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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Secure Income Reit Plc | LSE:SIR | London | Ordinary Share | GB00BLMQ9L68 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 461.00 | 461.00 | 461.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMSIR
RNS Number : 4692A
Secure Income REIT PLC
29 September 2015
29 September 2015
Secure Income REIT Plc
(the "Company" or the "Group")
Interim results for the six months ended 30 June 2015
Introduction of distribution in 2016 following significant progress with GBP903 million of new financing
and GBP382 million of asset sales
Secure Income REIT Plc (AIM: SIR), the specialist long term income REIT, today announces its interim results for the six months ended 30 June 2015 and provides an update on activities since the period end.
Highlights:
-- New long term financing arrangements in place after 30 June 2015 totalling GBP903 million: - reducing interest cost by 23% from 6.8% to 5.2% per annum;
- extending term to maturity from less than two years to nine years on significantly improved terms; and
- facilitating initiation of distribution payments
-- Intention to pay distributions commencing in autumn 2016, currently expected to reflect a yield exceeding 4% on 30 June 2015 pro forma EPRA NAV with attractive compound growth prospects ahead of inflation
-- Asset sales in the period of GBP382 million at c. 8% above 31 December 2014 book values, comprising the sales of the freehold of Madame Tussauds in London for GBP332 million and the New Hall hospital in Salisbury for GBP50 million
-- Pro forma EPRA NAV of 275.3 pence per share, up 6.5% after incurring early debt repayment costs amounting to 14% of EPRA NAV as at 30 June 2015
-- Pro forma loan to value ratio of 62%, down from 70% at 31 December 2014 and 80% at listing in June 2014
-- Portfolio valuation up 6% since 31 December 2014 to GBP1.3 billion; net initial yield 5.3% and equivalent yield 6.4%
-- Weighted average unexpired lease term of 24 years; all rents subject to annual uplifts either at fixed rates or upwards only RPI linked terms
-- Passing rent of GBP76 million as at 30 June 2015, secured entirely against major global multi billion pound quoted businesses
Hot Features
Premium
Change since
30 June 2015 31 December 2014 31 December 2014
--------------------------------- ------------ ---------------- -----------------
EPRA net asset value GBP496.4m GBP466.2m 6.5%
EPRA net asset value per share 275.3p 258.5p 6.5%
Net asset value GBP475.5m GBP344.3m 38%
Adjusted EPRA earnings per share 3.4p 6.7p n/a
--------------------------------- ------------ ---------------- -----------------
pro forma figures are adjusted for completion of the sale of Madame Tussauds and the refinancing of the Group's entire debt, which have occurred since the balance sheet date. Pro forma adjustments amounting to a 41 pence per share EPRA NAV reduction are shown in the Investment Adviser's Report.
Martin Moore, Independent Non-Executive Chairman of the Company, commented: "Since the start of the year we have secured over GBP900 million of new financing that, together with proceeds from selective asset sales, replaces our existing debt in its entirety, resulting in significantly lower leverage and a debt package with lower cost and longer maturity. As of autumn next year we will be in a position to begin making attractive cash distributions, thereby providing early delivery on our IPO objective. We believe that in the current environment there is a shortage of investment opportunities which provide secure and growing income combined with a good prospect of capital preservation. Our portfolio, let to multi-billion pound covenants for an average of over 24 years with annual uplifts in rental, provides a compelling opportunity for investors and we look to the future with confidence."
ENQUIRIES:
Prestbury Investments LLP Tel: 020 7647 7647
Nick Leslau
Mike Brown
Sandy Gumm
FTI Consulting Tel: 020 3727 1000
Richard Sunderland
Stifel Nicolaus Europe (Nominated Adviser and Broker) Tel: 020 7710 7600
David Arch
Tom Yeadon
Notes to Editors
About Secure Income REIT
Secure Income REIT Plc floated as a Real Estate Investment Trust on the AIM segment of the London Stock Exchange in June 2014. Upon Admission, the Company had a share price of 174p, representing a market capitalisation of GBP293 million, which has subsequently grown to c. GBP450 million.
The Company specialises in generating long term, inflation protected, secure income from real estate investments. Its investment strategy is designed to satisfy investors' growing requirements for high quality, safe, inflation protected income flows.
In its unaudited interim results for the six months ended 30 June 2015 the Company reported gross assets of GBP1.3 billion and, with a weighted average unexpired lease term of 24 years across its portfolio, all with annual fixed or RPI rental uplifts, the Company has one of the longest income profiles in the quoted property sector.
The Company's Board is chaired by Martin Moore and comprises three further independent Directors in Leslie Ferrar, Jonathan Lane and Ian Marcus, as well as three members of the Prestbury team in Nick Leslau, Mike Brown and Sandy Gumm.
The Company is externally managed by Prestbury Investments LLP which was also external manager to Max Property Group Plc until August 2014, when it was sold to Blackstone Group.
Forward looking statements
This document includes forward looking statements which are subject to risks and uncertainties. You are cautioned that forward looking statements are not guarantees of future performance and that if risks and uncertainties materialise, or if the assumptions underlying any of these statements prove incorrect, the actual results of operations and financial condition of the Group may differ materially from those made in, or suggested by, the forward looking statements. Other than in accordance with its legal or regulatory obligations, the Company undertakes no obligation to review, update or confirm expectations or estimates or to release publicly any revisions to any forward looking statements to reflect events that occur or circumstances that arise after the date of this document.
Chairman's Statement
Dear shareholder,
During 2015 we have made significant progress at Secure Income REIT through a combination of selective disposals and a complete debt refinancing, which have together reduced the Group's leverage and cost of debt. These two initiatives have helped transform Secure Income REIT into a company which is in a position to begin making cash distributions as of autumn next year, thereby delivering on our objective at listing of creating a company which offers investors a growing distribution derived from a portfolio of high quality assets generating long term income from exceptionally strong tenants.
The two sales during the period were the freehold of Madame Tussauds in London, which was sold for GBP332.4 million reflecting a net initial yield of 4.5%, and New Hall hospital in Salisbury, which was sold for GBP49.8 million reflecting a net initial yield of 5.3%. The sale prices achieved were 8% above December 2014 book values and represented an important step on the way to securing new financing and positioning the Company to become a distribution paying REIT.
In August and September we secured over GBP900 million of new financing, completely replacing our original debt, extending our weighted average term to maturity by over seven years to nine years, and reducing our annual interest cost by 155 basis points, or 23%, down to 5.2%.
These initiatives place the Company in a position to begin making cash distributions commencing with an interim payment in autumn 2016, and targeting an annual payout which would equate to a distribution yield in excess of 4% based on our 30 June 2015 pro forma EPRA NAV of 275.3 pence per share. Given that every property in our current portfolio has the benefit of an annual RPI review or fixed increases in rent, distributions should be able to grow above the currently forecast level of inflation at an attractive rate.
The Board is now actively engaged with the Company's six major shareholders to discuss how best to widen the investor base. This would create more liquidity in the shares, ensure that the Company is better placed for expansion when the time is right, and enable it to continue to qualify under UK REIT rules.
Results and financial position
The pro forma EPRA NAV, adjusted for completion of the sale of Madame Tussauds and the refinancing of all of the Group's debt, both of which have occurred since the balance sheet date, is 275.3 pence per share, which represents a 6.5% increase since 31 December 2014.
Pence per
GBPm share
----------------------------------------------------- --------- --------------
EPRA NAV at 1 January 2015 466.2 258.5
Investment property revaluation 76.6 42.4
Profit on sale of investment properties 24.0 13.3
Rental income less finance and administrative costs 9.1 5.1
Costs of early repayment of debt facilities on
sale of New Hall (3.7) (2.0)
Currency translation movements (1.9) (1.1)
Tax (0.2) (0.1)
------------------------------------------------------- --------- --------------
EPRA NAV at 30 June 2015 570.1 316.1
(MORE TO FOLLOW) Dow Jones Newswires
September 29, 2015 02:01 ET (06:01 GMT)
Costs of early repayment of debt facilities on sale of Madame Tussauds and refinancing (73.7) (40.8) Pro forma EPRA NAV 496.4 275.3 ------------------------------------------------------- --------- --------------
Adjusted EPRA EPS for the six months to 30 June 2015 was 3.4 pence per share compared to 6.7 pence per share for the nine months to 31 December 2014 (with the 2014 comparative period including two months prior to listing).
In the six months to the end of June 2015, the portfolio valuation rose by 6% to GBP1.3 billion, showing a net initial yield of 5.3% and an equivalent yield of 6.4%. The Group enjoys an exceptional level of income security with financially strong covenants and a weighted average unexpired lease term of over 24 years. 58% of our rent roll is guaranteed by Ramsay Health Care Limited, listed on the Australian Stock Exchange with a market capitalisation of GBP5.6 billion and one of the five largest private hospital groups in the world. A further 39% of rents are guaranteed by Merlin Entertainments Plc, a FTSE 100 constituent with a market capitalisation of GBP3.8 billion, the largest operator of visitor attractions in Europe and the second largest in the world. The remainder of our rent roll is guaranteed by Orpea SA, the European leader in dependency care, listed on Euronext Paris with a market capitalisation of GBP3.1 billion.
As important as the security of income is its potential to grow. Two thirds of our rent roll is subject to annual fixed uplifts (ranging from 2.75% to 3.34%) and the remaining third is subject to annual RPI upward only reviews. This combination of long and safe income duration with rising rents is not only well sought after in the current market but proved highly resilient in difficult economic circumstances, with the portfolio showing an unlevered total return some 6.5% per annum higher than the IPD UK Quarterly Index during its period of private ownership from purchase in mid-2007 to listing in 2014. Such resilience is a comfort at a time of increased economic uncertainty.
