We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Ediston Property Investment Company Plc | LSE:EPIC | London | Ordinary Share | GB00BNGMZB68 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 68.80 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMEPIC
RNS Number : 7155C
Ediston Property Inv Comp PLC
24 January 2018
24 January 2018
Ediston Property Investment Company plc
( the "Company")
Report and Results Announcement
Ediston Property Investment Company plc (LSE: EPIC) announces its full year results for the year ended 30 September 2017.
Highlights in the year to 30 September 2017:
-- NAV per share at 30 September 2017 of 111.32 pence (30 September 2016: 107.07 pence), an increase of 4.0% after taking into account capital expenditure and transaction costs
-- Fair value independent valuation of the property portfolio as at 30 September 2017 of GBP173.4 million, a like-for-like increase of 4.8% on the valuation at 30 September 2016
-- The office at Cutlers Gate, Sheffield, was sold for GBP20.2 million, a 2.0% premium to the March 2017 valuation
-- The Sheffield sale proceeds were immediately reinvested in the acquisition of Pallion Retail Park, Sunderland for GBP25.6 million
-- The office building in Reading, Phoenix, was sold for GBP20.5 million, in line with the June 2017 valuation
-- Improved dividend cover
Post-period end activity, to 31 December 2017:
-- Dividend to be increased by 4.5% to 5.75 pence per share from January 2018, payable from February 2018
-- Acquired four prominent retail parks for GBP144.0 million -- Raised approximately GBP88.7 million of new equity
-- Secured additional debt facility of GBP54.2 million, maturing in 2027. Total debt is now GBP111.1 million at an 'all-in' fixed rate of 2.86%
-- GBP25.8 million of cash available for further investment and development -- Total assets of GBP347.3 million
William Hill, Chairman of the Company, said: "Demand for UK real estate remains strong from both domestic and international investors. However, it seems likely that the reduction in property yields we have seen over recent years is at or close to an end. Future returns will be generated from the resilience of portfolio income, the ability to grow income where there are supply/ demand imbalances and the skill to generate new sources of income from management initiatives.
Following the activity during the financial year and remaining part of the 2017 calendar year, with total assets of GBP347.3 million, the Company has made significant steps forward in its development and is well-set for further progression."
Calum Bruce, Investment Manager, said: "Investment volumes and the supply of investment stock will be key to the market going forward.
Retail warehousing is the one sector of the market which is looking attractive. We identified a portfolio of four retail parks which we were able to acquire in an off market transaction. The new properties are good quality, well-located, provide a good income stream and have asset management angles to exploit."
Enquiries:
Ediston Properties Limited (Investment Manager) Danny O'Neill Calum Bruce 0131 225 5599 ------------------------------------------------- ---------------- Canaccord Genuity Limited Will Barnett Neil Brierley Dominic Waters David Yovichic 0207 523 8000 ------------------------------------------------- ---------------- Lansons David Masters 0207 294 3687 Laura Cronin 0207 294 3607 ------------------------------------------------- ---------------- Maitland Administration Services (Scotland) Limited (Company Secretary) Mike Woodward 0131 550 3761 ------------------------------------------------- ----------------
Chairman's statement
Delivering on strategy: The Company has continued to make good progress, raising and investing new equity and announcing an increased dividend.
Summary
Property market returns in 2017 have surprised on the upside as investors have shaken off their Brexit blues and taken the loss of the Conservative Party's Parliamentary majority in their stride. This strength in the market, the effect of value generating management activity in the portfolio, and the payment of the dividend of 5.5 pence per share resulted in a net asset value (NAV) per share total return of 9.3% for the year to 30 September 2017.
The Company has taken the opportunity to sell into the stronger parts of the market with the disposal of two mature assets. The office buildings in Sheffield and Reading are the first sales since the Company was floated in late 2014. A new asset, a retail park in Sunderland, was added. The intention to rotate assets in favour of those with greater potential to add value and enhance income was trailed in my half-year statement.
That statement was titled 'Ready for Growth' and gave a clear sense of the direction in which the Board was looking to take the Company. However, it was not until close to the year end that a suitable opportunity to grow the Company in a cost-effective manner with suitable assets was identified. This was successfully converted in early December.
I believe the acquisition of the GBP144.0 million retail park portfolio and the associated capital raise that has increased the equity base of the Company by 60% is one of several significant steps forward for the Company and achieves a key strategic objective for 2017. I comment on it in more detail below. It is also reported on in the Investment Manager's review and shown in the accounts as a post-balance sheet event.
Investment and share price performance
Over the period, the NAV per share has risen from 107.07 pence to 111.32 pence, an increase of 4.0%. Taking into account dividends paid in the period, the NAV total return per share over the year was 9.3%. Total return measured on share price movement over the same period was slightly lower at 8.3% based on a year-end share price of 106.5 pence per share. This is a slightly misleading statistic as, for much of the year, the share price traded in a tight range around the published NAV. The closing share price on the day before and after 30 September 2017 was 111.6 pence and 113.0 pence respectively.
Portfolio activity
In my report last year, I referred to the Board's immediate focus on income generation and distributing that income as dividends. The strategic objectives for the Investment Manager during the year were therefore income related, with targets to continue to reduce voids and to bolster the strength of the income stream through management activity.
I am pleased to report that these objectives were met. Another significant reduction in the void rate was achieved with lettings at Birmingham, Reading and Daventry taking the 4.7% rate at the start of the year down to 0.7% at the end. Income was further enhanced with the sale of Cutlers Gate, Sheffield for GBP20.2 million, reflecting an exit yield of 5.0%, and the simultaneous investment of GBP25.6 million in Pallion Retail Park, Sunderland at a yield of 6.7%. The combined result was to lift dividend cover to 115.3% putting the Company in a position where a sustainable increase in dividend could be contemplated.
Debt and Cash
The portfolio activity was undertaken within the Company's existing debt facility through the substitution rights that were negotiated when the original loan was signed. An additional GBP4.5 million was drawn. This increased the Company's borrowings to GBP56.9 million at a blended interest rate of 2.99% per annum fixed until the maturity of the loan in 2025. At 30 September 2017, the loan to value (LTV) was 29.6%.
At the year end GBP5.5 million of the sale proceeds from Reading were held by the lender in a deposit account pending reinvestment. The Company also held cash and cash equivalents of GBP24.6 million, resulting in gearing to total assets of 27.9%. Post-year end the GBP5.5 million held by the lender was used for the acquisition of the retail warehouse portfolio.
Dividends
Total dividends for the year were unchanged at 5.5 pence per share. The improvement in dividend cover referred to above enabled the Board to announce on 15 November 2017 that it intended to increase the annualised dividend by 4.5% to 5.75 pence per share. This will commence with the dividend for January 2018, payable in February 2018. Paying a progressive and sustainable monthly dividend remains a key investment objective for the Company.
Governance
The approach taken in relation to governance is set out in the governance section of the report and accounts. However, there are two aspects I wish to comment on specifically. The first relates to the composition of the Board and individual Director roles and the second to Board compensation.
