TIDMSLI
RNS Number : 0268F
Standard Life Invs Property Inc Tst
17 April 2014
STANDARD LIFE INVESTMENTS PROPERTY INCOME TRUST
ANNUAL FINANCIAL REPORT IN RESPECT OF THE YEAR ENDED 31 DECEMBER
2013
Financial Highlights
-- Net Asset Value total return of 25.2% for the year ended 31 December 2013
-- Share price increased by 20.2% over the year to 70.0p
-- Dividend yield of 6.5% based on year end share price of 70.0p
-- 4 properties purchased for GBP22.6m excluding costs and 2 properties sold for GBP15.7m
-- Share capital increased 11.0% over the year at an average
premium to Net Asset Value of 4.9%
Total Returns (with dividends re-invested) 31 December 31 December
2013 2012
Net Asset Value total return +25.2% -2.9%
Share Price total return +29.2% +21.1%
Capital Values 31 December 31 December
2013 2012 % Change
Net Asset Value per share 1 65.5p 57.7p +13.5%
EPRA* Net Asset Value per share
2 65.6p 62.7p +4.6%
Share Price 70.0p 58.25p +20.2%
Premium of Share Price to Net
Asset Value 6.9% 1.0%
Total assets GBP191.6m GBP176.0m +8.9%
Loan to value 3 40.9% 43.9%
Cash balance GBP12.3m GBP13.5m
Dividends 31 December 31 December
2013 2012
Dividends per share 4 4.532p 4.532p
Dividend yield 6.5% 7.8%
Property Returns Year ended Year ended
31 December 31 December
2013 2012
Property income return 5 7.7% 9.7%
IPD property income monthly
index 6 6.1% 6.2%
Property total return (property
only) 7 11.7% 4.1%
IPD property total return monthly
index 6 9.9% 1.6%
1 Calculated under International Financial Reporting
Standards.
2 EPRA NAV represents the value of an entity's equity on a
long-term basis. Some items, such as fair value of derivatives, are
therefore excluded.
3 Calculated as bank borrowings less all cash as a percentage of
the open market value of the property portfolio as at 31 December
2013.
4 Dividends paid during the 12 months to 31 December 2013.
5 The net income receivable for the year expressed as a
percentage of the capital employed. Quarterly figures are
compounded over the year to give the annual rate.
6 source: IPD quarterly version of the monthly index funds
(excludes cash).
7 The sum of capital growth and net income for the year
expressed as a percentage of capital employed excluding cash.
* The European Public Real Estate Association (EPRA) is a common
interest group, which aims to promote, develop and represent the
European public real estate sector
Strategic Report: Chairman's Statement
The Company's Annual Report for 2013 is in a new format. It
reflects the expectations of the Financial Reporting Council
('FRC') and we have also taken note of recommendations made by
numerous other bodies. Report writing is indeed now an industry in
itself, I hope to the benefit of shareholders rather than those who
are making it their occupation.
Generally, 2013 was a good year for the Company. The dividend
per share was maintained, the net asset value per share ('NAV')
increased and the share price rose significantly. The NAV total
return to shareholders over the year was 25.2%. Overall,
performance over the year was ahead of the most commonly accepted
benchmarks. While this is satisfying, there is more to do if we are
to meet our targets for the future.
The Property Portfolio
The Investment Manager's report provides detailed information on
the portfolio. At the end of the year, it was valued at GBP176.4m
(this is the open market value unadjusted for lease incentives or
finance lease obligations). Additionally, there was a positive cash
balance of GBP12.3m, giving total assets of GBP191.6m (2012:
GBP176.0m). The fund's NAV at year end was 65.5p per share (2012:
57.7p), an uplift of 13.5% over the period. The table below sets
out the components of the movement in the NAV.
Pence per % of opening
share NAV
NAV as at 31 December 2012 57.7 100.0
Increase in valuation of property
portfolio 4.0 7.0
Decrease in interest rate SWAP liability 4.4 7.6
Other reserve movements (0.6) (1.1)
NAV as at 31 December 2013 65.5 113.5
The net income return on capital invested at year end was 7.7%
and there were no material arrears of rent. On average, 99% of
rents were received within 21 days of the relevant quarter end date
and, following the completion of the agreement for lease at Staines
in March 2014 and the letting of the fourth floor at Cheltenham,
void levels as at mid March were only 1.6%. The IPD average void
rate is reported as being 7.6%.
The most significant sale during the year was the disposal of
our mixed use office and industrial development in Aberdeen, which
realised a gain of 29% over book cost. The proceeds enabled us to
acquire a large office building close to the M25 in Rickmansworth
and three retail warehouses let to Matalan, Argos and Homebase.
Important asset management agreements were reached in respect of
our holdings at Witham, Mansfield and Monck Street London.
Shares and Share Price
At the year end, there were 154,994,237 shares in issue, an
increase of 11.0% over the year. Our plans for the size of the
Company are set out in the Strategic Overview.
The share price on 31 December 2013 was 70.0p, an uplift of
20.2% over the 12 month period, and representing a premium of 6.9%
over NAV.
Earnings and Dividends
During the year the Company paid four quarterly dividends of
1.133p per share each, totalling 4.532p per share (2012: 4.532p per
share) and representing a yield of 6.5% on the share price at the
year end.
Loan to Value ratio
At 31 December 2013, the LTV ratio was 40.9%, which is within
the range of 35-45% determined by the Board. Our loan agreement
with RBS sets an upper limit of 65% until December 2016, reducing
to 60% for the two remaining years.
The Board and Corporate Governance
Following David Moore's retirement, Huw Evans was elected as a
director. His experience in the financial services sector is of
particular value to the Company.
I will be retiring as Chairman and Director of the Company at
the 2014 AGM and I am delighted that the Board has agreed that Dick
Barfield will succeed me as Chairman.
I am pleased to report that Robert Peto will be appointed as a
Director immediately following the AGM on 28 May 2014. Robert has a
wealth of experience in UK commercial real estate and is currently
chairman of DTZ Investment Management Limited.
Conversion to UK REIT
In my statement last year, I reported that the Board was
considering the tax efficiency of the Company's present structure.
The review has now been completed and it concluded that it would be
in the best interests of the vast majority of shareholders if the
Company was to convert to a UK based REIT.
Steps are therefore being taken to address the requirements of
possible conversion and, once concluded, the Board will send
details of the scheme to all shareholders as a prelude to an EGM
that will probably take place in the autumn of 2014. If the
proposals receive consent, conversion could take place by 31
December 2014.
Outlook
The improved business climate in the UK has given new impetus to
the property market. There is strong demand from investors for well
let and well positioned property, creating a significant uplift in
prices. The occupational market has been slower to respond, with
few tenants prepared to commit to new leases with a term certain of
more than 5 years. So far, we have seen little evidence of rental
values increasing.
My expectations for the future have to be tempered by the
uncertainty of the outcome of the General Election expected in
2015. Even so, I believe that real estate will remain a favoured
asset class and that we will see continuing demand for good
secondary holdings. It is the occupational market that is and will
remain the more fragile, and we will need to be alert to keep our
good tenants and to fill voids by lettings to companies that have a
positive long term future.
The Board is confident that the Company has a portfolio that is
generally in line with current requirements and that good
management and asset management will produce further growth.
Paul Orchard-Lisle CBE
Chairman
16 April 2014
Strategic Report: Strategic Overview
Objective
The objective of the Company is to provide shareholders with an
attractive level of income together with the prospect of income and
capital growth.
Investment Policy and Business Model
The Board intends to achieve the investment objective by
investing in a diversified portfolio of UK commercial properties.
The majority of the portfolio will be invested in direct holdings
within the three main commercial property sectors of retail, office
and industrial although the Company may also invest in other
commercial property such as hotels, nursing homes and student
housing. Investment in property development and investment in
co-investment vehicles, where there is more than one investor, is
permitted up to a maximum of 10% of the property portfolio.
In order to manage risk, without compromising flexibility, the
Board applies the following restrictions to the property portfolio,
in normal market conditions:
-- No property will be greater by value than 15% of total assets.
-- No tenant (excluding the Government) will be responsible for
more than 20% of the Company's rent roll.
-- Gearing, calculated as borrowings as a percentage of gross
assets, will not exceed 65%. The Board's current intention is that
the Company's loan to value ratio (calculated as borrowings less
all cash as a proportion of the property portfolio valuation) will
be between 35% and 45%.
As part of its strategy, the Board has contractually delegated
the management of the property portfolio, and other services, to
Standard Life Investments (Corporate Funds) Limited (the
'Investment Manager').
Strategy
During the year, the Board reassessed its strategy, with the
help of its Investment Manager and other advisers.
The overall intention is to continue to distribute an attractive
income return alongside growth in the NAV and deliver a good
overall total return.
At the property level, it is intended that the Company remains
primarily invested in the commercial sector, while keeping a
watching brief on other classes such as student accommodation and
care homes. The Company is principally invested in office and
industrial property and intends to remain so. There are seen to be
some opportunities in the retail market, primarily out-of-town. In
all sectors, poor secondary and tertiary locations are regarded as
high risk and will be avoided, as indeed will the low yielding
office sector.
The Board's preference is to buy into good but not necessarily
prime locations, where it perceives there will be good continuing
tenant demand, and to seek out properties where the asset
management skills of the Investment Manager can be used to
beneficial effect. The Board will continue to have very careful
regard to tenant profiles.
While the financial size of the Company has increased
significantly over the year, it remains below the level that some
investors find attractive. The Board intends therefore to seek out
opportunities for further growth in the Company provided that it is
in the long term interests of existing shareholders.
As noted in the Chairman's Statement, the Board has concluded
that there would be significant advantages for the Company by
converting into a UK REIT and will be consulting shareholders
accordingly.
The European Alternative Investment Fund Managers Directive
(AIFMD) has a final implementation date of 22 July 2014 and the
Board has decided to appoint its Investment Manager, Standard Life
Investments (Corporate Funds) Limited, as AIFM, to undertake the
necessary regulatory returns, initial authorisations and
registrations. The Company will also be appointing a depositary
under the new regime.
Retail Distribution
On 1 January 2014, the FCA introduced rules relating to the
restrictions on the retail distribution of unregulated collective
investment schemes and close substitutes (non-mainstream investment
products). UK investment trusts are excluded from these
restrictions.
Having taken legal advice, and on the basis that the Board
conducts the affairs of the Company as if it would be an investment
trust if it was resident in the UK, the Board believes that the
Company's shares are excluded securities under the new rules and,
as a result, the FCA's restrictions on retail distribution do not
apply.
The Board
The Board currently consists of a non-executive Chairman and
four non-executive Directors, with a range of property, investment,
commercial and professional experience. As well as selecting
Directors who can contribute fully to the progression of the
Company's performance, there is a requirement to maintain the
correct balance of onshore and offshore membership of the Board.
There is also a commitment to achieve the proper levels of
diversity in all respects. At 31 December 2013, the Board consisted
of two female and three male Directors. The Company does not have
any employees.
Key Performance Indicators
The Board meets quarterly and at each meeting reviews
performance against a number of key measures:
Property income and total return against the Investment Property
Databank Balanced Monthly Funds Index ('the Index')
The Index provides a benchmark for the performance of the
Company's property portfolio and enables the Board to assess how
the portfolio is performing relative to the market. A comparison is
made of the Company's property returns against the Index over a
variety of time periods (quarter, annual, three years and five
years).
Property voids
Property voids are unlet properties. The Board reviews the level
of property voids within the Company's portfolio on a quarterly
basis and compares the level to the market average, as measured by
the Investment Property Databank. The Board seeks to ensure that
proper priority is being given by the Investment Manager to
replacing the Company's income.
Rent collection dates
The Board assesses rent collection by reviewing the percentage
of rents collected within 21 days of each quarter end.
Net asset value total return
The net asset value total return reflects both the net asset
value growth of the Company and also the dividends paid to
shareholders. The Board regards this as the best overall measure of
value delivered to shareholders. The Board assesses the net asset
value total return of the Company over various time periods
(quarter, annual, three years, five years) and compares the
Company's returns to those of its peer group of listed,
closed-ended property investment companies.
Premium or discount of the share price to net asset value
The Board closely monitors the premium or discount of the share
price to the net asset value and believes that a key driver to the
level of the premium or discount is the Company's long term
investment performance. However, there can be short term volatility
in the premium or discount and the Board takes powers at each AGM
to enable it to issue or buy back shares with a view to limiting
this volatility.
