly Property Index to reflect
the change in our investment policy.
As provided in the Circular issued to Shareholders in December
2020, there will be an opportunity in the future for Shareholders
who wish to sell their shares to do so at Net Asset Value less
costs. The Board's intention is to table a proposal at the AGM to
be held in 2026.
As noted in previous statements, the difference between the fair
value and the nominal value of our Debenture Stock and our secured
loans is reducing over the life of the Debenture, which would be
repaid at its nominal (par) value. The figures are set out in Note
17 to the Financial Statements. We announced on 24 May 2022 that we
intend to repay this Debenture early to reduce interest costs and
provide greater flexibility in the management of our portfolio.
This years' AGM will be held in the offices of Shepherd &
Wedderburn LLP, 1 Exchange Crescent, Conference Square, Edinburgh,
EH3 8UL on Friday, 8 July 2022 at 12.30pm. The Notice of Annual
General Meeting can be found in the Annual Report. The Board
encourages Shareholders to vote using the Proxy Form, which can be
submitted to Computershare, the Company's Registrar. Proxy Forms
should be completed and returned in accordance with the
instructions thereon and the latest time for the receipt of Proxy
Forms is 12.30pm on Wednesday, 6 July 2022. Proxy votes can also be
submitted by CREST or online using the Registrar's Share Portal
Service at www.investorcentre.co.uk/eproxy.
I announced last year that I intended to retire during the
course of 2022 and, accordingly, I shall be retiring after the AGM
and John Kay will become Chairman. Over the years, I have
appreciated greatly the support of my colleagues on the Board, and
also the professionalism and attention to detail of our Managers
and Secretaries.
The outlook for markets is dominated at present by the major
uncertainties of inflation and Ukraine. However, property with long
term, inflation-related leases offers good value in these
circumstances.
James Ferguson
Chairman
10 June 2022
Summary of Portfolio
31 March 2022 31 March 2021
GBPm % GBPm %
UK Property 155.8 83.0 81.1 46.2
------------ ------- ------ ------- ------
UK Equities 26.9 14.3 28.6 16.3
------------ ------- ------ ------- ------
Cash 5.2 2.7 66.0 37.5
------------ ------- ------ ------- ------
187.9 100.0 175.7 100.0
------------ ------- ------ ------- ------
Property Manager's Report
Property Portfolio
The Market
The MSCI UK Quarterly Property Index, the most representative
measure of the performance of institutional investment property
portfolios, showed a total return of 16.3% over 2021, with capital
growth of 11.5%. Estimated rental values were up overall by 1.8%,
with retail 3% down on average, offices and alternatives virtually
level and industrial property up 9%. Differential movements in
capital values were more dramatic, with industrial property up by
no less than 31%, retail and alternative sector properties up on
average by 3%-4% and offices flat. For 2021 as a whole, total
returns, taking capital and income together, for
industrial/warehouse property averaged 36%, with retail and
alternatives averaging 8%-10% and offices only 5%. 2021 was the
first year since 2009 when retail property in the UK outperformed
offices. There will be many more as the office sector remains
locked in long term structural decline.
Total returns will be lower but still satisfactory over 2022 as
a whole. They may be around 12% overall, with returns for
industrials, retail and the alternative sectors all in the early
teens but offices only around 5% with capital values flat, rents
under pressure and voids through the roof. Property's real returns
will be far lower, with the RPI already up 9% year on year. It will
stay higher for longer than the Bank of England or the market
expects. Stagflation is here to stay for at least as long as the
war in Ukraine drags on.
UK Commercial Property - Average Annual % Growth Rates to March
2022
3 Months 6 Months 1 Year 3 Years 5 Years 10 Years
-------------------------- -------- ------ ------- ------- --------
Capital Values +14.8 +17.9 +14.9 +1.9 +2.2 +3.3
--------------- --------- -------- ------ ------- ------- --------
Rental Values +4.6 +4.6 +3.1 -0.3 +0.3 +1.2
--------------- --------- -------- ------ ------- ------- --------
Total Returns +18.8 +22.2 +19.6 +6.4 +6.7 +8.3
--------------- --------- -------- ------ ------- ------- --------
Source: MSCI UK Quarterly Property Index - Annualised
These returns to the end of March are higher than the calendar
year figures quoted above because capital value growth accelerated
through 2021 after a dull first quarter.
Comparative Investment Yields - End December (Except end March
2022)
March
2022 2021 2020 2019 2017 2011 2008 2006
Property (Equivalent
Yield) 5.0 5.1 5.8 5.6 5.6 6.9 8.3 5.4
-------------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------
Long Gilts: Conventional 1.6 1.0 0.2 1.0 1.4 2.5 3.7 4.6
--------------------- --------------------------- ----- ------ ------ ------ ------ ------ ------ ------
Index Linked -2.2 -2.6 -2.6 -2.0 -1.8 -0.2 0.8 1.1
------------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------
UK Equities 3.1 3.1 3.4 4.1 3.6 3.5 4.5 2.9
-------------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------
RPI (Annual
Rate) * 9.0 7.1 0.9 2.2 4.1 4.8 0.9 4.4
-------------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------
Property less Conventional
Yield Gaps: Gilts 3.4 4.1 5.6 4.6 4.2 4.4 4.6 0.8
--------------------- --------------------------- ----- ------ ------ ------ ------ ------ ------ ------
less Index Linked Gilts 7.2 7.7 8.4 7.6 7.4 7.1 7.5 4.4
------------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------
less Equities 1.9 2.0 2.4 1.5 2.0 3.4 3.8 2.5
------------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------
Source: MSCI UK Quarterly Property Index and ONS for the RPI
(*to December except March 2022)
Property transaction volumes and market liquidity improved
markedly through 2021 with an estimated total turnover of GBP65
billion, higher than in 2019 pre-pandemic and above the long term
averages. This trend has continued so far in 2022. Industrial
property volumes were strongest but activity increased in
previously quiet sectors, especially leisure, hotels and retail,
with relentless demand for retail warehouses and supermarkets
supplemented recently by buyers of in town retail at high yields.
Prime, especially long-let offices were active but the market for
older secondary offices is getting worse, with some now virtually
unlettable and unsaleable where they do not meet environmental
standards. There is a growing "brown discount" for properties in
all sectors with non-compliant Energy Performance Certificates
(EPCs).
Property void rates rose from 8.2% at the start of the pandemic
in March 2020 to a peak of 10.2% in June 2021 and remain high at
around 10%. As the table below shows, industrial and retail void
rates have fallen markedly from their COVID peaks, but office voids
shot up from 13.1% in March 2020 to 19.4% now, well above the
previous record high of 14.8% for office voids in 2013.
During the COVID crisis, the Government, under political and
tenant pressure, repeatedly suspended landlords' traditional tools
for enforcing rent collection - eviction orders, use of Commercial
Rent Arrears Recovery (CRAR) bailiffs and statutory demands for
winding up. They have also introduced a fiendishly complicated
legal arbitration procedure for rent arrears run up during COVID.
This will be a bonanza for lawyers and no real help for landlords
and tenants who should have done a deal long ago.
Apart from that, landlords are able again to use their normal
strong powers to enforce prompt payment of rent from commercial
property tenants, including the use of bailiffs where necessary.
With all properties throughout the UK now able to open again and
trade normally, there is no longer any excuse for strong tenants
not to pay their rent promptly and in full; rent collection rates
should, therefore, now be back to normal on all professionally
managed institutional property portfolios.
Property Prospects by Sector
Warehouse/Industrials - an Overheated Market - Yields have
Fallen Far Enough
Warehouse and industrial property delivered most of commercial
property's total capital growth in 2021 for the right reasons, with
voracious demand, mainly from food and online retailers, driving up
rents right across the UK for both "big box" warehouses near
motorways and smaller units on estates nearer city centres.
Valuation yields were forced down to reflect improving rental
growth prospects, and the outlook for rental growth remains good,
vacancy rates for both "big box" units and traditional industrial
estates are very low (and now negligible in parts of the South
East, Midlands and East Anglia). Driven by the explosion of online
retailing, 2021 saw the second highest ever take up of logistics
"big boxes" at 34.1 million square feet, only slightly below the
exceptional performance in 2020 at 35.8 million square feet and 71%
above 2019. 2022 will be slower.
Over GBP18 billion was invested across the industrial/warehouse
sector in 2021, nearly double the 2020 transaction volume and over
60% above the previous highest annual level recorded in 2017. But
the industrial property investment market is now running white hot,
too hot in our view, with yields bid down to unsustainably low
levels by panic buyers, who are having to make wholly unrealistic
rental growth projections to justify the prices they are paying.
Sellers are hard to find. Rapidly rising interest rates and other
economic pressures have started to cool this overheated market. The
latest UK figures showed online non-food retail sales down to 39%
of the total, against 63% a year ago. Amazon recorded its first
quarterly loss since 2015 at the end of April, the share price fell
16% instantly and has fallen 26% to date. The share prices of the
larger property REITS focusing on large warehouses followed suit
with Segro -25% and Tritax Big Box -22%.
Rapidly rising costs and supply chain problems, together with a
weakening economy and consumer confidence, are already putting
pressure on the strong occupiers and may affect some weaker
occupiers more acutely this year, although industrial property
values will still be supported by the conversion of older and lower
value sites to residential and other alternative uses, especially
in southern England. Well-located industrial and warehouse property
in all sizes from logistics "big boxes" on motorway junctions to
"last mile" urban sheds and estates of smaller units should still
outperform offices and probably the property market as a whole for
the rest of the year. But risks are rising and selling
opportunities should be taken where valuation yields have fallen
too far to generate satisfactory long-term returns.
Offices - Locked in Long Term Relative Decline - the Way we Work
has Changed for Good
Offices have taken over the performance wooden spoon from retail
for the first time in twelve years and may hold it for the
foreseeable future. Investors' long overdue focus on ESG is hitting
office values harder than on most other sectors, because so many
older office buildings, in London in particular, simply cannot be
updated to suitable standards at realistic cost. Occasional
headline-grabbing investment or letting deals for the very best
space are just a sign of a flight from quantity to quality, with
tenants usually downsizing at the same time, giving owners of their
old space a hospital pass. There is still some demand for high
quality city centre offices, but for more limited space for
meeting, training and prestige purposes.
Mid and back-office work is now being done far more from home,
or partly at low cost non-city centre locations. Unnecessary
offices are one cost that businesses can now cut, with break
clauses exercised in most cases and tenants demanding considerable
capital expenditure from landlords to renew leases, even in part.
Functional obsolescence and depreciation will, therefore, need to
be factored more specifically into most office valuations, keeping
capital values under continuing downward pressure to reflect lower
effective net rents and greater re-letting risk, as valuers start
to reflect this risk properly.
The public sector, the largest UK office tenant, has clearly now
adopted a long-term hybrid working model, and would have serious HR
and legal problems and additional trade union pressure if it tried
to force any employee back to the office full-time, despite the
Minister for Government Efficiency publicly applying pressure. Many
UK companies are also downsizing, going hybrid, closing their head
office altogether and taking temporary space nearby instead. Those
employers such as some American investment banks or law firms
requiring full office attendance will, therefore, find staff
recruitment and retention ever more difficult in a climate where
talented employees feel more able to negotiate the way they work,
irrespective of age or sex.
Retail - Bouncing Back, Led by Retail Warehouses and
Supermarkets
The COVID pandemic hit the high street hard where it had already
been hurting for many years: first, by getting many more older
shoppers, in particular, used to the range and convenience of
non-food shopping in particular, online; and second, by making
people switch from public transport or parking in congested
city-centres to easier and safer car-borne shopping out of town.
Retail warehouse rents are rising again, especially where well-run
operators like B&Q, B&M and Home Bargains trade alongside
the leading supermarkets, and capital values are growing rapidly -
some institutional investors missed the market in industrial
property, want no more offices, and have money which they are
struggling to invest.
On the high street, the steepest falls in property values
happened in "prime" central London and other prime highly valued
cities and towns which are now unaffordable for both multiple and
individual retailers. Unfair business rates had already crippled
urban high streets in less prosperous parts of the UK, and the
Government's latest partial attempt at rates reform will be too
little, too late for many locations. Prosperous suburbs and market
towns with affordable rents and an attractive mix of convenience
and independent traders have proved more resilient during the
crisis and are generally recovering better than bigger centres.
Transaction volumes are rising again for high street shops and
shopping centres, and as rental values have been reset at
affordable and sustainable levels, there are now growing signs of
capital growth from the retail bargain basement.
Supermarkets and convenience stores (including petrol filling
stations), have done well during COVID, often with increases of
20%-30% in their turnover, part of which they are able to retain
with more people working on average nearer home. Online food sales'
market share has slipped back from 16% to 11% now with Sainsbury's
reporting online sales down from 21% to 15% of their total. Aldi,
Lidl, and their older-established grocery competitors are fighting
fiercely for stores under 15,000 - 20,000 sq. ft. The leading
supermarkets are also much better at combining physical and online
shopping than most non-food retailers.
Non-Traditional Alternatives - Index-Linked Leases to Strong
Survivors are Key
Property in the "Alternatives" sector - i.e. everything except
office, industrial or retail - has been growing rapidly in
importance for institutional investors in recent years and now
accounts for one-sixth of the MSCI UK Quarterly Property Index. It
covers a wide range of property types and tenants, often with long,
index-linked leases. With the RPI now rising at an annual rate of
9% and the CPI at 7%, these index-linked leases hold the key to
sustained outperformance so long as the individual property rents
are well covered by operating profits and paid by strong multiple
tenants.
COVID with its ever-changing lockdowns posed a once in a
lifetime challenge to alternative sector operators and investors.
Tenants with strong long-term business models and short-term crisis
management, working with investors who knew how and when to give
help and improve leases, came through the COVID challenge stronger
than ever before, with their weaker multiple competitors, and many
private operators, savagely squeezed or forced out of business
altogether. Alternative investments are, therefore, outperforming
most property sectors again, and probably even industrials over
2022, but with strong survivor bias and variations within and
between different sub-sectors, as outlined below.
Alternatives - Leisure and Hotels - Strong Tenants Trading
Stronger than ever Outside City Centres
Well-let pubs have proved far safer investments than
restaurants, where many private-equity backed multiple chains were
already drowning in debt pre-COVID. The leading pubcos, like Greene
King and Wetherspoons, as well as most traditional regional
brewers, have strong balance sheets with plenty of freehold assets
and borrowing capacity. Profitable, spacious pubs with outside
space, have been trading exceptionally well and above pre-pandemic
levels over the past year, apart from central London. Pubs of this
type in suburban, smaller town and rural locations will stay short
and long-term winners whilst consumer spending on food and drink
remains at current levels.