I am pleased to report that, following an extensive recruitment process, Jamie Skinner was appointed a Director of the Company on 1 July 2017. He brings with him considerable experience of the investment trust sector through his roles at Martin Currie and Cazenove. Following his appointment, the Board expects to maintain a Board of four directors for the foreseeable future but with some revised roles and responsibilities. I will continue to chair the Company and lead the Valuation, Investment and the Management Engagement Committees. Robin Archibald is appointed to the currently unfilled role of Senior Independent Director, with specific responsibility for corporate matters, and will continue to chair the Nominations Committee. Robert Dick will remain as chair of the Audit and Risk Committee. Jamie Skinner will become chair of a newly formed Marketing Committee with responsibility for developing new markets for the Company's shares.
Board compensation has been effectively fixed since the Company was floated in 2014. Following consultation with the Company's advisors, it is proposed that this is now adjusted to reflect market conditions, the changed demands for exercising oversight of the Company and the specific roles and responsibilities of the individual non-executive Directors. Barring unforeseen circumstances, the Board is proposing that the revised remuneration and remuneration policy are fixed for a further three years. This is reported on in full in the Remuneration Report in the Annual Report and shareholders will be asked to approve the report and remuneration policy at the Company's forthcoming Annual General Meeting.
Corporate Strategy
From the date of the original flotation of the Company the Board has believed that it is in the interests of shareholders for the Company to grow its equity base. The advantages of spreading management costs over a greater asset base, improving portfolio diversity and enhancing the liquidity of shares are well understood in the development of successful investment companies.
For these reasons, the Company had authorities to issue new shares through its approved tap facility. During the year 2.73 million new shares were issued raising net proceeds of GBP3.03 million and the Company intends to continue to have tap issuance authority over the forthcoming year to capitalise on demand in the market when appropriate.
However, to achieve a significant step forward a larger capital raise was always recognised as required. The Board and Investment Manager had reviewed a number of strategies and opportunities during the year to grow the Company's assets and income in a sustainable and accretive manner for shareholders. It was not until the end of the financial year that the right situation presented itself, resulting in a significant post-balance sheet event that has transformed the shape of the Company from that reported on at 30 September 2017.
The Company announced on 7 December 2017 that shareholders had approved the acquisition of a portfolio of four retail warehouse parks for GBP144.0 million and had given the necessary authorities to issue 79.3 million new shares at 111.75 pence per share. Approximately GBP52.2 million of cash was raised with the balance of the acquisition price met from the issuance of 32.7 million shares to the vendor (with a cash equivalent of GBP36.5 million), GBP40.2 million drawn from a new debt facility of GBP54.2 million and the remainder from existing cash resources. The net effect of the transaction has been to increase the equity base of the Company by approximately 60% and to acquire a pool of attractive assets, with potential to add value from management activities in a very cost-efficient manner. The income from the portfolio improves diversification, enhances the unexpired lease term of the Company's rental base and increases the level of dividend cover. Further information on the transaction is provided in the Investment Manager's report in the Annual Report and in Note 12 to the Audited Consolidated Financial Statements below.
The Board is delighted that the Company has been able to achieve a key part of its growth strategy and is grateful for the support of existing shareholders. It also welcomes a number of new shareholders onto the register, including members of the Stadium Group, the vendor of the retail warehouse portfolio.
Lastly, there is the annual placing programme for up to 60 million new shares, which is available to fund larger opportunities if and when they arise.
Outlook
Demand for UK real estate remains strong from both domestic and international investors. However, with the possibility of headwinds from a further rise in interest rates, geopolitical uncertainty and the prospect of a slowing economy, it seems likely that the reduction in property yields we have seen over recent years is at or close to an end. Future returns will be generated from the resilience of portfolio income, the ability to grow income where there are supply/ demand imbalances and the skill to generate new sources of income from management initiatives. The Company is well-served by an Investment Manager who can take advantage of this type of market and, following the portfolio activity over the year and post-year end, has the asset base to exploit these opportunities to full advantage.
Following the activity during the financial year and remaining part of the 2017 calendar year, with total assets of GBP347.3 million, the Company has made significant steps forward in its development and is well-set for further progression.
William Hill
Chairman
23 January 2018
Investment Manager's review
Refreshing the portfolio: In order to keep the portfolio fresh, we have completed sales, purchases and asset management during the period.
Market commentary
The UK commercial real estate market surprised on the upside in the period ended 30 September 2017, following the uncertainty and hesitation caused by the EU referendum and the liquidity issues suffered by the open-ended, daily dealt funds who very quickly became distressed vendors. Whilst the impact of the result of the Brexit vote on the property market was not as severe as many commentators had predicted, it did result in capital value declines for many investors, resulting in the poor total return numbers for 2016 of just 3.0%.
This cautious and risk averse mind-set continued through the first quarter of 2017. Forecast returns for the year ranged from 0% to 5.0%, suggesting limited, if any capital growth.
This resulted in quite a benign market of limited sellers, especially as the open-ended funds had, in the main, re-opened and had returned to more neutral cash positions. Demand was still there, especially from overseas investors, attracted to the UK market as a result of weaker sterling and lower values. However, the lack of supply resulted in this demand becoming pent-up, as it was difficult for the capital to be deployed.
Following the summer period, which included the general election, investment activity picked up across the UK. There was greater demand from UK institutions and the demand from overseas investors remained strong. They were amongst the most active buyers for UK commercial real estate.
The level of investment stock available to purchase has increased, but there is still a notable supply/demand imbalance which has kept pricing firm for the good assets. Yields for industrial and logistics assets have hardened considerably and are starting to look overpriced. Yields for good multi-let estates have never been stronger and the yields on longer distribution income is almost at supermarket or annuity levels of pricing. This yield compression has been driven by strong institutional demand. These buyers are encouraged by the lack of supply (as there has been virtually no development for seven years) and the limited development pipeline.
Retail warehousing is the one sector of the market which is looking attractive, albeit approximately 70% of the market is over-rented, so care needs to be taken in selecting the right assets with rental growth potential. However, the vacancy rate for all retail warehousing is just 5.1%.
The retail warehouse sector is well placed to benefit from yield compression. Following the EU referendum, institutional investors pulled away from the retail warehouse sector. As a result, values fell. As discussed above investors turned their attentions to the industrials and logistics sector, but with this sector now looking expensive, buyers are turning to retail warehousing which offers an attractive yield, the prospect of yield compression, good unexpired lease terms and deliverable asset management and development angles.
Outlook
Investment volumes and the supply of investment stock will be key to the market going forward. Demand looks set to remain steady, however, in a lower return environment transaction costs could be seen as an impediment by some investors in making the decision to trade assets. This could reduce the level of stock being offered to the market for sale. The hunt for yield could overtake the current focus on liquidity as investors seek more value-add assets in core locations, especially where the underlying land values are high and there is an opportunity for alternative uses on the site.
Portfolio valuation
The Company's property portfolio is valued by Knight Frank on a quarterly basis throughout the year. As at 30 September 2017 it was valued at GBP173.4 million, a like-for-like increase of 4.8% over the period.