Dividend per share and dividend yield
A key objective of the Company is to provide an attractive,
sustainable level of income to shareholders and the Board reviews,
at each Board meeting, the level of dividend per share and the
dividend yield, in conjunction with detailed financial forecasts,
to ensure that this objective is being met and is sustainable.
The Board considers the performance measures both over various
time periods and against similar funds.
A record of these measures are disclosed in the financial
highlights, in the Chairman's Statement section of the Strategic
Report and in the Investment Manager's Report.
Principal Risks and Uncertainties
The Company's assets consist of direct investments in UK
commercial property. Its principal risks are therefore related to
the commercial property market in general, but also the particular
circumstances of the properties in which it is invested, and their
tenants. The Board and Investment Manager seek to mitigate these
risks through a strong initial due diligence process, continual
review of the portfolio and active asset management initiatives.
All of the properties in the portfolio are insured, providing
protection against risks to the properties and also protection in
case of injury to third parties in relation to the properties.
The Board has also identified a number of other specific risks
that are reviewed at each Board meeting. These are as follows:
-- The Company and its objectives become unattractive to
investors. This is mitigated through regular contact with
shareholders, a regular review of share price performance and the
level of the discount or premium at which the shares trade to net
asset value and regular meetings with the Company's broker to
discuss these points and address any issues that arise.
-- Poor selection of new properties for investment. A
comprehensive and documented initial due diligence process, which
will filter out properties that do not fit required criteria, is
carried out by the Investment Manager prior to making a
recommendation to the Board in relation to a proposed property
purchase. This is followed by detailed review and challenge by the
Board prior to a decision being made to proceed with a purchase.
This process is designed to mitigate the risk of poor property
selection.
-- Tenant failure or inability to let property. Due diligence
work on potential tenants is undertaken before entering into new
lease arrangements. In addition, tenants are kept under constant
review through regular contact and various reports both from the
managing agents and the Investment Manager's own reporting process.
Contingency plans are put in place at units that have tenants that
are believed to be in financial trouble. The Company subscribes to
the Investment Property Databank Iris Report which updates the
credit and risk ranking of the tenants and income stream, and
compares it to the rest of the UK real estate market.
-- Loss on financial instruments. The Company has entered into a
number of interest rate swap arrangements, in order to fix the
interest rate on the bank borrowings. These swap instruments are
valued on a quarterly basis by the counterparty bank. The
Investment Manager checks the valuation of the swap instruments
internally to ensure they are accurate. In addition, the credit
rating of the bank that the swaps are taken out with is assessed
regularly.
Other risks faced by the Company include the following:
-- Strategic - incorrect strategy, including sector and property
allocation and use of gearing, could all lead to poor returns for
shareholders.
-- Tax efficiency - the structure of the Company or changes to
legislation could result in the Company no longer being a tax
efficient investment vehicle for shareholders.
-- Regulatory - breach of regulatory rules could lead to the
suspension of the Company's Stock Exchange Listing, financial
penalties or a qualified audit report.
-- Financial - inadequate controls by the Investment Manager or
third party service providers could lead to misappropriation of
assets. Inappropriate accounting policies or failure to comply with
accounting standards could lead to misreporting or breaches of
regulations.
-- Operational - failure of the Investment Manager's accounting
systems or disruption to the Investment Manager's business, or that
of third party service providers, could lead to an inability to
provide accurate reporting and monitoring, leading to loss of
shareholder confidence.
-- Economic - inflation or deflation, economic recessions and
movements in interest rates could affect property valuations and
also bank borrowings.
The Board seeks to mitigate and manage these risks through
continual review, policy setting and enforcement of contractual
obligations. It also regularly monitors the investment environment
and the management of the Company's property portfolio, levels of
gearing and the overall structure of the Company.
Social, Community and Employee Responsibilities
The Company has no direct social, community or employee
responsibilities. The Company has no employees and accordingly no
requirement to report separately in this area as the management of
the portfolio has been delegated to the Investment Manager. In
light of the nature of the Company's business there are no relevant
human rights issues and there is thus no requirement for a human
rights policy. The Board does, however, closely monitor its
suppliers to ensure that proper provision is in place.
Environmental Policy
The Investment Manager acquires and manages properties on behalf
of the Company. It is recognised that these activities have both
direct and indirect environmental impacts.
The Board has endorsed the Investment Manager's own
environmental policy which is to work in partnership with
contractors, suppliers, tenants and consultants to minimise those
impacts, seeking continuous improvements in environmental
performance and conducting regular reviews.
The Investment Manager's policy focuses on energy conservation,
mitigating greenhouse gas ('GHG') emissions, maximising waste
recycling and water conservation.
As an investment company, the Company's own direct environmental
impact is minimal and GHG emissions are therefore negligible.
Information on the GHG emissions in relation to the Company's real
estate portfolio is disclosed in the Standard Life Investments
annual Sustainable Real Estate Investment report, a copy of which
can be obtained on request from the Investment Manager. The Company
was awarded Green Star status from the Global Real Estate
Sustainability Benchmark for 2013.
Bank Debt
In January 2012 the Company entered into a new debt facility
with RBS. The original facility of GBP84m was due to expire in
December 2013. The new facility, for the same amount, is for a term
of 7 years expiring in December 2018, at a margin of 1.75% over 3
month Libor (the margin can vary depending on the LTV).
The Company has entered into interest rate swaps in order to fix
the interest rate on the bank borrowings. During the year, the
Company had three interest rate swaps in place. The first, for
GBP72m, matured in December 2013. The Company now has two swaps,
for a total of GBP84m, entered into in January 2012, expiring in
December 2018 with a liability of GBP0.1m at the year end.
Following the expiry of the GBP72m swap in December 2013, the
effective cost of debt has dropped to 3.8% per annum, saving the
Company GBP2m per annum.
Approved by the Board on 16 April 2014
Paul Orchard-Lisle
Chairman
Investment Manager's Report
UK Real Estate Market
The recovery playing out in UK real estate gathered momentum
over the final quarter with the IPD quarterly version of the
monthly index funds (which is considered to be a benchmark for the
Group) recording a total return of 9.9% p.a. in the twelve months
to end December. The asset class is beginning to reap the benefits
of the improving economic conditions; business confidence is
picking up and occupiers are increasingly relocating for expansion
reasons rather than simply because they have come to the end of
their lease. Capital growth is improving due to increased
allocations to real estate and also investors' expectations of the
more favourable rental environment. Capital values rose by 4.3%
p.a. in the twelve months to end December. Rents are improving
modestly at a broad level and these are expected to pick up further
into the recovery cycle. Rents rose by 0.9% p.a. in the twelve
months to end December.
Despite some volatility over the year, the performance of the
FTSE EPRA/NAREIT UK* listed sector was positive over this period
and bodes well for the direct sector as the listed sector's
performance is generally a strong lead indicator for the
performance of the direct sector. The listed sector rose by 23.8%
in the twelve months to end December. Performance was ahead of the
FTSE All Share which rose by 20.8% over the same timeframe.
*The FTSE EPRA/NAREIT UK Index is a subset of the FTSE
EPRA/NAREIT Developed Index and is designed to track the
performance of real estate companies and REITS listed on the London
Stock Exchange. By making the index constituents free-float
adjusted, liquidity, size and revenue screened, the series is
suitable for use as the basis for investment products, such as
derivatives and Exchange Traded Funds.
Investment Outlook
In the favourable environment of improving confidence and
reducing void rates, investors are allocating more capital to the
sector and consequently, given the increased weight of capital,
risk appetite is increasing. In terms of outlook, we expect
reasonable positive total returns for investors on a three year
hold period. The sector remains attractive from a fundamental point
of view, i.e. improving economic drivers and a constrained pipeline
of future new developments. Rising interest rates are an emerging
risk although there is a reasonable buffer in pricing to compensate
if the market prices in a further acceleration of rate rises. The
retail sector continues to face a series of headwinds that may hold
back recovery in weaker locations but the prospects for retail
towards the South East and Central London are expected to improve
as economic recovery gains more traction. Ensuring the quality and
sustainability of income remains a key investment decision making
criterion. Investors remain cautious towards poorer quality
secondary and tertiary stock and it is these types of assets that
continue to be most vulnerable to softness in pricing because of
the relatively high levels of availability, the weaker prospects
for economic growth in most secondary centres and the increasing
supply of these assets from banks as they work through their
problem loan books. However, opportunities are arising in the
transactions market for reasonable quality secondary buildings
where these assets can be repositioned as prime. We continue to
expect asset management initiatives and locational choices to be
the defining characteristics contributing to income returns in
2014. We also expect income to be the main component of returns
over this period as capital values will, we believe, only
appreciate modestly. Prime/good quality secondary assets and
selective poorer quality secondary assets in stronger locations are
likely to provide the best opportunities in the improving economic
environment we anticipate in 2014.
Investment Management Strategy
The investment strategy we follow is aligned with the Company
Objective of providing an attractive income return with prospects
for capital and income growth. We aim to achieve this by taking an
active approach to asset management (working with tenants to extend
leases and minimise voids), capturing profit (selling when the
property has delivered a return to us that we believe has been
maximised and the proceeds can be reinvested into more attractive
opportunities) and identifying new investments (generally at yields
of 8% plus that are accretive to the revenue account and where we
think there will be greater investment demand in the medium
term).
Purchases
The purchase philosophy for the Company is to invest in assets
that offer an attractive income return, and have good medium / long
term prospects. We like to invest in assets that will require asset
management, or that we believe will become more attractive to
investors in the medium term.
During the course of 2013 four properties were purchased:
We completed the purchase of an office in Maple Cross,
Rickmansworth in Q3 for GBP9.85m (excluding costs), a yield of
11.1%. The property, which is located close to junction 17 of the
M25 motorway, is let to Trebor Bassett for a further 9 years at a
rent of GBP1,156,900 pa.
In Q4 we completed the purchase of three retail warehouse
investments from Morrison Supermarkets. Two units are let to
Matalan, and one property is let to Argos and Homebase. The
combined purchase price of GBP12.7m (excluding costs) reflected a
yield of 8%.
At the year end we had agreed terms to buy an industrial
investment of two logistics units for GBP3.6m, a yield of 10.6% and
this was purchased at the end of March 2014. The purchase was not
contractually agreed at 31 December 2013.
Sales
Over the course of 2013 two properties were sold:
In Q2 we sold a vacant old retail warehouse to an owner
occupier. The sale price of GBP0.9m was at valuation and the
carrying value of the property as at 31 December 2012 was
GBP0.9m.
In Q3 we completed the sale of a mixed office and industrial
investment in Aberdeen for GBP14.77m which had a carrying value of
GBP14.25m as at 31 December 2012. The development of the property
was funded by the Company in 2010 and the sale proceeds were 29%
ahead of the book cost at the completion date of the development.
Although the property was let to a good tenant on a long lease we
believed it was sensible to capture the profit and recycle the
funds, as the property would have become quite over rented at the
forthcoming fixed increase review.
Asset management
The focus of our asset management is to protect income and
enhance values. We have a policy of meeting with tenants to
understand their needs and seek an early renewal of leases or
removal of break clauses.
The average weighted unexpired term to the earliest of break or
lease expiry is 5.2 years. The IPD average lease length for all
leases is 10.2 years, but if leases over 35 years are excluded
(they are rare and mainly ground rents) then the average is 7.3
years. The latest research from Strutt and Parker / IPD suggested
that the average length of new leases granted in 2012 was 4.9
years. We now live in an environment where tenants are used to
having lease flexibility with breaks or only five year commitments,
and although an improved economic environment and low supply might
improve the chance of obtaining longer leases the impact of new
accounting rules and a more global market (used to shorter leases)
means commercial real estate investors and valuers are going to
have to get used to shorter leases.
The Company has just under 53% of its lease income expiring in
the next 5 years. 2014 and 2016 were the two main years, but
following asset management initiatives the distribution is now
fairly even over the next 4 years. For example 2014 had 19 lease
events and we had already dealt with 7 of those before the start of
the year. Of the remaining twelve we have terms agreed or advanced
negotiations on seven, and from current discussions expect to renew
leases on at least 10 of the 12 properties.
Examples of the main asset management initiatives during 2013
are:
Witham - we regeared the lease on an industrial unit. The
original lease was due to expire in 2016, and the property was over
rented with a weak covenant. We reduced the rent but got annual
fixed increases for the next ten years, and obtained a parent
company guarantee.