Hotel values are also well off the bottom. Modern hotels in
prosperous smaller towns and rural areas, serving British
holidaymakers, workers and businesses, have been performing really
strongly over the past year, proving resilient even during the
latest COVID surge. They will continue to outperform large city
centre and airport hotels dependent on international business and
travel. Zoom, Teams and ESG have slashed expensive corporate
frequent flying. Covenant strength will remain crucial for hotels'
investment value - for example, a Premier Inn is valued well above
a similar Travelodge, because long-term investors hate CVAs
(Company "Voluntary" Arrangements). Caravan parks should also trade
very strongly for many years to come.
Health and Fitness clubs have been rebuilding their memberships
but will be suffering from the squeeze on real incomes. The leading
brands on large out of town sites, with good car parking and
customers often able to work from home, offer the best long-term
investments.
The two main ten pin bowling companies, who dominate the market,
are going from strength to strength and offer a sensibly priced
family treat which cannot be replicated online. But bingo halls and
cinemas face a tougher future as lockdowns drove away many of their
older customers and the operators are vulnerable to online
competition.
Alternatives - Student Housing and Care Homes - Covenant
Strength Key
Direct-let investments on long leases to well-established
universities should continue to perform well but indirect student
housing investments with nomination agreements or third-party
providers, depending more on the local residential letting market,
are less clear beneficiaries of yield hardening for safe, long-let
property.
COVID has hit care homes hard. Costs and vacancy rates are
rising because of more deaths, slower admissions and severe Brexit
and vaccination-related staff shortages, while some private-equity
backed care home providers need more equity and lower rents. High
quality homes with self-funded residents will continue to
outperform those dependent on squeezed local authority budgets. The
rise in National Insurance contributions has raised staff costs for
care homes, and the Government's reforms to social care funding
will not deliver meaningful extra cash for another three to four
years. Medical centres and private hospitals will stay in demand as
the NHS faces years of non-COVID catch up and outsourcing more
profitable work.
25 years ago Gordon Brown gave the Bank of England Monetary
Policy Committee the power to set interest rates to meet a stated
inflation target. As the chart above shows, until recently, their
record has been good. Even including the current inflation tsunami,
annual UK CPI growth over the past quarter of a century has
averaged exactly 2% (with the RPI at 2.8%). Official interest rates
have averaged 2.6%, compared with 10.4% over the previous 25 years
and 8.4% for the RPI (CPI figures are not available). But success,
as so often in business and government, has bred complacency and
groupthink, reinforced by similar flawed inflation models in other
Western Central Banks. Massive Quantitative Easing was the only
possible response to the 2008/9 banking crash, which hit the UK
hardest of all the main Western economies, but the Bank persisted
with the policy far longer and stronger than was necessary or
prudent, leaving Britain in our present agonizing double bind of
unsustainably low interest rates and high inflation. The Bank
really has no alternative now to raising interest rates rapidly to
stop inflation expectations taking a real hold, as they did in
eerily similar circumstances in the early 1970's after the first
oil price shock. Inflation has also rocketed in the US to 8.3% (a
new 40 year high) and 7.4% in the Eurozone.
The March consumer price figures (CPI + 7.0% and RPI + 9.0% year
on year) clearly show inflation heading higher over the next few
months, probably into double figures for the CPI and 12% for the
RPI Inflation may still be around the current rates at the year
end. The latest Producer Price Indices show output prices up by
11.5% year on year and input prices up by 19.2%.
So Britain is now suffering stagflation, with average real
incomes likely to fall by at least 2% and maybe up to 3% over 2022
as a result of increases in tax and National Insurance combined
with average earnings and benefits lagging far behind price rises.
UK domestic consumer spending was the main engine of UK economic
recovery in 2021, with exceptionally high pandemic savings being
spent by better off households, and employees gradually returning
to work. That will not be repeated in 2022, and forecasts, like the
OBR's in March, for UK GDP to grow by 3.8% this year now look far
too high. A technical recession may well be looming later this year
on a quarter by quarter basis. Q1 2022 may be only just up, with
Q2, Q3, Q4 all down. Although GDP figures are often subject to
major subsequent revisions. Any progress later in 2023 will be
critically dependent on progress towards peace in Ukraine and
easing disruption to international trade, not least with China, and
supply shortages around the world. There is still a danger of
renewed outbreaks of COVID, especially in less developed countries
where vaccination rates are very low. Food and energy shortages,
serious as they feel in richer countries like the UK, could
actually kill millions especially in Africa, if the war in Ukraine
and disruption of world trade drag on.
Conclusion - Index-Linked Income Still Seriously Undervalued
UK commercial property values stabilised in late 2020 and have
since been rising rapidly. Industrials have been by far the star
performers, but their yield re-rating must be over as prices are
clearly overheating especially at the prime end of the market.
Offices' relative performance is going from bad to worse. Retail
values started to recover early in 2021, as gains for retail
warehouses, supermarkets and convenience stores offset slowing
rates of decline in shopping centres and high street shops, which
have now finally bottomed out. The alternative sectors have also
bounced back strongly with pubs, hotels, bowling and caravan parks
booming, especially outside London. Healthcare and nursing home
investments will stay in demand despite their staffing problems.
2022 may see a similar pattern of relative property performance,
despite current short term interest rate rises, and possibly sharp
increases in current unsustainably low long term bond yields, with
alternatives, retail and industrials leading the way and offices
bringing up the rear.
The COVID crisis has taught UK property investors a stark
lesson: stay on the right side of structural change, avoid offices,
and stick wherever you can to properties let to strong tenants at
affordable rents on long, preferably index-linked, leases. Safe,
long-term indexed income will be even more highly prized as
inflation rises faster for longer than myopic markets and
complacent central bankers expect. Wars are always inflationary,
and however long the hot war lasts in Ukraine, the West is clearly
now in an economic cold war with Russia and its allies, with
sanctions and shortages biting for years to come.
Secure, index-linked, UK property offers massive yield margins
over index-linked gilts, and a comfortable yield cushion still over
conventional bonds. It is still seriously undervalued.
Portfolio Summary
VIP specialises in UK commercial properties with long, strong,
index-related income streams to deliver above average long term
real returns.
31 March 30 September 31 March
PORTFOLIO SUMMARY 2022 2021 2021
--------------------------------------- ------------------ -------------- -------------
Portfolio Value: GBP155,478,000* GBP110,050,000 GBP80,550,000
--------------------------------------- ------------------ -------------- -------------
Contracted Income: GBP8,339,944 GBP6,336,645 GBP5,151,786
--------------------------------------- ------------------ -------------- -------------
Contracted income as a % of Portfolio
Value: 5.4% 5.8% 6.4%
--------------------------------------- ------------------ -------------- -------------
Total Number of Properties: 43 39 31
--------------------------------------- ------------------ -------------- -------------
Total Number of Tenants (the Portfolio
is 100% let): 43 40 32
--------------------------------------- ------------------ -------------- -------------
Contracted Indexed Rent: 95.8% 92.4% 90.6%
--------------------------------------- ------------------ -------------- -------------
Weighted Average Unexpired Lease 12.8 years 13.8 years 15.1 years
Term (if all tenants exercise break
options):
--------------------------------------- ------------------ -------------- -------------
Annual Total Return March to March: 20.2% (MSCI:19.6%) - 2.3%
(MSCI: 0.9%)
--------------------------------------- ------------------ -------------- -------------
*Savills Valuation - NB: This figure does not include GBP6m
committed to complete the Alnwick Hotel Development. The fair
valuation given by Savills excludes prepaid or accrued operating
lease income arising from the spreading of lease incentives or
minimum lease payments and for adjustments to recognise finance
lease liabilities for one leasehold property, both in accordance
with IFRS 16. For further information see Note 9 to the Financial
Statements.
Performance and Independent Revaluation
Savills' independent valuation at 31 March 2022 on the direct
commercial property portfolio increased to GBP155,478,000 with a
running yield of 5.4% (from 5.7% as at end-December 2021). This is
up from the half-yearly valuation at 30 September 2021 of
GBP110,050,000, the increase driven by both net acquisitions and
valuation uplift.
VIP's property portfolio produced a total return on all 43
properties of 20.2% over the past year to March, against 19.6% for
the MSCI UK Quarterly Property Index, the main benchmark for
commercial property performance. Properties held throughout had a
total return of 23.5%, the difference reflecting the acquisition
costs on 14 properties bought during the year.
VIP's property portfolio total returns on All Assets of 20.2%
over the past year and 8.8% over the past six months were driven by
a valuation uplift of 8.5% on the 38 properties held over the six
months (leisure 16.1%, industrials 12.4%, supermarkets 8.1%, other
7.1%, hotels 5.4%, pubs 4.1% and roadside 2.0%).
The longer term returns on the property portfolio have been
between 10% and 12% a year over 3, 5, 10 and 20 years and 35 years
and are above the MSCI averages over all these periods. The real
returns above the Retail Price Index from VIP's property portfolio
were 10% last year and between 5% and 9% a year over all cumulative
periods from 3 to 35 years since the inception of OLIM Property's
management.
Contracted rental income rose by 6% on held properties. The
average lot size is GBP3,600,000, ranging from GBP1,150,000 to
GBP13,000,000.
Properties
All 43 properties are let and 100% occupied on full repairing
and insuring leases (tenants are responsible for repair,
maintenance and outgoings), plus there is an agreement for lease in
place at Alnwick where a Premier Inn hotel (80 bedrooms plus hotel)
is currently under construction with completion due summer 2022.
All 43 tenancies have upwards only rent increases and a weighted
average unexpired length of 12.8 years (19.8 years if the break
options are not exercised). All the properties valued at 31 March
2022 are freehold with the exception of two which are long
leasehold with 109 and 83 years to run (Doncaster and Fareham).
Purchases to 31 March 2022
Fourteen new properties were purchased over the year for
GBP63,430,000 in total including costs, at an average net initial
yield of 5.3% (plus there will be an additional GBP6,000,000 to be
paid on practical completion during late summer of 2022 of the
Premier Inn Hotel at Alnwick, which is currently under
construction); their average weighted unexpired lease length at 31
March 2022 is 10.4 years (if the break options are exercised). The
newly purchased freehold properties consist of two hotels (one
under construction), six industrials, three petrol filling stations
with convenience stores and three supermarkets. Seven of the
properties have RPI-linked rent increases, four have CPI-linked
rent increases and three with fixed increases.
Purchases and Sales since March 2019
Year March to March Purchases No. of properties Sales No. of properties
-------------------- -------------- ----------------- ------------- -----------------
2019/2020 GBP10,800,000 5 GBP9,200,000 5
-------------------- -------------- ----------------- ------------- -----------------
2020/2021 GBP17,600,000 7 GBP4,750,000 2
-------------------- -------------- ----------------- ------------- -----------------
2021/2022 GBP63,430,000 14 GBP3,260,000 2
-------------------- -------------- ----------------- ------------- -----------------
Total GBP91,830,000 26 GBP17,210,000 9
-------------------- -------------- ----------------- ------------- -----------------
Purchase Pipeline
Further properties with long, strong, index-linked income are
under active investigation.
Sales to 31 March 2022
The sale of two short-let overrented properties completed during
the year: a petrol filling station in Southampton and a pub in
Thornton Cleveleys for a combined GBP3.3m, 4.9% above valuation and
at a net sale yield of 8.8%.
Sales since 31 March 2022
Since the year end, two properties have completed: a Buzz Bingo
in Bradford and a Co-op store in Barton upon Humber for a combined
GBP3.3m in total (39.5% above valuation) at a net sale yield of
6.2%.
Rent Reviews
The portfolio now has 96% of contracted income (42 out of 43
tenancies) with index-linked or fixed rent increases. Only one
property, the industrial at Fareham, has three yearly open market
upwards only reviews (the December 2021 sweep up clause has since
been agreed with a 4% uplift and is to be documented
imminently).
Nineteen rent reviews completed over the course of the year
(twelve with annual rent increases and seven with five yearly
review patterns), sixteen RPI-linked rent increases and three with
fixed rental increases: 7 pubs, 5 supermarkets, 2 petrol filling
stations, 1 bingo hall, 1 bowling alley, 1 library, a driving test
centre and the caravan park giving a combined 6.9% uplift on their
passing rents.
Rent Collection
100% of all contracted rents due were collected in the year to
31 March 2022 and landlords' rights to enforce rent collection are
now back to normal.
The portfolio remains well-spread with a focus on index-linked
rent reviews and the sectors of the UK commercial property market
which benefit from structural change-industrials (33%),
supermarkets (27%) and alternatives (40% mainly leisure, pubs and
hotels). We do not invest in offices. VIP'S safe, long let indexed
portfolio should prove resilient. It has outperformed through
previous turbulent times as shown by the Property Record Table in
the Annual Report, delivering long term above average real returns
(benchmark MSCI UK Quarterly Property Index).
Louise Cleary & Matthew Oakeshott
OLIM Property Limited
10 June 2022
Equity Manager's Report
UK Equities
Market Background
The UK stock market gave a good absolute return over VIP's
financial year, with the FTSE All-Share Index delivering a total
return of 13.0%, against 19.6% for UK property. For most of the
year progress was steady, driven by improving sentiment as lockdown
restrictions were eased progressively. However, share prices
dropped sharply in February and early March 2022 after the Russian
invasion of Ukraine. They then recovered to end the quarter only
marginally down.
Property shares were strong over the year to end March 2022,
with the FTSE All Share Real Estate Investment Trusts ("REITs")
Index generating a total return of 22.5%. REIT NAV performance was
strong, benefiting from the post-pandemic recovery in commercial
property values and, in particular, from the strength in industrial
property sector valuations.
Performance
VIP's equity portfolio performed well ahead of the wider stock
market, reflecting the better performance of property stocks as a
whole. The portfolio recorded a total return of 24.1%, which also
outperformed the FTSE All Share REITs Index. The portfolio
benefited from its high exposure to its new investments in
industrial property, and from the strong performances of its two
Food Retailers, Wm Morrison Supermarkets and Tesco. The former was
the subject of competing private equity takeover bids and was
eventually taken private at 287p per share, generating a profit of
over GBP1.5m for VIP. Tesco's share price was aided by strong
trading and this holding was also subsequently disposed of at a
significant profit.