Outlook
We have seen elevated levels of stock market volatility in recent weeks with the FTSE 100 now down 7% over the last two years. Fixed interest investments have fared better overall but offer meagre levels of income return with yields ranging from 0.6% in Germany to 2.2% in the US for government bonds of 10 year maturity. Those seeking inflation protection need to pay heavily with index linked gilts yielding minus 0.8%. At such historically low levels of yields, bonds are particularly vulnerable to falls in value should interest rates normalise, QE programmes unwind or investors take fright at the growing level of government indebtedness. In the meantime, UK interest rates have sat for more than six years at their lowest ever level since the Bank of England's inception in 1694.
This presents a challenging environment for investors with a shortage of investment opportunities able to provide a reasonable level of secure and growing income combined with a good prospect of capital preservation. However, the Group's portfolio provides exactly this and, following the asset sales and the refinancing, the Group is now in a strong position to commence distributions next autumn and the Board views the future with confidence.
Martin Moore
Chairman
29 September 2015
Investment Adviser's Report
Prestbury Investments LLP is the investment adviser to Secure Income REIT Plc and is pleased to report on the operations of the Group for the six months ended 30 June 2015.
Given the significance of the asset sales and refinancing completed after the period end, we have addressed these matters first before turning to a review of the underlying portfolio.
Pro forma adjustments for Madame Tussauds sale and new financing
Since 30 June 2015, the sale of Madame Tussauds London has completed and the Group's entire debt portfolio has been refinanced with three new long term, fixed rate, non-recourse facilities.
The sale of Madame Tussauds exchanged unconditionally prior to the balance sheet date so the results for the six months ended 30 June 2015 include the profit realised on sale of GBP20.8 million over the 31 December 2014 book value. The GBP332.4 million sale consideration, which was received on 25 August 2015, is shown on the balance sheet as a receivable.
As the new financing arrangements and the completion of the sale of Madame Tussauds, together with the associated debt repayment and interest rate swap termination, occurred after the balance sheet date, these transactions cannot be reflected in the results for the six months ended 30 June 2015. As they are material transactions, however, we have shown below the relevant adjustments to present a pro forma EPRA NAV in order to provide a better understanding of the current financial position of the Group.
Completion Completed Committed
of Madame financing financing Pro forma
30 June Tussauds and debt and debt 30 June 31 December
2015 sale repayment repayment 2015 2014
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----------- ---------- ---------- ---------- --------- -----------
Investment properties 1,346.9 - - - 1,346.9 1,625.4
Madame Tussauds
sale proceeds receivable 332.4 (332.4) - - - -
Free cash 10.3 330.4 (284.1) (8.1) 48.5 13.5
Secured cash 25.7 - - - 25.7 25.3
Secured liabilities (1,108.9) - 220.0 (13.7) (902.6) (1,157.3)
Other net liabilities (36.3) 2.0 8.5 4.9 (22.1) (40.7)
--------------------------- ----------- ---------- ---------- ---------- --------- -----------
EPRA NAV 570.1 - (55.6) (18.1) 496.4 466.2
--------------------------- ----------- ---------- ---------- ---------- --------- -----------
EPRA NAV per share 316.1p 275.3p 258.5p
Net LTV 64% 62% 70%
-------------------- ------ ------ ------
The adjustment for the sale of Madame Tussauds reflects receipt of the cash consideration and payment of the costs of sale. The net proceeds received were applied in part to debt repayment and associated interest rate swap breakage costs which are reflected within the "completed financing and debt repayment" adjustment.
The new financing arrangements comprise three separate ring-fenced facilities in order to provide a spread of risk and to achieve improved financing terms. The "completed financing and debt repayment" adjustment includes the completion of the two new secured loans announced on 9 September 2015. The "committed financing and debt repayment" represents a secured loan entered into on 25 September 2015, which is expected to be drawn on 2 October 2015 subject to satisfaction of customary drawdown conditions. The impact of these transactions on the Group includes:
-- weighted average cost of debt reduced from 6.8% to 5.2% per annum; -- weighted average term to maturity increased from under two years to nine years; -- term to first debt expiry increased from under two years to seven years; and
-- while there remains some scheduled amortisation there are no full cash sweeps, freeing up cash flow to service distributions
As noted in the Chairman's Statement in the Group's results announcement on 12 March 2015, any acceleration of repayment of the loan facilities previously in place results in costs arising from the early debt repayment, including on termination of the relevant interest rate swaps. The sales of New Hall hospital and Madame Tussauds between them resulted in the early repayment of GBP252.8 million of debt and GBP22.2 million of swap termination costs. The three new loan facilities will result in the repayment of the balance of GBP897.3 million of the existing facilities and the payment of swap break and other loan costs expected to amount to GBP80.5 million. This includes an estimated GBP22.3 million of break costs that will not crystallise until the last of the three facilities is drawn, which is expected to be on 2 October 2015. However, prior to embarking on the early debt repayments, the Board first sought agreement with the previous lender, Bank of Scotland Plc, to share the early termination costs, mindful of the benefits to the lender of early repayment. Consequently, the early termination costs have been reduced by a total of GBP27.5 million to a net GBP75.2 million.
The net early termination costs will be reported within the Group's financing costs for the year ended 31 December 2015. As the balance sheet already records interest rate derivatives at their market values, there is a minimal impact on the reported net asset value as a result of the swap terminations, but the Group's EPRA NAV is reduced by GBP77.4 million or 43 pence per share, being those early termination costs net of deferred tax and other finance fees written off.
The early repayment of debt and its replacement with lower cost, longer term financing has transformed the Group's overall cost of debt, saving an estimated GBP14.0 million in annual interest costs on the GBP902.6 million of debt in place under the new financing arrangements.
(MORE TO FOLLOW) Dow Jones Newswires
September 29, 2015 02:01 ET (06:01 GMT)
Each new facility is self-contained, with no cross default provisions between them, and the key terms are as follows:
Healthcare Healthcare
1 2 Leisure
---------------------------------- ---------- ---------- -------------
Loan principal GBP220.0m GBP315.6m GBP367.0m*
Number of assets securing loan 9 11 6
Fair value of secured properties
at 30 June valuations GBP372.0m GBP462.5m GBP512.4m
Gross LTV at drawdown 59.1% 68.2% 71.6%
Fixed interest rate 4.29% 5.30% 5.72%
September September
First LTV test 2019 2016 July 2018
Amortisation per annum assuming GBP1.0m GBP3.2m GBP3.7m
full covenant compliance (years 6 and
7)
September September
Final repayment date 2025 2025 October 2022
---------------------------------- ---------- ---------- -------------
* comprising a GBP316.8 million sterling loan secured on the UK assets and a EUR71.8 million Euro denominated loan secured on the German assets (translated at the actual rate of GBP1: EUR0.6992 at the date of drawdown) with the two loans cross-collateralised.
Each facility has been designed so that if the breach of any financial covenant could result in a default or cash trap, there are currently appropriate levels of headroom over those covenants. Cure rights, including the injection of cash or acceptable property assets into the borrowing structure, also exist to allow remedial action to be taken if possible.
The loans are subject to minimum interest cover levels. The extent to which financial covenants are tested varies across the portfolios, with the aim of protecting the Group as far as possible from movements in investment property valuations which are not related to changes in the rental cash flows. By value 35% of the Group's new GBP902.6 million debt is subject to annual LTV tests, with a further 24% not tested for LTV until September 2019 and the remaining 41% not subject to any LTV default covenant throughout the loan term. There are, however, LTV levels which would trigger a cash trap in 76% of the loans by value.
The portfolio
The portfolio comprises 26 properties with secure, long term income and contractual uplifts derived from tenants whose businesses offer global spread and have performed very well over many years, demonstrating their strong defensive qualities.
Healthcare assets (62% of portfolio value)
The healthcare assets comprise 20 freehold private hospitals located throughout England, 19 of which are let to a subsidiary of Ramsay Health Care Limited, the listed Australian healthcare company, and the other to a subsidiary of Groupe Sinoue, a French company specialising in mental health. The hospitals let to Ramsay comprise 96% of the healthcare assets' passing rent and 95% of their fair value.
The Ramsay hospitals are let on full repairing and insuring leases with a term to expiry at 30 June 2015 of 21.9 years without break. The rent increases by a fixed 2.75% per annum throughout the lease term in May each year, except in 2017 when it is increased to the higher of a 2.75% uplift and 57.525% of site earnings before interest, tax, depreciation, amortisation, rent and head office costs, and every fifth year thereafter when it is increased to the higher of a 2.75% uplift and open market value. The rent from the Ramsay hospitals is currently GBP44.4 million per annum.
The leases on the Ramsay hospitals are all guaranteed by Ramsay Health Care Limited, Australia's largest hospital operator, one of the top five private hospital operators in the world and a constituent of the ASX 50 index of Australia's largest companies, with a market capitalisation at 25 September 2015 of GBP5.6 billion.
The tenant's rental obligations with regard to the central London psychiatric hospital in Lisson Grove are guaranteed by Orpea SA, the parent company of the Orpea Group, a leading European operator of nursing homes, post-acute care and psychiatric care, listed on Euronext Paris with a market capitalisation at 25 September 2015 of GBP3.1 billion. Orpea owns 45% of Group Sinoue.