Hot Features
Premium
Property Portfolio as at 30 September 2017
-------------------------------------------------------------------
Market Value
Location Name Sector Range (GBP) Tenure
----------- ----------------- -------- ------------- ----------
Birmingham St Philips Point Office 30-35m Freehold
----------- ----------------- -------- ------------- ----------
Newcastle Citygate 2 Office 15-20m Leasehold
----------- ----------------- -------- ------------- ----------
Edinburgh 145 Morrison Office 10-15m Heritable
Street
----------- ----------------- -------- ------------- ----------
Bath Midland Bridge Office 5-10m Freehold
House
----------- ----------------- -------- ------------- ----------
Sunderland Pallion Retail Retail 25-30m Freehold
Park
----------- ----------------- -------- ------------- ----------
Wrexham Plas Coch Retail Retail 20-25m Freehold
Park
----------- ----------------- -------- ------------- ----------
Coatbridge B&Q Retail 15-20m Heritable
----------- ----------------- -------- ------------- ----------
Rhyl Clwyd Retail Retail 15-20m Freehold
Park
----------- ----------------- -------- ------------- ----------
Daventry Abbey Retail Retail 10-15m Leasehold
Park
----------- ----------------- -------- ------------- ----------
Telford Mecca Bingo Leisure 0-5m Freehold
----------- ----------------- -------- ------------- ----------
Liverpool Mecca Bingo Leisure 0-5m Freehold
----------- ----------------- -------- ------------- ----------
Hartlepool Mecca Bingo Leisure 0-5m Freehold
----------- ----------------- -------- ------------- ----------
Asset management
During the period, the void rate was reduced from 4.7% to 0.7%. In December 2016, we completed the letting of the eighth floor at St Philips Point, Birmingham. Existing tenant AXA Insurance UK plc leased their fifth floor in the building, taking their occupation to approximately 33,000 sq. ft. over five floors. As a result of this letting, the property is 100% let.
At Reading, we leased 4,333 sq. ft. to Handd Business Solutions Limited. Handd signed a 10 year lease with a five-year option to break at a rent of GBP30.50 per sq. ft. per annum, which enhanced the rental tone of the building.
During the period, we delivered a complex asset management strategy at Abbey Retail Park in Daventry, which culminated in the successful letting of 17,610 sq. ft. to B&M Retail Limited (B&M). In order to provide the space which B&M required, we had to negotiate two lease surrenders, relocate one tenant to a new unit, then carry out construction work. B&M signed a 10-year full repairing and insuring lease at a rent of GBP246,540 per annum. The letting has improved footfall for the retail park and has added another strong income stream to the portfolio.
We are working on a number of other asset management opportunities which, if successfully completed, will improve both the capital and income of the Company.
Tenant Covenant Profile: D&B risk ratings of tenant income as a percentage of the portfolio income ----------------------------------------------------------------- D&B Rating % ------------------------------------------------ --------------- Minimal 87.9 Low 9.9 Medium to high 1.9 No report 0.3 ------------------------------------------------ ---------------
Void rate and weighted average unexpired lease term (WAULT) at 30 September
Year Void (%) WAULT (Years) ------ --------- -------------- 2014 25.0 5.9 2015 7.4 8.6 2016 4.7 7.9 2017 0.7 6.3 ------ --------- --------------
Fully covered dividend
Over the period we improved our dividend cover. As a result, in November 2017 the Board announced a 4.5% increase in the dividend, to 5.75 pence per share. This will be effective from January 2018, payable in February 2018.
Summary of sales and purchases
During the period the office buildings in Sheffield and Reading were sold for a combined total of GBP40.7 million. GBP25.6 million was reinvested by acquiring Pallion Retail Park in Sunderland. These transactions are discussed in more detail in the Annual Report. The remaining capital was put towards acquiring the portfolio of retail warehouse assets after the year end and described in more detail in the Annual Report.
Calum Bruce
Investment Manager
23 January 2018
Financial Review
2017 has been another active year of intensive asset management which has improved the Company's fully covered dividend and allowed progress on asset value growth.
This report summarises the financial performance for the year and provides a number of statistics, illustrating how the Company is delivering on its objectives.
Income Statement
This year, following property sales of GBP40.7 million, the Company has reinvested capital through acquisitions of GBP25.6 million and combined with letting activity has helped to achieve a revenue profit before tax of GBP8.2 million, an increase of 7.9% from 2016. Rental income generated in the year was GBP12.2 million. Expenditure in the period was GBP2.3 million, including GBP0.1 million of property specific expenditure and GBP1.4 million related to the Investment Manager's fee. Net interest costs were GBP1.7 million.
The positive movement in the value of our investment properties was GBP4.4 million, which enabled the Company to report a total profit of GBP12.6 million.
2017 2016
GBPm GBPm
----------------------------------- ------ ------
Rental income 12.2 11.3
Property expenditure (0.1) (0.2)
----------------------------------- ------ ------
Net rental income 12.1 11.1
Administration expenses (2.2) (2.0)
Net financing costs (1.7) (1.5)
----------------------------------- ------ ------
Revenue profit 8.2 7.6
Gain on revaluation of investment
properties 4.4 0.2
----------------------------------- ------ ------
Accounting profit after tax 12.6 7.8
----------------------------------- ------ ------
EPRA earnings per share 6.34p 5.90p
Dividend per share 5.50p 5.50p
Basic earnings per share 9.75p 6.08p
----------------------------------- ------ ------
Rent
Contracted rent was GBP12.1 million (2016: GBP12.1 million) per annum at the year end. As all sale proceeds were not redeployed during the reporting period, this income was maintained through asset management initiatives. Rent-free periods as a percentage of contracted rent at the year end was 10.5% which fell to 4.0% from 31 December 2017. 89.1% (2016: 87.3%) of rent for the year was collected within seven days with 93.0% of rent collected within 14 days (2016: 95.0%).
The portfolio continues to provide relatively long-term stability to the Company's income. The EPRA vacancy rate has reduced to 0.7% from 4.7% in 2016 due to letting activity. As a result of a year passing and the sale of an asset with long term income, the WAULT has decreased to 6.3 years from 7.9 years in 2016.
EPRA Performance Measures
As a member of EPRA, we support EPRA's drive to bring consistency to the comparability and quality of information provided to investors and other key stakeholders of the Company. We have therefore included a number of performance measures which are based on EPRA methodology. It should be noted that there is no difference between the Company's IFRS and EPRA NAV in this year's accounts.
All these statistics have improved due to portfolio and asset management initiatives which have strengthened the financial performance.
2017 2016
----------------------------------- -------- --------
EPRA earnings GBP8.2m GBP7.6m
EPRA earnings per share 6.34p 5.90p
Diluted EPRA earnings per share 6.34p 5.90p
EPRA NAV per share 111.32p 107.07p
EPRA cost ratio (including direct
vacancy costs) 18.6% 20.0%
EPRA cost ratio (excluding direct
vacancy costs) 18.2% 19.2%
EPRA net initial yield 6.0% 5.3%
EPRA topped up net initial yield 6.5% 6.2%
EPRA vacancy rate 0.7% 4.7%
----------------------------------- -------- --------
Net Asset Value (NAV)
At 30 September 2017 our net assets were GBP145.8 million, equating to net assets per share of 111.32 pence (2016: 107.07 pence) resulting in year-on-year growth in the NAV of 4.0%. This is positive especially given the slight cash drag effect from the proceeds from the sale of Reading in August which were not reinvested before the year end.