Portfolio
The last twelve months saw sales of equities of GBP36.2m and
purchases of GBP30.5m giving total transactions of GBP66.7m, with
net sales of GBP5.7m. During the year we completed the sale of the
portfolio's legacy holdings, switching into property-backed
securities. The new portfolio focused on the industrial sector with
three specialist industrial REITs, Tritax Big Box REIT, Urban
Logistics REIT and Warehouse REIT, and a large holding in BMO Real
Estate Investments, which mainly invests in industrial property and
retail warehouses. A new holding in Tesco was established and an
increased investment in Wm Morrison Supermarkets was made, both at
small premiums to their respective asset values, in order to gain
exposure to the resilient food retail property sector. As noted
above, both of these investments were realised before the year end
at a significant profit. New holdings were also made in PRS REIT
and Residential Secure Income REIT, which both have exposure to
attractive RPI-linked leases, and in Real Estate Credit
Investments, which advances loans secured on property. An initial
holding in Civitas Social Housing was sold after corporate
governance issues came to light. At the end of March 2022, the
equity portfolio had 7 remaining investments valued at
GBP26.9m.
Since the year end, the portfolio's three specialist industrial
property holdings, Tritax Big Box REIT, Urban Logistics REIT and
Warehouse REIT, have been sold for a good profit and at a premium
to their most recent NAVs. The proceeds have been partly
re-invested in BMO Real Estate Investments at a discount of
25%.
Patrick Harrington
OLIM Property Limited
10 June 2022
Business Review
This Business Review is intended to provide an overview of the
strategy and business model of the Company as well as the key
measures used by the Directors in overseeing its management. The
Company is an investment trust company that invests in accordance
with the investment objective and investment policy outlined in
this Business Review.
Value and Income Trust PLC changed its name on 22 January 2021
to Value and Indexed Property Income Trust PLC (VIP or the
Company). VIP's Ordinary Shares are listed on the Premium segment
of the Official List and traded on the main market of the London
Stock Exchange. The Company is registered as a public limited
company in Scotland under company number SC050366. VIP is an
investment company within the meaning of Section 833 of the
Companies Act 2006. The Company has one class of share. VIP is a
member of the Association of Investment Companies (AIC).
The Group
Value and Indexed Property Income Services Limited (VIS), a
wholly owned subsidiary of the Company, is authorised by the
Financial Conduct Authority to act as the Company's Alternative
Investment Fund Manager (AIFM).
Capital Structure
As at 31 March 2022, and as at the date of this Annual Report,
VIP's share capital consisted of 43,557,464 Ordinary Shares of 10p
nominal value in issue and 1,992,511 Ordinary Shares of 10p each
held in Treasury. Each Ordinary Share in issue entitles the holder
to one vote on a show of hands and, on a poll, to one vote for
every share held.
Share Dealing
Shares in VIP can be purchased and sold in the market through a
stockbroker, or indirectly through a lawyer, accountant or other
professional adviser. Further information on how to invest in VIP
is detailed in the Annual Report.
Recommendation of Non-Mainstream Investment Products
VIP currently conducts its affairs so that the shares issued by
it can be recommended by independent financial advisers to ordinary
retail investors in accordance with the rules of the Financial
Conduct Authority (FCA) in relation to non-mainstream investment
products and intends to do so for the foreseeable future. VIP's
shares are excluded from the FCA's restrictions which apply to
non-mainstream investment products because they are shares in an
investment trust company and the returns to investors are based on
investments in directly held property and publicly quoted
securities.
Highlights of the Year
-- Net Asset Value total return (with debt at par)* of 15.6%
(2021: 12.3%) over one year and 2.7% (2021: -8.5%) over three
years.
-- Share Price total return* of 15.8% (2021: 39.3%) over one
year and 13.3% (2021: -3.3%) over three years.
-- FTSE All-Share Index total return of 13.0% (2021: 26.7%) over
one year and 16.8% (2021: 9.9%) over three years.
-- MSCI Quarterly Property Index total return of 19.6% over one year.
-- Dividends for year up 2.4% - increased for the 35th consecutive year.
Financial Record
31 Mar 2022 31 Mar 2021
NAV (valuing debt at par) (p) 314.3 271.1
----------- -----------
NAV (valuing debt at market) (p)* 305.0 256.6
----------- -----------
Ordinary share price (p) 239.0 218.0
----------- -----------
Discount of share price to NAV (valuing
debt at market) (%) 21.6 15.0
----------- -----------
Dividend per share (p) 12.6 12.3
----------- -----------
Total assets less current liabilities
(GBPm) 196.5 177.6
----------- -----------
* This is an Alternative Performance Measure (APM) which has
been explained in the Glossary in the Annual Report.
Investment Objective and Investment Policy
Investment Objective
The Company invests mainly in directly held UK commercial
property to deliver secure, long-term, index-linked income and
partly in property-backed UK securities. The Company aims to
achieve long-term, real growth in dividends and capital value
without undue risk.
Investment Policy
The Company's policy is to invest in directly held UK commercial
property, property-backed securities listed on the London Stock
Exchange and cash or near cash securities. The Company will not
invest in overseas property or securities or in unquoted companies.
UK directly held commercial property will usually account for at
least 80 per cent. of the total portfolio but it may fall below
that level if relative market levels and investment value, or a
desired increase in cash or near cash securities, make it
appropriate.
The UK commercial property portfolio
The Company will target secure income and capital returns linked
to inflation, mainly through its diversified portfolio of UK
property assets, let or pre-let to a broad range of strong tenants
on long leases with rental growth subject to index-linked or fixed
increases. The Company has not set any geographical limits, except
that it may invest in all four nations of the United Kingdom. It
has also set no structural limits and expects the portfolio to be
focused on (but not limited to), the industrial/ warehouse,
supermarket, roadside and leisure sectors (including for example,
caravan parks, pubs, hotels, garden and bowling centres) income
strips and ground rents. Offices and high street retail properties
would not be priority sectors for investment. In order to manage
risk in the portfolio, at the time of purchase, no single property
asset will exceed in value 25 per cent. Of the Company's gross
asset value and no single tenant (except UK Government and public
sector) will account for more than 30 per cent. Of the Company's
total rental income.
The UK quoted securities portfolio
In order to limit the risk to the Company's overall total
portfolio of assets that are derived from any particular securities
investment, no individual shareholding will account for more than
10 per cent. of the gross assets of the Company at the time of
purchase. The Company will not use derivatives. The Company is
permitted to invest cash held for working capital purposes and
awaiting investment in cash deposits, gilts and money market
funds.
No material changes may be made to the Company's investment
policy described above without the prior approval of Shareholders
by the passing of an Ordinary Resolution.
Borrowing policy
The Company has a longstanding policy of funding most of the
increases in its property portfolio through the judicious use of
borrowings. Gearing will normally be within a range of 25 per cent.
and 50 per cent. of the total portfolio. The Company will not raise
new borrowings if total net borrowings would then represent more
than 50 per cent. of the total assets.
Until 2015, all borrowings had been long-term debentures to
provide secure long-term funding, and avoiding the risks associated
with short-term funding of having to sell illiquid assets at a low
point in markets if loans had to be repaid. Detail of the Company's
current borrowings, comprising two fixed term secured loan
facilities and the 9.375% Debenture Stock 2026, can be found in
Notes 12 and 24 to the Financial Statements. As announced on 24 May
2022, the Company has voluntarily decided to redeem the 2026
Debenture Stock early on 28 June 2022. The redemption price will be
determined in accordance with the conditions set out in the Trust
Deed and will be communicated to holders of the 2026 Debenture
Stock shortly before the redemption date.
Performance, Results and Dividend
As at 31 March 2022, the Net Asset Value (NAV) total return
(with debt at par) over one year was 15.6% and the Share Price
total return over one year was 15.8%. This compares to the FTSE
All-Share Index total return over one year of 13.0% and the MSCI UK
Quarterly Property Index total return of 19.6%. Total assets less
current liabilities were GBP196.5 million. A review of the
performance of the property and equity portfolios is detailed in
the Chairman's Statement in the Annual Report and in the Property
and Equity Manager's Reports in the Annual Report.
For the year to 31 March 2022, quarterly dividends of 3.0p per
share were each paid on 29 October 2021, 28 January 2022 and 29
April 2022. The Directors have declared that a final dividend of
3.6p per Ordinary Share (2021: 3.6p), if approved by Shareholders
at the 2022 AGM, is paid on 29 July 2022 to Shareholders on the
register on 1 July 2022. The ex-dividend date is 30 June 2022. This
represents an annual increase in dividends of 2.4% as compared with
the 9.0% and 7.0% annual increases in the Retail Price and Consumer
Price Indices, respectively, as at the end of March 2022.
Principal and Emerging Risks and Uncertainties
The Board has an ongoing process for identifying, evaluating and
monitoring the principal and emerging risks and uncertainties
facing the Group and the Parent Company. The risk register forms a
key part of the Group and the Parent Company's risk management
framework used to carry out a robust assessment of the risks,
including a significant focus on the controls in place to mitigate
them. The principal and emerging risks and uncertainties which
affect the Group's and the Company's business are:
Market Risk
The fair value of, or future cash flows from, a financial
instrument held by the Group may fluctuate because of changes in
market prices. This market risk comprises three elements - price
risk, interest rate risk and currency risk.
Price Risk
Changes in market prices (other than those arising from interest
rate or currency risk) may affect the value of the Group's
investments.
For equities, asset allocation and stock selection, as set out
in the Investment Policy in the Annual Report, both act to reduce
market risk.
OLIM Property Limited (OLIM Property) is the Investment Manager
responsible for the management of the Company's property and
equities portfolios.
VIS delegates its portfolio management responsibilities to OLIM
Property, which, as well as managing the property portfolio,
actively monitors market prices throughout the year and reports to
VIS and to the Board, which meet regularly in order to review
investment strategy. The equity investments held by the Group are
listed on the London Stock Exchange. All investment properties held
by the Group are commercial properties located in the UK with
long-term, index-linked income streams.
Interest Rate Risk
Interest rate movements may affect:
-- the fair value of the investments in property;
-- the level of income receivable on cash deposits; and
-- the fair value of borrowings.
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment and borrowing decisions.
The Board imposes borrowing limits to ensure that gearing levels
are appropriate to market conditions and reviews these on a regular
basis. Current borrowings comprise a debenture stock and two
secured term loans, with four and eleven year terms remaining,
providing secure long-term funding. It is the Board's policy to
maintain a gearing level, measured on the most stringent basis of
calculation after netting off cash equivalents, of between 25% and
50%.
Currency Risk
A small proportion of the Group's investment portfolio is
invested in securities whose fair value and dividend stream are
affected by movements in foreign exchange rates. It is not the
Company's policy to hedge this risk.
Liquidity Risk
This is the risk that the Group will encounter difficulty in
meeting obligations associated with its financial liabilities.
The Group's assets comprise readily realisable securities which
can be sold to meet commitments, if required, and investment
properties which, by their nature, are less readily realisable. The
maturity of the Company's existing borrowings is set out in the
interest rate risk profile section of Note 21 to the Financial
Statements.
Credit Risk
This is the failure of a counterparty to a transaction to
discharge its obligations under that transaction that could result
in the Group suffering a loss.
The risk is not significant and is managed as follows:
-- investment transactions are carried out on behalf of VIP by
an outsourced dealing agent. Settlement of these transactions is
executed by a large investment bank whose credit standing is
reviewed periodically by OLIM Property (which reports to VIS).
-- the risk of counterparty exposure due to failed trades
causing a loss to the Group is mitigated by the review of failed
trade reports on a daily basis. In addition, a stock reconciliation
to third party administrators' records is performed on a daily
basis to ensure that discrepancies are picked up on a timely basis.
VIS carries out periodic reviews of the Depositary's operations and
reports its findings to the Company. This review also includes
checks on the maintenance and security of investments held.
-- cash is held only with reputable banks with high quality
external credit ratings which are monitored on a regular basis.
Property Risk
The Group's commercial property portfolio is subject to both
market and specific property risk. Since the UK commercial property
market has been markedly cyclical for many years, it is prudent to
expect that to continue.
The price and availability of credit, real economic growth and
the constraints on the development of new property are the main
influences on the property investment market.
Against that background, the specific risks to the income from
the portfolio are tenants being unable to pay their rents and other
charges or leaving their properties at the end of their leases. All
leases are on full repairing and insuring terms, with upward only
rent reviews and the average unexpired lease length is 20 years
(2021: 17 years) and 13 years if break options are exercised.
Details of the tenant and geographical spread of the portfolio are
set out on in the Annual Report. The long-term record of
performance through the varying property cycles since 1987 is set
out in the Annual Report. OLIM Property is responsible for property
investment management, with surveyors, solicitors and managing
agents acting on the portfolio under OLIM Property's
supervision.
Political Risk
The EU (Future Relationship) Act 2020 came into effect on 1
January 2021 and the full political, economic and legal
consequences of the UK leaving the European Union (EU) are not yet
known. It is possible that investments in the UK may be more
difficult to value and assess for suitability of risk, harder to
buy or sell and may be subject to greater or more frequent rises
and falls in value. In the longer term, there is likely to be a
period of uncertainty as the UK seeks to negotiate its ongoing
relationship with the EU and other global trade partners. The UK's
laws and regulations, including those relating to investment
companies, may in future, diverge from those of the EU. This may
lead to changes in the operation of the Company or the rights of
investors in the territories in which the shares of the Company may
be promoted and sold.
The Board reviews regularly the political situation, together
with any associated changes to the economic, regulatory and
legislative environment, to ensure that any risks arising are
mitigated as effectively as possible.
An explanation of certain economic and financial risks and how
they are managed is contained in Note 21 to the Financial
Statements.
Climate Change and Social Responsibility Risk
The Board recognises that climate change is an important
emerging risk that all companies should take into consideration
within their strategic planning. As referred to elsewhere in the
Strategic Report and in the Statement of Corporate Governance in
the Annual Report, the Company has little direct impact on
environmental issues. As an investment trust company, the Company
has no direct employee or environmental responsibilities. The Board
is aware that the Manager continues to take into account
environmental, social and governance matters when considering
investments.
Economic Risk
The valuation of the Company's investments may be affected by
underlying economic conditions, such as fluctuating interest rates,
rising inflation, increased fuel and energy costs, and the
availability of bank finance, all of which can be impacted during
times of geopolitical uncertainty and volatile markets, including
during the coronavirus pandemic and the situation in Ukraine. The
Board monitors the economic and market environment closely, and the
situation in Ukraine, and believes that the diverse well-spread,
long let indexed portfolio should prove resilient.
Other Key Risks
Additional risks and uncertainties include:
-- Discount volatility: The Company's shares may trade at a
price which represents a discount to its underlying net asset
value.