With a current rent of GBP1.9 million per annum, the Lisson Grove hospital accounts for 2% of the Group's passing rent, and represents 3% of the gross property assets. The rent increases in May each year by 3%. A reversionary lease will take effect on expiry of the existing lease in May 2037 and extend the term by a further seven years, with fixed rental increases of 3% per annum throughout this extended term.
Total healthcare passing rent is currently GBP46.3 million per annum and will rise to GBP47.6 million on 3 May 2016.
Leisure assets (38% of portfolio value)
The leisure assets comprise four well known visitor attractions and two hotels, located in England and Germany. The properties are all let to subsidiaries of Merlin Entertainments Plc, the guarantor of the leases. Merlin is a FTSE 100 company with a market capitalisation at 25 September 2015 of GBP3.8 billion. Measured by the number of visitors, it is Europe's largest and the world's second largest operator of leisure attractions.
The UK leisure assets are:
-- Alton Towers theme park and the Alton Towers hotel -- Thorpe Park theme park -- Warwick Castle
In addition the leisure portfolio includes two German assets: Heide Park theme park and the Heide Park hotel, both located in Soltau, Saxony. The German assets, which generate Euro denominated rents, make up 15% of the leisure portfolio passing rent and 6% of the total Group rent.
Across the leisure portfolio the visitor attractions account for 83% of the passing rent and fair value, with hotels making up the balance.
The average unexpired lease term of the leisure assets as at 30 June 2015 is 27.0 years and the tenants have the right to renew these leases for 35 years at the end of the current and next term. The leases are full repairing and insuring leases and there are no break options. There are upwards only uncapped RPI-linked rent reviews every June throughout the term for the UK leisure portfolio and fixed annual increases of 3.34% every July throughout the term for the German properties. The 2015 rent reviews resulted in an increase of 0.9% in the RPI-linked rents of the UK leisure assets, meaning the total rent as at 30 June 2015 was GBP29.7 million per annum including GBP4.6 million of Euro denominated German rents (translated at the 30 June 2015 rate of GBP1: EUR0.7083), which increased to GBP4.7 million in July 2015. The next UK rent reviews will be on 24 June 2016 and the German rents will rise to GBP4.9 million on 29 July 2016 (translated at the 30 June 2015 rate).
Portfolio valuation yields at 30 June 2015
UK Germany Total
---------------------------------- ---------- ---------- ----------
Healthcare:
Net initial
yield 5.2% n/a 5.2%
Equivalent
yield 6.3% n/a 6.3%
Reversionary
yield 5.4% n/a 5.4%
Leisure:
Net initial
yield 5.4% 6.0% 5.5%
Equivalent
yield 6.3% 7.8% 6.5%
Reversionary
yield 4.5% 6.3% 5.6%
Total portfolio:
Net initial
yield 5.3% 6.0% 5.3%
Equivalent
yield 6.3% 7.8% 6.4%
Reversionary
yield 5.0% 6.3% 5.5%
Weighted average unexpired lease
term 23.9 years 27.1 years 24.1 years
------------------------------------- ---------- ---------- ----------
Portfolio valuation by location
Healthcare Leisure Total
-------------------- -------------------- ------------------------------------
30 June 31 December 30 June 31 December 30 June 31 December Fair value
2015 2014* 2015 2014* 2015 2014* change over
GBPm GBPm GBPm GBPm GBPm GBPm six months
---------------- ------- ----------- ------- ----------- --------- ----------- ------------
UK 834.4 767.0 441.6 431.0 1,276.0 1,198.0 6.5%
Germany at
constant Euro
exchange rate - - 77.4 72.1 77.4 72.1 7.4%
Movement in
Euro exchange
rate - - (6.5) n/a (6.5) n/a (9.0)%
---------------- ------- ----------- ------- ----------- --------- ----------- ------------
834.4 767.0 512.5 503.1 1,346.9 1,270.1 6.0%
---------------- ------- ----------- ------- ----------- --------- ----------- ------------
* adjusted for sales in the period to exclude sold assets from comparative figures.
(MORE TO FOLLOW) Dow Jones Newswires
September 29, 2015 02:01 ET (06:01 GMT)
Portfolio valuation uplift in the period
Percentage
change in
GBPm the period
------------------------------------------------ ------ -------------
Healthcare assets 67.5 8.8%
UK leisure assets 10.5 2.4%
German leisure assets at constant Euro exchange
rate 5.3 7.4%
Movement in Euro exchange rate (6.5) (9.0)%
------------------------------------------------ ------ -------------
76.8 6.0%
------------------------------------------------ ------ -------------
The healthcare valuation yields include the effect of the fixed rental uplifts in May 2015 and reflect a weighted average net initial yield of 5.2% compared to 5.5% at 31 December 2014.
The UK leisure valuation yields include the effect of the 0.9% RPI linked rental uplifts in June 2015 and reflect a weighted average net initial yield of 5.4% compared to 5.5% at 31 December 2014.
The German leisure valuation yields include the effect of the fixed rental uplifts in July 2015 in the weighted average net initial yield, which was 6.0% at 30 June 2015 compared to 6.5% at 31 December 2014, but reduces to 6.3% once the impact of the fixed rental uplift which took effect in July is taken into account. Adverse currency translation movements in the period to 30 June 2015, reflecting the strength of Sterling against the Euro, have more than offset the resulting uplift in the German assets.
Property sales in the period
Ramsay's New Hall Hospital in Salisbury was sold in March 2015 for GBP49.8 million, which represented a net initial yield of 5.3% and a sale price GBP3.8 million (8.3%) above its 31 December 2014 valuation. The sale completed in May 2015 and the net proceeds of GBP48.8 million were used in part repayment of secured bank loans and hedging break costs. The impact of this sale and the associated debt repayment is fully reflected in the results and balance sheet reported in these financial statements.
Madame Tussauds London was sold in May 2015 for GBP332.4 million, which represented a net initial yield of 4.5% and a sale price GBP23.0 million (7.4%) above its 31 December 2014 valuation. The sale completed in August 2015, with the net cash proceeds applied in partial repayment of the secured bank debt, with surplus cash adding to the Group's cash resources. The profit on disposal is reflected in the income statement in these financial statements, while the completion of the sale and associated debt repayment is included in the pro forma adjustments shown at the start of this report.
Financial review
EPRA NAV per share
The principal financial outcome that the Board seeks to achieve is attractive growth in shareholder returns. Progress towards this objective is specifically measured through growth in EPRA NAV plus any distributions paid. EPRA NAV is a measure of the fair value of a property company on a long term basis, ignoring the impact of hedging valuations and any deferred tax.
The refinancing, which became fully committed on 25 September 2015, has had a material and positive effect on the Group's capital structure and a transformational effect on its cash flows. As reported in the Chairman's Statement, the various new loan agreements were entered into after the balance sheet date, and it is therefore not permitted to reflect the impact of the refinancing in the financial statements themselves. However, so as to present a more up to date representation of the financial position of the Group, we focus in this Investment Adviser's report on pro forma results and net assets, adjusted for the impact of the refinancing and completion of the sale of Madame Tussauds, details of which are more fully explained at the start of the report.
The pro forma EPRA NAV is 275.3 pence per share, which represents a 6.5% increase since 31 December 2014.
Pence per
GBPm share
----------------------------------------------------- --------- --------------
EPRA NAV at 1 January 2015 466.2 258.5
Investment property revaluation 76.6 42.4
Profit on sale of investment properties 24.0 13.3
Rental income less finance and administrative costs 9.1 5.1
Costs of early repayment of debt facilities on
sale of New Hall (3.7) (2.0)
Currency translation movements (1.9) (1.1)
Tax (0.2) (0.1)
------------------------------------------------------- --------- --------------
EPRA NAV at 30 June 2015 570.1 316.1
Costs of early repayment of debt facilities on
sale of Madame Tussauds and refinancing (73.7) (40.8)
Pro forma EPRA NAV 496.4 275.3
------------------------------------------------------- --------- --------------
Adjusted EPRA earnings per share
In order to monitor the Group's recurring profitability and its ability to make distributions, the Board uses the Group's adjusted EPRA earnings per share ("EPRA EPS") as a key performance indicator. EPRA EPS excludes investment property revaluations, fair value movements and early termination costs in interest rate derivatives, and the relevant deferred tax to give a measure of underlying earnings from core operating activities.
An adjusted EPRA EPS is also presented, excluding any performance fee as that is largely derived from investment property revaluations, and non-recurring costs including the reorganisation and listing costs incurred in 2014, as the Board believes this enables a more consistent comparison of underlying recurring earnings.
Six months to Nine months to
30 June 2015 31 December 2014
------------------------- -------------------------
Pence per Pence per
GBPm share GBPm share
--------------------------------------- --------- -------------- --------- --------------
Rental income net of property
outgoings 52.8 30.5 80.9 48.7
Net finance costs (42.6) (24.6) (66.3) (39.9)
Performance fee - - (35.2) (21.1)
Administrative expenses and corporate
costs (4.0) (2.3) (6.6) (4.0)
Tax (0.2) (0.1) (1.2) (0.7)
Unwinding discount on shareholder
loans net of deferred tax - - 1.4 0.8
--------------------------------------- --------- -------------- --------- --------------
EPRA EPS 6.0 3.4 (27.0) (16.2)
Performance fee - - 35.2 21.1
One-off costs of reorganisation
and listing - - 2.9 1.8
--------------------------------------- --------- -------------- --------- --------------
Adjusted EPRA EPS 6.0 3.4 11.1 6.7
--------------------------------------- --------- -------------- --------- --------------
The net finance costs for the period to 30 June 2015 reflect the debt structure in place prior to the new financing arrangements which were committed in August and September 2015. The impact of the refinancing includes a reduction in the weighted average cost of debt from 6.8% per annum to 5.2% per annum. The annualised reduction in the net finance costs of the Group from the GBP902.6 million of debt in place following drawing of all the new facilities would be GBP14.0 million, adding 7.7 pence per share in adjusted EPRA EPS. This would, however, be partially offset by a reduction in net contribution (rental income less interest, also on an annualised basis) from the sold properties of GBP0.9 million or 0.5 pence per share.