Mansfield - We took a lease surrender and simultaneously granted
a new lease to the sub-tenant for 7 years at the same rent. The
original lease was due to expire in 2014. We also let another unit
on the same estate.
Wymondham - We let the largest void in the fund to
Poundstretcher. We had previously agreed terms with a supermarket
operator on a 'subject to planning' basis. However, due to changes
in planning case law we undertook a letting to a non-food operator
whilst maintaining some optionality for the future if we can gain
the correct planning consent. After the reporting period a court
appeal on a similar planning case went against the company, and the
prospect of getting a food consent is now very remote.
Aberdeen - Several small industrial units were let, so that the
estate was fully let for most of the year. Terms were also agreed
to renew leases on all of the units with expiries in 2013.
Monck Street, London- We extended the lease on a ground floor
office and increased the rent, setting new market evidence for the
remaining units.
Bourne House Staines - During the year we commenced a full
refurbishment of the property, and agreed terms to let it on a good
covenant for a term of 10 years with a break in year 7. The
agreement for lease on this letting was completed in March 2014,
after the reporting period.
Portfolio Valuation
The Company's investments were valued on a quarterly basis
throughout 2013 by Jones Lang La Salle.
At the year end the Company's real estate portfolio was valued
at GBP176.4m excluding adjustments for lease incentives and finance
lease obligations, with cash holdings of GBP12.3m. This compares to
GBP161.6m and GBP13.5m at the end of December 2012. The Company has
allocated GBP3.0m to the cost of refurbishing Staines, and GBP3.6m
to the purchase of Cullen Square Livingston.
At the year end the Company's real estate portfolio had a net
initial yield of 7.6% and an equivalent yield of 7.7%.
Performance
The Company seeks to provide an attractive income return with
some capital and income growth through investing in UK commercial
real estate.
At an underlying asset level the Company's portfolio has
continued to deliver strong underlying performance compared to the
IPD index, which is considered the main measure of UK direct real
estate returns.
Although the income return is important, we also remain
committed to providing an attractive total return and the Company
has achieved top quartile performance against the IPD quarterly
index over one, three and five years.
The Company has a ranking of the weighted risk score on the 18.5
percentile according to the IPD Iris report on income security,
which reflects the good quality of tenants the Company has. Over
99% of rent due was collected within 21 days of each quarter of
2013.
The property level returns provide a comparison of performance
to the wider market, but do not represent the overall performance
of the Company. The Net Asset Value total return is a better
measure, and is one the Board focuses on. For the 12 months to end
December 2013 the Company maintained its strong performance with a
NAV total return of 25.2% against a sector average of 15.3%.
(Source Winterflood Securities)
NAV Total Return (with dividends re-invested) 1 year 3 years 5 years
F&C Commercial Property 15.0% 33.4% 73.0%
Picton Property Income 12.2% 9.3% 16.9%
Schroder Real Estate 9.4% 17.6% 27.1%
F&C UK Real Estate Investment 16.4% 15.6% 53.3%
Standard Life Investments Property Income
Trust 25.2% 29.9% 54.0%
UK Commercial Property 13.5% 17.9% 48.3%
Sector Average 15.3% 20.6% 45.4%
Source: Winterflood Securities
Jason Baggaley
Fund Manager
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the Group financial statements for each year which give a true
and fair view, in accordance with the applicable Guernsey law and
those International Financial Reporting Standards ("IFRSs") as
adopted by the European Union.
The Directors are required to prepare Group financial statements
for each financial year which give a true and fair view of the
state of affairs of the Group and of the financial performance and
cash flows of the Group for that period. In preparing those
Financial Statements, the Directors are required to:
-- select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
-- make judgement and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs as adopted by the European Union is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Group's financial
position and financial performance;
-- state that the Group has complied with IFRSs as adopted by
the European Union, subject to any material departures disclosed
and explained in the Group financial statements; and
-- prepare the Group Financial Statements on a going concern
basis unless it is inappropriate to presume that the Group will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Financial Statements.
The Directors are responsible for keeping adequate accounting
records, that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time, the
financial position of the Group and to enable them to ensure that
the Financial Statements comply with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention and
detection of fraud, error and non compliance with law and
regulations.
The maintenance and integrity of the Company's website is the
responsibility of the Directors; the work carried out by the
auditors does not involve considerations of these matters and,
accordingly, the auditors accept no responsibility for any change
that may have occurred to the Financial Statements since they were
initially presented on the website. Legislation in Guernsey
governing the preparation and dissemination of the financial
statements may differ from legislation in other jurisdictions.
Responsibility Statement of the Directors' in respect of the
Consolidated Annual Report
Statement under the Disclosure and Transparency Rules
The Directors each confirm to the best of their knowledge
that:
-- the Consolidated Financial Statements, prepared in accordance
with IFRSs as adopted by European Union, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Group; and
-- the management report, which is incorporated into the
Strategic Report, Directors' Report and Investment Manager's
Report, includes a fair review of the development and performance
of the business and the position of the Group, together with a
description of the principal risks and uncertainties that they
face.
Statement under the UK Corporate Governance Code
The Directors each confirm to the best of their knowledge
that:
-- the Annual Report and Financial Statements taken as a whole
are fair, balanced and understandable and provide the information
necessary to assess the Group's performance, business model and
strategy.
Approved by the Board on 16 April 2014.
Paul Orchard-Lisle Sally-Ann Farnon
Chairman Director
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3Ql
Tel: 01481 745001
Fax: 01481 745051
Gordon Humphries
Standard Life Investments Limited
Tel: 0131 245 2735
Jason Baggaley
Standard Life Investments Limited
Tel: 0131 245 2833
AUDITED FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2013
Notes 2013 2012
GBP GBP
Rental income 13,395,478 13,488,771
Surrender premium income - 2,448,000
Valuation gain / (loss) from investment
properties 7 5,795,851 (9,216,816)
Profit on disposal of investment
properties 430,205 176,215
Investment management fees 4 (1,327,746) (1,305,792)
Other direct property operating
expenses (1,258,515) (867,750)
Directors' fees and expenses 21 (135,693) (123,441)
Valuer's fee 4 (30,260) (30,503)
Auditor's fee 4 (45,800) (41,440)
Non-audit fee 4 (6,000) -
Other administration expenses (222,000) (232,499)
Operating profit 16,595,520 4,294,745
Finance income 5 75,193 46,856
Finance costs 5 (5,433,993) (5,765,295)
Profit / (loss) for the year before
taxation 11,236,720 (1,423,694)
Taxation
Tax credit 6 587,315 -
Profit / (loss) for the year, net
of tax 11,824,035 (1,423,694)
Other comprehensive income
Valuation gain / (loss) on cash
flow hedges 12 6,829,111 (786,410)
Total comprehensive income / (loss)
for the
year, net of tax 18,653,146 (2,210,104)
Earnings per share: pence pence
Basic and diluted earnings per
share 16 7.95 (1.03)
Adjusted (EPRA) earnings per share 16 3.77 5.53
All items in the above Consolidated Statement of Comprehensive
Income derive from continuing operations.
Consolidated Balance Sheet
as at 31 December 2013
Notes 2013 2012
GBP GBP
ASSETS
Non-current assets
Investment properties 7 172,886,556 158,073,412
Lease incentives 7 3,269,593 3,246,707
Interest rate swaps 12 1,207,299 -
Deferred tax 6 587,315 -
177,950,763 161,320,119
Current assets
Trade and other receivables 8 1,305,524 1,171,842
Cash and cash equivalents 9 12,303,310 13,527,186
13,608,834 14,699,028
Total assets 191,559,597 176,019,147
EQUITY
Capital and reserves attributable
to Company's equity holders
Share capital 14 31,337,024 22,280,186
Retained earnings 15 6,560,853 7,711,894
Capital reserves 15 (34,144,454) (47,199,621)
Other distributable reserves 15 97,838,372 97,838,372
Total equity 101,591,795 80,630,831
LIABILITIES
Non-current liabilities
Bank borrowings 11 83,866,594 83,752,959
Interest rate swaps 12 - 2,757,732
Other liabilities 6,094 6,094
Rental deposits due to tenants 336,596 353,535
84,209,284 86,870,320
Current liabilities
Trade and other payables 10 4,519,722 4,415,120
Interest rate swaps 12 1,238,296 4,102,376
Other liabilities 500 500
5,758,518 8,517,996
Total liabilities 89,967,802 95,388,316
Total equity and liabilities 191,559,597 176,019,147
NAV per share 18 65.5 pence 57.7 pence
Adjusted (EPRA) NAV 18 65.6 pence 62.7 pence
Approved by the Board of Directors on 16 April 2014.
Consolidated Statement of Changes in Equity
for the year ended 31 December 2013
Other
Share Retained Capital distributable
Notes Capital earnings reserves reserves Total equity
GBP GBP GBP GBP GBP
Opening balance
1 January 2013 22,280,186 7,711,894 (47,199,621) 97,838,372 80,630,831
Profit for
the year - 11,824,035 - - 11,824,035
Valuation gain
on cash flow
hedges 12 - - 6,829,111 - 6,829,111
Total comprehensive
gain for the
year - 11,824,035 6,829,111 - 18,653,146
Ordinary shares
issued 14 9,056,838 - - - 9,056,838
Dividends Paid 17 - (6,749,020) - - (6,749,020)
Valuation gain
of investment
properties 7 - (5,795,851) 5,795,851 - -
Profit on disposal
of investment
properties - (430,205) 430,205 - -
Balance at
31 December
2013 31,337,024 6,560,853 (34,144,454) 97,838,372 101,591,795
Consolidated Statement of Changes in Equity
for the year ended 31 December 2012
Other
Share Retained Capital distributable
Notes Total
Capital earnings reserves reserves equity
GBP GBP GBP GBP GBP
Opening balance
1 January 2012 20,440,011 6,349,453 (37,372,610) 97,838,372 87,255,226
Loss for the
year 12 - (1,423,694) - - (1,423,694)
Valuation loss
on cash flow
hedges - - (786,410) - (786,410)
Total comprehensive
loss for the
year - (1,423,694) (786,410) - (2,210,104)
Ordinary shares
issued 14 1,840,175 - - - 1,840,175
Dividends Paid 17 - (6,254,466) - - (6,254,466)
Valuation loss
from investment
properties 7 - 9,216,816 (9,216,816) - -
Profit on disposal
of investment
properties - (176,215) 176,215 - -
Balance at
31 December
2012 22,280,186 7,711,894 (47,199,621) 97,838,372 80,630,831
Consolidated Cash Flow Statement
for the year ended 31 December 2013
Notes 2013 2012
GBP GBP
Cash generated from operating activities 19 10,564,919 14,249,201
Cash flows from investing activities
Interest received 5 75,193 46,856
Purchase of investment properties 7 (23,840,453) (13,165,401)
Capital expenditure on investment properties 7 (326,840) (306,514)
Net proceeds from disposal of investment
properties 19 15,580,205 4,905,048
Net cash used in investing activities (8,511,895) (8,520,011)
Cash flows from financing activities
Ordinary shares issued net of issue costs 14 9,056,838 1,840,175
Bank borrowing arrangement costs 11 - (112,159)
Interest paid on bank borrowings 5 (2,164,092) (2,209,219)
Payment on interest rate swaps 5 (3,420,626) (3,291,716)
Dividends paid to the Company's shareholders 17 (6,749,020) (6,254,466)
Net cash used in financing activities (3,276,900) (10,027,385)
Net decrease in cash and cash equivalents
in the year (1,223,876) (4,298,195)
Cash and cash equivalents at beginning
of the year 13,527,186 17,825,381
Cash and cash equivalents at end of year 9 12,303,310 13,527,186
Standard Life Investments Property Income Trust Limited
Notes to the Consolidated Financial Statements
for the year ended 31 December 2013
1. GENERAL INFORMATION
Standard Life Investments Property Income Trust Limited ("the
Company") and its subsidiary (together the "Group") carries on the
business of property investment through a portfolio of freehold and
leasehold investment properties located in the United Kingdom. The
Company is a limited liability company incorporated and domiciled
in Guernsey, Channel Islands. The Company has its listing on the
London Stock Exchange.
The address of the registered office is Trafalgar Court, Les
Banques, St Peter Port, Guernsey.
