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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 Apr 2019 to Apr 2024
TIDMSIR
RNS Number : 1143L
Secure Income REIT PLC
04 September 2019
4 September 2019
Secure Income REIT Plc
(the "Company" or the "Group")
Results for the six months ended 30 June 2019
Excellent returns on GBP350m hospitals disposal and strong core business leave Secure Income REIT well placed to take advantage of market uncertainty
Secure Income REIT Plc (AIM: SIR), the specialist long term income UK REIT, today announces its results for the six months ended 30 June 2019.
Highlights
Hot Features
Premium
Pro forma
30 June 31 December
2019 * 2018 Change in period
------------------------------- ------------- ------------- ------------------
Net assets GBP1,344.6m GBP1,281.6m 4.9%
EPRA net assets GBP1,357.6m GBP1,292.9m 5.0%
EPRA net assets per share 420.5p 400.5p 5.0%
Net Loan To Value ratio 33.0% 43.0% 23.3%
Annualised passing rent - like
for like GBP111.1m GBP109.1m 1.9%
Portfolio blended net initial
valuation yield 5.1% 5.1% -
------------------------------- ------------- ------------- ------------------
* presented on a pro forma basis: 30 June 2019 financial position adjusted for the impact of the hospitals portfolio disposal announced on 22 July 2019, as presented on the first page of the Investment Adviser's Report.
Six months
Six months to
to 30 June 30 June
2019 2018 Change in period
--------------------------------------- ------------- ------------ ------------------
Adjusted EPRA earnings per share 8.1p 6.2p 30.6%
Dividends per share 7.9p 6.0p 30.9%
Latest dividend per share annualised,
as a percentage of EPRA NAV 4.0% 4.1% 2.4%
--------------------------------------- ------------- ------------ ------------------
-- On 22 July 2019 eight of the group's 19 private hospitals were sold for gross consideration of GBP347 million:
-- price achieved at 16% above 30 June 2019 book value
-- increases EPRA NAV per share by 4.6 pence per share to 420.5 pence on a pro forma basis
-- reduces net debt by c. GBP316 million effective from completion on 16 August 2019 and increases uncommitted cash to GBP232 million
-- Net Loan To Value ratio reduced to 33.0%
-- 65% capital return and over 100% unlevered property return on sold assets since IPO
-- Results for the period deliver a 3.4% uplift in NAV per share (IFRS basis) and pro forma EPRA NAV per share (adjusted for the hospitals disposal):
-- up 5.0% to 420.5p since 31 December 2018
-- up 142% from placing price at IPO in June 2014
-- Total Accounting Return 7.0%; Total Shareholder Return 8.2%
-- Total Accounting Return of 20.1% per annum since listing in June 2014
-- Adjusted EPRA EPS up 30.6% to 8.1p for the six months to 30 June 2019 compared to first six months of 2018
-- Distributions:
-- currently yielding an annualised 4.0% on 30 June 2019 pro forma EPRA NAV based on the Q3 2019 dividend
-- dividends per share up 31% year on year for the first six months
-- Portfolio externally valued at a blended Net Initial Yield of 5.1% amounting to GBP2.05 billion at 30 June 2019 pro forma; like for like portfolio valuation up 2.0% over the six months to 30 June 2019
-- Portfolio of 164 Key Operating Assets (excluding the eight hospitals sold in July) in defensive sectors producing GBP111.1 million per annum of passing rent at 30 June 2019; like for like passing rents up 1.9%
-- Weighted average unexpired lease term as at 30 June 2019 of 21.5 years with no breaks, up from 20.9 years at 31 December 2018 including increases of:
-- 0.7 years as a result of the extension of the lease on The Brewery at Chiswell Street for no payment to the tenant
-- 0.3 years as a result of the hospitals portfolio disposal
-- Strong and predictable growth prospects underpinned by upwards only RPI-linked rent reviews (59% of passing rents) and fixed rental uplifts (41% of passing rents)
-- Management team alignment with shareholders through a management shareholding of 13.9% worth c. GBP188 million at 30 June 2019 pro forma EPRA NAV
Martin Moore, Non-Executive Chairman of the Company, commented:
"With political uncertainty reaching a crescendo in the UK and recession fears spreading across the world, bond yields have plummeted as investors seek safety. Income returns on most safe haven assets are now minimal yet Secure Income REIT's property portfolio continues to offer a net initial yield of 5.1%, secured on leases of over 21 years without break let to strong tenants in defensive sectors, and guaranteed income growth delivered by a 60/40 blend of upwards only RPI-linked reviews and fixed uplifts. The recent sale of GBP347 million of our non-core hospitals at a price 16% above valuation demonstrates the strong attraction of well-let alternative property and provides the Company with over GBP230 million to redeploy as and when opportunities arise. With a robust balance sheet and a strongly performing portfolio delivering 5% NAV growth in the first half of the year we continue to view the future with confidence."