The increase in net assets to GBP145.8 million is summarised in the table below.
NAV at 30 September 2016 GBP137.3m Increase in value of investment properties (net of capital expenditure GBP4.4m and transaction costs) Net earnings in the year GBP8.2m Less: dividends paid in the year (GBP7.1m) Equity raised in the year GBP3.0m NAV at 30 September 2017 GBP145.8m ---------------------------------------- ----------
The NAV is primarily represented by our investment properties, which have a fair value of GBP173.4 million at the year end. This is included in the financial statements as Investment Properties at GBP171.7 million, with the remainder relating to capital incentives. The remaining GBP25.9 million of net liabilities is made up of: i) GBP56.2 million of debt; ii) GBP24.6 million of cash and cash equivalents; and iii) GBP5.7 million of net current assets.
Debt
Following the acquisition of the Sunderland property in June 2017, the existing debt facility was increased by GBP4.5 million to GBP56.9 million, by way of an amendment and restatement of the original facility. The blended rate of interest of the GBP56.9 million of debt is now 2.99% which is fixed until the loan matures in 2025. GBP5.5 million of the proceeds from the sale of Reading was transferred into a deposit account with the lender as a temporary measure until the funds are reinvested. Further details are included within Note 6 of the financial statements. At the year end the Loan to Value was 29.6%, based on debt net of the amount placed in the Lender deposit account of GBP51.4 million and the fair value of investment properties of GBP173.4 million.
It is the intention of the Board that gearing will not be greater than 35% of total assets and will more normally be around 30% or less, which represents significant headroom against the loan to value covenants on the property portfolio.
Cash
As at 30 September 2017 the Company had cash and cash equivalents of GBP24.6 million.
Dividends
Dividend cover for the year was 115.3%. The Company has now provided a fully covered dividend since early 2016.
The Board declared a dividend of 0.46 pence per share for the month of September which was paid in October 2017. Taking this last dividend with dividends paid to September 2017 of 5.04 pence, the total dividend for the year is 5.5 pence per share in line with the targeted dividend policy. Taking the total dividend paid for the year, this equates to a dividend yield of 5.2%, based on closing share price on 29 September 2017. The Company remains committed to monthly dividend payments.
Tax
Owing to the Company's REIT status, income and capital gains from our property rental business are exempt from corporation tax, therefore, the tax charge for the year is nil.
We continue to pass all the REIT tests to ensure our REIT status is maintained.
Outlook
As a result of the continued strong financial performance of the Company, the Board announced on 15 November 2017 a 4.5% increase in dividend from 5.5 pence per share to 5.75 pence from January 2018. The Board projects that dividends will continue to be fully covered for the foreseeable future.
On 8 December 2017, the Company successfully acquired a portfolio of four assets at a value of GBP144.0 million. This was funded by equity raised of GBP88.7 million and debt of GBP40.2 million and existing cash. The total debt facility is now GBP111.1 million at a blended all in rate of 2.86%. Loan to value at 31 December 2017 is 30.4% net of the GBP13.9 million held in the lender deposit account. Annual contracted rent from the new assets is GBP9.3 million.
The Company has a strong balance sheet position and good sustainable income. Going forward, it is anticipated that the portfolio asset management initiatives will be financed through available cash resources of GBP25.8 million.
Neelum Yousaf
Financial Controller, Ediston Properties Limited
Principal Risks and Risk Management
The successful management of risk is essential in ensuring that the Company delivers on its strategic priorities and aligns the Company's interests with its shareholders'.
The Audit and Risk Committee recognises that there are risks and uncertainties that could have a material effect on the Company's results. Under the UK Corporate Governance Code, Directors of listed companies are required to confirm in the annual report that they have performed a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The Group's risk register is the core element of the risk management process. The register is prepared, in conjunction with the Board, by the Administrator, Company Secretary and Investment Manager. The Directors review and challenge the register on a quarterly basis, assessing the likelihood of each risk, the impact on the Group and the strength of controls operating over each risk. An assessment is also made as to whether any changes have occurred in the nature of the risks faced by the Company, or whether any new risks have arisen, to ensure that appropriate mitigating controls are in operation.
The principal risks facing the business, with their likelihood and impact and how the Company mitigates these, are set out in the table below.
Risk Impact Controls and Probability Impact if Change from last
mitigation of occurring occurred year
in place
--------------------- --------------------- --------------------- -------------- ---------- ---------------------
INVESTMENT MANAGEMENT
----------------------------------------------------------------------------------------------------------------------
Lack of investment An inappropriate Thorough due Low Medium No Change
opportunities use of capital diligence The Company
reducing which hinders and investment completed
the ability to investor returns. process its first disposals
acquire with regular reviews in the year, with
properties at the Reduction in of property one disposal being
required return. revenue profits performance completed back to
impacting on against acquisition back with a property
Poor investment cash flow and plan. acquisition.
decisions, dividends.
incomplete due Experienced Following thorough
diligence Investment due diligence,
and mistimed Manager who sources investment
investment of assets which meet process and
capital. agreed comprehensive
investment criteria. modelling, a GBP144
million portfolio
Investment committee was acquired post
scrutinises and year end.
approves
all proposed
acquisitions.
Comprehensive profit
and cash flow
forecasting
which models the
impact
of property
transactions
at Company level.
--------------------- --------------------- --------------------- -------------- ---------- ---------------------
Over-exposure to Reduced liquidity Concentration limits Low Medium No Change
a specific property, resulting in are set by the Board Following the
tenant, sector, a reduction in and reviewed portfolio
geographic the capital value quarterly. acquisition on 8
location or to lease of investment The limits are December
expiries in a given properties. monitored 2017, the Company
year. at all times by the has
Tenant failure Investment Manager. increased its
causing a material exposure
reduction in Board approval to
revenue profits memoranda the retail warehouse
impacting on state whether there sector,
cash flow and are any whilst improving
dividends. concentration tenant
issues. diversification
and the
portfolio's overall
WAULT.
--------------------- --------------------- --------------------- -------------- ---------- ---------------------
Ineffective active High vacancy Investment Manager Low Medium No Change
asset management levels, low tenant is The Investment
of properties. retention, experienced in Manager
sub-optimal active has identified and
rental levels asset management. undertaken various
and break clauses active asset
exercised. Pro-active approach management
to key lease events. activities during
Reduction in Letting and managing the year and has
revenue profits agents are also others identified,
impacting on employed. within both the
cash flow and existing and
dividends. recently
acquired properties.
--------------------- --------------------- --------------------- -------------- ---------- ---------------------
FINANCIAL
----------------------------------------------------------------------------------------------------------------------
Non-Compliance with A substantial Forecasts of Low High No Change
debt facilities. fall in the property covenant The Company's LTV
asset values compliance are increased to 30.4%
or rental income reviewed following the
levels could on a regular basis. drawdown
lead to a breach Compliance of the additional
of financial certificates debt facilities
covenants within and reports are during the year
its debt funding prepared and in December
arrangements. on a quarterly basis 2017, although this
This could lead by the Investment also reduced the
to a cancellation Manager blended fixed
of debt funding then reviewed and interest
which could leave signed rate from 3.06%
the Company without by a Director. to 2.86% and
sufficient long staggered
term resources The Board intends to the dates by which
to meet its maintain gearing at the various debt
commitments. 30% but will not facilities fall
exceed due for renewal.