These audited Consolidated Financial Statements were approved
for issue by the Board of Directors on 16 April 2014.
2. ACCOUNTING POLICIES
2.1 Basis of preparation
The audited Consolidated Financial Statements of the Group have
been prepared in accordance with and comply with International
Financial Reporting Standards as adopted by the European Union
("IFRS"), and all applicable requirements of The Companies
(Guernsey) Law, 2008. The audited Consolidated Financial Statements
of the Group have been prepared under the historical cost
convention as modified by the measurement of investment property
and derivative financial instruments at fair value. The
consolidated financial statements are presented in pound sterling
and all values are not rounded except when otherwise indicated.
Changes in accounting policy and disclosure
New standards, interpretations and amendments to existing
standards which have been published and are mandatory for the
Group's annual reporting periods beginning on or after 1 January
2014, are detailed below and have not been adopted early:
- IFRS 10 Consolidated Financial Statements
- IFRS 11 Joint Arrangements
- IFRS 12 Disclosure of Interests in Other Entities
- IAS 27 Separate Financial Statements
- IAS 28 Investments in Associates and Joint Ventures
- IAS 39 Financial Instruments : Recognition and Measurement -
Novation of Derivatives and Continuation of Hedge Accounting
(Amendments)
- Amendment to IAS 32 Financial Instruments: Presentation
- Amendment to IAS 36 Impairment of Assets
- Amendments to IFRS 10, IFRS 12 and IAS 27: Investment
Entities
The standards mentioned above are not expected to have a
significant impact on the reported financial position or
performance of the Group.
The accounting policies adopted are consistent with those of the
previous financial year, except for the following new and amended
IFRS and IFRIC interpretations as of 1 January 2013. There have
been other new and amended standards issued or have come into
effect from 1 January 2013. However, they do not impact the annual
consolidated financial statements of the Group and hence not
discussed.
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance for all fair
value measurements. IFRS 13 does not change when an entity is
required to use fair value, but rather provides guidance on how to
measure fair value under IFRS when fair value is required or
permitted. The Group has considered the specific requirements
relating to highest and best use, valuation premise, and principal
(or most advantageous) market. The methods, assumptions, processes
and procedures for determining fair value were revisited and
adjusted where applicable. The assessment of fair value under IFRS
13 has not materially changed the fair values recognised or
disclosed.
IFRS 13 mainly impacts the disclosures of the Group. It requires
specific disclosures about fair value measurements and disclosures
of fair values, some of which replace existing disclosure
requirements in other standards, including IFRS 7 Financial
Instruments: Disclosures.
The disclosure requirements of IFRS 13 apply prospectively and
need not be provided for comparative periods before initial
application. Consequently, comparatives of these disclosures have
not been provided.
Amendment to IFRS 7 Financial Instruments: Disclosures
The amendment to IFRS 7 requires additional disclosures for
financial assets and liabilities which are offset in the financial
statements or are subject to enforceable master netting agreements
or similar arrangements . The additional disclosures are presented
in note 8 - Trade and other receivables.
IAS 1 Presentation of Items of Other Comprehensive Income -
Amendments to IAS 1
The amendments to IAS 1 became effective 1 July 2012. The
amendments introduce a grouping of items presented in other
comprehensive income (OCI). Items that will be reclassified
('recycled') to profit or loss at a future point in time (e.g., net
loss or gain on available-for-sale financial assets) have to be
presented separately from items that will not be reclassified
(e.g., revaluation reserve). The amendment affected presentation
only and had no impact on the Group's financial position or
performance.
Amendment to IAS 12 Income Taxes: Deferred Tax
IAS 12 requires an explanation of the relationship between tax
expense (income) and accounting profit in either or both of the
following forms:
- A numerical reconciliation between tax expense (income) and
the product of accounting profit multiplied by the applicable tax
rate(s), also disclosing the basis on which the applicable tax
rate(s) is (are) computed.
- A numerical reconciliation between the average effective tax
rate and the applicable tax rate, also disclosing the basis on
which the applicable tax rate is computed.
The additional disclosures are presented in note 6 -
Taxation.
2.2 Significant accounting judgements, estimates and
assumptions
The preparation of the Group's financial statements requires
management to make judgements, estimates and assumptions that
affect the reported amounts of revenues, expenses, assets and
liabilities, and the disclosure of contingent liabilities, at the
reporting date. However, uncertainty about these assumptions and
estimates could result in outcomes that could require a material
adjustment to the carrying amount of the asset or liability
affected in the future periods. The most significant estimates and
judgements are set out below.
Fair value of investment properties
Investment property is stated at fair value as at the Balance
Sheet date. Gains or losses arising from changes in fair values are
included in the Consolidated Statement of Comprehensive Income in
the year in which they arise. The fair value of investment
properties is determined by independent real estate valuation
experts using recognised valuation techniques. The fair values are
determined based on recent real estate transactions with similar
characteristics and locations to those of the Group's assets.
The determination of the fair value of investment properties
requires the use of valuation models which use a number of
judgements and assumptions. The first model used was the income
capitalisation method.
Under the income capitalisation method, a property's fair value
is estimated based on the normalised net operating income generated
by the property, which is divided by the capitalisation rate
(discounted by the investor's rate of return). Under the income
capitalisation method, over (above market rent) and under-rent
situations are separately capitalised (discounted).
The other method used in determining the fair value of
investment property is the development appraisal method.
Under the development appraisal method, estimates of capital
outlays and construction cost, development costs, and anticipated
sales income are estimated to arrive at a series of net cash flows
that are then discounted over the projected development and
marketing periods. Specific development risks such as planning,
zoning, licences, and building permits are separately valued.
Fair value of financial instruments
When the fair value of financial assets and financial
liabilities recorded in the Consolidated Balance Sheet cannot be
derived from active markets, they are determined using a variety of
valuation techniques that include the use of mathematical models.
The input to these models are taken from observable markets where
possible, but where this is not feasible, a degree of judgement is
required in establishing fair value. The judgements include
considerations of liquidity and model inputs such as credit risk
(both own and counterparty's), correlation and volatility. Changes
in assumptions about these factors could affect the reported fair
value of financial instruments. The models are calibrated regularly
and tested for validity using prices from any observable current
market transactions in the same instrument (without modification or
repackaging) or based on any available observable market data.
The valuation of interest rate swaps used in the Balance Sheet
is provided by The Royal Bank of Scotland. These values are
validated by comparison to internally generated valuations prepared
using the fair value principles outlined above.
Deferred Tax Asset
The Group has recognised a deferred tax asset as detailed in
Note 6. The Directors exercise judgement in estimating the amount
of the tax losses that will be available for utilisation against
future taxable profits and the most important estimate is the
expected date of REIT conversion which, based on conditions at the
Balance Sheet date, was estimated to be 30 June 2014.
2.3 Summary of significant accounting policies
A Basis of consolidation
The audited consolidated financial statements comprise the
financial statements of Standard Life Investments Property Income
Trust Limited and its only material wholly owned subsidiary
undertaking, Standard Life Investments Property Holdings Limited, a
company with limited liability incorporated and domiciled in
Guernsey, Channel Islands.
Subsidiaries are entities over which the Group has the power to
govern the financial and operating polices generally evidenced by a
shareholding of more than one half of the voting rights. The
existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether
the Group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group and they are de-consolidated from the date that control
ceases. Intercompany transactions, balances and unrealised gains
and losses on transactions between Group companies are eliminated
on consolidation. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies
adopted by the Group.
B Functional and presentation currency
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates ("the functional
currency"). The consolidated financial statements are presented in
pounds sterling, which is also the Company's functional
currency.
C Revenue recognition
Revenue is recognised as follows;
i) Bank interest
Bank interest income is recognised on an accruals basis.
ii) Rental income
Rental income from operating leases is net of sales taxes and
VAT recognised on a straight line basis over the lease term. The
initial direct costs incurred in negotiating and arranging an
operating lease are recognised as an expense over the lease term on
the same basis as the lease income. The cost of any lease
incentives provided are recognised over the lease term, on a
straight line basis as a reduction of rental income. The resulting
asset is reflected as a receivable in the Consolidated Balance
Sheet. The valuation of investment properties is reduced by the
total of the unamortised lease incentive balances. Any remaining
lease incentive balances in respect of properties disposed of are
included in the calculation of the profit or loss arising at
disposal.
Contingent rents, being those payments that are not fixed at the
inception of the lease, for example increases arising on rent
reviews, are recorded as income in periods when they are earned.
Rent reviews which remain outstanding at the year end are
recognised as income, based on estimates, when it is reasonable to
assume that they will be received.
Surrender premiums received by the Group following the break of
a lease are recognised as income to the extent that there are no
obligations directly related to that surrender.
iii) Property disposals
Where revenue is obtained by the sale of properties, it is
recognised when the significant risks and returns have been
transferred to the buyer. This will normally take place on exchange
of contracts unless there are significant conditions attached. For
conditional exchanges, sales are recognised when these conditions
are satisfied.
D Expenditure
All expenses are accounted for on an accruals basis. The
investment management and administration fees, finance (including
interest on the bank facility and the finance cost of the
redeemable preference shares) and all other expenses are charged
through the Consolidated Statement of Comprehensive Income as and
when incurred. The Group had no properties during the year that did
not earn any income during the 12 months to 31 December 2013.
E Taxation
i) Taxes
The Group is subject to income in the United Kingdom and is
exempt from capital gains tax. Significant judgement is required to
determine the total provision for current and deferred taxes.
The Group recognises liabilities for current taxes based on
estimates of whether additional taxes will be due. Where the final
tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income
and deferred tax provisions in the period in which the
determination is made. Deferred tax assets and liabilities are
recognised on a net basis to the extent they relate to the same
fiscal unity and fall due in approximately the same period.
ii) Current income tax
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted by the
reporting date. Current income tax relating to items recognised
directly in equity is recognised in equity and not in the income
statement. Positions taken in tax returns with respect to
situations in which applicable tax regulations are subject to
interpretation are reviewed periodically and provisions are
established where appropriate.
iii) Deferred income tax
Deferred income tax is provided using the liability method on
all temporary differences at the reporting date between the tax
bases of assets and liabilities and their carrying amounts for
financial reporting purposes, with the following exceptions:
Where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that, at the time of
the transaction, affects neither accounting nor taxable profit or
loss.
In respect of taxable temporary differences associated with
investments in subsidiaries where the timing of the reversal of the
temporary differences can be controlled by the parent, and it is
probable that the temporary differences will not reverse in the
foreseeable future.
Deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available against
which deductible temporary differences, carried forward tax credits
or tax losses can be utilised.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities. In determining the expected manner of
realisation of an investment property measured at fair value a
rebuttable presumption exists that its carrying amount will be
recovered through sale. For more details on the judgements used to
determine the deferred tax asset please see note 6.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date. Deferred income tax relating to items recognised
directly in equity is recognised in equity and not in profit or
loss. Deferred tax items are recognised in correlation to the
underlying transaction either in other comprehensive income or
directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a
legally enforceable right exists to set off current tax assets
against current income tax liabilities and the deferred taxes
relate to the same taxable entity and the same taxation
authority.
F Investment property
Investment property comprises completed property and property
under construction or re-development that is held to earn rentals
or for capital appreciation or both. Property held under a lease is
classified as investment property when the definition of an
investment property is met.
Investment property is measured initially at cost including
transaction costs. Transaction costs include transfer taxes,
professional fees for legal services and initial leasing
commissions to bring the property to the condition necessary for it
to be capable of operating. The carrying amount also includes the
cost of replacing part of an existing investment property at the
time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment property is stated
at fair value. Fair value is based upon the market valuation of the
properties as provided by the independent valuers as described in
note 2.2. Gains or losses arising from changes in the fair values
are included in the income statement in the year in which they
arise. For the purposes of these financial statements, in order to
avoid double counting, the assessed fair value is:
i) Reduced by the carrying amount of any accrued income
resulting from the spreading of lease incentives and/or minimum
lease payments.
ii) Increased by the carrying amount of any liability to the
superior leaseholder or freeholder that has been recognised in the
Balance Sheet as a finance lease obligation.
Acquisitions of investment properties are considered to have
taken place on exchange of contracts unless there are significant
conditions attached. For conditional exchanges acquisitions are
recognised when these conditions are satisfied.
Investment property is derecognised when it has been disposed of
or permanently withdrawn from use and no future economic benefit is
expected from its disposal. Any gains or losses on the retirement
or disposal of investment property are recognised in the income
statement in the year of retirement or disposal.