-- Regulatory risk: The Directors strive to maintain a good
understanding of the changing regulatory agenda and consider
emerging issues so that appropriate changes can be implemented and
developed in good time. The Group operates in a complex regulatory
environment and, therefore, faces a number of regulatory risks. A
breach of Section 1158 of the Corporation Tax Act 2010 would result
in the Company being subject to capital gains tax on portfolio
investments. Breaches of other regulations, including but not
limited to, the Companies Act 2006, the FCA Listing Rules, the FCA
Disclosure, Guidance and Transparency Rules, the Market Abuse
Regulation, the Packaged Retail and Insurance-based Investment
Products (PRIIPs) Regulation, the Second Markets in Financial
Instruments Directive (MiFID II) and the General Data Protection
Regulation (GDPR), could lead to a number of detrimental outcomes
and reputational damage.
The Company is also required to comply with tax legislation
under the Foreign Account Tax Compliance Act and the Common
Reporting Standard. The Company has appointed its registrar,
Computershare, to act on its behalf to report annually to HM
Revenue & Customs (HMRC).
The Company's privacy policy is available to view on the
Company's web pages hosted by the Investment Manager at
https://www.olimproperty.co.uk/value-and-indexed-property-income-trust.html.
Breaches of controls by service providers to the Company could
also lead to reputational damage or loss. The Audit and Management
Engagement Committee monitors compliance with regulations by
reviewing internal control reports from the Administrator and from
the Investment Manager.
Alternative Investment Fund Managers Directive
The Alternative Investment Fund Managers Directive (AIFMD)
introduced an authorisation and supervisory regime for all managers
of authorised investment funds in the EU.
In accordance with the requirements of the AIFMD, the Company
appointed VIS as its Alternative Investment Fund Manager (AIFM) and
BNP Paribas Securities Services as its Depositary. VIS's status as
AIFM remains unchanged following the UK's departure from the EU.
The Board has controls in place in the form of regular reporting
from the AIFM and the Depositary to ensure that both are meeting
their regulatory responsibilities in relation to the Company.
Key Performance Indicators
At each Board Meeting, the Directors consider a number of
performance measures to assess the Company's success in achieving
its objectives and which also enable Shareholders and prospective
investors to gain an understanding of its business.
A historical record of these performance measures, with
comparatives, together with the Alternative Performance Measures
(APMs) are shown in the Highlights of the Year and Financial Record
section of the Business Review. Definitions of the APMs can be
found in the Glossary in the Annual Report.
Following the change in investment policy to invest
predominantly in property, the Directors have carried out a review
of the key performance indicators to determine the performance of
the Company. The Directors have identified the following as key
performance indicators:
-- Net asset value and share price total returns relative to the
MSCI UK Quarterly Property Index and FTSE All-Share Index (total
returns); and
-- Dividend growth relative to consumer price inflation.
The Manager's Reports report on how the Company performed during
the year under review against these indices.
The net asset value (NAV) total return is considered to be an
appropriate long-term measure of Shareholder value as it includes
the current NAV per share and the sum of dividends paid to
date.
The share price total return relative to the FTSE All-Share
Index (total return) is the theoretical return including
reinvesting each dividend in additional shares in the Company at
the current mid-market price on the day that the shares go
ex-dividend.
The medium term dividend policy is for increases at least in
line with inflation.
The Board reviews the Company's rental and investment income and
operational expenses on a quarterly basis, as the Directors
consider that both of these elements are important components in
the generation of Shareholder returns. Further information can be
found in Notes 2 and 4 to the Financial Statements in the Annual
Report.
In addition, the Directors will consider economic, regulatory
and political trends and factors that may impact on the Company's
future development and performance.
Share Buy-backs
No Ordinary Shares were bought back in the year to 31 March 2022
(2021: 1,992,511 Ordinary Shares bought back). As at 31 March 2022,
and as at the date of this Annual Report, 1,992,511 Ordinary Shares
of 10p each are held in Treasury. Further information can be found
in Note 14 to the Financial Statements.
At the forthcoming AGM, the Board will seek the necessary
Shareholder authority to continue to conduct share buy-backs.
Statement of Compliance with Investment Policy
The Company is adhering to its stated investment policy and
managing the risks arising from it. This can be seen in various
tables and charts throughout this Annual Report, and from the
information provided in the Chairman's Statement and in the
Manager's Property and Equity Reports in the Annual Report.
The Board's Section 172 Duty and Stakeholder Engagement
The Directors recognise the importance of an effective Board and
its ability to discuss, review and make decisions to promote the
long-term success of the Company and protect the interests of its
key stakeholders. As required by Provision 5 of The AIC Code of
Corporate Governance (the AIC Code) (and in line with The UK
Corporate Governance Code (the Code)), the Board has discussed the
Directors' duty under Section 172 of the Companies Act and how the
interests of key stakeholders have been considered in the Board
discussions and decision making during the year. This has been
summarised in the table below:
Stakeholder Form of Engagement Influence on Board decision
making
Shareholders AGM - Shareholders are encouraged Dividend declarations - The
to attend the AGM and are provided Board recognises the importance
with the opportunity to ask questions of dividends to Shareholders
and engage with the Directors and takes this into consideration
and the Manager. Shareholders when making decisions to pay
are also encouraged to exercise quarterly and propose final
their right to vote on the resolutions dividends for each year. Further
proposed at the AGM (please refer details regarding dividends
to the Chairman's Statement in for the year under review can
the Annual Report). be found in the Chairman's
Shareholder documents - The Company Statement in the Annual Report.
reports formally to Shareholders Share buy-back policy - the
by publishing Annual and Interim Directors recognise the importance
Reports, normally in June and to Shareholders of the Company
November each year. maintaining a buy-back policy
Significant matters or reporting and considered this when establishing
obligations are disseminated the current programme. Further
to Shareholders by way of announcement details can be found in this
to the London Stock Exchange. Business Review in the Annual
The Company Secretary acts as Report and in the Directors'
a key point of contact for the Report in the Annual Report.
Board and all communications Shareholder communication and
received from Shareholders are feedback from the Broker feeds
circulated to the Board. directly into the Board's annual
Other Shareholder events include strategy review, the asset
investor and wealth manager lunches allocation considerations and
and roadshows organised by the the Manager's guidance on desirable
Company's Broker at which the investment characteristics.
Manager is invited to present.
-------------------------------------------- -----------------------------------------
Investee companies Quarterly Board Meetings - The The Manager worked closely
and assets Manager reports to the Board with all tenants during the
on the Company's investment portfolio COVID-19 pandemic, and, as
and the Directors challenge the a result,100% of all contracted
Manager where they feel it is rents due were collected in
appropriate. the year to 31 March 2022.
The Directors are aware that
the exercise of voting rights
is key to promoting good corporate
governance and, through the
Manager, ensures that the listed
companies are encouraged to
adopt best practice corporate
governance. The Board has delegated
the responsibility for monitoring
the listed companies to the
Manager and has given it discretion
to vote in respect of the Company's
holdings in the equity portfolio,
in a way that reflects the
concerns and key governance
matters discussed by the Board.
-------------------------------------------- -----------------------------------------
Manager Quarterly Board Meetings - The The Directors and the Manager
Manager attends every Board Meeting are cognisant of the Company's
and presents a detailed portfolio investment policy and the strategy
analysis and reports on key issues agreed by the Board, which
such as performance of the property the Manager has been tasked
and equities portfolios. with implementing, which has
resulted in a reduction in
the number of equity investments
and an increase in the number
of properties held in the portfolio.
The Board engages constructively
with the Manager to ensure
investments are consistent
with the agreed strategy and
investment policy.
-------------------------------------------- -----------------------------------------
Registrar Review meetings and control reports. The Directors review the performance
of all third party service
providers; this includes ensuring
compliance with GDPR.
-------------------------------------------- -----------------------------------------
Depositary Regular statements and control The Directors review the performance
and Custodian reports received, with all holdings of all third party providers,
and balances reconciled. including oversight of securing
the Company's assets.
-------------------------------------------- -----------------------------------------
Advisers The Company relies on the expert The Directors review the performance
audit, accounting and legal advice of all third party service
received from its Auditor, Administrator providers.
and Legal Advisers.
-------------------------------------------- -----------------------------------------
There were no key decisions made in the year to 31 March 2022
that require to be disclosed.
Employee, Environmental and Human Rights Policy
As an investment trust company, the Company has no direct
employee or environmental responsibilities, nor is it responsible
for the emission of greenhouse gases. Its principal responsibility
to Shareholders is to ensure that the investment portfolio is
properly managed and invested. The Company has no employees and,
accordingly, has no requirement to report separately on employment
matters.
Management of the investment portfolio is undertaken by the
Investment Manager through members of its portfolio management
team. In light of the nature of the Company's business, there are
no relevant human rights issues and, therefore, the Company does
not have a human rights policy.
Independent Auditor
The Company's Independent Auditor is required to report if there
are any material inconsistencies between the content of the
Strategic Report and the Financial Statements. The Independent
Auditor's Report can be found in the Annual Report.
Future Strategy
The Board and the Investment Manager intend to maintain the
strategic policies set out above for the year ending 31 March 2023
as it is believed that these are in the best interests of
Shareholders.
The Company's Viability Statement is included in the Annual
Report.
Approval
This Business Review, and the Strategic Report as a whole, was
approved by the Board of Directors and signed on its behalf by:
James Ferguson
Chairman
10 June 2022
Going Concern
The Group and the Parent Company's business activities, together
with the factors likely to affect their future development and
performance, are set out in the Directors' Report, and the
financial position of the Group and of the Parent Company is
described in the Chairman's Statement within the Strategic Report.
In addition, Note 21 to the Financial Statements includes: the
policies and processes for managing the financial risks; details of
the financial instruments; and the exposures to market price risk,
interest rate risk, liquidity risk, credit risk and price risk
sensitivity. The Directors believe that the Group and the Parent
Company are well placed to manage their business risks.
Following a detailed review, the Directors have a reasonable
expectation that the Group and the Parent Company have adequate
financial resources to enable them to continue in operational
existence for the foreseeable future, being at least 12 months from
approval of the Financial Statements, and accordingly, they have
continued to adopt the going concern basis (as set out in Note 1(b)
to the Financial Statements) when preparing the Annual Report and
Financial Statements.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with UK adopted
international accounting standards and applicable laws and
regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law, the Directors
are required to prepare the Group Financial Statements, and have
elected to prepare the Company Financial Statements, in accordance
with UK adopted international accounting standards. Under company
law, the Directors must not approve the Financial Statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Group and Company and of the profit or loss for
the Group and Company for that period.
In preparing these Financial Statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006, subject to any material
departures disclosed and explained in the Financial Statements;
-- state whether they have been prepared in accordance with UK
adopted international accounting standards, subject to any material
departures disclosed and explained in the Financial Statements;
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- prepare a Directors' Report, a Strategic Report and
Directors' Remuneration Report which comply with the requirements
of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company
and, hence, for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for ensuring that the Annual
Report and Financial Statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for Shareholders to assess the Group's position and performance,
business model and strategy.
The Directors are responsible for ensuring the Annual Report and
Financial Statements are made available on a website. Financial
Statements are published on the Company's web pages hosted by the
Investment Manager in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company's web pages is the
responsibility of the Directors. The Directors' responsibility also
extends to the ongoing integrity of the Financial Statements
contained therein.
Directors' Responsibility Statement
Each Director confirms, to the best of his or her knowledge,
that:
-- the Financial Statements have been prepared in accordance
with the applicable set of accounting standards and Article 4 of
the IAS Regulation and give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group and
Company; and that
-- the Annual Report includes a fair review of the development
and performance of the business and the financial position of the
Group and Company, together with a description of the principal
risks and uncertainties that they face.
The Directors confirm that the Annual Report and Financial
Statements taken as a whole is fair, balanced and understandable
and provides the information necessary for Shareholders to assess
the Group's position
and performance, business model and strategy.
For and on behalf of the Board of
Value and Indexed Property Income Trust PLC
James Ferguson
Chairman
10 June 2022
Group Statement of Comprehensive Income
For the year ended 31 March
Year ended Year ended
31 March 2022 31 March 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
INCOME Note
Rental income 2 5,647 - 5,647 5,359 - 5,359
Investment income 2 1,682 - 1,682 3,414 - 3,414
Other income 2 - - - 159 - 159
-------------- -------------- ---------- -------------- -------------- ----------
7,329 - 7,329 8,932 - 8,932
Gains on investments
Realised gains on
held-at-fair-value
investments and
investment
properties 9 - 10,440 10,440 - 8,588 8,588
Unrealised gains on
held-at-fair-value
investments and
investment
properties 9 - 8,797 8,797 - 1,185 1,185
TOTAL INCOME 7,329 19,237 26,566 8,932 9,773 18,705
-------------- -------------- ---------- -------------- -------------- ----------
EXPENSES
Investment
management
fees 3 (1,088) (2) (1,090) (301) (702) (1,003)
Other operating
expenses 4 (870) - (870) (771) - (771)
Finance costs 5 (3,177) - (3,177) (5,084) - (5,084)
Total expenses (5,135) (2) (5,137) (6,156) (702) (6,858)
-------------- -------------- ---------- -------------- -------------- ----------
Profit before
taxation 2,194 19,235 21,429 2,776 9,071 11,847
Taxation 6 (321) 3,154 2,833 (359) 1,132 773
-------------- -------------- ---------- -------------- -------------- ----------
Profit attributable
to equity
Shareholders
of parent company 1,873 22,389 24,262 2,417 10,203 12,620
-------------- -------------- ---------- -------------- -------------- ----------
Earnings per
Ordinary
Share (pence) 7 4.30 51.40 55.70 5.35 22.56 27.91
The total column of this statement represents the Statement of
Comprehensive Income of the Group, prepared in accordance with
IFRS. The revenue return and capital return columns are
supplementary to this and are prepared under guidance published by
the Association of Investment Companies. All items in the above
statement derive from continuing operations.
The Group does not have any other comprehensive income and so
the total profit, as disclosed above, is the same as the Group's
total comprehensive income. All income is attributable to the
equity holders of Value and Indexed Property Income Trust PLC, the
parent company. There are no minority interests.
The Notes form part of these Financial Statements.
The Board is proposing a final dividend of 3.60p per share,
making a total dividend of 12.60p per share for the year ended 31
March 2022 (2021: 12.30p per share) which, if approved by
Shareholders, will be payable on 29 July 2022 (see Note 8).