35% of Company gross
assets at drawdown.
--------------------- --------------------- --------------------- -------------- ---------- ---------------------
ECONOMY/TAXATION/REGULATORY
----------------------------------------------------------------------------------------------------------------------
Weak economic and/or Lower occupational To a large extent Medium High Increasing
political demand impacting outwith The Board believes
environment on income, rental the Company's the
(including the growth and capital control. Company faces
potential performance. Although it is known increasing
impact of Brexit). that Brexit will uncertainty,
happen, particularly
the Company cannot in relation to
know Brexit
how it will happen and the outlook
and for interest rates.
the resulting
impact.
However, sensitivity
analysis of the
portfolio
is undertaken via a
comprehensive cash
flow
model.
--------------------- --------------------- --------------------- -------------- ---------- ---------------------
Non-compliance with The Company is The Company uses Low High No Change
laws and required to comply experienced No significant
regulations. with REIT rules, tax advisers, changes
the Listing Rules, auditors, have occurred in
Disclosure Guidance Investment Manager, the regulatory
and Transparency Administrator and environment
Rules, IFRS solicitors. over the year.
accounting
standards and Strong compliance
UK legislation. culture
with regular risk
reviews
undertaken by the
Audit
and Risk Committee.
--------------------- --------------------- --------------------- -------------- ---------- ---------------------
OPERATIONAL
----------------------------------------------------------------------------------------------------------------------
Health and Safety. Health and safety The Board regularly Low High No Change
processes could receives and reviews No significant
fail leading a report detailing changes
to serious financial any have occurred in
or reputational relevant matters. relation to Health
damage to the The and Safety matters
Company. managing agent over the year.
ensures
all matters raised
are
dealt with promptly.
Insurance cover is
in
place and insurers
visit
each property and
undertake
a risk assessment.
--------------------- --------------------- --------------------- -------------- ---------- ---------------------
Lack or failure of The possibility Significant Low High No Change
internal controls of self review, segregation No significant
of the Investment human error, of duties within the changes
Manager or cyber risk and Investment Manager have occurred in
Administrator. even fraud can and the internal control
occur. Administrator as environment over
well the year.
as between them
both,
with oversight from
the Depositary.
Clear
structure on
internal
controls, including
disaster recovery.
--------------------- --------------------- --------------------- -------------- ---------- ---------------------
Consolidated Statement of Comprehensive Income (audited)
For the year ended 30 September 2017
Year ended Year ended
30 September 2017 30 September 2016
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
Revenue
Rental income 12,154 - 12,154 11,323 - 11,323
Total revenue 12,154 - 12,154 11,323 - 11,323
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
Unrealised gain on revaluation
of investment properties - 4,613 4,613 - 231 231
Losses of sale of investment
properties realised - (203) (203) - - -
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
Total income 12,154 4,410 16,564 11,323 231 11,554
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
Expenditure
Investment management fee 1 (1,352) - (1,352) (1,309) - (1,309)
Other expenses (902) - (902) (958) - (958)
Total expenditure (2,254) - (2,254) (2,267) - (2,267)
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
Profit before finance costs
and taxation 9,900 4,410 14,310 9,056 231 9,287
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
Net finance costs
Interest receivable 8 - 8 65 - 65
Interest payable (1,708) - (1,708) (1,553) - (1,553)
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
Profit before taxation 8,200 4,410 12,610 7,568 231 7,799
Taxation - - - - - -
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
Profit and total comprehensive
income for the year 8,200 4,410 12,610 7,568 231 7,799
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
Basic earnings per share 3 6.34p 3.41p 9.75p 5.90p 0.18p 6.08p
-------------------------------- ------ -------- -------- --------- -------- -------- ---------
The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS.
The supplementary revenue return and capital return columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement are derived from continuing operations.
No operations were acquired or discontinued in the year.
Consolidated Statement of Financial Position (audited)
As at 30 September 2017
As at As at
30 September 30 September
2017 2016
Notes GBP'000 GBP'000
-------------------------------- ------ -------------- --------------
Non-current assets
Investment properties 4 171,739 177,534
-------------------------------- ------ -------------- --------------
171,739 177,534
-------------------------------- ------ -------------- --------------
Current assets
Trade and other receivables 7,317 3,940
Cash and cash equivalents 24,651 9,967
31,968 13,907
-------------------------------- ------ -------------- --------------
Total assets 203,707 191,441
-------------------------------- ------ -------------- --------------
Non-current liabilities
Loans 6 (56,246) (51,783)
(56,246) (51,783)
-------------------------------- ------ -------------- --------------
Current liabilities
Trade and other payables (1,645) (2,327)
-------------------------------- ------ -------------- --------------
Total liabilities (57,891) (54,110)
-------------------------------- ------ -------------- --------------
Net assets 145,816 137,331
-------------------------------- ------ -------------- --------------
Equity and reserves
Called up equity share capital 7 1,310 1,283
Share premium 37,858 34,898
Capital reserve - investments
held 10,863 9,138
Capital reserve - investments
sold 2,685 -
Special distributable reserve 84,668 85,115
Revenue reserve 8,432 6,897
Equity shareholders' funds 145,816 137,331
-------------------------------- ------ -------------- --------------
Net asset value per Ordinary
Share 8 111.32p 107.07p
-------------------------------- ------ -------------- --------------
Consolidated Statement of Changes in Equity (audited)
For the year ended 30 September 2017
Capital Capital
Share reserve reserve Special
capital Share - investments - investments distributable Revenue Total
account premium held sold reserve reserve equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ------ --------- --------- -------------- --------------- --------------- ---------- ---------
As at 30
September
2016 1,283 34,898 9,138 - 85,115 6,897 137,331
Profit and
total
comprehensive
income for
the
year - - 4,613 (203) - 8,200 12,610
Transfer of
prior
years'
revaluations
to realised
reserve - - (2,888) 2,888 - - -
Transactions
with
owners
recognised
in equity:
Ordinary
Shares
issued 7 27 2,960 - - - - 2,987
Dividends paid 2 - - - - - (7,112) (7,112)
Transfer from
special
reserve - - - - (447) 447 -
--------------- ------ --------- --------- -------------- --------------- --------------- ---------- ---------