Income statement
The rental income profile and the credit strengths of the businesses paying the rent are disclosed in the Portfolio section of this report, along with details of the investment property revaluations and the profit on sale of investment properties.
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Rental income includes accounting adjustments for the "smoothing" of rents arising from fixed uplifts so as to record the income arising on a straight line basis. The impact of this accounting treatment is to reflect a receivable, included in the book value of investment properties, for the amount of rent included in the income statement in advance of actual cash receipts. This receivable increases over the first half of each lease term then unwinds, reducing to zero over the second half of each lease term. The impact over time for each of the rental income flows subject to smoothing is as follows:
Maximum
-----------------
Receivable receivable Midway
-----------------
at 30 June at midway point
2015 point in lease
GBPm GBPm term
----------------- ------------ ------------ -------------
Healthcare 128.7 172.8 May 2022
German leisure* 25.0 37.8 Jan 2025
----------------- ------------ ------------ -------------
Total 153.7 210.6
----------------- ------------ ------------ -------------
* at the period end Euro conversion rate of GBP1 : EUR0.7083
So that the rent smoothing receivable does not, in combination with the book value of the investment properties, overstate the value of the property portfolio, any movement in the rent smoothing receivable is offset against property revaluation movements. As a result, this adjustment affects only the income statement presentation and does not change the Group's net assets. The amount of rent receivable included in the income statement for the period in advance of cash receipt as a result of this adjustment amounted to GBP6.8 million or 3.7 pence per share.
Administrative expenses charged to the income statement for the period comprise advisory fees of GBP3.3 million, other administrative expenses of GBP0.4 million and corporate costs of GBP0.3 million.
Advisory fees are payable to the Investment Adviser under an agreement entered into prior to listing by which it is entitled to receive cash fees based on a sliding scale relative to the Group's EPRA NAV, payable at 1.25% per annum on EPRA NAV up to GBP500 million, 1.0% per annum on EPRA NAV from GBP500 million to GBP1,000 million and 0.75% thereafter. Until July 2016, cash required to satisfy this advisory fee is recovered from the pre-listing shareholders of the Company up to a maximum of GBP5.3 million per annum. During the period the GBP2.5 million cash required to fund advisory fee payments was met by those shareholders.
Corporate costs are those costs necessarily incurred as a result of the Company being listed and comprise:
-- the cost of the board of seven Directors, four of whom received fees totalling GBP0.1 million in the period. The other three Directors are partners in the Investment Adviser and receive no remuneration from the Company; and
-- other costs of being listed, including broker/nominated adviser fees and registrar fees, which amounted to GBP0.2 million in the period.
Tax
The Group operates under the UK REIT regime, so its UK rental operations are exempt from UK corporation tax, subject to the Group's continuing compliance with the UK REIT rules. The Group is otherwise subject to UK corporation tax.
In the event that a UK REIT has financing costs arising on its UK rental business that are not covered at least 1.25 times by profits, tax is payable at the UK corporation tax rate on the interest over that level, up to a cap of 20% of taxable profit. In the period the Group incurred a current tax charge of GBP0.3 million on such excess interest. The drawdown of all of the new financing facilities is expected to result in this interest cover test being met from the date of closing the last of the three new loan agreements, so this tax cost is expected to reduce to zero from the 2016 financial year.
Realised profits from the Group's German rental operations are taxable in Germany, in respect of which a tax credit of GBP0.1 million arose in the period following the conclusion of a tax audit relating to the years between 2007 and 2012. This will result in a net repayment of tax to the Group totalling GBP0.2 million, of which GBP0.1 million had been received by 30 June 2015.
As the Group's German operations are subject to tax, the results include a deferred tax liability of GBP5.4 million relating to unrealised German capital gains tax on the investment properties and a deferred tax asset of GBP0.5 million relating to the Group's Euro interest rate swaps. Following the refinancing of the Euro loan facility and the termination of the relevant swaps after the balance sheet date, this deferred tax asset has been written off and is therefore adjusted in calculating the pro forma EPRA NAV.
Cash flow
The movement in cash over the period comprises:
Six months to Nine months to
30 June 2015 31 December 2014
---------------------- -------------------
Pence per Pence per
GBPm share GBPm share
-------------------------------------- ----------- --------- ------- ----------
Cash from operating activities 39.3 21.6 66.1 39.2
Sale of investment property 49.0 27.2 - -
Net interest and finance costs
paid (45.4) (25.2) (60.9) (36.8)
Repayment of secured debt - proceeds
of sale of investment property (44.7) (24.8) - -
Repayment of secured debt - loan
amortisation (3.3) (1.9) (6.1) (3.7)
Amounts received in respect of
advisory fee recovery 2.5 1.4 2.2 1.3
Proceeds of the share issue on
listing net of expenses - - 11.9 7.0
Cash flow in the period (2.6) (1.7) 13.2 7.0
Cash at the start of the period 38.8 23.0 25.4 15.9
Effect of exchange rate movements (0.2) (0.1) 0.2 0.1
Dilution from share issues - (1.5) - -
-------------------------------------- ----------- --------- ------- ----------
Cash at 30 June 2015 36.0 19.7 38.8 23.0
-------------------------------------- ----------- --------- ------- ----------
Pence per Pence per
Comprising: GBPm share GBPm share
-------------------------------------- ----------- --------- ------- ----------
Free cash 10.3 5.4 13.0 7.7
Cash reserved for regulatory capital 0.5 0.2 0.5 0.3
Cash secured under lending facilities 25.2 14.1 25.3 15.0
-------------------------------------- ----------- --------- ------- ----------
36.0 19.7 38.8 23.0
-------------------------------------- ----------- --------- ------- ----------
All investment properties are let on full repairing and insuring terms, with each tenant obliged to keep the premises in good and substantial repair and condition, including rebuilding, reinstating, renewing or replacing the premises where necessary. Consequently it is not expected that material capital expenditure will be required for the current portfolio.
Secured cash is held in bank accounts under the control of the lenders. Free cash held within the secured portfolio structures is available to be applied for general corporate purposes for as long as there is no default under the relevant loan agreement. Free cash held outside the secured portfolio structures would not be at risk in the event of any default and amounted to GBP10.3 million at 30 June 2015 and GBP48.5 million on a pro forma basis adjusted for the completion of the Madame Tussauds sale and the new financing arrangements.
Nick Leslau
Chairman, Prestbury Investments LLP
29 September 2015
Group Income Statement
Unaudited Audited
six months nine months Unaudited
to to three months
30 June 31 December to 30 June
2015 2014 2014
Notes GBP000 GBP000 GBP000
-------------------------------- ----- ------------ ------------- --------------
Gross rental income 52,886 80,946 26,732
Property outgoings (24) (19) (8)
-------------------------------- ----- ------------ ------------- --------------
Gross profit 52,862 80,927 26,724
-------------------------------- ----- ------------ ------------- --------------
Administrative expenses (3,766) (38,568) (1,412)
Corporate costs (272) (294) (37)
Costs of the reorganisation
and listing - (2,888) (2,957)
-------------------------------- ----- ------------ ------------- --------------
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Total administrative expenses (4,038) (41,750) (4,406)
Investment property revaluation 8 76,551 160,608 12,627
Profit on sale of investment
properties 5 23,967 - -
-------------------------------- ----- ------------ ------------- --------------
Operating profit 149,342 199,785 34,945
Finance income 24 36 9
Finance costs 4 (46,251) (66,366) (22,808)
-------------------------------- ----- ------------ ------------- --------------
Profit before tax 103,115 133,455 12,146
Tax (charge) / credit 6 (1,196) 114,291 116,319
-------------------------------- ----- ------------ ------------- --------------
Profit for the period 101,919 247,746 128,465
-------------------------------- ----- ------------ ------------- --------------
Pence Pence per Pence per
Earnings per share per share share share
-------------------------------- ----- ------------ ------------- --------------
Basic 7 58.7 149.7 80.0
Diluted 7 56.5 139.7 80.0
-------------------------------- ----- ------------ ------------- --------------
All amounts relate to continuing activities.
The notes form part of this interim report.
Group Statement of Other Comprehensive Income
Unaudited Audited
six months nine months Unaudited
to to three months
30 June 31 December to 30 June
2015 2014 2014
Notes GBP000 GBP000 GBP000
--------------------------------- ----- ------------ ------------- --------------
Profit for the period 101,919 247,746 128,465
Items that may subsequently
be reclassified to profit
or loss:
Fair value adjustment of
interest rate derivatives
in effective hedges 24,823 21,837 19,310
Reclassification of fair
value adjustment to the income
statement 3,627 - -
Deferred tax on interest
rate derivative valuation
adjustment 11 (161) (26,918) (26,809)
Currency translation differences (1,433) (370) (240)
--------------------------------- ----- ------------ ------------- --------------
Total comprehensive income
for the period, net of tax 128,775 242,295 120,726
--------------------------------- ----- ------------ ------------- --------------
The notes form part of this interim report.