Gains or losses on the disposal of investment property are
determined as the difference between net disposal proceeds and the
carrying value of the asset in the previous full period financial
statements.
G Trade and other receivables
Trade receivables are recognised and carried at the lower of
their original invoiced value and recoverable amount. Where the
time value of money is material, receivables are carried at
amortised cost. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will
not be able to collect all amounts due according to the original
terms of the receivables. Significant financial difficulties of the
debtor, probability that the debtor will enter bankruptcy or
financial reorganisation, and default or delinquency in payments
(more than 30 days overdue) are considered indicators that the
trade receivable is impaired. The amount of the provision is the
difference between the asset's carrying amount and the present
value of estimated future cash flows, discounted at the original
effective interest rate. The carrying amount of the asset is
reduced through use of an allowance account, and the amount of the
loss is recognised in the Consolidated Statement of Comprehensive
Income. When a trade receivable is uncollectible, it is written off
against the allowance account for trade receivables. Subsequent
recoveries of amounts previously written off are credited in the
Consolidated Statement of Comprehensive Income.
H Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand
deposits, and other short-term highly liquid investments readily
convertible within three months or less to known amounts of cash
and subject to insignificant risk of changes in value.
I Borrowings and interest expense
All loans and borrowings are initially recognised at the fair
value of the consideration received, less issue costs where
applicable. After initial recognition, all interest-bearing loans
and borrowings are subsequently measured at amortised cost.
Amortised cost is calculated by taking into account any discount or
premium on settlement. Borrowing costs are recognised within
finance costs in the Consolidated Statement of Comprehensive Income
as incurred.
J Accounting for derivative financial instruments and hedging
activities
Derivatives are initially recognised at fair value on the date a
derivative contract is entered into and are subsequently
re-measured at their fair value. The method of recognising the
resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the
item being hedged. The Group documents at the inception of the
transaction the relationship between hedging instruments and hedged
items, as well as its risk management objective and strategy for
undertaking various hedging transactions. The Group also documents
its assessment both at hedge inception and on an ongoing basis of
whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows
of hedged items. The effective portion of changes in the fair value
of derivatives that are designated and qualify as cash flow hedges
are recognised in other comprehensive income in the Consolidated
Statement of Comprehensive Income. The gains or losses relating to
the ineffective portion are recognised in operating profit in the
Consolidated Statement of Comprehensive Income.
Amounts taken to equity are transferred to profit or loss when
the hedged transaction affects profit or loss, such as when the
hedged financial income or financial expenses is recognised.
When a derivative is held as an economic hedge for a period
beyond 12 months after the end of the reporting period, the
derivative is classified as non-current consistent with the
classification of the underlying item. A derivative instrument that
is a designated and effective hedged instrument is classified
consistent with the classification of the underlying hedged
item.
K Service charge
The Company has appointed a managing agent to deal with the
service charge at the investment properties and the Company is
acting as an agent for the service charge and not a principal. The
table in note 20 is a summary of the service charge during the
year. It shows the amount the service charge has cost the tenants
for the 12 months to 31 December 2013, the amount the tenants have
been billed based on the service charge budget and the amount the
Group has paid in relation to void units over the year. The table
also shows the balancing service charge that is due back to the
tenants as at the Balance Sheet date.
L Other financial liabilities
Trade and other payables are recognised and carried at invoiced
value as they are considered to have payment terms of 30 days or
less and are not interest bearing. The balance of trade and other
payables are considered to meet the definition of an accrual and
have been expensed through the income statement or Balance Sheet
depending on classification. VAT payable at the Balance Sheet date
will be settled within 31 days of the Balance Sheet date with HMRC
and deferred rental income is rent that has been billed to tenants
but relates the period after the Balance Sheet date. Rent deposits
recognised in note 10 are those that are due within one year as a
result of upcoming tenant expiries.
3 FINANCIAL RISK MANAGEMENT
The Group's principal financial liabilities, other than
derivatives, are loans and borrowings. The main purpose of the
Group's loans and borrowings is to finance the acquisition and
development of the Group's property portfolio. The Group has rent
and other receivables, trade and other payables and cash and
short-term deposits that arise directly from its operations.
The Group is exposed to market risk (including interest rate
risk and real estate risk), credit risk, capital risk and liquidity
risk. The Group is not exposed to currency risk or price risk. The
Group is engaged in a single segment of business, being property
investment in one geographical area, the United Kingdom. Therefore
the Group only engages in one form of currency being pound
sterling. The Group currently invests in direct non-listed property
and is therefore not exposed to price risk.
The Board of Directors reviews and agrees policies for managing
each of these risks which are summarised below.
Market risk
Market risk is the risk that the fair values of financial
instruments will fluctuate because of changes in market prices. The
financial instruments held by the Group that are affected by market
risk are principally the derivative financial instruments.
i) Interest Rate risk
As described below the Group invests cash balances with RBS and
Citibank. These balances expose the Group to cash flow interest
rate risk as the Group's income and operating cash flows will be
affected by movements in the market rate of interest. There is
considered to be no fair value interest rate risk in regard to
these balances.
The bank borrowings as described in note 11 also expose the
Group to cash flow interest rate risk. The Group's policy is to
manage its cash flow interest rate risk using interest rate swaps,
in which the Group has agreed to exchange the difference between
fixed and floating interest amounts based on a notional principal
amount (see note 12). The Group has floating rate borrowings of
GBP72,000,000 and GBP12,432,692, all of which has been fixed via
interest rate swaps.
The bank borrowings are carried at amortised cost and the Group
considers this to be a close approximation to fair value. The fair
value of the bank borrowings is affected by changes in the market
interest rate. The fair value of the interest rate swaps is exposed
to changes in the market interest rate as their fair value is
calculated as the present value of the estimated future cash flows
under the agreements. The accounting policy for recognising the
fair value movements in the interest rate swaps is described in
note 2.3.
Trade and other receivables and trade and other payables are
interest free and have settlement dates within one year and
therefore are not considered to present a fair value interest rate
risk.
The following tables set out the carrying amount of the Group's
financial instruments excluding the amortisation of borrowing costs
as outlined in note 5. Bank borrowings have been fixed due to
interest rate swaps and are detailed further in note 12:
As at 31 December 2013:
Weighted average
Fixed Variable interest rate
Rate rate GBP
GBP GBP
Cash and cash equivalents - 12,303,310 0.576%
Bank borrowings 72,000,000 - 6.765%
Bank borrowings 12,432,692 - 3.521%
As at 31 December 2012:
Weighted average
Fixed Variable interest rate
Rate rate GBP
GBP GBP
Cash and cash equivalents - 13,527,186 0.441%
Bank borrowings 72,000,000 - 6.765%
Bank borrowings 12,432,692 - 3.521%
At 31 December 2013, if market rate interest rates had been
100 basis points higher with all other variables held constant,
the profit for the year would have been GBP118,666 higher (2012:
GBP10,945 lower loss) as a result of the higher interest income
on cash and cash equivalents. Other Comprehensive Income and
the Capital Reserve would have been GBP3,737,770 higher (2012:
GBP4,914,863 higher) as a result of an increase in the fair
value of the derivative designated as a cash flow hedge of
floating rate borrowings.
At 31 December 2013, if market rate interest rates had been
100 basis points lower with all other variables held constant,
the profit for the year would have been GBP127,400 lower (2012:
GBP10,945 higher loss) as a result of the lower interest income
on cash and cash equivalents. Other Comprehensive Income and
the Capital Reserve would have been GBP3,921,801 lower (2012:
GBP3,738,374 lower) as a result of a decrease in the fair value
of the derivative designated as a cash flow hedge of floating
rate borrowings.
ii) Real estate risk
The Group has identified the following risks associated with
the real estate portfolio:
a) The cost of the development schemes may increase if there
are delays in the planning process. The Group uses advisers
who are experts in the specific planning requirements in
the scheme's location in order to reduce the risks that
may arise in the planning process.
b) A major tenant may become insolvent causing a significant
loss of rental income and a reduction in the value of the
associated property (see also credit risk below). To reduce
this risk, the Group reviews the financial status of all
prospective tenants and decides on the appropriate level
of security required via rental deposits or guarantees.
c) The exposure of the fair values of the portfolio to market
and occupier fundamentals.
The Group aims to manage such risks by taking an active approach
to asset management (working with tenants to extend leases
and minimise voids), capturing profit (selling when the property
has delivered a return to the Group that the Group believes
has been maximised and the proceeds can be reinvested into
more attractive opportunities) and identifying new investments
(generally at yields of 8% plus that are accretive to the revenue
account and where the Group believes there will be greater
investment demand in the medium term).
Credit risk
Credit risk is the risk that a counterparty will be unable
to meet a commitment that it has entered into with the Group.
In the event of default by an occupational tenant, the Group
will suffer a rental income shortfall and incur additional
related costs. The Investment Manager regularly reviews reports
produced by Dun and Bradstreet and other sources, including
the IPD IRIS report, to be able to assess the credit worthiness
of the Group's tenants and aims to ensure that there are no
excessive concentrations of credit risk and that the impact
of default by a tenant is minimised. In addition to this, the
terms of the Group's bank borrowings require that the largest
tenant accounts for less than 20% of the Group's total rental
income, that the five largest tenants account for less than
50% of the Group's total rental income and that the ten largest
tenants account for less than 75% of the Group's total rental
income. The maximum credit risk from the tenant arrears of
the Group at the financial year end was GBP410,679 (2012: GBP381,917)
as detailed in note 8.
With respect to credit risk arising from other financial assets
of the Group, which comprise cash and cash equivalents, the
Group's exposure to credit risk arises from default of the
counterparty bank with a maximum exposure equal to the carrying
value of these instruments. As at 31 December 2013 GBP11,669,292
(2012: GBP9,442,122) was placed on deposit with The Royal Bank
of Scotland plc ("RBS") and GBP634,018 (2012: GBP4,085,064)
was held with Citibank. The credit risk associated with the
cash deposits placed with RBS is mitigated by virtue of the
Group having a right to off-set the balance deposited against
the amount borrowed from RBS should RBS be unable to return
the deposits for any reason. Citibank is rated A-2 Negative
by Standard & Poor's and P-2 Stable by Moody's, as at the Balance
Sheet date.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties
in realising assets or otherwise raising funds to meet financial
commitments. The investment property in which the Group invests
is not traded in an organised public market and may be illiquid.
As a result, the Group may not be able to liquidate its investments
in these properties quickly at an amount close to their fair
value in order to meet its liquidity requirements.
The following table summarises the maturity profile of the
Group's financial liabilities based on contractual undiscounted
payments.
Year ended 31 December 2013
On demand 12 months 1 to 5 >5 years Total
years
GBP GBP GBP GBP GBP
Interest-bearing
loans - 1,921,899 92,120,289 - 94,042,188
Interest rate
swaps - 1,254,981 5,011,868 - 6,266,849
Leasehold
obligations - 500 2,000 53,000 55,500
Trade and
other payables 1,059,392 - - - 1,059,392
Rental deposits
due
to tenants - 39,893 302,996 33,600 376,489
1,059,392 3,217,273 97,437,153 86,600 101,800,418
Year ended 31 December 2012
On demand 12 months 1 to 5 >5 years Total
years
GBP GBP GBP GBP GBP
Interest-bearing
loans - 2,183,737 8,734,948 86,616,429 97,535,114
Interest rate
swaps - 3,462,240 3,127,972 781,993 7,372,205
Leasehold
obligations - 500 2,000 53,500 56,000
Trade and
other payables 606,032 - - - 606,032
Rental deposits
due
to tenants - 12,662 353,535 - 366,197
606,032 5,659,139 12,218,455 87,451,922 105,935,548
The disclosed amount for interest rate swaps in the above table
are the estimated net undiscounted cash flows.
The Group's liquidity position is regularly monitored by
management and is reviewed quarterly by the Board of Directors.
Capital risk
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares, increase or decrease
borrowings or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio.
This ratio is calculated as net debt divided by total capital. Net
debt is calculated as total borrowings less cash and cash
equivalents. Total capital is calculated as equity, as shown in the
Consolidated Balance Sheet, plus net debt.