As at 30
September
2017 1,310 37,858 10,863 2,685 84,668 8,432 145,816
--------------- ------ --------- --------- -------------- --------------- --------------- ---------- ---------
For the year ended 30 September 2016
Capital
Share reserve Special
capital Share - investments distributable Revenue Total
account premium held reserve reserve equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ------ --------- --------- --------------- --------------- ---------- ---------
As at 30 September
2015 1,283 34,898 8,907 89,035 2,463 136,586
Profit and total
comprehensive
income for the
year - - 231 - 7,568 7,799
Transactions
with owners
recognised in
equity:
Dividends paid 2 - - - (755) (6,299) (7,054)
Transfer from
special reserve - - - (3,165) 3,165 -
-------------------- ------ --------- --------- --------------- --------------- ---------- ---------
As at 30 September
2016 1,283 34,898 9,138 85,115 6,897 137,331
-------------------- ------ --------- --------- --------------- --------------- ---------- ---------
Consolidated Statement of Cash Flow (audited)
For the year ended 30 September 2017
Year ended Year to
30 September 30 September
2017 2016
Notes GBP'000 GBP'000
------------------------------------------- ------ -------------- --------------
Cash flows from operating activities
Profit before tax 12,610 7,799
Adjustments for:
Interest receivable (8) (65)
Interest payable 1,708 1,553
Unrealised revaluation gains on property
portfolio (4,410) (231)
------------------------------------------- ------ -------------- --------------
Operating cash flows before working
capital changes 9,900 9,056
Increase in trade and other receivables (3,208) (356)
(Decrease)/increase in trade and other
payables (460) 539
------------------------------------------- ------ -------------- --------------
Net cash inflow from operating activities 6,232 9,239
------------------------------------------- ------ -------------- --------------
Cash flows from investing activities
Purchase of investment properties (26,100) (41,353)
Capital expenditure (1,353) (2,781)
Sale of investment properties 37,255 -
------------------------------------------- ------ -------------- --------------
Net cash inflow/(outflow) from investing
activities 9,802 (44,134)
------------------------------------------- ------ -------------- --------------
Cash flows from financing activities
Loans drawn down, net of costs 6 4,385 12,257
Issue of Ordinary Share capital, net
of costs 2,987 -
Dividends paid (7,114) (7,011)
Interest received 8 65
Interest paid (1,616) (1,434)
------------------------------------------- ------ -------------- --------------
Net cash (outflow)/inflow from financing
activities (1,350) 3,877
------------------------------------------- ------ -------------- --------------
Net increase/(decrease) in cash and
cash equivalents 14,684 (31,018)
Opening cash and cash equivalents 9,967 40,985
------------------------------------------- ------ -------------- --------------
Closing cash and cash equivalents 24,651 9,967
------------------------------------------- ------ -------------- --------------
Statement of Directors' Responsibilities in Respect of the Annual Financial Report
In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, we confirm that to the best of our knowledge:
-- The financial statements contained within the Annual Report for the year ended 30 September 2017, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;
-- The Chairman's Statement, Investment Manager's Review and Financial Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;
-- 'Principal Risks and Risk Management' includes a description of the Company's principal risks and uncertainties; and
-- The Annual Report includes details of related party transactions that have taken place during the financial year.
On behalf of the Board
William Hill
Chairman
23 January 2018
Notes to the Audited Consolidated Financial Statements
1. Investment Management Fee
Year ended Year ended
30 September 30 September
2017 2016
GBP'000 GBP'000
-------------------------- -------------- --------------
Investment Manager's fee 1,352 1,309
-------------------------- -------------- --------------
Total 1,352 1,309
-------------------------- -------------- --------------
Ediston Investment Services Limited has been appointed as the Company's Alternative Investment Fund Manager (AIFM) and Investment Manager, with the property management arrangements of the Company being delegated to Ediston Properties Limited. The Investment Manager was entitled to a fee calculated as 0.95% per annum of the net assets of the Group up to GBP250 million and 0.75% per annum of the net assets of the Group over GBP250 million.
As detailed in Note 12, subsequent to the year end, the AIFM and the Investment Manager agreed to reduce future management fees payable on any cash available for investment by 50 per cent while such cash remains uninvested.
The Investment Management Agreement may be terminated by either party by giving not less than 12 months' notice. The agreement may be terminated earlier by the Group provided that a payment in lieu of notice, equivalent to the amount the Investment Manager would otherwise have received during the notice period, is made. The Investment Management Agreement may be terminated immediately without compensation if the Investment Manager: is in material breach of the agreement; is guilty of negligence, wilful default or fraud; is the subject of insolvency proceedings; or there occurs a change of Key Managers to which the Board has not given its prior consent.
2. Dividends
Dividends paid as distributions to equity shareholders during the year were:
Year ended Year ended
30 September 2017 30 September
2016
Pence Pence
per share GBP'000 per share GBP'000
--------------------------------- ----------- -------- ----------- --------
In respect of the prior year:
Twelfth interim dividend 0.4587 588 0.4583 588
In respect of the current year:
First interim dividend 0.4583 588 0.4583 588
Second interim dividend 0.4583 590 0.4583 588
Third interim dividend 0.4583 590 0.4583 588
Fourth interim dividend 0.4583 590 0.4583 588
Fifth interim dividend 0.4583 590 0.4583 588
Sixth interim dividend 0.4583 590 0.4583 588
Seventh interim dividend 0.4583 590 0.4583 588
Eighth interim dividend 0.4583 594 0.4583 588
Ninth interim dividend 0.4583 600 0.4583 588
Tenth interim dividend 0.4583 601 0.4583 587
Eleventh interim dividend 0.4583 601 0.4583 587
--------------------------------- ----------- -------- ----------- --------
Total 5.5000 7,112 5.4996 7,054
--------------------------------- ----------- -------- ----------- --------
Dividends paid/ announced subsequent to the year end were:
Record date Payment date Pence per
share
-------------------------- ----------------- ----------------- ----------
Twelfth interim dividend 20 October 2017 31 October 2017 0.4587
In respect of the year
ending 30 September
2018:
10 November 30 November
First interim dividend 2017 2017 0.4583
15 December 29 December
Second interim dividend 2017 2017 0.4583
Third interim dividend 19 January 2018 31 January 2018 0.4583
-------------------------- ----------------- ----------------- ----------
It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not therefore recommend a final dividend for the year ended 30 September 2017.