Company Statement of Comprehensive Income
for the year ended 31 March
Year ended Year ended
31 March 2022 31 March 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
INCOME Note
Rental income 2 5,647 - 5,647 5,359 - 5,359
Investment income 2 1,682 - 1,682 3,414 - 3,414
Other income 2 - - - 159 - 159
--------- --------- --------- ------------- ------------- ----------
7,329 - 7,329 8,932 - 8,932
GAINS AND LOSSES ON
INVESTMENTS
Realised gains on
held-at-fair-value
investments and investment
properties 9 - 10,440 10,440 - 8,588 8,588
Unrealised gains on
held-at-fair-value
investments and investment
properties 9 - 8,797 8,797 - 1,781 1,781
========= --------- =========
TOTAL INCOME 7,329 19,237 26,566 8,932 10,369 19,301
========= ========= ------------- ------------- ----------
EXPENSES
Investment management
fees 3 (1,088) (2) (1,090) (301) (702) (1,003)
Other operating expenses 4 (870) - (870) (771) - (771)
Finance costs 5 (3,177) - (3,177) (5,050) - (5,050)
--------- --------- --------- ------------- ------------- ----------
Total expenses (5,135) (2) (5,137) (6,122) (702) (6,824)
--------- --------- --------- ------------- ------------- ----------
Profit before taxation 2,194 19,235 21,429 2,810 9,667 12,477
Taxation 6 (321) 3,154 2,833 (359) 1,132 773
--------- --------- --------- ------------- ------------- ----------
Profit attributable
to equity Shareholders
of parent company 1,873 22,389 24,262 2,451 10,799 13,250
--------- --------- --------- ------------- ------------- ----------
Earnings per Ordinary
Share (pence) 7 4.30 51.40 55.70 5.42 23.88 29.30
The total column of this statement represents the Statement of
Comprehensive Income of the Company prepared in accordance with
IFRS. The revenue return and capital return columns are
supplementary to this and are prepared under guidance published by
the Association of Investment Companies. All items in the above
statement derive from continuing operations.
The Company does not have any other comprehensive income and so
the total profit, as disclosed above, is the same as the Company's
total comprehensive income.
The Notes form part of these Financial Statements.
Group Statement of Financial Position
As at 31 March
As at As at
31 March 2022 31 March 2021
Note GBP'000 GBP'000 GBP'000 GBP'000
ASSETS
Non current assets
Investment properties 9 155,838 81,132
Investments held at fair value
through profit or loss 9 26,871 28,581
182,709 109,713
Deferred tax asset 6 4,091 1,258
Receivables 10 2,238 2,017
189,038 112,988
Current assets
Cash and cash equivalents 5,153 65,965
Receivables 10 4,709 972
--------- ---------
9,862 66,937
TOTAL ASSETS 198,900 179,925
Current liabilities
Payables 11 (2,423) (2,318)
---------
(2,423) (2,318)
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES 196,477 177,607
Non-current liabilities
Payables 12 (2,854) (2,862)
Borrowings 12 (56,723) (56,662)
--------- ---------
(59,577) (59,524)
--------- ---------
NET ASSETS 136,900 118,083
--------- ---------
EQUITY ATTRIBUTABLE TO EQUITY
SHAREHOLDERS
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 113,899 95,082
--------- ---------
TOTAL EQUITY 136,900 118,083
--------- ---------
NET ASSET VALUE PER ORDINARY SHARE
(PENCE) 17 314.30 271.10
These Financial Statements were approved by the Board on 10 June
2022 and were signed on its behalf by:-
James Ferguson,
Chairman
The Notes form part of these Financial Statements.
Company Statement of Financial Position
As at 31 March
As at As at
31 March 2022 31 March 2021
Note GBP'000 GBP'000 GBP'000 GBP'000
ASSETS
Non current assets
Investment properties 9 155,838 81,132
Investments held at fair value through
profit or loss 9 27,071 28,781
182,909 109,913
Deferred tax asset 6 4,091 1,258
Receivables 10 2,238 2,017
189,238 113,188
Current assets
Cash and cash equivalents 4,953 65,765
Receivables 10 4,709 972
--------- ---------
9,662 66,737
TOTAL ASSETS 198,900 179,925
Current liabilities
Payables 11 (2,423) (2,318)
--------- ---------
(2,423) (2,318)
TOTAL ASSETS LESS CURRENT LIABILITIES 196,477 177,607
Non-current liabilities
Payables 12 (2,854) (2,862)
Borrowings 12 (56,723) (56,662)
(59,577) (59,524)
--------- ---------
NET ASSETS 136,900 118,083
--------- ---------
EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 113,899 95,082
--------- ---------
TOTAL EQUITY 136,900 118,083
--------- ---------
NET ASSET VALUE PER ORDINARY SHARE
(PENCE) 17 314.30 271.10
These Financial Statements were approved by the Board on 10 June
2022 and were signed on its behalf by:-
James Ferguson,
Chairman
The Notes form part of these Financial Statements.
Group Statement of Cashflows
For the year ended 31 March
2022 2021
Note GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Rental income received 5,970 5,218
Dividend income received 1,835 3,486
Interest (paid)/received (1) 244
Operating expenses paid (1,914) (1,673)
---------- -----------
NET CASH INFLOW FROM OPERATING ACTIVITIES 18 5,890 7,275
Cash flows from investing activities
Purchase of investments held at fair value
through profit or loss (30,132) (4,500)
Purchase of investment properties (63,412) (17,553)
Sale of investments held at fair value
through profit or loss 32,042 79,584
Sale of investment properties 3,445 4,725
--------- ---------
NET CASH (OUTFLOW)/INFLOW FROM INVESTING
ACTIVITIES (58,057) 62,256
Cash flow from financing activities
Repayment of debenture stock - (15,000)
Fees paid on new loan - (4)
Interest paid on loans (3,113) (4,938)
Finance cost of leases (78) (191)
Payments of lease liabilities (9) (17)
Dividends paid 8 (5,445) (5,512)
Buyback of Ordinary Shares for Treasury 14 - (4,332)
--------- ---------
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (8,645) (29,994)
---------- -----------
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS (60,812) 39,537
Cash and cash equivalents at 1 April 2021 65,965 26,428
CASH AND CASH EQUIVALENTS AT 31 MARCH
2022 5,153 65,965
---------- -----------
The Notes form part of these Financial Statements.
Company Statement of Cashflows
For the year ended 31 March
2022 2021
Note GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Rental income received 5,970 5,218
Dividend income received 1,835 3,486
Interest (paid)/received (1) 244
Operating expenses paid (1,914) (1,673)
NET CASH INFLOW FROM OPERATING ACTIVITIES 18 5,890 7,275
Cash flows from investing activities
Purchase of investments held at fair value
through profit or loss (30,132) (4,500)
Purchase of investment properties (63,412) (17,553)
Sale of investments held at fair value
through profit or loss 32,042 79,584
Sale of investment properties 3,445 4,725
--------- ---------
NET CASH (OUTFLOW)/INFLOW FROM INVESTING
ACTIVITIES (58,057) 62,256
Cash flow from financing activities
Repayment of debenture stock - (15,000)
Fees paid on new loan - (4)
Interest paid on loans (3,113) (4,938)
Finance cost of leases (78) (157)
Payments of lease liabilities (9) (51)
Dividends paid 8 (5,445) (5,512)
Buyback of Ordinary Shares for Treasury 14 - (4,332)
--------- ---------
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (8,645) (29,994)
--------- ---------
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS (60,812) 39,537
Cash and cash equivalents at 1 April 2021 65,765 26,228
CASH AND CASH EQUIVALENTS AT 31 MARCH
2022 4,953 65,765
--------- ---------
The Notes form part of these Financial Statements.
Statement of Changes in Equity
For the year ended 31 March
Group Year ended 31 March 2022
Share Share Retained
capital premium earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
Profit for the year - - 24,262 24,262
Dividends paid 8 - - (5,445) (5,445)
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
-------- -------- --------- --------
Company Year ended 31 March 2022
Share Share Retained
capital premium earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
Profit for the year - - 24,262 24,262
Dividends paid 8 - - (5,445) (5,445)
Net assets at 31 March 2022 4,555 18,446 113,899 136,900
-------- -------- --------- --------
Group Year ended 31 March 2021
Share Share Retained
capital premium earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000
Net assets at 31 March 2020 4,555 18,446 92,306 115,307
Profit for the year - - 12,620 12,620
Dividends paid 8 - - (5,512) (5,512)
Buyback of Ordinary Shares
for Treasury 14 - - (4,332) (4,332)
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
-------- -------- --------- --------
Company Year ended 31 March 2021
Share Share Retained
capital premium earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
Net assets at 31 March 2020 4,555 18,446 91,676 114,677
Profit for the year - - 13,250 13,250
Dividends paid 8 - - (5,512) (5,512)
Buyback of Ordinary Shares
for Treasury 14 - - (4,332) (4,332)
Net assets at 31 March 2021 4,555 18,446 95,082 118,083
-------- -------- --------- --------
The Notes form part of these Financial Statements.
Notes to the Financial Statements
1 Accounting policies
The Financial Statements have been prepared in accordance with
UK adopted international accounting standards.
The functional and presentational currency of the Group and
Company is pounds sterling because that is the currency of the
primary economic environment in which the Group and Company
operate. The Financial Statements and the accompanying Notes are
presented in pounds sterling and rounded to the nearest thousand
pounds except where otherwise indicated.
(a) Basis of preparation
The Financial Statements have been prepared on a going concern
basis as disclosed in the Annual Report and on the historical cost
basis, except for the revaluation of equities, investment
properties and investment in subsidiaries, all of which are valued
at fair value through profit and loss. The principal accounting
policies adopted are set out below. Where presentational guidance
set out in the Statement of Recommended Practice Financial
Statements of Investment Trust Companies and Venture Capital Trusts
(the SORP) issued by the Association of Investment Companies (AIC)
in April 2021 is consistent with the requirements of IFRS, the
Directors have sought to prepare the Financial Statements on a
basis compliant with the recommendations of the SORP, except for
the allocation of finance costs to revenue as explained in Note
1(f).
The Board has considered the requirements of IFRS 8, 'Operating
Segments'. The Board is charged with setting the Group's investment
strategy. The Board has delegated the day to day implementation of
this strategy to the Investment Manager but the Board retains
responsibility to ensure that adequate resources of the Group are
directed in accordance with its decisions. The Board is of the view
that the Group is engaged in a single segment of business, being
investments in quoted UK equities and UK commercial properties. The
view that the Group is engaged in a single segment of business is
based on the fact that one of the key financial indicators received
and reviewed by the Board is the total return from the investment
portfolio taken as a whole. A review of the investment portfolio is
included in the reports from the Investment Manager in the Annual
Report.
(b) Going concern
The Group's business activities, together with the factors
likely to affect its future development and performance, are set
out in the Strategic Report in the Annual Report. The financial
position of the Group as at 31 March 2022 is shown in the Statement
of Financial Position in the Annual Report. The cash flows of the
Group for the year ended 31 March 2022 are set out in the Annual
Report. The Group had fixed debt totalling GBP56,723,000 as at 31
March 2022, as set out in Notes 11 and 12; none of the borrowings
is repayable before March 2026. Note 21 sets out the Group's risk
management policies and procedures, including those covering market
price risk, liquidity risk and credit risk. As at 31 March 2022,
the Group's total assets less current liabilities exceeded its
total non current liabilities by a factor of over two. The assets
of the Group consist mainly of securities and investment properties
that are held in accordance with the Group's investment policy, as
set out in the Annual Report. Most of these securities are readily
realisable, even in volatile markets. The Directors, who have
reviewed carefully the Group's forecasts for the coming year and
having taken into account the liquidity of the Group's investment
portfolio and the Group's financial position in respect of cash
flows, borrowing facilities, the intention to repay the debenture
early, and investment commitments (of which there is none of
significance), are not aware of any material uncertainties that
may
cast significant doubt upon the Group's ability to continue as a
going concern. Accordingly, the Directors believe that it is
appropriate to continue to adopt the going concern basis in
preparing the Financial Statements.
(c) Basis of consolidation
The consolidated Financial Statements incorporate the Financial
Statements of the Company and the entity controlled by the Company
(its subsidiary). An investor controls an investee when it is
exposed, or has rights, to variable returns from its involvement
with the investee and has ability to affect those returns through
its power over the investee. The Company consolidates the investee
that it controls. All intra-group transactions, balances, income
and expenses are eliminated on consolidation. The investment in the
subsidiary is recognised at fair value in the Financial Statements
of the Company. This is considered to be the net asset value of the
Shareholders' funds, as shown in its Statement of Financial
Position.
Value and Indexed Property Income Services Limited is a private
limited company incorporated in Scotland under company number
SC467598. It is a wholly owned subsidiary of the Company and has
been appointed to act as Alternative Investment Fund Manager of the
Company.
(d) Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented alongside the Statement of Comprehensive Income.
In accordance with the Company's Articles, net realised capital
returns may be distributed by way of dividend.
Additionally, the net revenue is the measure that the Directors
believe to be appropriate in assessing the Company's compliance
with certain requirements set out in sections 1158-1160 of the
Corporation Tax Act 2010.
(e) Income
Dividend income from investments is recognised as revenue for
the period on an ex-dividend basis. Where no ex-dividend date is
available, dividends receivable on or before the period end are
treated as revenue for the period.
Where the Group has elected to receive dividend income in the
form of additional shares rather than cash, the amount of cash
dividend foregone is recognised as income. Any excess in the value
of shares received over the amount of cash dividend foregone is
recognised as a gain in the income statement.
Interest receivable from cash and short term deposits and
interest payable is accrued to the end of the period.
Rental receivable and lease incentives, where material, from
investment properties under operating leases are recognised in the
Statement of Comprehensive Income over the term of the lease on a
straight line basis. Other income is recognised on an accruals
basis.
(f) Expenses and Finance Costs
All expenses and finance costs are accounted for on an accruals
basis. Expenses are presented as capital where a connection with
the maintenance or enhancement of the value of investments can be
demonstrated. In this respect and in accordance with the SORP, the
investment management fees have been allocated 30% to revenue and
70% to capital for the year ended 31 March 2022 to reflect the
Board's expectations of long-term investment returns.
It is normal practice, and in accordance with the SORP, for
investment trust companies to allocate finance costs to capital on
the same basis as the investment management fee allocation.
However, as the Company has a significant exposure to property, and
property companies allocate finance costs to revenue to match
rental income, the Directors consider that, contrary to the SORP,
it is inappropriate to allocate finance costs to capital.
(g) Receivables and Payables
Receivables do not carry any interest and are stated at their
nominal value, as reduced by any impairment calculated using an
expected credit loss model. Payables are not interest bearing and
are stated at their nominal value.
(h) Taxation
The Company's liability for current tax is calculated using tax
rates that have been enacted or substantially enacted by the date
of the Statement of Financial Position.