The gearing ratios at 31 December 2013 and at 31 December 2012
were as follows:
2013 2012
GBP GBP
Total Borrowings (excluding
amortisation of arrangement
fees) 84,432,692 84,432,692
Less: cash and cash equivalents (12,303,310) (13,527,186)
Net debt 72,129,382 70,905,506
Total equity 101,591,795 80,630,831
Total capital 173,721,177 151,536,337
Gearing ratio 42% 47%
Gearing, calculated as borrowings as a percentage of gross
assets, will not exceed 65%. The Board's current intention is that
the Company's loan to value ratio (calculated as borrowings less
all cash as a proportion of the property portfolio valuation) will
be between 35% and 45%.
Fair values
Set out below is a comparison by class of the carrying amounts
and fair value of the Group's financial instruments that are
carried in the financial statements.
Carrying Amount Fair Value
2013 2012 2013 2012
Financial Assets GBP GBP GBP GBP
Cash and cash equivalents 12,303,310 13,527,186 12,303,310 13,527,186
Interest rate swaps 1,207,299 - 1,207,299 -
Trade and other
receivables 1,305,524 1,171,842 1,305,524 1,171,842
Financial Liabilities
Bank borrowings 83,866,594 83,752,959 84,032,782 83,680,288
Interest rate swaps 1,238,296 6,860,108 1,238,296 6,860,108
Trade and other
payables 1,099,285 883,054 1,099,285 883,054
The fair value of the financial assets and liabilities are
included at an estimate of the amount at which the instrument could
be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The following methods
and assumptions were used to estimate the fair value:
- Cash and cash equivalents, trade and other receivables are the
same as fair value due to the short-term maturities of these
instruments.
- The fair value of bank borrowings is estimated by discounting
future cash flows using rates currently available for debt on
similar terms and remaining maturities. The fair value approximates
their carrying values gross of unamortised transaction costs. This
is considered as being valued at level 2 of the fair value
hierarchy and has not changed level since 31 December 2012.
- The fair value of the interest rate swap contract is estimated
by discounting expected future cash flows using current market
interest rates and yield curve over the remaining term of the
instrument. This is considered as being valued at level 2 of the
fair value hierarchy and has not changed level since 31 December
2012. The definition of the valuation techniques are explained in
the significant accounting judgements, estimates and assumptions in
note 2.2.
The following table shows an analysis of the fair values of
financial instruments recognised in the Balance Sheet by the level
of the fair value hierarchy*:
Level Level 2 Level Total
1 3 fair value
31 December 2013 GBP GBP GBP GBP
Interest rate swaps - 30,997 - 30,997
31 December 2012
Interest rate swaps - 6,860,108 - 6,860,108
*Explanation of the fair value hierarchy:
Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
4 FEES
Investment management fees
On 19 December 2003 Standard Life Investments (Corporate Funds)
Limited ("the Investment Manager") was appointed as Investment
Manager to manage the property assets of the Group.
Under the terms of the Investment Management Agreement the
Investment Manager is entitled to receive a fee at the annual rate
of 0.85% of the total assets, payable quarterly in arrears except
where cash balances exceed 10% of total assets. The fee applicable
to the amount of cash exceeding 10% of total assets is altered to
be 0.20% per annum, payable quarterly in arrears. The Investment
Manager has also agreed to reduce its charge to 0.75% of the total
assets of the Group until such time as the net asset value per
share returns to the launch level of 97p. This is applicable from
the quarter ending 31 December 2008 onwards and does not affect the
reduced fee of 0.20% on cash holdings above 10% of total assets.
The total fees charged for the year ended 31 December 2013 amounted
to GBP1,327,746 (2012: GBP1,305,792). The amount due and payable at
the year end amounted to GBP347,343 excluding VAT (2012: GBP321,685
excluding VAT).
Administration, secretarial and registrar fees
On 19 December 2003 Northern Trust International Fund
Administration Services (Guernsey) Limited ("Northern Trust") was
appointed administrator, secretary and registrar to the Group.
Northern Trust is entitled to an annual fee, payable quarterly in
arrears, of GBP65,000. Northern Trust is also entitled to
reimbursement of reasonable out of pocket expenses. Total fees and
expenses charged for the year ended 31 December 2013 amounted to
GBP80,899 (2012: GBP75,510). The amount due and payable at the year
end amounted to GBPnil (2012: GBP16,250 excluding VAT).
Valuer's fee
On 4 December 2007, Jones Lang LaSalle ("the Valuer"),
independent international real estate consultants, was appointed as
valuer in respect of the assets comprising the property portfolio.
The Valuer is entitled to an annual fee of 0.017% of the average
portfolio value calculated over the preceding quarter and a start
up fee of 0.0225% (with a minimum fee of GBP2,500) of the value of
each property added to the portfolio. The total valuation fees
charged for the year ended 31 December 2013 amounted to GBP30,260
(2012: GBP30,503) of which minimum fees of GBP2,500 (2012:
GBP7,500) were incurred due to adding new properties to the
portfolio. The amount due and payable at the year end amounted to
GBP7,071 excluding VAT (2012: GBP7,129 excluding VAT).
Auditor's fee
At the year end date Ernst & Young LLP continued as
independent auditor of the Group. The auditor's fees for the year
ended 31 December 2013 amounted to GBP45,800 (2012: GBP41,440) and
relate to audit services provided for the 2013 financial year.
Ernst & Young LLP also provided non-audit services in respect
of advice relating to the potential consequences of REIT
conversion. Fees incurred up to the Balance Sheet date amounted to
GBP6,000 (2012: GBPnil).
5 FINANCE INCOME AND COSTS
2013 2012
GBP GBP
Interest income on cash and
cash equivalents 75,193 46,856
Finance income 75,193 46,856
Interest expense on bank
borrowings 1,899,732 2,171,407
Payments on interest rate
swaps 3,420,626 3,291,716
Amortisation of arrangement
costs (See Note 11) 113,635 302,172
Finance costs 5,433,993 5,765,295
6 TAXATION
Current income tax
The major components of income tax expense for the years ended
31 December are:
2013 2012
GBP GBP
Consolidated Income Statement
Current Income Tax
Current Income Tax Charge - -
Deferred Income Tax
Recognition of deferred tax asset (587,315) -
Income Tax credit reported in (587,315) -
the income statement
A reconciliation between the tax credit and the product of
accounting profit multiplied by the applicable tax rate for the
year ended 31 December 2013 and 2012 is, as follows:
2013 2012
GBP GBP
Profit / (loss) before tax 11,236,720 (1,423,694)
Tax calculated at UK statutory income
tax rate of 20% (2012: 20%) 2,247,344 (284,739)
Valuation gain / (loss) from investment
properties not subject to tax (1,245,211) 1,808,120
Income not subject to tax (155,673) (940,095)
Expenditure not allowed for income
tax purposes 57,914 50,222
Tax loss utilised (904,374) (633,508)
Recognition of Deferred Tax Asset (587,315) -
Total income tax credit (587,315) -
Consolidated Consolidated Income
Balance Sheet Statement
2013 2012 2013 2012
GBP GBP GBP GBP
Deferred income tax assets
Losses available
for offset against
future taxable
income 587,315 - (587,315) -
Deferred income tax asset/
(credit) 587,315 - (587,315) -
The Group has available deferred tax assets of GBP2,954,557
(2012: GBP3,174,161) due to tax losses which arose in Guernsey that
are available for offset against future taxable profits of the
Company in which the losses arose. A deferred tax asset of
GBP587,315 (2012: GBPNil) has been recognised in respect of these
losses. The remaining GBP2,367,242 of deferred tax assets have not
been recognised as the Company expects to convert from a Guernsey
Investment Company to a Real Estate Investment Trust (REIT) in 2014
and as a result these tax losses would not be utilised. As a REIT,
any future profit generated by the Company would not be taxable in
the Company.
The Company and its subsidiary have obtained exempt company
status in Guernsey so that they are exempt from Guernsey taxation
on income arising outside Guernsey and bank interest receivable in
Guernsey. The Board intend to conduct the Group's affairs such that
the Company and its subsidiary continue to remain eligible for
exemption.
7 INVESTMENT PROPERTIES
Country UK UK UK Total Total
Class Industrial Office Retail 2013 2012
GBP GBP GBP GBP GBP
Market value as
at 1 January 44,695,000 78,895,000 38,010,000 161,600,000 161,075,000
Purchase of investment
property - 10,375,567 13,464,886 23,840,453 13,165,401
Capital expenditure
on investment
properties 10,505 316,335 - 326,840 306,514
Carrying value
of disposed investment
properties - (14,250,000) (900,000) (15,150,000) (3,700,000)
Valuation gain
/ (loss) from
investment properties 3,469,495 4,606,242 (2,279,886) 5,795,851 (9,216,816)
Movement in lease
incentives receivable - 1,856 - 1,856 (30,099)
Market value at
31 December 48,175,000 79,945,000 48,295,000 176,415,000 161,600,000
Adjustment for
lease incentives* (3,535,038) (3,533,182)
Adjustment for
finance lease
obligations 6,594 6,594
Carrying value
at 31 December 172,886,556 158,073,412
*Lease incentives are split between non current of GBP3,269,593
and current of GBP265,445 (note 8).
Valuation gains and losses from investment properties are
recognised in profit and loss for the period and are attributable
to changes in unrealised gains or losses relating to investment
property (completed and under construction) held at the end of the
reporting period.
2013 2012 2013 2012
Number of Number GBP GBP
properties of properties
Freehold 25 26 141,970,000 142,425,000
Leasehold 8 5 34,445,000 19,175,000
Market value at 31
December 33 31 176,415,000 161,600,000
The fair value of completed investment property, except two
properties described below, is determined using the income
capitalisation method. In the case of the two properties valued
using alternative techniques the valuer has used the development
appraisal approach as this is the technique most suited to valuing
both assets and the details on the specific valuation technique is
detailed in the definition below. Neither of these properties are
considered to be development properties. The property in Swindon is
still generating income for the Group but has development potential
in the future, the Group therefore continue to categorize this as
an investment property. The property in Staines is undergoing a
refurbishment that will be completed by approximately June 2014 and
has an agreement for a lease in place. The Group still consider
this to be an investment property. Both properties are therefore
not shown separately as properties under construction and have been
included as investment property in the table above.
The income capitalisation method is based on capitalising the
net income stream at an appropriate yield. In establishing the net
income stream the valuer has reflected the current rent (the gross
rent) payable to lease expiry, at which point the valuer has
assumed that each unit will be re-let at their opinion of ERV. The
valuer has made allowances for voids and rent free periods where
appropriate, as well as deducting non recoverable costs where
applicable. The appropriate yield is selected on the basis of the
location of the building, its quality, tenant credit quality and
lease terms amongst other factors.
Two properties are valued using alternative methods:
The industrial estate in Swindon and the office building in
Staines Upon Thames have been valued using the development
appraisal method. In the case of the development appraisal method,
estimates of capital outlays and construction cost, development
costs, and anticipated sales income are estimated to arrive at a
series of net cash flows. Specific development risks such as
planning, zoning, licences, and building permits are separately
valued. Allowances for developers profit and finance costs during
construction and marketing periods are also reflected.
One property has changed valuation technique during the year. As
at 31 December 2012 the industrial estate in Swindon was valued
using the income capitalisation approach. The change in valuation
technique was due to the possibility that there could be future
development potential and capital expenditure on the property
during the coming year. For this reason it was felt the development
appraisal technique was more appropriate for this property.
The valuations were performed by Jones Lang Lasalle, an
accredited independent valuer with a recognised and relevant
professional qualification and recent experience of the location
and category of the investment property being valued. The valuation
model in accordance with Royal Institute of Chartered Surveyors
('RICS') requirements on disclosure for Regulated Purpose
Valuations has been applied (RICS Valuation - Professional
Standards, March 2012 published by the Royal Institution of
Chartered Surveyors). These valuation models are consistent with
the principles in IFRS 13.
The Company appoints a suitable valuer (such appointment is
reviewed on a periodic basis) to undertake a valuation of all the
direct real estate investments on a quarterly basis. The valuation
is undertaken in accordance with the then current RICS guidelines
and requirements as mentioned above.
The Investment Manager meets with the valuer on a quarterly
basis to ensure the valuer is aware of all relevant information for
the valuation and any change in the investment over the quarter.
The Investment Manager then reviews and discusses the draft
valuations with the valuer to ensure correct factual assumptions
are made. The Valuer reports a final valuation that is then
reported to the Board.