3. Earnings per Share
Year ended Year ended
30 September 2017 30 September 2016
Pence Pence
GBP'000 per share GBP'000 per share
----------------------------------- -------- ----------- -------- -----------
Revenue earnings 8,200 6.34 7,568 5.90
Capital earnings 4,410 3.41 231 0.18
Total earnings 12,610 9.75 7,799 6.08
----------------------------------- -------- ----------- -------- -----------
Average number of shares in issue 129,342,917 128,263,931
----------------------------------- --------------------- ---------------------
4. Investment Properties
As at As at
30 September 30 September
2017 2016
Freehold and leasehold properties GBP'000 GBP'000
-------------------------------------------- -------------- --------------
Opening book cost 168,396 124,126
Opening unrealised appreciation 9,138 8,907
-------------------------------------------- -------------- --------------
Opening fair value 177,534 133,033
-------------------------------------------- -------------- --------------
Purchases 26,100 41,353
Sales - proceeds (37,255) -
- gain on sales 2,685 -
Capital expenditure 950 2,917
Unrealised gains realised during the year (2,888) -
Unrealised gains on investment properties 4,656 3,749
Unrealised losses on investment properties (43) (3,518)
-------------------------------------------- -------------- --------------
Closing book cost 157,988 168,396
Closing unrealised appreciation 13,751 9,138
-------------------------------------------- -------------- --------------
Closing fair value 171,739 177,534
-------------------------------------------- -------------- --------------
The fair value of the investment properties reconciled to the appraised value as follows:
As at As at
30 September 30 September
2017 2016
GBP'000 GBP'000
----------------------------------------- -------------- --------------
Closing fair value 171,739 177,534
Lease incentives held as debtors (1,671) (3,876)
----------------------------------------- -------------- --------------
Appraised market value per Knight Frank 173,410 181,410
----------------------------------------- -------------- --------------
Changes in the valuation of investment properties:
Year ended Year ended
30 September 30 September
2017 2016
GBP'000 GBP'000
-------------------------------------------- -------------- --------------
Gain on sale of investment properties 2,685 -
Unrealised gains realised during the year (2,888) -
-------------------------------------------- -------------- --------------
Losses on sale of investment properties (203) -
realised*
Unrealised gains on investment properties 4,656 3,749
Unrealised losses on investment properties (43) (3,518)
-------------------------------------------- -------------- --------------
Total gain on revaluation of investment
properties 4,410 231
-------------------------------------------- -------------- --------------
*Represents the difference between the sales proceeds, net of costs, and the property valuation at the end of the prior year.
At 30 September 2017, the investment properties were valued at GBP173,410,000 (2016: GBP181,410,000) by Knight Frank LLP (Knight Frank), in their capacity as external valuers. The valuation was undertaken in accordance with the RICS Valuation - Professional Standards VPS4 (1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements, which adopt the definition of Fair Value adopted by the International Accounting Standards Board. Fair value is based on an open market valuation (the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date), provided by Knight Frank on a quarterly basis, using recognised valuation techniques as set out in the Group's accounting policies.
5. Investment in subsidiaries
EPIC (No.1) Limited is a wholly owned subsidiary of Ediston Property Investment Company plc and is incorporated in England and Wales (Company Number: 09106328). EPIC (No.1) Limited was incorporated on 27 June 2014 and began trading on 5 May 2015. On 5 May 2015, the ownership of the property portfolio held by the Company at that date was transferred to EPIC (No.1) Limited. The net asset value of EPIC (No.1) Limited as at 30 September 2017 was GBP141.0 million (2016: GBP135.1 million) and the book cost was GBP123.7 million (2016: GBP123.7 million). The profit of EPIC (No.1) Limited for the year to 30 September 2017 was GBP13.1 million (2016: GBP8.2 million).
6. Loans
As at As at
30 September 30 September
2017 2016
GBP'000 GBP'000
----------------------------------- -------------- --------------
Principal amount outstanding 56,920 52,420
Set-up costs (838) (723)
Amortisation of loan set-up costs 164 86
----------------------------------- -------------- --------------
Total 56,246 51,783
----------------------------------- -------------- --------------
In May 2015, the Group entered into a GBP40 million secured 10-year term loan arrangement with Aviva Commercial Finance Limited. In February 2016 and June 2017, the Group borrowed an additional GBP12.42 million and GBP4.50 million respectively, also from Aviva Commercial Finance Limited. The final maturity date of all three loans is May 2025. The annual interest rate is fixed at 3.09% on the original GBP40 million loan, at 2.95% on the loan of GBP12.42 million and 2.22% on the third loan of GBP4.5 million. Each of these rates is fixed for the period of the loan as long as the loan-to-value is maintained below 40%, with each increasing by 10 basis points if the loan-to-value is 40% or higher. The Group's weighted average cost of borrowings was therefore 2.99% at 30 September 2017 (2016: 3.06%). The loans are secured over EPIC (No.1) Limited's current property portfolio.
Under the financial covenants relating to the loans the Group has to ensure that for EPIC (No.1) Limited:
-- the Historic Interest Cover and Projected Interest Cover, each being the passing rental income as a percentage of finance costs and generally calculated over a period of 12 months to/from the calculation date, is at least 300%; and
-- the Loan-to-Value Ratio, being the adjusted value of the loan as a percentage of the aggregate market value of the relevant properties, must not exceed 50%.
Breach of the financial covenants, subject to various cure rights, may lead to the loans falling due for repayment earlier than the final maturity date stated above. The Group has complied with all the loan covenants during the year. Under the terms of early repayment relating to the loans, the cost of repaying the loans on 30 September 2017, based on the yield on the Treasury 5% 2025 plus a margin of 0.5 per cent, would have been approximately GBP62,418,000, including repayment of the principal (2016: GBP60,839,000).
The fair value of the loans based on a marked-to-market basis, being the yield on the Treasury 5% 2025 plus the appropriate margin, was GBP59,297,000 as at 30 September 2017 (2016: GBP57,500,000). This includes the principal amount borrowed of GBP56,920,000 (2016: GBP52,420,000).
7. Called-up Equity Share Capital
Allotted, called-up and fully paid Ordinary Number Shares of 1 pence par value of shares GBP'000 --------------------------------------------- ------------ -------- Opening balance as at 30 September 2016 128,263,931 1,283 Issue of Ordinary Shares 2,730,000 27 --------------------------------------------- ------------ -------- Closing balance as at 30 September 2017 130,993,931 1,310 --------------------------------------------- ------------ --------
During the year ended 30 September 2017, the Company issued 2,730,000 Ordinary Shares, raising gross proceeds of GBP3,046,000 (2016: GBPnil). The Company did not buyback or resell from treasury any Ordinary Shares during the year (2016: nil). The Company did not hold any shares in treasury. Under the Company's Articles of Association, the Company may issue an unlimited number of Ordinary Shares.
The consideration received in excess of the par value of the Ordinary Shares issued, net of the total expenses of issue of GBP59,000, has been credited to the share premium account.
Ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the Company. All Ordinary Shares carry equal voting rights.
Capital management
The Group's capital is represented by the Ordinary Shares, share premium, capital reserves, revenue reserve and special distributable reserve. The Group is not subject to any externally-imposed capital requirements.
The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objective. Capital management activities may include the allotment of new shares, the buyback or re-issuance of shares from treasury, the management of the Group's discount to net asset value and consideration of the Group's net gearing level.
There have been no changes in the capital management objectives and policies or the nature of the capital managed during the year.
8. Net Asset Value
The Group's net asset value per Ordinary Share of 111.32 pence (2016: 107.07 pence) is based on equity shareholders' funds of GBP145,816,000 (2016: GBP137,331,000) and on 130,993,931 (2016: 128,263,931) Ordinary Shares, being the number of shares in issue at the year end.
The net asset value calculated under IFRS above is the same as the EPRA net asset value at 30 September 2017 and 30 September 2016.
9. Related Party Transactions
The Directors are considered to be related parties. No Director has an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Group. There are no other key management personnel, as the entity has no employees except for the Directors.
The Directors of the Group received fees for their services. Total fees for the year were GBP118,000 (2016: GBP108,000) of which GBPnil (2016: GBPnil) remained payable at the year end.
Ediston Properties Limited, being the AIFM and Investment Manager, received GBP1,352,000 in relation to the year (2016: GBP1,309,000) of which GBP347,000 (2016: GBP327,000) remained payable at the year end.