Group Statement of Changes in Equity
Share Capital Cash flow
Share premium Merger contribution Other hedging Retained
capital reserve reserve reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Period ended 30 June 2015 (unaudited)
At 1 January 2015 16,844 16,156 - - 33,929 (119,201) 396,577 344,305
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Profit for the
period - - - - - - 101,919 101,919
Other comprehensive
income - - - - (1,433) 28,289 - 26,856
Total comprehensive
income, net of tax - - - - (1,433) 28,289 101,919 128,775
Issue of shares 1,190 33,579 - - (32,378) - - 2,391
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
At 30 June 2015 18,034 49,735 - - 118 (90,912) 498,496 475,471
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Period ended 31 December 2014 (audited)
At 1 April 2014 - - - 23,530 1,921 (114,120) 17,387 (71,282)
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Profit for the
period - - - - - - 247,746 247,746
Other comprehensive
income - - - - (370) (5,081) - (5,451)
Total comprehensive
income, net of tax - - - - (370) (5,081) 247,746 242,295
Issue of shares on
capitalisation of
shareholder loans 7,791 70,123 - (17,492) - - - 60,422
Issue of shares on
acquisition of the
Healthcare group 8,191 - 73,718 (18,435) - - - 63,474
Capital reduction
and cancellation - (70,123) (73,718) - - - 143,841 -
Reclassification
on capitalisation
of shareholder
loans - - - 12,397 - - (12,397) -
Issue of shares net
of capitalised
expenses 862 16,156 - - - - - 17,018
Shares to be issued - - - - 32,378 - - 32,378
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
At 31 December 2014 16,844 16,156 - - 33,929 (119,201) 396,577 344,305
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Period ended 30 June 2014 (unaudited)
At 1 April 2014 - - - 23,530 1,921 (114,120) 17,387 (71,282)
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
Profit for the
period - - - - - - 128,465 128,465
Other comprehensive
income - - - - (240) (7,499) - (7,739)
Total comprehensive
income, net of tax - - - - (240) (7,499) 128,465 120,726
Issue of shares on
capitalisation of
shareholder loans 7,791 70,123 - (17,492) - - - 60,422
Issue of shares on
acquisition of the
Healthcare group 8,191 - 73,718 (18,435) - - - 63,474
Capital reduction
and cancellation - (70,123) (73,718) - - - 143,841 -
Reclassification
on capitalisation
of shareholder
loans - - - 12,397 - - (12,397) -
Issue of shares net
of capitalised
expenses 862 13,928 - - - - - 14,790
Shares to be issued - - - - 1,073 - - 1,073
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
At 30 June 2014 16,844 13,928 - - 2,754 (121,619) 277,296 189,203
-------------------- -------- ---------- ---------- ------------- ---------- ----------- ----------- ---------
The notes form part of this interim report.
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Group Balance Sheet
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
Notes GBP000 GBP000 GBP000
----------------------------- ----- ------------- ------------- -------------
Non-current assets
Investment properties 8 1,346,867 1,625,435 1,471,775
Deferred tax asset 11 467 627 735
----------------------------- ----- ------------- ------------- -------------
1,347,334 1,626,062 1,472,510
Current assets
Trade and other receivables 9 152 103 57
Investment property sale
proceeds receivable 5 332,361 - -
Current tax asset 275 401 44
Cash and cash equivalents 10 36,043 38,771 39,510
----------------------------- ----- ------------- ------------- -------------
368,831 39,275 39,611
----------------------------- ----- ------------- ------------- -------------
Total assets 1,716,165 1,665,337 1,512,121
----------------------------- ----- ------------- ------------- -------------
Current liabilities
Trade and other payables 12 (39,310) (41,035) (40,110)
Bank borrowings 13 (213,246) (4,908) (4,908)
Interest rate derivatives 14 (18,501) - -
Current tax payable (328) (166) (221)
----------------------------- ----- ------------- ------------- -------------
(271,385) (46,109) (45,239)
Non-current liabilities
Bank borrowings 13 (892,732) (1,152,407) (1,154,761)
Interest rate derivatives 14 (71,170) (117,578) (119,631)
Deferred tax liability 11 (5,407) (4,938) (3,287)
----------------------------- ----- ------------- ------------- -------------
(969,309) (1,274,923) (1,277,679)
Total liabilities (1,240,694) (1,321,032) (1,322,918)
----------------------------- ----- ------------- ------------- -------------
Net assets 475,471 344,305 189,203
----------------------------- ----- ------------- ------------- -------------
Share capital 15 18,034 16,844 16,844
Share premium reserve 16 49,735 16,156 13,928
Retained earnings 16 498,496 396,577 277,296
Cash flow hedging reserve 16 (90,912) (119,201) (121,619)
Other reserve 16 118 33,929 2,754
----------------------------- ----- ------------- ------------- -------------
Total equity 475,471 344,305 189,203
----------------------------- ----- ------------- ------------- -------------
Pence per Pence per Pence per
share share share
----------------------------- ----- ------------- ------------- -------------
Adjusted basic NAV per share 17 263.7 204.4 112.3
Diluted NAV per share 17 263.7 190.9 112.1
EPRA NAV per share 17 316.1 258.5 184.5
----------------------------- ----- ------------- ------------- -------------
The notes form part of this interim report.
Group Cash Flow Statement
Unaudited Audited
six months nine months Unaudited
to to three months
30 June 31 December to 30 June
2015 2014 2014
Notes GBP000 GBP000 GBP000
---------------------------------- ----- ------------ ------------- --------------
Cash flows from operating
activities
Profit before tax 103,115 133,455 12,146
Adjustments for non-cash
items:
Investment property revaluation 8 (76,551) (160,608) (12,627)
Profit on sale of investment
properties 5 (23,967) - -
Movement in rent smoothing
adjustment 8 (6,756) (11,287) (3,855)
Administrative expenses settled
in shares 18 - 32,378 816
Finance income (24) (36) (9)
Finance costs 4 46,251 66,366 22,808
---------------------------------- ----- ------------ ------------- --------------
Cash flows from operating
activities before changes
in working capital 42,068 60,268 19,279
Changes in working capital:
Trade and other receivables (2,510) (194) (26)
Trade and other payables (143) 6,770 2,468
---------------------------------- ----- ------------ ------------- --------------
Cash generated from operations 39,415 66,844 21,721
German tax received / (paid) 7 (743) (83)
---------------------------------- ----- ------------ ------------- --------------
Cash flows from operating
activities 39,422 66,101 21,638
---------------------------------- ----- ------------ ------------- --------------
Investing activities
Proceeds from sale of investment
property 48,994 - -
Interest received 24 36 9
---------------------------------- ----- ------------ ------------- --------------
Cash flows from interest
received 49,018 36 9
---------------------------------- ----- ------------ ------------- --------------
Financing activities
Repayment of secured debt (48,082) (6,166) (2,942)
Interest and finance costs
paid (45,432) (60,882) (19,558)
Net proceeds of share issues 2,526 14,131 14,790
---------------------------------- ----- ------------ ------------- --------------
Cash flows from financing
activities (90,988) (52,917) (7,453)
---------------------------------- ----- ------------ ------------- --------------
(Decrease) / increase in
cash and cash equivalents (2,548) 13,220 14,194
Cash and cash equivalents
at the beginning of the period 38,771 25,367 25,367
Effect of currency translation
movements (180) 184 (51)
---------------------------------- ----- ------------ ------------- --------------
Cash and cash equivalents
at the end of the period 36,043 38,771 39,510
---------------------------------- ----- ------------ ------------- --------------
The notes form part of this interim report.
Notes to the Interim Report
1. General information about the Group
The financial information set out in this report covers the six month period to 30 June 2015, with comparative amounts relating to the nine month period to 31 December 2014 and the three month period to 30 June 2014, and includes the results and net assets of the Company and its subsidiaries, together referred to as the Group.
The Company is incorporated in the United Kingdom. The address of the registered office and principal place of business is Cavendish House, 18 Cavendish Square, London, W1G 0PJ.
The Company was listed on AIM on 5 June 2014. Further information about the Group can be found on its website, www.SecureIncomeREIT.co.uk.
2. Basis of preparation and accounting policies
Prior to 21 May 2014, the Company and SIR Hospital Holdings Limited (the holding company of the Group that owns the healthcare assets) were entities under common control but did not form a single legal group. On 21 May 2014, by virtue of a reorganisation, the groups headed by these two companies became a legal group headed by the Company. This reorganisation was deemed to be a "combination under common control" and as a result is outside the scope of IFRS 3 "Business Combinations". As such it was considered appropriate that the principles of merger accounting, as set out under UK GAAP, were used to account for the reorganisation and these entities are treated as if they had always been part of a single group. No fair value adjustments were required.
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Accordingly, although these entities did not form a legal group for the whole of the comparative period reported herein, the comparative figures comprise the net assets of all entities as if the subsequently formed legal group had been in existence throughout all of the periods reported on. In particular:
-- earnings per share figures (including diluted, EPRA and adjusted EPRA EPS) have been calculated on the assumption that the capitalisation of shareholder loans which occurred in May 2014 had been in place throughout the whole period from 1 April 2014, with a corresponding effect on earnings and number of shares used in the EPS calculations (see note 7); and
-- NAV per share figures (including adjusted basic, diluted and EPRA NAV) have been calculated on the assumption that the capitalisation of shareholder loans had been in place throughout the whole period from 1 April 2014 with a corresponding effect on the number of shares used in the NAV per share calculations (see note 17).