The management group that determines the Company's valuation
policies and procedures for property valuations is the Property
Valuation Committee. The Committee reviews the quarterly property
valuation report produced by the Valuer (or such other person as
may from time to time provide such property valuation services to
the Company) before its submission to the Board, focussing in
particular on:
-- significant adjustments from the previous property valuation
report
-- reviewing the individual valuations of each property
-- compliance with applicable standards and guidelines including
those issued by RICS and the UKLA Listing Rules
-- reviewing the findings and any recommendations or statements
made by the Valuer
-- considering any further matters relating to the valuation of
the properties
The Chairman of the Committee makes a brief report of the
findings and recommendations of the Committee to the Board after
each Committee meeting. The minutes of the Committee meetings are
circulated to the Board. The Chairman submits an annual report to
the Board summarising the Committee's activities during the year
and the related significant results and findings.
All investment property is classified as Level 3 in the fair
value hierarchy. There were no movements between levels during the
year.
There are currently no restrictions on the realisability of
investment property or the remittance of income and proceeds of
disposal.
The table below outlines the valuation techniques used to derive
Level 3 fair values for each class of investment property:
- The fair value measurements at the end of the reporting
period.
- The level of the fair value hierarchy (e.g. Level 3) within
which the fair value measurements are categorised in their
entirety.
- A description of the valuation techniques applied.
- Fair value measurements, quantitative information about the
significant unobservable inputs used in the fair value
measurement.
- The inputs used in the fair value measurement, including the
ranges of rent charged to different units within the same
building.
Country & Class Fair value Valuation technique Key
unobservable Range (weighted average)
GBP input
UK Industrial 47,671,631 -- Income Capitalisation -- Initial Yield -- 0% to 10.42%
Level 3 -- Reversionary (6.91%)
Yield -- 0% to 10.42%
-- Equivalent (7.60%)
Yield -- 4.75% to 9.57%
-- Development -- Estimated (7.89%)
Appraisal rental value -- GBP34.77 to
(Swindon property per Sq.m GBP191.06 (GBP65.97)
only) -- Construction
costs per Sq.m -- GBP1,291.68
(exclude fees)
-- Profit on
cost % -- 30%
UK Office 79,461,585 -- Income Capitalisation -- Initial Yield -- 0% to 17.96%
Level 3 -- Reversionary (9.23%)
Yield -- 0% to 14.15%
-- Equivalent (8.26%)
Yield -- 5.48% to 10.90%
-- Development -- Estimated (8.11%)
Appraisal rental value -- GBP80.55 to
(Staines property per Sq.m GBP400.34 (GBP197.78)
only) -- Construction
costs per Sq.m -- GBP1,046.80
(exclude fees)
-- Profit on -- 8%
cost %
UK Retail 45,753,340 -- Income Capitalisation -- Initial -- 0% to 7.96% (6.60%)
Level 3 Yield -- 6.46% to 12.34%
-- Reversionary (8.24%)
Yield -- 4.79% to 8.81%
-- Equivalent (7.39%)
Yield -- GBP76.56 to GBP226.85
-- Estimated (GBP121.41)
rental value
per Sq.m
172,886,556
Descriptions and definitions
The table above includes the following descriptions and
definitions relating to valuation techniques and key unobservable
inputs made in determining the fair values:
Estimated rental value (ERV)
The rent at which space could be let in the market conditions
prevailing at the date of valuation.
Equivalent yield
The equivalent yield is defined as the internal rate of return
of the cash flow from the property, assuming a rise to ERV at the
next review, but with no further rental growth.
Initial yield
Initial yield is the annualised rents of a property expressed as
a percentage of the property value.
Reversionary yield
Reversionary yield is the anticipated yield to which the initial
yield will rise (or fall) once the rent reaches the ERV.
The table below shows the ERV per annum, area per square foot,
average ERV per square foot, initial yield and reversionary yield
as at the Balance Sheet date.
2013 2012
GBP GBP
ERV p.a. 15,202,884 14,274,892
Area sq. ft. 1,734,445 1,721,366
Average ERV per sq. ft. GBP8.77 GBP8.29
Initial Yield 7.67% 7.47%
Reversionary Yield 6.59% 7.31%
The table below presents the sensitivity of the valuation to
changes in the most significant assumptions underlying the
valuation of completed investment property.
2013 2012
GBP GBP
Increase in equivalent yield
of 25 bps (6,200,000) (5,700,000)
Decrease in rental rates of
5% (ERV) (6,700,000) (5,900,000)
Below is a list of how the interrelationships in the sensitivity
analysis above can be explained.
In both cases outlined in the sensitivity table the estimated
Fair Value would increase (decrease) if:
-- The ERV is higher (lower)
-- Void periods were shorter (longer)
-- The occupancy rate was higher (lower)
-- Rent free periods were shorter (longer)
-- The capitalisation rates were lower (higher)
8 TRADE AND OTHER RECEIVABLES
2013 2012
GBP GBP
Trade receivables 525,301 416,834
Less: provision for impairment
of trade receivables (114,622) (34,917)
Trade receivables (net) 410,679 381,917
Lease incentives due within
one year 265,445 286,475
Rental deposits held on behalf
of tenants 376,489 366,197
Other receivables 252,911 137,253
Total trade and other receivables 1,305,524 1,171,842
Reconciliation for changes in the provision for impairment of
trade receivables:
2013 2012
GBP GBP
Opening balance (34,917) (52,116)
(Increase)/decrease in provision
for doubtful debts
during the year (79,705) 17,199
Closing balance (114,622) (34,917)
The estimated fair values of receivables are the discounted
amount of the estimated future cash flows expected to be received
and approximate their carrying amounts.
The trade receivables above relate to rental income receivable
from tenants of the investment properties. When a new lease is
agreed with a tenant the Investment Manager performs various money
laundering checks and makes a financial assessment to determine the
tenant's ability to fulfil its obligations under the lease
agreement for the foreseeable future. The majority of tenants are
invoiced for rental income quarterly in advance and are issued with
invoices at least 21 days before the relevant quarter starts.
Invoices become due on the first day of the quarter and are
considered past due if payment is not received by this date. Other
receivables are considered past due when the given terms of credit
expire.
Amounts are considered impaired when it becomes unlikely that
the full value of a receivable will be recovered. Movement in the
balance considered to be impaired has been included in other direct
property costs in the Consolidated Statement of Comprehensive
Income. As of 31 December 2013, trade receivables of GBP114,622
(2012: GBP34,917) were considered impaired and provided for.
The ageing of these receivables is as follows:
2013 2012
GBP GBP
0 to 3 months 66,476 34,917
3 to 6 months 48,146 -
114,622 34,917
As of 31 December 2013, trade receivables of GBP410,679 (2012:
GBP381,917) were less than 3 months past due but
considered not impaired.
9 CASH AND CASH EQUIVALENTS
2013 2012
GBP GBP
Cash held at bank 634,018 4,085,064
Cash held on deposit with RBS
(see note 11) 11,669,292 9,442,122
12,303,310 13,527,186
Cash held at banks earns interest at floating rates based on
daily bank deposit rates. Deposits are made for varying periods of
between one day and three months, depending on the immediate cash
requirements of the Group, and earn interest at the applicable
short-term deposit rates.
10 TRADE AND OTHER PAYABLES
2013 2012
GBP GBP
Trade payables 442,890 322,396
Other payables 616,502 283,636
Interest on borrowings - 264,360
VAT payable 348,711 825,756
Deferred rental income 3,071,726 2,706,310
Rental deposits due to tenants 39,893 12,662
4,519,722 4,415,120
Trade payables are non-interest bearing and are normally settled
on 30-day terms.
11 BANK BORROWINGS
2013 2012
GBP GBP
Loan facility and drawn down
outstanding balance 84,432,692 84,432,692
Opening carrying value 83,752,959 84,238,408
Arrangement costs of new facility - (787,621)
Amortisation of arrangement
costs 113,635 302,172
Closing carrying value 83,866,594 83,752,959
On 20 January 2012 the Company completed the drawdown of
GBP84,432,692 loan with The Royal Bank of
Scotland plc ("RBS") and simultaneously repaid the old loan
facility. The new facility is repayable on 16
December 2018. Interest is payable at a rate equal to the
aggregate of 3 month Libor, a margin of 1.65% (below
40% LTV) or 1.75% (40% to 60% LTV inclusive) or 1.95% (above 60%
LTV).
Under the terms of the loan facility there are certain events
which would entitle RBS to terminate the loan facility
and demand repayment of all sums due. Included in these events
of default is the financial undertaking relating
to the loan to value percentage. The loan agreement notes that
the loan to value percentage is calculated as the
loan amount less the amount of any sterling cash deposited
within the security of RBS divided by the gross
secured property value, and that this percentage should not
exceed 65% for the first five years and then 60%
from the fifth anniversary to maturity.
2013 2012
GBP GBP
Loan amount 84,432,692 84,432,692
Cash deposited within the security
of RBS (11,669,292) (9,442,122)
72,763,400 74,990,570
Investment property valuation 176,415,000 161,600,000
Loan to value percentage 41.2% 46.4%
Loan to value percentage covenant 65.0% 65.0%
Loan to value percentage if
all cash is deposited within
the security of RBS 40.9% 43.9%
Other loan covenants that the Group is obliged to meet include
the following:
- that the net rental income is not less than
150% of the finance costs for any three month
period
- that the largest single asset accounts for
less than 15% of the Gross Secured Asset Value
- that the largest ten assets accounts for less
than 75% of the Gross Secured Asset Value
- that sector weightings are restricted to 55%,
45% and 45% for the Office, Retail and Industrial
sectors respectively
- that the largest tenant accounts for less
than 20% of the Group's annual net rental
income
- that the five largest tenants account for
less than 50% of the Group's annual net rental
income
- that the ten largest tenants account for less
than 75% of the Group's annual net rental
income
During the period the Group did not breach any of its loan
covenants, nor did it default on any other of its obligations under
its loan agreement.
The loan facility is secured by fixed and floating charges over
the assets of the Company and its wholly owned subsidiary, Standard
Life Investments Property Holdings Limited.
12 INTEREST RATE SWAPS
The Company had two interest rate swap agreements with RBS which
ended on 29 December 2013. The first swap agreement was entered
into on 29 December 2003. Under this first swap the Company agreed
to receive a floating interest rate linked to 3 month Libor and pay
a fixed interest rate of 5.115%. The second swap agreement was
entered into on 19 December 2008. Under this second swap the
Company agreed to pay a floating interest rate linked to 3 month
Libor and receive a floating interest rate linked to 1 month Libor
plus a margin of 0.1%. Both agreements are for a notional principal
amount of GBP72,000,000. These swap agreements together qualify as
a fully effective cash flow hedge and fair value changes are shown
in Other Comprehensive Income in the Consolidated Statement of
Comprehensive Income. The GBP72,000,000 loan and the interest rate
swaps have the same critical terms and so the hedge is fully
effective. The effective interest rate of the combined swap
agreements is 5.015% (2012: 5.015%).
On 20 January 2012 the Company completed an interest rate swap
of a notional amount of GBP12,432,692 with RBS. This interest rate
swap has a maturity of 16 December 2018. Under the swap the Company
has agreed to receive a floating interest rate linked to 3 month
Libor and pay a fixed interest rate of 1.77125%.
On 20 January 2012 the Company completed an interest rate swap
of a notional amount of GBP72,000,000 with RBS which replaces the
interest rate swap entered into on 29 December 2003. This interest
rate swap effective date is 29 December 2013 and has a maturity
date of 16 December 2018. Under the swap the Company has agreed to
receive a floating interest rate linked to 3 month Libor and pay a
fixed interest rate of 2.0515%.
2013 2012
GBP GBP
Opening fair value of interest
rate swaps at 1 January (6,860,108) (6,073,698)
Valuation gain / (loss) on interest
rate swaps 6,829,111 (786,410)
Closing fair value of interest
rate swaps at 31 December
Interest rate swaps due: (30,997) (6,860,108)
Less than one year (1,238,296) (4,102,376)
Between one and five years 1,207,299 (2,596,035)
More than five years - (161,697)
Closing fair value of interest
rate swaps at 31 December (30,997) (6,860,108)
The individual swap assets and liabilities are listed below:
Interest rate swap with a start
date of 29 December 2003 maturing
on 29 December 2013 - (3,277,157)
Basis swap with a start date
of 29 December 2008
maturing on 29 December 2013 - 41,394
Interest rate swap with a start
date of 20 January 2012
maturing on 16 December 2018 137,469 (519,771)
Interest rate swap with a start
date of 29 December 2013 maturing
on 16 December 2018 (168,466) (3,104,574)
(30,997) (6,860,108)
13 LEASE ANALYSIS
Lease length
The Group has entered into leases on its property portfolio.