10. Contingent Assets and Liabilities
The Group acquired the units in a Jersey Property Unit Trust on 7 November 2014. Prior to the sale of the units to the Group, the seller transferred a property to another group entity by way of a distribution in specie for nil consideration. The Group has indemnified the seller should any Stamp Duty Land Tax (SDLT) arise as a result of that property transfer. Both the Seller's and the Group's tax advice is that there is a low probability of an SDLT liability on the transaction.
11. Financial Instruments
Consistent with its objective, the Group holds UK commercial property investments. In addition, the Group's financial instruments comprise cash and receivables and payables that arise directly from its operations. The Group does not have exposure to any derivative instruments.
The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as all assets and liabilities of the Group are maintained in pounds sterling.
The Board reviews and agrees policies for managing the Group's risk exposure. These policies are summarised below and have remained unchanged for the period under review. These disclosures include, where appropriate, consideration of the Group's investment properties which, whilst not constituting financial instruments as defined by IFRSs, are considered by the Board to be integral to the Group's overall risk exposure.
Apart from the Aviva loans, as disclosed in Note 6, the fair value of financial assets and liabilities is not materially different from their carrying value in the financial statements.
Credit Risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.
In the event of default by a tenant if it is in financial difficulty or otherwise unable to meet its obligations under the lease, the Group will suffer a rental shortfall and incur additional expenses until the property is re-let. These expenses could include legal and surveyor's costs in re-letting, maintenance costs, insurances, rates and marketing costs and may have a material adverse impact on the financial condition and performance of the Group and/or the level of dividend cover. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Investment Manager monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants.
Where there are concerns over the recoverability of rental income, the amounts outstanding will be fully provided for. There was no provision required at 30 September 2017 (2016: GBP10,000). Of the provision at 30 September 2016, GBP10,000 was subsequently recovered, no amount remained outstanding and nothing was written off. There were no other financial assets which were either past due or considered impaired at 30 September 2017 or at 30 September 2016.
All of the Group's cash was placed with The Royal Bank of Scotland plc (RBS) as at 30 September 2017 and 30 September 2016. Bankruptcy or insolvency of the bank holding cash balances may cause the Group's ability to access cash placed with them to be delayed, limited or lost. RBS is rated by all the main rating agencies. Due to the increase in the cash balance, subsequent to the year end the Group opened an additional deposit account with Bank of Scotland plc which will permit the Group to diversify its credit risk when significant cash balances are held. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, cash holdings would be moved to another bank. As at 30 September 2017, Standard & Poor's credit rating for RBS was A-2 and Moody's was P-2. The equivalent credit ratings for Bank of Scotland plc were A-1 and P-1 respectively. There has been no change in the fair values of cash or receivables as a result of changes in credit risk in the current or prior periods.
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 Group's investments comprise commercial properties.
Property and property-related assets in which the Group invests are not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate quickly its investments in these properties at an amount close to their fair value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the Investment Manager and monitored on a quarterly basis by the Board. In order to mitigate liquidity risk the Group has a comprehensive 10-year cash flow forecast that aims to have sufficient cash balances, taking into account projected receipts for rental income and property sales, to meet its obligations for a period of at least 12 months.
Interest Rate Risk
Some of the Group's financial instruments will be interest-bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Group is exposed to interest rate risk due to fluctuations in the prevailing market rate. The Group's exposure to floating interest rates gives cash flow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk.
When the Group retains cash balances, they will ordinarily be held on interest-bearing deposit accounts. The Group's policy is to hold cash in variable rate or short term fixed rate bank accounts. Exposure varies throughout the year as a consequence of changes in the composition of the net assets of the Group arising out of the investment and risk management policies.
Market Price Risk
The management of market price risk is part of the investment management process and is typical of a property investment company. The portfolio is managed with an awareness of the effects of adverse valuation movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in property and property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Such risk is minimised through the appointment of external property valuers. The basis of valuation of the property portfolio is set out in detail in the accounting policies in the Annual Report.
Any changes in market conditions will directly affect the profit and loss reported through the Statement of Comprehensive Income. Details of the Group's investment property portfolio held at the balance sheet date are disclosed in Note 4.
12. Post-Balance Sheet Events
On 15 November 2017, the Company announced that it had entered into a conditional acquisition agreement with the Stadium Group in relation to the acquisition of a new portfolio of four retail warehouse parks with an aggregated market value of approximately GBP144 million. This acquisition, funded by an equity issue, an additional debt facility and utilising some of the Group's existing cash, was approved by shareholders. The transaction and fund raising was successfully achieved, with the acquisition subsequently completing on 8 December 2017.
In order to finance this acquisition, the Company allotted 79,339,806 Ordinary Shares at a price of 111.75 pence per share on 7 December 2017. This included 32,662,192 Ordinary Shares which were issued, at the same price, to the vendors. The shares issued to the vendors are covered by a twelve month agreement, subject to customary exceptions, not to dispose of the shares for 12 months from the date of allotment and to only dispose of such shares in the following 12 month period after providing notice to the Company.
As at 23 January 2018, the Company has a total of 210,333,737 Ordinary Shares in issue. The Company has authority from shareholders to issue further shares, without pre-emption rights, under an annual placing program for 60 million shares running to November 2018, and further authority to issue additional shares, again without pre-emption rights, as tap issuance going forward, subject to such authority being renewed at the AGM.
The Company also fully drew down an additional 10-year debt facility of GBP54 million at a fixed rate (including the margin) of 2.73% per annum. Following this drawdown, the Group had aggregate borrowings of GBP111 million with a blended fixed interest rate of 2.86% and two distinct repayment dates. The other significant terms of the facility are consistent with those of the existing facility.
The total costs of the transaction, incorporating the entirety of the costs of the share issuance, the acquisition of the property portfolio and the additional debt facility, were GBP3.1 million which equates to 2.2% of the value of the properties acquired, exceptionally low for a property acquisition. The net initial yield on the portfolio acquired of 6.02%, combined with the expected reduction in the Group's total expense ratio from 1.06% to 0.85% (annualised) by spreading fixed costs over the enlarged Group, improved further the Group's dividend cover.
The Manager has agreed to reduce future management fees payable on any cash available for investment (being all cash held by the Company except cash required for working capital and capital expenditure) by 50 per cent while such cash remains uninvested.
The Group had total assets at 31 December 2017 of GBP347.3 million, including cash and available debt finance of GBP25.8 million. This equates to a net asset value per share of 111.02 pence. At the same date, the Group's LTV was 30.4% and its gearing was 32.0%.
13. Financial Statements
These are not full statutory accounts. The report and financial statements for the year to 30 September 2017 will be posted to shareholders and made available on the website: www.ediston-reit.com . Copies may also be obtained from the Company's Administrator, Maitland Administration Services (Scotland) Limited, 20 Forth Street, Edinburgh, EH1 3LH.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAXFDAESPEFF
(END) Dow Jones Newswires
January 24, 2018 02:00 ET (07:00 GMT)
1 Year Ediston Property Investm... Chart |
1 Month Ediston Property Investm... Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