Except for the above EPS and NAV matters, the financial information contained in this report has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union, and on a going concern basis. The accounting policies adopted in this report are consistent with those applied in the Group's statutory accounts for the period ended 31 December 2014 and are expected to be consistently applied in the year to 31 December 2015.
Euro denominated results for the German assets have been converted to Sterling at an average exchange rate for the period of GBP1: EUR0.7326 and period end balances converted to Sterling at the 30 June 2015 exchange rate of GBP1: EUR0.7083.
The condensed financial statements for the period are unaudited and do not constitute statutory accounts for the purposes of the Companies Act 2006. The annual report and financial statements for 2014 have been filed with Companies House. The independent auditor's report on the annual report and financial statements for 2014 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under sections 498 (2) or 498 (3) of the Companies Act 2006.
The Group's financial performance is not subject to material seasonal fluctuations.
3. Operating segments
IFRS 8 "Operating Segments" requires operating segments to be identified on the basis of internal reports about components of the Group that are reviewed by the chief operating decision maker to make decisions about resources to be allocated between segments and assess their performance. The Group's chief operating decision maker is considered to be the Board as a whole.
The Group owns two property portfolios. Although these are described individually within the Investment Adviser's report, the Board receives quarterly management accounts prepared on a basis which aggregates the performance of the portfolios and focuses on total returns on shareholders' equity. The Board has therefore concluded that the Group has operated in and was managed as one business segment, being property investment, in both the current and prior periods.
The geographical split of revenue and applicable non-current assets required by IFRS 8 was as follows:
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
----------------------- ------------- -------------- ------------
Revenue
UK 49,414 75,251 24,759
Germany 3,472 5,695 1,973
----------------------- ------------- -------------- ------------
52,886 80,946 26,732
----------------------- ------------- -------------- ------------
Investment properties
UK 1,275,997 1,553,365 1,407,179
Germany 70,870 72,071 64,596
----------------------- ------------- -------------- ------------
1,346,867 1,625,435 1,471,775
----------------------- ------------- -------------- ------------
Revenue, which reflects the impact of rent smoothing adjustments, includes GBP28.1 million (nine months to 31 December 2014: GBP42.9 million; three months to 30 June 2014: GBP14.4 million) relating to the Group's largest tenant, and GBP23.6 million (nine months to 31 December 2014: GBP35.8 million; three months to 30 June 2014: GBP11.8 million) relating to the Group's second largest tenant. No other single tenant or guarantor contributed more than 10% of the Group's revenue in any reporting period.
4. Finance costs
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
---------------------------------------- ------------- -------------- ------------
Interest on secured debt 42,624 64,690 21,132
Reclassification of fair value
adjustment of interest rate
derivatives from the cash flow
hedging reserve 3,627 - -
Shareholder loans: unwinding
of discount to date of capitalisation
(non-cash) - 1,676 1,676
---------------------------------------- ------------- -------------- ------------
Total finance costs recognised
in the income statement 46,251 66,366 22,808
---------------------------------------- ------------- -------------- ------------
On issue in 2007, interest free shareholder loans were measured at fair value using imputed interest rates of between 11.2% and 11.7%. The difference between the fair value of the loans on inception and their face values at that date was being unwound over the minimum term of the loans prior to their capitalisation in May 2014.
5. Profit on sale of investment properties
The profit on sale of investment properties arose as follows:
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
------------------------------- ------------- -------------- ------------
Sale proceeds 382,136 - -
Sale costs (2,815) - -
Book value of sold properties (355,354) - -
------------------------------- ------------- -------------- ------------
23,967 - -
------------------------------- ------------- -------------- ------------
As described in note 19, GBP332.4 million of sale proceeds, shown as investment property sale proceeds receivable on the balance sheet, were received after the balance sheet date in August 2015.
6. Tax
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
Analysis of tax charge / (credit)
in the period GBP000 GBP000 GBP000
----------------------------------- ------------- -------------- ------------
UK tax
Current tax charge: UK REIT
excess interest charge 328 665 221
Adjustments in respect of prior
periods 25 - -
German tax
Current tax charge / (credit):
corporation tax 122 (130) 77
Adjustments in respect of prior
periods (227) - -
Deferred tax charge/ (credit)
(see note 11) 948 (114,826) (116,617)
----------------------------------- ------------- -------------- ------------
1,196 (114,291) (116,319)
----------------------------------- ------------- -------------- ------------
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The tax assessed for the period varies from the standard rate of corporation tax in the UK applied to the profit before tax. The differences are explained below:
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
------------------------------------- ------------- -------------- ------------
Profit before tax 103,115 133,455 12,146
------------------------------------- ------------- -------------- ------------
Profit before tax at the standard
rate of corporation tax in the
UK of 20.25% (31 December 2014
and 30 June 2014: 21%) 20,881 28,026 2,551
Effects of:
Investment property revaluation
not taxable (15,922) (34,275) (3,429)
Profit on sale of investment
properties not taxable (4,853) - -
Movement in previously unrecognised
tax losses 2,392 3,231 1,141
Qualifying property rental business
not taxable (1,537) 4,908 (195)
Expenses and financing costs
not deductible 413 - -
UK REIT excess interest charge 328 665 221
Transfer pricing adjustments (305) - -
Adjustments in respect of prior
period (202) - -
German corporation tax charge
/ (credit) 122 (130) 77
Double tax relief (121) (58) (58)
Other items - 12 28
Costs of the reorganisation
and listing not deductible - 606 621
UK deferred tax released on
conversion to UK REIT - (117,276) (117,276)
Tax charge / (credit) for the
period 1,196 (114,291) (116,319)
------------------------------------- ------------- -------------- ------------
The Group elected into the UK REIT regime with effect from 5 June 2014. Subject to continuing compliance with certain rules, the UK REIT rules exempt the profits of the Group's UK property rental business from corporation tax. Gains on the Group's UK properties are also exempt from tax, provided they are not held for trading or sold in the three years after completion of development.
To remain a UK REIT, there are a number of conditions to be met in respect of the Group's principal company, Secure Income REIT Plc, the Group's qualifying activity and the Group's balance of business. Since entering the UK REIT regime the Group has continued to meet these conditions with the exception of one condition where a grace period of three years from entry into the UK REIT regime applies. The relevant rule requires that the company must not be a close company. The Company was a close company when it entered the UK REIT regime, and continues to be so but has until 4 June 2017 to comply. The Board intends, in the course of implementing its investment strategy, to issue new shares or to place sufficient of the existing shares to new investors (or a combination of both) so that the shares of the Company are widely enough held to meet this requirement by 4 June 2017 and hence avoid expulsion from the UK REIT regime at that time.
Furthermore, one of the ongoing REIT tests is an interest cover test requires the profits of the tax exempt business of the Group to be at least 1.25 times its cost of financing. If this condition is not met, the Company remains within the UK REIT regime but is required to pay UK corporation tax on an amount equivalent to the excess interest costs or 20% of the tax exempt business profits if that is less. The Group has not met this test throughout the period, so tax of GBP0.3 million (nine months to 31 December 2014: GBP0.7 million; three months to 30 June 2014: GBP0.2 million) is payable. Following the refinancing described in note 19, the interest cover test is expected to be met and therefore no such tax is expected to be payable commencing from the 2016 financial year.
The Group is subject to German corporation tax on its German property rental business at an effective rate of 21%. During the period, however, a net German tax credit of GBP0.1 million has arisen following the conclusion of a tax audit relating to the years between 2007 and 2012, which is expected to result in a net repayment of tax totalling GBP0.4 million to the Group of which GBP0.3 million had been received by 30 June 2015. In addition, a deferred tax liability is recognised for the German capital gains tax that would potentially be payable on the sale of the relevant investment properties, and a deferred tax asset is recognised against the interest rate derivatives hedging the loan facility secured on those properties (see note 11).
7. Earnings per share
Earnings per share is calculated as profit attributable to ordinary shareholders of the Company for each period divided by the weighted average number of ordinary shares in issue throughout the relevant period.
On 21 May 2014, by virtue of a reorganisation, the Company and SIR Hospital Holdings Limited (the "Combined Companies") became a legal group. Until 20 May 2014, the Combined Companies were entities under common control. It is considered that the use of the actual number of shares of the Combined Companies in issue prior to 21 May 2014 as a denominator in the EPS calculation would not provide meaningful information. Instead, the weighted average number of shares in issue has been determined based on the number of shares that would have been in issue in those comparative periods had the shareholder loans been capitalised on the basis of one share for each GBP1 of shareholder loans at the time they were advanced. The profit attributable to the shareholders of the Combined Companies prior to 20 May 2014 has also been adjusted to remove the impact of the amount included in finance costs in respect of shareholder loans together with the related deferred tax.
Diluted EPS reflects shares to be issued in settlement of any performance fees that arose in the relevant period.