Deferred tax is recognised in respect of all temporary
differences that have originated but not reversed at the date of
the Statement of Financial Position, where transactions or events
that result in an obligation to pay more tax in the future or the
right to pay less tax in the future have occurred at the date of
the Statement of Financial Position.
This is subject to deferred tax assets only being recognised if
it is considered more probable than not that there will be suitable
profits from which the future reversal of the temporary differences
can be deducted.
Due to the Company's status as an investment trust company, and
the intention to continue to meet the conditions required to
maintain approval for the foreseeable future, the Company has not
provided deferred tax on any capital gains and losses arising on
the revaluation or disposal of investments.
(i) Dividends payable
Interim dividends are recognised as a liability in the period in
which they are paid as no further approval is required in respect
of such dividends. Final dividends are recognised as a liability
only after they have been approved by Shareholders in general
meeting.
(j) Investments
Equity investments
All equity investments are classified on the basis of their
contractual cashflow characteristics and the Group's business model
for managing its assets. The business model, which is the
determining feature, is such that the portfolio of equity
investments is managed, and performance is evaluated, on the basis
of fair value. Consequently, all equity investments are measured at
fair value through profit or loss.
For listed investments, fair value through profit or loss is
deemed to be bid market prices or closing prices for SETS stocks
sourced from the London Stock Exchange. SETS is the London Stock
Exchange electronic trading service covering most of the market
including all FTSE 100 constituents and most liquid FTSE 250
constituents along with some other securities. Gains and losses
arising from changes in fair value are included in net profit or
loss for the period as a capital item in the Statement of
Comprehensive Income and are ultimately recognised in the retained
earnings.
Investment property
Investment properties are initially recognised at cost, being
the fair value of consideration given, including transaction costs
associated with the investment property. Any subsequent capital
expenditure incurred in improving investment properties is
capitalised in the period incurred and is included within the book
cost of the property.
After initial recognition, investment properties are measured at
fair value. Gains and losses arising from changes in fair value are
included in net profit or loss for the period as a capital item in
the Statement of Comprehensive Income and are ultimately recognised
in the retained earnings.
As disclosed in Note 21, the Group leases out all of its
properties on operating leases. An operating lease is a lease that
does not transfer substantially all the risks and rewards
incidental to ownership of an underlying asset. A property held
under an operating lease is classified and accounted for as an
investment property where the Group holds it to earn rental,
capital appreciation or both. A property held under an operating
lease is classified and accounted for as an investment property
where the Group holds it to earn rental, capital appreciation or
both. Any such property leased under an operating lease is carried
at fair value. Fair value is established by half-yearly
professional valuation on an open market basis by Savills (UK)
Limited, Chartered Surveyors and Valuers, and in accordance with
the RICS Valuation - Global Standards January 2020 (the 'RICS Red
Book'). The determination of fair value by Savills is supported by
market evidence, excluding prepaid or accrued operating lease
income arising from the spreading of lease incentives or minimum
lease payments because it has been recognised as a separate
liability or asset. The fair value of investment property held by a
lessee as a right-of-use asset reflects expected cash flows
(including variable lease payments that are expected to become
payable). Accordingly, if a valuation obtained for a property is
net of all payments expected to be made, it will be necessary to
add back any recognised lease liability, to arrive at the carrying
amount of the investment property using the fair value model. These
valuations are disclosed in Note 9.
The Company accounts for its investment in its subsidiary at
fair value. All fair value adjustments in relation to the
subsidiary are eliminated on consolidation.
(k) Cash and cash equivalents
Cash and cash equivalents comprises deposits held with banks
that are repayable on demand.
(l) Non - current liabilities
All new loans and borrowings are initially measured at cost,
being the fair value of the consideration received, less issue
costs where applicable. Thereafter, all interest-bearing loans and
borrowings are subsequently measured at amortised cost. Amortised
cost is calculated by taking into account any discount or premium
on settlement. The costs of arranging any interest-bearing loans
are capitalised and amortised over the life of the loan. When the
term of a loan is modified, the amortisation of costs is adjusted
in line.
(m) Leases
The Group leases properties that meet the definition of
investment property. These right-of-use assets are presented as
part of Investments Properties in the Statement of Financial
Position and held at fair-value. All properties are leased out
under operating leases and rental income is recognised on a
straight line basis over the expected term of the relevant lease.
Many leases have fixed or minimum rental uplifts and rental income
is recognised on a straight line basis over the expected term of
the lease.
(n) Critical accounting judgements and key estimates
The preparation of the Financial Statements requires the
Directors to make judgements, estimates and assumptions that may
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expenses. The
critical accounting area involving a higher degree of judgement or
complexity comprises the determination of fair value of the
investment properties. The Group engages independent professional
qualified valuers to perform the valuation. Information about the
valuation techniques and inputs used in determining fair value as
at 31 March 2022 is disclosed in Note 9.
(o) Adoption of new and revised Accounting Standards
The following new and revised Standards and Interpretations
became effective during the year and had no material impact on the
amounts reported in these Financial Statements but may impact
accounting for future transactions and arrangements.
Standards
IFRS 16 Amendments - Covid 19-Related Rent Concessions
(effective 1 June 2020)
IAS 39, IFRS 4, 7, 9 and 16 Amendments - Interest Benchmark
Reform Phase 2 (effective 1 January 2021)
IFRS 16 Amendments - Covid-19 Related Rent Concessions beyond 30
June 2021 (effective 1 April 2021)
At the date of authorisation of these Financial Statements, the
following Standards and interpretations, which have not been
applied to these Financial Statements, were in issue but were not
yet effective.
Standards
IAS 1 Amendments - Classification of Liabilities as Current or
Non-Current (effective 1 January 2023)
IAS 1 Amendments - Disclosure of Accounting Policies (effective
1 January 2023)
IAS 8 Amendments - Definition of Accounting Estimates (effective
1 January 2023)
IAS 12 Amendments - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction (effective 1 January
2023)
The Directors do not expect the adoption of these Standards and
interpretations (or any other Standards and interpretations which
are in issue but not effective) will have a material impact on the
Financial Statements of the Group in future periods.
2 Income 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Investment income
Dividends from listed investments
in UK 1,682 1,682 3,414 3,414
Other operating income
Rental income 5,647 5,647 5,359 5,359
Interest receivable on short term
deposits - - 159 159
Total income 7,329 7,329 8,932 8,932
----------- ------------- ----------- -----------
2022 2021
3 Investment management fee Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Group and Company
Investment management fee 1,088 2 1,090 301 702 1,003
----------- -------- ------- ---------- -------- -------
A summary of the terms of the management agreement is given in
the Directors' Report in the Annual Report.
In November 2020, OLIM gave notice of its intention to wind up
its operations in early 2021. As a result, the investment
management agreement with OLIM ceased with effect from 28 February
2021 and responsibility for the management of the equity portfolio
moved to OLIM Property Limited.
From 1st April 2021 the management fee has been allocated 100%
to revenue (previously 30% to revenue, 70% to capital).
OLIM Property Limited received an investment management fee of
GBP1,090,000 (2021 - GBP479,000), the basis of calculation of which
is given in the Annual Report.
OLIM Limited received an investment management fee of GBPnil
(2021 - GBP524,000).
4 Other operating expenses 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Fee payable to the Company's auditor
for the audit of the Company's accounts 55 55 63 63
- audit of the Subsidiary's accounts 2 2 2 2
Directors' fees 105 105 107 107
NIC on Directors' fees 3 3 7 7
Fees for company secretarial services 222 222 230 230
Direct property costs (2) (2) (80) (80)
Other expenses 485 485 442 442
------------- ------------- ------------- -------------
870 870 771 771
------------- ------------- ------------- -------------
Directors' fees comprise the Chairman's fees of GBP30,000 (2021
- GBP30,000), the Audit and Management Engagement Committee
Chairman's fees of GBP24,500 (2021 - GBP24,500) and fees of
GBP22,000 (2021 - GBP22,000) per annum paid to each other
Director.
Additional information on Directors' fees is given in the
Directors' Remuneration Report in the Annual Report.
5 Finance costs 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Interest payable on:
11% First Mortgage Debenture Stock
2021 - - 1,650 1,650
9.375% Debenture Stock 2026 1,875 1,875 1,875 1,875
Less amortisation of issue premium (24) (24) (24) (24)
Bank loan interest payable 1,181 1,181 1,307 1,307
Amortisation of loan expenses 67 67 85 85
Finance costs attributable to lease
liabilities 78 78 191 157
3,177 3,177 5,084 5,050
---------- ------------ ------------ ------------
6 Taxation 2022 2021
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Analysis of the tax credit/(charge)
a) for the year:
Group
Current tax (321) 321 - (359) 359 -
Deferred tax - 2,833 2,833 - 773 773
------------ ---------- ----------- --------- ----------
(321) 3,154 2,833 (359) 1,132 773
------------ -------- ---------- ----------- --------- ----------
Factors affecting the total
tax credit/(charge) for year:
Profit before tax 21,429 11,847
---------- ----------
Tax charge thereon at 19%
(2021 - 19%) 4,072 2,251
Effects of:
Non taxable dividends (320) (649)
Gains on investments not taxable (3,655) (1,857)
Movement in deferred tax not
recognised (2,930) (518)
---------- ----------
(2,833) (773)
---------- ----------
2022 2021
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Company
Current tax (321) 321 - (359) 359 -
Deferred tax - 2,833 2,833 - 773 773
------------ -------- ---------- ----------- --------- ----------
(321) 3,154 2,833 (359) 1,132 773
------------ -------- ---------- ----------- --------- ----------
Factors affecting the total
tax credit/(charge) for year:
Profit before tax 21,429 12,477
---------- ----------
Tax charge thereon at 19%
(2021 - 19%) 4,072 2,371
Effects of:
Non taxable dividends (320) (649)
Gains on investments not taxable (3,655) (1,970)
Movement in deferred tax not
recognised (2,930) (525)
---------- ----------
(2,833) (773)
---------- ----------
Factors affecting future
b) tax charges
Unutilised tax losses 23,192 25,617
---------- ----------
Potential tax benefit at 19% 635 4,867
Potential tax benefit at 25% 4,963 -
---------- ----------
5,598 4,867
---------- ----------
Recognised as a deferred tax non-current
asset 4,091 1,258
Not recognised as a deferred
tax asset 1,507 3,609
---------- ----------
5,598 4,867
---------- ----------
The Company and Group have deferred tax assets of GBP5,774,000
(2021 - GBP4,867,000) at 31 March 2022 relating to total
accumulated unrelieved tax losses carried forward of GBP23,192,000
(2021 - GBP25,617,000). The Company and Group have recognised
deferred tax assets of GBP4,091,000 (2021 - GBP1,258,000), based on
forecast profits for the next five years but have not recognised
deferred tax assets of GBP1,507,000 (2021 - GBP3,609,000) arising
as a result of losses carried forward. These losses do not have an
expiry date but it is considered too uncertain that the Group will
generate profits against which these losses would be available to
offset and, on that basis, the deferred tax asset in respect of
these losses has not been recognised.
7 Return per Ordinary Share 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
The return per Ordinary Share is
based on the following figures:
Revenue return 1,873 1,873 2,417 2,451
Capital return 22,389 22,389 10,203 10,799
Weighted average number of Ordinary
Shares in issue 43,557,464 43,557,464 45,216,413 45,216,413
Return per share - revenue 4.30p 4.30p 5.35p 5.42p
Return per share - capital 51.40p 51.40p 22.56p 23.88p
Total return per share 55.70p 55.70p 27.91p 29.30p
------------ ------------ ------------ -------------
8 Dividends 2022 2021
GBP000 GBP000
Dividends on Ordinary Shares:
Third quarterly dividend of 2.90p per share (2021- 2.90p)
paid 30 April 2021 1,263 1,321
Final dividend of 3.60p per share (2021 - 3.40p) paid 30
July 2021 1,568 1,549
First quarterly dividend of 3.00p per share (2021- 2.90p)
paid 29 October 2021 1,307 1,321
Second quarterly dividend of 3.00p per share (2021- 2.90p)
paid 28 January 2022 1,307 1,321
Dividends paid in the period 5,445 5,512
-------- -------
The third interim dividend of 3.00p (2021 - 2.90p), paid on 29 April 2022,
has not been included as a liability in these Financial Statements.
The final dividend of 3.60p (2021 - 3.60p), being paid on 29 July 2022,
has not been included as a liability in these Financial Statements.
Set out below is the total dividend paid and proposed in respect of the
financial year, which is the basis upon which the requirements of Sections
1158 - 1159 of the Corporation Tax Act 2010 are considered. The current
year's revenue available for distribution by way of dividend is GBP1,874,000
(2021 - GBP2,451,000).
2022 2021
GBP000 GBP000
First quarterly dividend of 3.00p per share (2021- 2.90p)
paid 29 October 2021 1,307 1,321
Second quarterly dividend of 3.00p per share (2021- 2.90p)
paid 28 January 2022 1,307 1,321
Third quarterly dividend of 3.00p per share (2021 - 2.90p)
payable 29 April 2022 1,307 1,263
Final quarterly dividend of 3.60p per share (2021 - 3.60p)
payable 29 July 2022 1,568 1,568
5,489 5,473
-------- -------
The final dividend is based on the latest share capital of
43,557,464 ordinary shares excluding those held in Treasury.
9 Investments Investment
properties Equities Total
GBP'000 GBP'000 GBP'000
Group
Cost at 31 March 2021 70,589 18,766 89,355
Unrealised appreciation 10,543 9,815 20,358
Valuation at 31 March 2021 81,132 28,581 109,713
Purchases 63,418 30,456 93,874
Sales proceeds (3,298) (36,235) (39,533)
Realised gains on sales (767) 11,207 10,440
Movement in unrealised appreciation
in year 15,353 (7,138) 8,215
Valuation at 31 March 2022 155,838 26,871 182,709
---------------------- ------------ ---------
Investment Investment
in
properties Subsidiary Equities Total
GBP'000 GBP'000 GBP'000 GBP'000
Company
Cost at 31 March 2021 70,589 200 18,766 89,555
Unrealised appreciation 10,543 - 9,815 20,358
Valuation at 31 March 2021 81,132 200 28,581 109,913
Purchases 63,418 - 30,456 93,874
Sales proceeds (3,298) - (36,235) (39,533)
Realised gains on sales (767) - 11,207 10,440
Movement in unrealised appreciation
in year 15,353 - (7,138) 8,215
Valuation at 31 March 2022 155,838 200 26,871 182,909
----------- ---------------------- ------------ ---------
The fair value valuation given by Savills plc excludes prepaid
or accrued operating lease income arising from the spreading of
lease incentives or minimum lease payments and for adjustments to
recognise finance lease liabilities for one leasehold property,
both in accordance with IFRS 16. The valuation has, therefore, been
increased.