This property portfolio as at 31 December 2013 had
an average lease expiry of 5 years and 4 months. Leases include
clauses to enable periodic upward revision of
the rental charge according to prevailing market conditions.
Some leases contain options to break before the end
of the lease term.
Future minimum rentals receivable under non-cancellable
operating leases as at 31 December are as follows:
2013 2012
GBP GBP
Within one year 12,698,386 12,540,307
After one year, but not more
than five years 33,865,858 25,882,324
More than five years 30,525,848 38,280,554
Total 77,090,092 76,703,185
The largest single tenant at the year end accounts for 8.6%
(2012: 10.24%) of the current annual passing rent.
14 SHARE CAPITAL
Under the Company's Articles of Incorporation, the Company may
issue an unlimited number of ordinary shares
of 1 pence each. As at 31 December 2013 there were 154,994,237
ordinary shares of 1p each in issue. All
ordinary shares rank equally for dividends and distributions and
carry one vote each. There are no restrictions
concerning the transfer of ordinary shares in the Company, no
special rights with regard to control attached to
the ordinary shares, no agreements between holders of ordinary
shares regarding their transfer known to the
Company and no agreement which the Company is party to that
affects its control following a takeover bid.
Allotted, called up and fully 2013 2012
paid:
GBP GBP
Opening balance 22,280,186 20,440,011
Shares issued between 6 February 9,129,170 -
2013 and 6 November 2013 at
a price of between 58.5p and
67.0p per share
Shares issued between 10 May
2012 and 31 October
2012 at a price of between 60.3p
and 63.5p per share - 1,856,500
Issue costs associated with
new ordinary shares (72,332) (16,325)
Closing balance 31,337,024 22,280,186
Allotted, called up and fully 2013 2012
paid:
Number Number of
of shares shares
Opening balance 139,631,746 136,631,746
Issued during the year 15,362,491 3,000,000
Closing balance 154,994,237 139,631,746
Transactions involving ordinary shares or potential ordinary
shares between the reporting date and the date of completion of
these financial statements are detailed in note 24.
15 RESERVES
Retained earnings
This is a distributable reserve and represents the cumulative
revenue earnings of the Group less dividends declared as payable to
the Company's shareholders.
Capital reserves
This reserve represents realised gains and losses on disposed
investment properties and unrealised valuation gains and losses on
investment properties and cash flow hedges since the Company's
launch.
Other distributable reserves
This reserve represents the share premium raised on launch of
the Company which was subsequently converted to a distributable
reserve by special resolution dated 4 December 2003. This balance
has been reduced by the allocation of preference share finance
costs.
The detailed movement of the above reserves for the years to 31
December 2013 and 31 December 2012 can be found in the Statement of
Changes in Equity.
16 EARNINGS PER SHARE NET OF TAX
Basic earnings per share amounts are calculated by dividing
profit for the year net of tax attributable to ordinary equity
holders by the weighted average number of ordinary shares
outstanding during the year. As there are no dilutive instruments
outstanding, basic and diluted earings per share are identical.
The following reflects the income and share data used in the
basic and diluted earnings
per share computations:
2013 2012
GBP GBP
Profit / (loss) for the year
net of tax 11,824,035 (1,423,694)
2013 2012
Number Number of
of shares shares
Weighted average number of ordinary
shares outstanding during the
year 148,648,972 137,728,194
Profit / (Loss) per ordinary
share 7.95p (1.03p)
EPRA (as defined in the Financial Highlights) publishes
guidelines for calculating adjusted earnings that represent
earnings from the core operational activities. Therefore, it
excludes the effect of movements in the fair value of, and results
from sales of, investment property together with the effect of
movements in the fair value of financial instruments.
2013 2012
GBP GBP
Earning for basic earning per
share 11,824,035 (1,423,694)
Less: revaluation movements
on investment properties (5,795,851) 9,216,816
Less: profit on disposal of
investment properties (430,205) (176,215)
Adjusted (EPRA) profit for the
year 5,597,979 7,616,907
2013 2012
Number Number of
of shares shares
Weighted average number of ordinary
shares outstanding during the
year 148,648,972 137,728,194
Adjusted (EPRA) earnings per
share 3.77p 5.53p
17 DIVIDENDS
2013 2012
GBP GBP
1.133p per ordinary share paid
in February relating to the
quarter ending 31 December (2012:
1.133p) 1,599,022 1,548,038
1.133p per ordinary share paid
in May relating to the
quarter ending 31 March (2012:
1.133p) 1,665,870 1,556,535
1.133p per ordinary share paid
in August relating to the quarter
ending 30 June (2012: 1.133p) 1,728,043 1,567,865
1.133p per ordinary share paid
in November relating to the
quarter ending 30 September
(2012: 1.133p) 1,756,085 1,582,028
6,749,020 6,254,466
On 21 February 2014 a dividend of GBP1,756,085, 1.133p per
ordinary share (2012: GBP1,582,028, 1.133p per ordinary share) in
respect of the quarter to 31 December 2013 was paid.
18 RECONCILIATION OF CONSOLIDATED NET ASSET VALUE TO
PUBLISHED NET ASSET VALUE
The net asset value attributable to ordinary shares is published
quarterly and is based on the most recent valuation of the
investment properties and calculated on a basis which adjusts the
underlying reported IFRS numbers. The adjustment made is to include
a provision for payment of a dividend in respect of the quarter
then ended.
2013 2012
Number Number of
of shares shares
Number of ordinary shares at
the reporting date 154,994,237 139,631,746
2013 2012
GBP GBP
Total equity per audited consolidated
financial
statements 101,591,795 80,630,831
Net asset value per share 65.5p 57.7p
The EPRA publishes guidelines for calculating adjusted NAV. EPRA
NAV represents the fair value of an entity's equity on a long-term
basis. Items that EPRA considers will have no impact on the long
term, such as fair value of derivatives, are therefore
excluded.
2013 2012
GBP GBP
Total equity per audited consolidated
financial
statements 101,591,795 80,630,831
Adjustments:
Less: fair value of derivatives 30,997 6,860,108
EPRA net asset value 101,622,792 87,490,939
EPRA net asset value per share 65.6p 62.7p
19 CASH GENERATED OPERATING ACTIVITIES
2013 2012
GBP GBP
Profit / (loss) for the year
before taxation 11,236,720 (1,423,694)
Movement in non-current lease
incentives (22,886) 270,041
Movement in trade and other
receivables (133,682) 470,760
Movement in trade and other
payables 352,023 437,414
Finance costs 5,433,993 5,500,935
Finance income (75,193) (46,856)
Valuation (gain) / loss from
investment properties (5,795,851) 9,216,816
Profit on disposal of investment
properties (430,205) (176,215)
Cash generated from operating
activities 10,564,919 14,249,201
In the Consolidated Cash Flow Statement, proceeds from disposal
of investment properties comprise:
2013 2012
GBP GBP
Carrying value of disposed investment
properties (Note 7) 15,150,000 3,700,000
Carrying value of disposed investment
properties - 998,000
Movement in trade and other
payables - 30,833
Profit on disposal of investment
properties 430,205 176,215
Net proceeds from disposal of
investment properties 15,580,205 4,905,048
20 SERVICE CHARGE
The Company has appointed a managing agent to deal with the
service charge at the investment properties. The table below is a
summary of the service charge during the year. The table shows the
amount the service charge has cost the tenants, the amount the
tenants have been billed based on the service charge budget and the
amount the Company has paid in relation to void units over the
year. The table also shows the balancing service charge that is due
back to the tenants as at the Balance Sheet date.
2013 2012
GBP GBP
Total service charge expenditure
incurred 1,620,103 1,115,952
Total service charge billed
to tenants 1,709,678 1,323,549
Service charge billed to the
Group in respect of void units 60,870 102,945
Service charge due to tenants
as at 31 December (150,445) (310,542)
1,620,103 1,115,952
21 RELATED PARTY DISCLOSURES
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions.
Ordinary share capital
Standard Life Assurance Limited held 14,982,501 (2012:
14,982,501) of the issued ordinary shares at the Balance Sheet date
on behalf of its Unit Linked Property Funds. This equates to 9.7%
(2012: 10.7%) of the ordinary share capital in issue at the Balance
Sheet date. Standard Life Assurance Limited held 14,724,580 (2012:
14,724,580) of the issued ordinary shares at the Balance Sheet date
on behalf of its heritage with profits fund. This equates to 9.5%
(2012: 10.5%) of the ordinary share capital in issue at the Balance
Sheet date. Standard Life Assurance Limited is not considered to
exercise control of the Group. Those parties related to the
Investment Manager waived their rights to commission on the initial
purchase of these shares in order to maintain the fairness of the
transaction to all parties.
Between 31 December 2013 and 16 April 2014 Standard Life
Assurance Limited had decreased its holding by 5,267,643 shares on
behalf of its heritage with profits fund. As at 16 April 2014
Standard Life Assurance Limited held 9,456,937 of the issued
ordinary shares held on behalf of its heritage with profits fund
which equates to 5.9% of the ordinary share capital in issue as at
16 April 2014.
Directors remuneration
The remuneration of the key management personnel is detailed
below. Further details on the key management personnel can be found
in the Director's Remuneration Report and The Corporate Governance
Report.
2013 2012
GBP GBP
Paul Orchard-Lisle 32,000 30,000
Sally-Ann Farnon 25,000 23,500
David Moore (retired 14th May
2013) 8,893 22,500
Richard Barfield 24,000 22,500
Shelagh Mason 24,000 22,500
Huw Evans (appointed 11th April 17,063 -
2013)
130,956 121,000
Directors expenses 4,737 2,441
135,693 123,441
David Moore was until January 2013 a partner of Mourant Ozannes
Advocates and Notaries Public (Guernsey) who are the Group's
solicitors. As at 31 December 2013, the fees paid during the year
to Mourant Ozannes Advocates and Notaries Public (Guernsey) were
GBP3,485 (2012: GBP15,330).
Investment Manager
Standard Life Investments (Corporate Funds) Limited is the
Investment Manager. Transactions with the Investment Manager in the
year are detailed in note 4.
22 SEGMENTAL INFORMATION
The Board has considered the requirements of IFRS 8 'operating
segments'. The Board is of the view that the Group is engaged in a
single segment of business, being property investment and in one
geographical area, the United Kingdom.
23 COMMITMENTS
As at 31 December 2013, the Group had agreed a refurbishment
contract with third parties and is committed to future expenditure
of GBP3.0m for Bourne House, Staines.
24 EVENTS AFTER THE BALANCE SHEET DATE
On 21 February 2014 a dividend of GBP1,756,085 in respect of the
quarter to 31 December 2013 was paid.
Between 7 March 2014 and 21 March 2014, the company approved the
allotment of 5,715,000 ordinary shares of 1p each, which rank pari
passu with the existing shares in issue, under the Company's
blocklisting facility at a price of 71.5p per share. As a result of
these allotments, the total number of ordinary shares in issue
stands at 160,709,237.
On 26 March 2014 the Group completed the purchase of units 1 and
2 Cullen Square, an industrial investment in Livingston for GBP3.6m
excluding costs.
As stated in the Chairman's Statement the Board has agreed that
it would be in the best long term interest of shareholders for the
Company to convert to a UK Real Estate Investment Trust. The Board
will send proposals to shareholders in due course and, if approved,
conversion could take place by 31 December 2014.
Additional Notes to the Annual Financial Report
This Annual Financial Report announcement is not the Company's
statutory accounts for the year ended 31 December 2013. The
statutory accounts for the year ended 31 December 2013 received an
audit report which was unqualified and did not include a reference
to any matters to which the auditors drew attention by way of
emphasis without qualifying their report.
The statutory accounts for the financial year ended 31 December
2013 were approved by the Directors on 16 April 2014. The Company's
AGM is to be held on the 28 May 2014. The Annual Report and Notice
of AGM will be sent to shareholders in April 2014 and will be
available for download from the Company's website hosted by the
Investment Manager (www.standardlifeinvestments.co.uk/its).
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise. Investors may not get back the
amount they originally invested.
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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