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
-------------------------------------- ------------- -------------- ------------
Profit for the period 101,919 247,746 128,465
Adjusted for:
Unwinding of discount on shareholder
loans (note 4) - 1,676 1,676
Deferred tax included in the
income statement in respect
of the above (note 11) - (335) (335)
-------------------------------------- ------------- -------------- ------------
Adjusted profit for EPS 101,919 249,087 129,806
-------------------------------------- ------------- -------------- ------------
Weighted average number of shares
in issue Number Number Number
-------------------------------------- ------------- -------------- ------------
Basic 173,506,390 166,406,143 162,286,114
Diluted 180,344,216 178,306,575 162,379,544
-------------------------------------- ------------- -------------- ------------
Pence Pence per Pence per
per share share share
------------- ---------- --------- ---------
Basic EPS 58.7 149.7 80.0
Diluted EPS 56.5 139.7 79.9
------------- ---------- --------- ---------
The European Public Real Estate Association ("EPRA") publishes guidelines for calculating adjusted earnings designed to represent core operational activities. As well as the standard EPRA earnings figure, an adjusted EPRA earnings calculation has also been presented, excluding any performance fee, which is largely derived from investment property revaluations, and the non-recurring costs of the reorganisation and listing. The Directors consider this enables a more consistent comparison of underlying earnings. Since no performance fee has arisen in the period, no adjustment is required as at 30 June 2015.
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
----------------------------------- ------------- -------------- ------------
Basic earnings attributable
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to shareholders 101,919 249,087 129,806
EPRA adjustments:
Investment property revaluation (76,551) (160,608) (12,627)
Profit on sale of investment
properties net of swap break
costs (20,340) - -
UK deferred tax released on
REIT conversion - (117,276) (117,276)
German deferred tax on investment
property revaluations 948 1,823 33
----------------------------------- ------------- -------------- ------------
EPRA earnings 5,976 (26,974) (64)
Other adjustments:
Performance fee - 35,186 -
Costs of the reorganisation
and listing - 2,888 2,957
----------------------------------- ------------- -------------- ------------
Adjusted EPRA earnings 5,976 11,100 2,893
----------------------------------- ------------- -------------- ------------
Pence per Pence per
Pence per share share share
--------------------------- ---------------- --------- ---------
EPRA EPS 3.4 (16.2) -
Diluted EPRA EPS 3.4 (15.1) -
Adjusted EPRA EPS 3.4 6.7 1.8
Adjusted diluted EPRA EPS 3.4 6.2 1.8
--------------------------- ---------------- --------- ---------
8. Investment properties
Unaudited Audited Unaudited
three months
six months to nine months to to
30 June 31 December 30 June
2015 2014 2014
Freehold investment properties GBP000 GBP000 GBP000
--------------------------------------- ------------- -------------- ------------
At the start of the period 1,625,435 1,457,374 1,457,374
Sales during the period (355,354) - -
Revaluation uplift 76,551 160,608 12,627
Movement in rent smoothing adjustment 6,756 11,287 3,855
Currency translation movement (6,521) (3,834) (2,081)
--------------------------------------- ------------- -------------- ------------
At the end of the period 1,346,867 1,625,435 1,471,775
--------------------------------------- ------------- -------------- ------------
The properties were independently valued at GBP1,346.9 million as at 30 June 2015 (31 December 2014: GBP1,625.4 million; 30 June 2014: GBP1,471.8 million) by CBRE Limited, Commercial Real Estate Advisors, in their capacity as external valuers. The valuation was prepared on a fixed fee basis, independent of the portfolio value and was undertaken in accordance with RICS Valuation - Professional Standards January 2014 on the basis of fair value, supported by reference to market evidence of transaction prices for similar properties.
Included within the carrying value of investment properties at 30 June 2015 is GBP153.7 million (31 December 2014: GBP154.4 million; 30 June 2014: GBP146.5 million) in respect of the smoothing of fixed contractual rental uplifts. This balance arises through the Group's accounting policy in respect of leases, which requires the recognition of rental income on a straight line basis over the lease term in certain circumstances, including for the 67% of passing rent which increases by a fixed percentage each year. The difference between rents on a straight line basis and rents actually receivable are included within, but do not increase, the carrying value of investment properties.
All of the investment properties are held as security under fixed charges in respect of secured bank borrowings. The historic cost of the Group's investment properties as at 30 June 2015 was GBP1,053.9 million (31 December 2014 and 30 June 2014: GBP1,315.1 million).
The Board determines the Group's valuation policies and procedures, and is responsible for overseeing the valuations. Valuations are based on information provided from the Group's financial and property reporting systems, such as current rents and the terms and conditions of lease agreements, and assumptions used by the valuer (based on market observation and their professional judgement) in the valuation model.
At each reporting date, certain partners and employees of the Investment Adviser, who have recognised professional qualifications and are experienced in valuing the types of property owned by the Group, initially analyse movements in the property valuations from the prior reporting date. Fair value changes (positive or negative) over a certain threshold are considered. Changes in fair value are also compared to appropriate external sources for reasonableness. Once the Investment Adviser has considered the valuations, the results are discussed with the Group's independent auditors, focusing on properties with unexpected fair value changes and, if applicable, properties undergoing significant refurbishment. The Audit Committee also considers the valuation process as part of its overall responsibilities.
The fair value of the investment property portfolio has been determined using an income capitalisation technique, whereby contracted and market rental values are capitalised with a market capitalisation rate. This technique is consistent with the principles in IFRS 13 and uses significant unobservable inputs, such that the fair value measurement of each property within the portfolio has been classified as level 3 in the fair value hierarchy as defined in IFRS 13. There have been no transfers to or from other levels of the fair value hierarchy during the year.
The key inputs for the level 3 valuations were as follows:
Inputs
----------------------------------
Fair value
Portfolio GBP000 Key unobservable input Range Weighted average
---------------------- ----------- ----------------------- ---------------- ----------------
At 30 June 2015:
Healthcare 834,437 Net initial yield 4.5% - 5.8% 5.2%
Reversionary yield 4.6% - 5.9% 5.4%
Leisure - UK 441,560 Net initial yield 5.2% - 6.1% 5.4%
Reversionary yield 5.3% - 6.2% 5.5%
Future RPI assumption 2.0% 2.0%
Leisure - Germany 70,870 Net initial yield 6.1% 6.1%
Reversionary yield 6.3% 6.3%
---------------------- ----------- ----------------------- ---------------- ----------------
At 31 December 2014:
Healthcare 812,981 Net initial yield 4.4% - 5.8% 5.6%
Reversionary yield 4.5% - 6.0% 5.7%
Leisure - UK 740,383 Net initial yield 4.8% - 6.5% 5.2%
Reversionary yield 4.9% - 6.6% 5.3%
Future RPI assumption 2.2% for 2015, 2.2% for 2015,
3.5% thereafter 3.5% thereafter
Leisure - Germany 72,071 Net initial yield 6.5% 6.5%
Reversionary yield 6.8% 6.8%
---------------------- ----------- ----------------------- ---------------- ----------------
At 30 June 2014:
Healthcare 727,458 Net initial yield 5.3% - 6.5% 6.2%
Reversionary yield 5.4% - 6.7% 6.4%
Leisure - UK 679,721 Net initial yield 5.0% - 7.0% 5.6%
Reversionary yield 5.2% - 7.2% 5.8%
Future RPI assumption 3.1% for 2015, 3.1% for 2015,
3.5% thereafter 3.5% thereafter
Leisure - Germany 64,596 Net initial yield 7.3% 7.3%
Reversionary yield 7.8% 7.8%
---------------------- ----------- ----------------------- ---------------- ----------------
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The principal sensitivity of measurement to variations in the significant unobservable outputs is that decreases in net initial yield, decreases in reversionary yield and increases in RPI will increase the fair value.
9. Trade and other receivables
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
-------------------------------- ---------- ----------- ---------
Prepayments and accrued income 152 103 57
-------------------------------- ---------- ----------- ---------
10. Cash and cash equivalents
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
-------------------- ---------- ----------- ---------
Secured cash 25,207 25,335 25,356
Regulatory capital 479 450 450
Free cash 10,357 12,986 13,704
-------------------- ---------- ----------- ---------
36,043 38,771 39,510
-------------------- ---------- ----------- ---------
Secured cash is held in accounts over which the providers of secured bank debt have fixed security. As the Company is considered to be an internally managed Alternative Investment Fund, it is also required by the Financial Conduct Authority to hold a balance of regulatory capital in liquid funds, which is maintained in cash.