2022 2021
GBP'000 GBP'000
Savills plc valuation 155,478 80,550
Operating lease assets (2,502) (2,289)
Finance lease liabilities 2,862 2,871
--------- ---------
Valuation of Investment Properties 155,838 81,132
--------- ---------
Increase in fair value 360 582
--------- ---------
The fair value valuation given by Savills plc includes
GBP3,278,000 relating to the properties at Barton-upon-Humber and
Bradford where contracts have been exchanged for sale in May
2022.
The movement in unrealised appreciation in the year disclosed in
the Company's Statement of Comprehensive Income includes
amortisation of GBPnil (2021 - GBP630,000) relating to the transfer
of the 11% Debenture Stock 2021 from Audax Properties Limited to
the Company in 2014.
Transaction costs
During the year expenses were incurred in acquiring and
disposing of investments classified as fair value through profit or
loss. These have been expensed through capital and are included
within gains and losses on investments in the Statement of
Comprehensive Income. The total costs were as follows:-
2022 2021
GBP'000 GBP'000
Purchases 95 27
Sales 32 75
-------- --------
127 102
-------- --------
The fair values of the investment properties were independently
valued by professional valuers from Savills (UK) Limited, acting in
the capacity of External Valuers as defined in the RICS Red Book
(but not for the avoidance of doubt as an External Valuers of the
portfolio as defined by the Alternative Investment Fund Managers
Regulations 2013). The valuations were prepared on the basis of
Fair Value as required by the IFRS (International Financial
Reporting Standards). In addition, the valuations have also been
prepared in accordance with RICS Valuation - Professional Standards
VPS 3.5 Fair Value and VPS 4.1 Valuations for Inclusion in
Financial Statements. The definition of Fair Value is set out in
IFRS 13 and is adopted by the International Accounting Standards
Board as follows: "The price that would be received to sell an
asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date" The RICS Red
Book directs us to consider that Fair Value is consistent with the
concept of Market Value, the definition of which is set out in
Valuation Practice Statement 4 1.2 of the Red Book, as follows:
"The estimated amount for which an asset or liability should
exchange on the valuation date between a willing buyer and a
willing seller in an arm's length transaction after proper
marketing and where the parties had each acted knowledgeably,
prudently and without compulsion." The valuations have been arrived
at predominantly by reference to market evidence for comparable
property (Level 3 of the Fair Value Hierarchy). As part of Savills'
standard process, the valuations were carried out by specialist
valuers, which were peer reviewed and reviewed again prior to the
valuation date. During the review process, the various
characteristics of each property were taken into consideration.
Inputs
Fair value
- Group Blended
Property portfolio GBP'000 Key unobservable input Range Yield
Industrial 52,174 Net Equivalent Yield 3.00% - 5.25% 4.50%
Supermarkets 42,584 Net Equivalent Yield 4.00% - 6.50% 5.00%
Pubs 20,456 Net Equivalent Yield 4.50% - 8.50% 6.50%
Other 13,285 Net Equivalent Yield 4.75% - 8.00% 5.50%
Roadside 10,802 Net Equivalent Yield 5.25% - 5.50% 5.50%
Leisure 7,751 Net Equivalent Yield 6.50% - 7.50% 7.50%
Hotels 7,386 Net Equivalent Yield 4.85% 4.85%
----------------
154,438*
----------------
*The aggregate excludes the Premier Inn Alnwick, valued at
GBP1,400,000 as this is a development property.
A 50 bps increase in the equivalent yield applied would have
increased the net assets attributable to the Group and Company's
Shareholders and the total gain for the year by GBP17,012,000. A 50
bps decrease in the equivalent yield applied would have decreased
the net assets attributable to the Group and Company's Shareholders
and the total gain for the year by GBP13,428,000. A 5% decrease in
the rental value applied would have decreased the net assets
attributable to the Group and Company's Shareholders and the total
gain for the year by GBP3,998,000. A 5% increase in the rental
value applied would have increased the net assets attributable to
the Group and Company's Shareholders and the total profit for the
year by GBP4,652,000.
Investment in subsidiary
Name Country Date of acquisition % Ownership Principal
of incorporation activity
Value and Indexed Property
Income Services Limited (formerly
Value and Income Services 16 January
Limited) UK 2014 100 AIFM
10 Receivables 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Amounts falling due within one
year:
Dividends receivable 98 98 251 251
Prepayments and accrued income 418 418 721 721
Amounts due from brokers 4,193 4,193 - -
4,709 4,709 972 972
Amounts falling due after more
than one year:
Rental 2,238 2,238 2,017 2,017
------- -------- ------- ---------
6,947 6,947 2,989 2,989
------- -------- ------- ---------
Many of the Company's leases provide for minimum and maximum
increases of rental at future rent reviews. Minimum increases have
been averaged over the life of the lease, generating amounts
receivable which require to be recognised as an asset.
11 Payables 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Amounts due to OLIM Property
Limited 103 103 84 84
Accruals and other creditors 1,676 1,676 1,653 1,653
Value Added Tax payable 312 312 572 572
Amounts due to brokers 324 324 - -
Lease liability 8 8 9 9
----------- ------------ -----------
2,423 2,423 2,318 2,318
----------- ------------ ----------- -----------
The amount due to OLIM Property Limited comprises the monthly
management fee for March 2022, subsequently paid in April 2022.
12 Non-current liabilities 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Bank loans 37,000 37,000 37,000 37,000
Balance of costs incurred (473) (473) (536) (536)
Costs incurred in the year - - (22) (22)
Add : Debit to income for the
year 85 85 85 85
------------ ------------ ------------ -----------
36,612 36,612 36,527 36,527
9.375% Debenture Stock 2026 20,000 20,000 20,000 20,000
Add: Balance of premium less issue
expenses 135 135 159 159
Less: Credit to income for the
year (24) (24) (24) (24)
------------ ------------ ------------ -----------
20,111 20,111 20,135 20,135
Total Borrowings 56,723 56,723 56,662 56,662
Lease liability payable in more
than one year
- within 2 - 5 years 28 28 37 37
- over 5 years 2,826 2,826 2,825 2,825
------------ ------------ ------------ -----------
Total payables 2,854 2,854 2,862 2,862
------------ ------------ ------------ -----------
59,577 59,577 59,524 59,524
------------ ------------ ------------ -----------
The Company has a GBP15,000,000 fixed term secured loan facility
for a period of up to ten years to 31 March 2026 (2021 -
GBP15,000,000). At 31 March 2022, GBP11,893,750 was drawn down at a
rate of 4.344% and GBP3,106,250 was drawn down at a rate of 3.60%.
The terms of the loan facility contain financial covenants that
require the Company to ensure that:-
- in respect of each 3 month period ending on 31 March and 30
September (the Half Year dates), net rental income shall be at
least 200 per cent of interest costs;
- in respect of each 12 month period beginning immediately after
31 March and 30 September, net rental income shall be at least 200
per cent of interest costs; and
- at all times, the loan shall not exceed 60 per cent of the
value of the properties that have been charged.
On 28 November 2019, the Company entered into a GBP22,000,000
fixed term secured loan facility for a period of up to seven years
to 30 November 2026. On 3 March 2021, this facility was extended
until 31 March 2031. At 31 March 2022, GBP20,900,000 was drawn down
at a fixed rate of 3.28099% and GBP1,100,000 was drawn down at a
variable rate of 2.55550% (being LIBOR for the period equal in
length to the interest period of the loan plus a margin of 2.35%).
The terms of the loan facility contain financial covenants that
require the Company to ensure that:-
- the total debt ratio does not at any time exceed 50 per cent;
- projected interest cover is not less than 200 per cent at all times; and
- the Loan to Value shall not exceed 68% of the value of the
properties that have been charged.
The 9.375% Debenture Stock 2026 issued by VIP is repayable at
par on 30 November 2026 and is secured by a floating charge over
the property and assets of the Company.
The Trust Deed of the 9.375% Debenture Stock contains
restrictions and events of default. The restrictions require that
the aggregate group borrowings, GBP57 million, must not at any time
exceed the total group capital and reserves (equivalent to net
assets of GBP136.9 million as at 31 March 2022).
The fair values of the loan and the debentures are disclosed in
Note 21 and the net asset value per share, calculated with the
borrowings at fair value, is disclosed in Note 17.
13 Deferred tax
Under IAS 12, provision must be made for any potential tax
liability on revaluation surpluses. As an investment trust, the
Company does not incur capital gains tax and no provision for
deferred tax is, therefore, required in this respect.
As disclosed in Note 6, a deferred tax asset has been recognised
to reflect the estimated value of tax losses carried forward which
are likely to be capable of offset against future profits.
14 Share capital 2022 2021
GBP000 GBP000
Authorised:
56,000,000 Ordinary Shares of 10p each (2021 - 56,000,000) 5,600 5,600
------- -------
Called up, issued and fully paid:
43,557,464 Ordinary Shares of 10p each (2021 - 43,557,464) 4,356 4,356
Treasury shares:
1,992,511 Ordinary Shares of 10p each (2021 - 1,992,511) 199 199
------- -------
4,555 4,555
------- -------
The ordinary share capital on the Statement of Financial
Position relates to the number of Ordinary Shares in issue and in
Treasury. Only when shares are cancelled, either from Treasury or
directly, is a transfer made to the Capital Redemption Reserve.
During the prior year, the Company repurchased 1,992,511
Ordinary Shares at a cost of GBP4,332,281 including expenses - All
of these shares were placed in Treasury.
15 Share premium 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Opening balance 18,446 18,446 18,446 18,446
------- -------- ------- --------
16 Retained earnings 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Opening balance at 31 March 2021 95,082 95,082 92,306 91,676
Profit for the year 24,262 24,262 12,620 13,250
Dividends paid (see Note 8) (5,445) (5,445) (5,512) (5,512)
Buyback of Ordinary Shares for Treasury
(see Note 14) - - (4,332) (4,332)
Closing balance at 31 March 2022 113,899 113,899 95,082 95,082
-------- --------- -------- ---------
The table below shows the movement in retained earnings analysed
between revenue and capital items.
2022 2021
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Group
Opening balance at 31 March
2021 96 94,986 95,082 3,191 89,115 92,306
Profit for the year 1,873 22,389 24,262 2,417 10,203 12,620
Dividends paid (see Note
8) (5,445) - (5,445) (5,512) - (5,512)
Buyback of Ordinary Shares
for Treasury (see Note 14) - - - - (4,332) (4,332)
Closing balance at 31 March
2022 (3,476) 117,375 113,899 96 94,986 95,082
-------- -------- -------- -------- -------- --------
Company
Opening balance at 31 March
2021 (991) 96,073 95,082 2,070 89,606 91,676
Profit for the year 1,873 22,389 24,262 2,451 10,799 13,250
Dividends paid (see Note
8) (5,445) - (5,445) (5,512) - (5,512)
Buyback of Ordinary Shares
for Treasury (see Note 14) - - - - (4,332) (4,332)
Closing balance at 31 March
2022 (4,563) 118,462 113,899 (991) 96,073 95,082
-------- -------- -------- -------- -------- --------
Of the Company's Retained Earnings of GBP113,899,000,
GBP85,326,000 is considered to be distributable.
17 Net asset value per equity share
The net asset values per Ordinary Share are based on the Group's
net assets attributable of GBP136,900,000 (2021 - GBP118,083,000)
and on the Company's net assets attributable of GBP136,900,000
(2021 - GBP118,083,000) and on 43,557,464 (2021 - 43,557,464)
Ordinary Shares in issue at the year end, excluding shares held in
Treasury.
The net asset value per Ordinary Share, based on the net assets
of the Group and the Company adjusted for borrowings at fair value
(see Note 21) of GBP132,836,000 (2021 - GBP111,755,000) is 304.97p
(2021 - 256.57p).
2022 2021
Group Company Group Company
Net assets at 31 March 2022 136,900 136,900 118,083 118,083
Fair value adjustments (4,064) (4,064) (6,328) (6,328)
Net assets with borrowings at fair
value 132,836 132,836 111,755 111,755
----------- ----------- ----------- -----------
Number of shares in issue 43,557,464 43,557,464 43,557,464 43,557,464
Net asset value per share 314.30p 314.30p 271.10p 271.10p
Net asset value per share with borrowings
at fair value 304.97p 304.97p 256.57p 256.57p
18 Reconciliation of income from operations
before tax to net cash inflow from
operating activities 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Income from operations before tax 26,566 26,566 18,705 19,301
Gains on investments (19,237) (19,237) (9,773) (10,369)
Investment management fee (1,090) (1,090) (1,003) (1,003)
Other operating expenses (870) (870) (771) (771)
Decrease/(increase) in receivables 303 303 (274) (274)
Increase in other payables 218 218 391 391
Net cash from operating activities 5,890 5,890 7,275 7,275
--------- --------- -------- ---------
19 Reconciliation of current and non-current
liabilities arising from financing activities 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Cash movements
Payment of rental (for leasing) 88 88 209 209
Repayment of debenture - - 15,000 15,000
Loan costs 32 32 22 22
Non-cash movements
Finance costs (for leasing) (78) (78) 1,179 2,407
Changes in fair value (33) (33) - 630
Amortisation of loan premium and expenses
and fair value adjustment (61) (61) (61) (61)
Change in debt in the year (52) (52) 16,349 18,207
Opening debt at 31 March 2021 (59,533) (59,533) (75,882) (77,740)
Closing debt at 31 March 2022 (59,585) (59,585) (59,533) (59,533)
--------- --------- --------- ---------
20 Relationship with the Investment Manager and Related
Parties
Value and Indexed Property Income Services Limited is a wholly
owned subsidiary of Value and Indexed Property Income Trust PLC and
all costs and expenses are borne by Value and Indexed Property
Income Trust PLC. Value and Indexed Property Income Services
Limited has not traded during the year.
Matthew Oakeshott is a director of OLIM Property Limited which
has an agreement with the Group to provide investment management
services, the terms of which are outlined in the Annual Report and
in Note 3.
21 Financial instruments and investment property risks
Risk management
The Group's and the Company's financial instruments and
investment property comprise securities, property and other
investments, cash balances, loans and debtors and creditors that
arise directly from its operations; for example, in respect of
sales and purchases awaiting settlement or debtors for accrued
income.
The Manager has dedicated investment management processes which
ensures that the Investment Policy set out in the Annual Report is
achieved. For equities, stock selection procedures are in place
based on active portfolio management and the identification of
stocks. The portfolio is reviewed on a periodic basis by a senior
investment manager and by OLIM Property's Investment Committee.