11. Deferred tax
The movements in deferred tax balances in each period were as follows:
Unrealised Interest
gains on Tax losses rate derivatives
investment carried Shareholder at fair
properties forward loans value Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------ -------------------- ----------
Unaudited:
Balance at 1 January
2015 (4,938) - - 627 (4,311)
Charge to the income
statement (948) - - - (948)
Charge to other comprehensive
income - - - (161) (161)
Currency translation
differences 479 - - 1 480
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 30 June 2015 (5,407) - - 467 (4,940)
------------------------------- ------------ ------------ ------------ -------------------- ----------
Unrealised Interest
gains on Tax losses rate derivatives
investment carried Shareholder at fair
properties forward loans value Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------ -------------------- ----------
Audited:
Balance at 1 April 2014 (120,636) 962 (9,317) 27,544 (101,447)
Credit / (charge) to
the income statement 115,453 (962) 335 - 114,826
Charge to other comprehensive
income - - - (26,918) (26,918)
Deferred tax released
on capitalisation of
shareholder loans - - 8,982 - 8,982
Currency translation
differences 245 - - 1 246
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 31 December
2014 (4,938) - - 627 (4,311)
------------------------------- ------------ ------------ ------------ -------------------- ----------
Unrealised Interest
gains on Tax losses rate derivatives
investment carried Shareholder at fair
properties forward loans value Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------ -------------------- ----------
Unaudited:
Balance at 1 April 2014 (120,636) 962 (9,317) 27,544 (101,447)
Credit / (charge) to
the income statement 117,243 (962) 335 - 116,616
Charge to other comprehensive
income - - - (26,809) (26,809)
Deferred tax released
on capitalisation of
shareholder loans - - 8,982 - 8,982
Currency translation
differences 106 - - - 106
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 30 June 2014 (3,287) - - 735 (2,552)
------------------------------- ------------ ------------ ------------ -------------------- ----------
12. Trade and other payables
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
------------------------------ ---------- ----------- ---------
Taxation and social security 2,116 5,163 2,242
Accruals and deferred income 37,194 35,872 37,868
------------------------------ ---------- ----------- ---------
39,310 41,035 40,110
------------------------------ ---------- ----------- ---------
13. Bank borrowings
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
GBP000 GBP000 GBP000
-------------------------------- ---------- ----------- ---------
Amounts falling due within one
year
Secured bank loans 215,116 6,853 6,853
Unamortised finance costs (1,870) (1,945) (1,945)
-------------------------------- ---------- ----------- ---------
213,246 4,908 4,908
-------------------------------- ---------- ----------- ---------
Amounts falling due in more
than one year
Secured bank loans 889,712 1,150,712 1,154,989
Exit fee 4,095 3,978 3,529
Unamortised finance costs (1,075) (2,283) (3,757)
-------------------------------- ---------- ----------- ---------
892,732 1,152,407 1,154,761
-------------------------------- ---------- ----------- ---------
As described in note 19, all balances shown above have been refinanced since the balance sheet date.
There was no material difference between the fair value of the secured debt and its carrying value at any balance sheet date, and the Group had no undrawn, committed borrowing facilities at any balance sheet date. The debt was secured by charges over the Group's investment properties and by fixed and floating charges over the other assets of certain Group companies but not including the Company itself. There have been no defaults or breaches of any loan covenants during the current or prior periods.
A covenant release fee relating to one of the loans, payable in quarterly instalments, was being charged to the income statement over the remaining term of the loan and as at 30 June 2015, GBP8.2 million (31 December 2014: GBP9.5 million; 30 June 2014: GBP11.6 million) remained outstanding. The remaining fee was committed to be repaid in full after the balance sheet date as part of the refinancing described in note 19.
14. Interest rate derivatives
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The fair values of the Group's interest rate derivatives at each balance sheet date were as follows:
Notional amount Fair value
----------------- ------------------------------------- ------------------------------------
Unaudited Audited Unaudited Unaudited Audited Unaudited
30 June 31 December 30 June 30 June 31 December 30 June
2015 2014 2014 2015 2014 2014
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- ----------- ----------- ----------- ---------- ----------- -----------
5.1% swap 564,179 608,920 611,200 (41,387) (56,849) (57,681)
5.4% amortising
swap 301,728 304,008 305,968 (26,336) (32,955) (33,155)
5.4% swaps 196,622 196,622 196,622 (17,505) (21,804) (21,794)
4.4% amortising
swap* 29,888 33,091 34,359 (2,658) (3,579) (4,207)
4.4% swaps* 19,581 21,529 22,130 (1,785) (2,391) (2,794)
----------------- ----------- ----------- ----------- ---------- ----------- -----------
1,111,998 1,164,170 1,170,329 (89,671) (117,578) (119,631)
----------------- ----------- ----------- ----------- ---------- ----------- -----------
* denominated in Euros, converted at the period end rate.
All of the above instruments had expiry dates between April and July 2017 and are included in non-current liabilities, apart from the proportion hedging the loan principal that was subsequently repaid following the sale of Madame Tussauds which is shown as a current liability.
The interest rate derivatives are shown at fair value and have been valued in accordance with IFRS 13 by reference to interbank bid market rates as at the close of business on the last working day prior to each balance sheet date by JC Rathbone Associates Limited. All interest rate derivatives are classified as "level 2" as defined in IFRS 13 and their fair values are calculated using the present values of future cash flows, based on market forecasts of interest rates and adjusted for the credit risk of the counterparties. There were no transfers to or from other levels of the fair value hierarchy during the current or prior periods.
The Group uses all of its interest rate derivatives in risk management as cash flow hedges to protect against exposures to variability in future interest cash flows on secured bank loans which bear interest at variable rates. The amounts and timing of future cash flows are projected on the basis of their contractual terms.
As described in note 19, since the balance sheet date three new fixed rate secured loan facilities have been committed, to replace the loan finance in place at 30 June 2015. As a result of repaying existing loans from the proceeds of two of the new loans and the sale of Madame Tussauds, GBP266.0 million of the notional amount on the 5.1% swap has been terminated since the balance sheet date, as have all of the other swaps listed above. Irrevocable notice to draw the third loan has been served on the lender and drawing is due to occur on 2 October 2015 (subject to completion of customary drawdown conditions), when the remaining GBP298.2 million notional amount of the 5.1% swap will be terminated.
15. Share capital
Share capital represents the aggregate nominal value of shares issued. At 30 June 2015, the Company had an issued and fully paid share capital of 180,344,216 ordinary shares of GBP0.10 each (31 December 2014: 168,443,772 shares; 30 June 2014: 168,443,754 shares).
Under the terms of the Commitment Agreement described in note 18, the Company's shareholders prior to listing have each agreed to subscribe in cash for one ordinary share per quarter to cover the fees payable to the Investment Adviser. During the period, 12 ordinary shares of GBP0.10 each were issued under this arrangement for total proceeds of GBP2.5 million (nine months to 31 December 2014: 18 shares for total proceeds of GBP2.2 million; three months to 30 June 2014: nil shares). The excess over nominal value in each case was credited to the share premium account.
Under the terms of the Investment Advisory Agreement described in note 18, during the period the Company has also issued 11,900,432 ordinary shares of GBP0.10 each in settlement of performance fees payable to the Investment Adviser.
As a result of these transactions, the movement in the number of shares in issue over the period was as follows:
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
Number Number Number
---------------------------------------- ----------- ----------- -----------
At the start of the period 168,443,772 1 1
Subdivision of ordinary share - 9 9
Capitalisation of shareholder loans - 77,914,338 77,914,338
Issue of ordinary shares prior
to listing - 81,908,717 81,908,717
Issue of ordinary shares on listing - 8,620,689 8,620,689
Issue of ordinary shares under
Commitment Agreement 12 18 -
Issue of ordinary shares in settlement
of performance fee 11,900,432 -
---------------------------------------- ----------- ----------- -----------
180,344,216 168,443,772 168,443,754
---------------------------------------- ----------- ----------- -----------
16. Reserves
The nature and purpose of each of the reserves included within equity is as follows:
Share premium reserve: represents the surplus of the gross proceeds of share issues over the nominal value of the shares, net of the direct costs of equity issues.
Capital contribution reserve: represents the difference between the face value and fair value of shareholder loans. Amounts were reclassified to retained earnings evenly over the term of the loans until their capitalisation on 20 May 2014, when all remaining balances in the capital contribution reserve were transferred to retained earnings.
Other reserve: represents the cumulative exchange gains and losses on the translation of the Group's net investment in its German operations, as well as the impact on equity of shares issued, as described in note 18, under the terms of both the Commitment Agreement and the performance fee arrangements.
Cash flow hedging reserve: represents the cumulative gains or losses, net of tax, arising on effective cash flow hedging instruments.
Retained earnings: represent the cumulative profits and losses recognised in the income statement.
17. Net asset value per share
Net asset value per share is calculated as the net assets of the Group attributable to shareholders at each balance sheet date, divided by the number of shares in issue at that date as follows:
Unaudited Audited Unaudited
30 June 31 December 30 June
2015 2014 2014
Number Number Number
----------------------------- ----------- ----------- -----------
Number of shares in issue -
basic NAV per share 180,344,216 168,443,772 168,443,754
Shares to be issued - 11,900,432 327,004
----------------------------- ----------- ----------- -----------
Number of shares in issue -
diluted NAV per share 180,344,216 180,344,204 168,770,758
----------------------------- ----------- ----------- -----------
Diluted NAV per share is adjusted for shares that it is estimated would need to be issued in settlement of any performance fees earned. The diluted NAV per share at 30 June 2015 was the same as the basic NAV at 263.4 pence per share (31 December 2014: 190.9 pence per share; 30 June 2014: 112.1 pence per share).
The European Public Real Estate Association has issued guidelines aimed at providing a measure of net asset value on the basis of long term fair values. The EPRA measure excludes items that are considered to have no impact in the long term, such as the fair value of derivative instruments and deferred tax balances. The Group's EPRA NAV is calculated as follows:
Unaudited 30 June Audited 31 December Unaudited 30 June
2015 2014 2014
------------------- -------------------- --------------------- --------------------
Pence per Pence per Pence per
GBP000 share GBP000 share GBP000 share
------------------- --------- --------- ---------- --------- --------- ---------
Basic NAV 475,471 263.7 344,305 204.4 189,203 112.3
EPRA adjustments:
Deferred tax
on property
revaluations 5,407 3.0 4,938 2.7 3,287 1.9
Fair value
of financial
instruments 89,671 49.7 117,578 65.2 119,631 70.9
Deferred tax
on financial
instruments (467) (0.3) (627) (0.3) (735) (0.4)
Dilution from
shares issued - - - (13.5) - (0.2)
------------------- --------- --------- ---------- --------- --------- ---------
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