Additionally, the Manager's Compliance Officer continually
monitor the Group's investment and borrowing powers and report to
their respective Managers.
The main risks that the Group faces from its financial
instruments are:
(i) market risk (comprising price risk, interest rate risk and currency risk)
(ii) liquidity risk
(iii) credit risk
The Board regularly reviews and agrees policies for managing
each of these risks. The Manager's policies for managing these
risks are summarised below and have been applied throughout the
year.
(i) Market risk
The fair value of, or future cash flows from, a financial
instrument held by the Group may fluctuate because of changes in
market prices. This market risk comprises three elements - price
risk, interest rate risk and currency risk.
Price risk
Price risks (i.e. changes in market prices other than those
arising from interest rate or currency risk) may affect the value
of the Group's investments.
It is the Board's policy to hold an appropriate spread of
investments in the portfolio in order to reduce the risk arising
from factors specific to a particular sector. For equities, asset
allocation and stock selection, as set out in the Investment Policy
in the Annual Report, both act to reduce market risk. The Manager
actively monitors market prices throughout the year and reports to
the Board, which meets regularly in order to review investment
strategy. The investments held by the Company are listed on the
London Stock Exchange.
All investment properties held by the Group are commercial
properties located in the UK with long, strong income streams.
Price risk sensitivity
If market prices at the date of the Statement of Financial
Position had been 10% higher or lower, while all other variables
remained constant, the return attributable to ordinary shareholders
for the year ended 31 March 2022 would have increased/decreased by
GBP18,271,000 (2021 - increase/decrease of GBP10,971,000) and
equity reserves would have increased/ decreased by the same
amount.
Interest rate risk
Interest rate movements may affect:
- the fair value of the investments in property; and
- the level of income receivable on cash deposits
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment and borrowing decisions.
The Board imposes borrowing limits to ensure gearing levels are
appropriate to market conditions and reviews these on a regular
basis. Borrowings comprise debenture stock and five and ten year
bank loans, providing secure long term funding. It is the Board's
policy to maintain a gearing level, measured on the most stringent
basis of calculation after netting off cash equivalents, of between
25% and 50%. Details of borrowings at 31 March 2022 are shown in
Notes 11 and 12.
Interest risk profile
The interest rate risk profile of the portfolio of financial
assets and liabilities at the statement of financial position date
was as follows:
Weighted average
period for which Weighted Floating
rate is fixed average interest Fixed rate rate
At 31 March 2022 Years rate % GBP'000 GBP'000
------------------ ------------------ ----------- ---------
Assets
Sterling - - - 5,153
Total assets - - - 5,153
------------------ ------------------ ----------- ---------
At 31 March 2022
Liabilities
Sterling 6.17 5.64 57,000 -
Total liabilities 6.17 5.64 57,000 -
------------------ ------------------ ----------- ---------
At 31 March 2021
Assets
Sterling - - - 65,965
Total assets - - - 65,965
------------------ ------------------ ----------- ---------
At 31 March 2021
Liabilities
Sterling 7.17 5.64 57,000 -
Total liabilities 7.17 5.64 57,000 -
------------------ ------------------ ----------- ---------
The weighted average interest rate on borrowings is based on the
interest rate payable, weighted by the total value of the loans.
The maturity dates of the Group's loans are shown in Notes 11 and
12.
The floating rate assets consist of cash deposits on call,
earning interest at prevailing market rates. The Group's equity and
property portfolios and short term receivables and payables are non
interest bearing and have been excluded from the above tables. All
financial liabilities are measured at amortised cost.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the
exposure to interest rates at the statement of financial position
date and the stipulated change taking place at the beginning of the
financial year and held constant throughout the reporting period in
the case of instruments that have floating rates.
If interest rates had been 100 basis points higher or lower and
all other variables were held constant, the Group's:
- profit for the year ended 31 March 2022 would
increase/decrease by GBP31,000 (2021 - increase / decrease by
GBP47,000). This is mainly attributable to the Group's exposure to
interest rates on its floating rate cash balances.
- the Group holds no financial instruments that will have an equity reserve impact.
In the opinion of the Directors, the above sensitivity analyses
are not representative of the year as a whole, since the level of
exposure changes frequently as part of the interest rate risk
management process used to meet the Group's objectives.
Currency risk
A small proportion of the Group's investment portfolio is
invested in securities whose fair value and dividend stream are
affected by movements in foreign exchange rates. It is not the
Group's policy to hedge this risk.
Currency sensitivity
There is no sensitivity analysis included as the Group has no
outstanding foreign currency denominated monetary items. Where the
Group's equity investments (which are non-monetary items) are
affected, they have been included within the other price risk
sensitivity analysis so as to show the overall level of
exposure.
(ii) Liquidity risk
This is the risk that the Group will encounter difficulty in
meeting obligations associated with its financial liabilities.
The Group's assets comprise of readily realisable securities
which can be sold to meet commitments if required and investment
properties which, by their nature, are less readily realisable. The
maturity of the Group's existing borrowings is set out in the
interest risk profile section of this note.
The table below details the Group's remaining contractual
maturity for its financial liabilities, based on the undiscounted
cash outflows, including both interest and principal cash flows,
and on the earliest date upon which the Group can be required to
make payment.
Due between
Carrying Expected Due within 3 months Due after
value cashflows 3 months and 1 year 1 year
As at 31 March 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Borrowings 57,850 75,519 1,261 1,955 72,303
Leases 2,895 7,265 22 65 7,178
Other payables 356 356 356 - -
--------- ----------- ----------- ------------ ----------
Total 61,101 83,140 1,639 2,020 79,481
--------- ----------- ----------- ------------ ----------
As at 31 March 2021
Borrowings 57,853 78,738 1,268 1,951 75,519
Leases 2,871 7,351 22 65 7,264
Other payables 527 527 527 - -
--------- ----------- ----------- ------------ ----------
Total 61,251 86,616 1,817 2,016 82,783
--------- ----------- ----------- ------------ ----------
(iii) Credit risk
This is the failure of a counterparty to a transaction to
discharge its obligations under that transaction that could result
in the Group suffering a loss.
The risk is not significant and is managed as follows:
- investment transactions are carried out on behalf of VIP by an
outsourced dealing agent. Settlement of these transactions is
executed by a large investment bank whose credit standing is
reviewed periodically by OLIM Property (which reports to VIS).
- the risk of counterparty exposure due to failed trades causing
a loss to the Group is mitigated by the review of failed trade
reports on a daily basis. In addition, a stock reconciliation to
third party administrators' records is performed on a daily basis
to ensure that discrepancies are picked up on a timely basis.
- cash is held only with reputable banks with high quality
external credit ratings which are monitored on a regular basis.
Credit risk exposure
In summary, compared to the amounts on the Group Statement of
Financial Position, the maximum exposure to credit risk during the
year to 31 March was as follows:
2022 2021
Statement Statement
of Financial Maximum of Financial Maximum
Position exposure Position exposure
Current assets GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash equivalents 5,153 58,689 65,965 83,209
Other receivables 4,709 5,186 597 7,733
============= ========== ------------- ----------
9,862 63,875 66,562 90,942
============= ========== ------------- ----------
(iv) Property risk
The Group's commercial property portfolio is subject to both
market and specific property risk. Since the UK commercial property
market has been markedly cyclical for many years, it is prudent to
expect that to continue. The price and availability of credit, real
economic growth and the constraints on the development of new
property are the main influences on the property investment
market.
Against that background, the specific risks to the income from
the portfolio are tenants being unable to pay their rents and other
charges, or leaving their properties at the end of their leases.
All leases are on full repairing and insuring terms, with upward
only rent reviews and the average unexpired lease length is 20
years (2021 - 17 years). Details of the tenant and geographical
spread of the portfolio are set out in the Annual Report. The long
term record of performance through the varying property cycles
since 1987 is set out in the Annual Report. OLIM Property is
responsible for property investment management, with surveyors,
solicitors and managing agents acting on the portfolio under OLIM
Property's supervision.
The Group leases out its investment property to its tenants
under operating leases. At 31 March 2022, the future minimum lease
receipts under non-cancellable leases are as follows:-
2022 2021
GBP000 GBP000
Due within 1 year 8,159 5,152
Due between 2 and 5
years 32,525 20,362
Due after more than
5 years 78,686 63,155
======= -------
119,370 88,669
======= -------
This amount comprises the total contracted rent receivable as at
31 March 2022.
None of the Group's financial assets is past due or
impaired.
Fair values of financial assets and financial liabilities
All assets and liabilities of the Group other than receivables
and payables and the borrowings are included in the Statement of
Financial Position at fair value.
(i) Fair value hierarchy disclosures
All assets and liabilities of the Group other than receivables
and payables and the borrowings are included in the Statement of
Financial Position at fair value.
The table below sets out fair value measurements using the IFRS
13 Fair Value hierarchy:-
Level 1 Level 2 Level 3 Total
At 31 March 2022 GBP000 GBP000 GBP000 GBP000
Equity investments 26,871 - - 26,871
Investment properties - - 155,838 155,838
======= ======= ======= =======
26,871 - 155,838 182,709
======= ======= ======= =======
At 31 March 2021
Equity investments 28,581 - - 28,581
Investment properties - - 81,132 81,132
------- ------- ------- -------
28,581 - 81,132 109,713
------- ------- ------- -------
Company and Group numbers per the above fair value disclosures
are the same except for the investment of GBP200,000 made by the
Company in its subsidiary, which was the subject of an inter-group
transfer in 2014.
Fair value categorisation within the hierarchy has been
determined on the basis of the degree to which the inputs to the
fair value measurements are observable and the significance of the
inputs to the fair value measurement in its entirety as
follows:-
Level 1 - inputs are unadjusted quoted prices in an active
market for identical assets
Level 2 - inputs, not being quoted prices, are observable,
either directly (i.e. as prices) or indirectly (i.e. derived from
prices)
Level 3 - inputs are not observable
There were no transfers between Levels during the year.
(ii) Borrowings
The fair value of borrowings has been calculated at
GBP61,064,000 as at 31 March 2022 (2021 - GBP62,652,000) compared
to a Statement of Financial Position value in the Financial
Statements of GBP56,723,000 (2021 - GBP56,662,000) per Notes 11 and
12.
The fair value of the debenture is determined by comparison with
the fair value of an equivalent gilt edged security, discounted to
reflect the differing levels of credit worthiness of the borrowers.
The fair values of the loans are determined by a discounted cash
flow calculation based on the appropriate inter-bank rate plus the
margin per the loan agreement. These instruments are, therefore,
considered to be Level 2 as defined above. There were no transfers
between Levels during the year.
All other assets and liabilities of the Group are included in
the Statement of Financial Position at fair value.
Statement of
Financial Position
Fair value Value
2022 2021 2022 2021
GBP000 GBP000 GBP000 GBP000
9.375% Debenture Stock 2026 23,592 25,517 20,111 20,135
23,592 25,517 20,111 20,135
Bank loans 37,472 37,135 36,612 36,527
61,064 62,652 56,723 56,662
------- ------- ---------- ----------
22 Capital management policies and procedures
The Group's capital management objectives are:
- to ensure that the Group will be able to continue as a going concern; and
- to maximise the return to its equity shareholders in the form
of long term real growth in dividends and capital value without
undue risk through the optimisation of the debt and equity
balance.
The capital of the Group consists of equity, comprising issued
capital, reserves, borrowings and retained earnings.
The Board monitors and reviews the broad structure of the
Group's capital. This review includes:
- the planned level of gearing which takes into account the
Managers' views on the market and the extent to which revenue in
excess of that which requires to be distributed should be
retained.
The Group's objectives, policies and processes for managing
capital are unchanged from the preceding accounting period.
Details of the Group's gearing and financial covenants are
disclosed in Notes 11 and 12.
23 Commitments
At the Statement of Financial Position date, the Company had
entered into capital expenditure commitments on a land asset within
the property portfolio. This undertaking is dependent on a number
of outcomes and independent valuations.
Property GBP000
Alnwick - Land at Willowburn Trading Estate, Willowburn Avenue 6,000
24 Events after the Statement of Financial Position Date
The Company announced on 9 May 2022 an increase of GBP8 million
on an existing loan at a net effective interest rate of 3.65% and
an extension in its maturity to 31 March 2033 from 31 March
2031.
The Company announced on 24 May 2022 that its 2026 Debenture
Stock will be redeemed early on 28 June 2022, under and in terms of
the trust deed constituting the 2026 Debenture Stock (the Trust
Deed). The redemption price for the 2026 Debenture Stock will be
determined in accordance with the terms of the Trust Deed and will
be communicated to holders of the 2026 Debenture Stock shortly
before the redemption date.
The Board is recommending the payment of a final dividend of
3.6p per Ordinary Share (2021: 3.6p) and, subject to receiving
Shareholder approval at the 2022 AGM, will be paid on 29 July 2022
to all Shareholders on the register on 1 July 2022.
There are no significant subsequent events for the Group or the
Company though purchases and sales of property in the normal course
of business which completed after the year end are disclosed in the
Annual Report.
Additional Information
In accordance with section 435 of the Companies Act 2006, the
Directors advise that the financial information set out in this
announcement does not constitute the Group's statutory Financial
Statements for the period ended 31 March 2022 but is derived from
these Financial Statements. The statutory Financial Statements for
the year ended 31 March 2021 have been delivered to the Registrar
of Companies and contained an audit report which was unqualified
and did not constitute statements under S498(2) or S498(3) of the
Companies Act 2006.
The Financial Statements for the period ended 31 March 2022 have
been prepared in accordance with UK adopted international
accounting standards. The Financial Statements for the period ended
31 March 2022 will be forwarded to the Registrar of Companies
following the Company's Annual General Meeting. The Auditors have
reported on these Financial Statements; their reports were
unqualified and did not contain statements under Section 498(2) or
(3) of the Companies Act 2006.
The Group and Company Statement of Financial Position at 31
March 2022 and the Group and Company Statement of Comprehensive
Income, Statement of Changes in Equity and Statement of Cash Flows
for the year then ended have been extracted from the Group's
Financial Statements. Those Financial Statements have not yet been
delivered to the Registrar.
The 2022 Annual Report and Financial Statements will be posted
to Shareholders shortly and will contain the Notice of the Annual
General Meeting of the Company to be held on Friday, 8 July 2022 at
12.30pm at the offices of Shepherd and Wedderburn LLP, 1 Exchange
Crescent, Conference Square, Edinburgh EH3 8UL.
For Value and Indexed Property Income Trust PLC
Maven Capital Partners UK LLP
Company Secretary
10 June 2022
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