For further information on the Company, please contact:
Secure Income REIT Plc +44 20 7647 7647 Nick Leslau enquiries@SecureIncomeREIT.co.uk Mike Brown Sandy Gumm Stifel Nicolaus Europe Limited +44 20 7710 7600 (Nominated Adviser) stifelsecureincomereit@stifel.com Mark Young Stewart Wallace Tom Yeadon FTI Consulting LLP +44 20 3727 1000 Dido Laurimore SecureIncomeREIT@fticonsulting.com Claire Turvey Eve Kirmatzis
Interim Results Presentation
Secure Income REIT will be holding a presentation for analysts and investors today at 9.45am at Stifel, 150 Cheapside, London, EC2V 6ET. If you would like to attend, please contact FTI Consulting on 020 3727 1000, or email SecureIncomeREIT@fticonsulting.com.
The presentation will be on the Company's website www.SecureIncomeREIT.co.uk and a conference call facility will be available. The dial-in details are:
Participants, - Local, United Kingdom: +44 (0)330 336 9125 Confirmation code: 3325962
Webcast link: https://webcasting.brrmedia.co.uk/broadcast/5d53fb17a98d141c9d04c753
About Secure Income REIT Plc
Secure Income REIT Plc is a specialist UK REIT, investing in real estate assets that provide long term rental income with inflation protection.
The Company owns a GBP2.05 billion portfolio at the 30 June 2019 external valuation (adjusted for the sale of eight hospitals in July 2019) of 164 high quality assets let to financially strong businesses in defensive sectors on leases with a c. 21.5 year weighted average unexpired term. 59% of the Group's rental income is subject to upwards only RPI-linked reviews and 41% to fixed uplifts.
The Company has a highly experienced board, chaired by Martin Moore, and is advised by Prestbury Investments LLP. Prestbury is owned and managed by Nick Leslau, Mike Brown, Tim Evans, Sandy Gumm and Ben Walford, a team with a long-standing and successful track record in real estate investments and asset management and, with an investment worth c. GBP190 million in the Company, very close alignment with the interests of shareholders.
An investment in the Company offers a secure, growing income stream, strong foundations for sustainable capital growth and the prospect of attractive risk adjusted returns for shareholders over the long term.
The Company is a UK REIT which floated on the AIM market of the London Stock Exchange in June 2014.
The Company's LEI is 213800M1VI451RU17H40
Further information on Secure Income REIT is available at www.SecureIncomeREIT.co.uk.
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,
Following a very busy 2018, the Board and management team has continued its disciplined and active management of the Company's capital, culminating in the announcement in July 2019 of a GBP347 million sale of a portfolio of eight private hospitals, achieving a 16% premium of the gross proceeds over the 30 June 2019 book value of the assets sold. While the sale is not reflected in the financial statements as it occurred after the balance sheet date, we present in these business review reports pro forma figures, taking the 30 June 2019 balance sheet and adjusting it to reflect the impact of the sale and related debt repayment. Those adjustments are presented on the first page of the Investment Adviser's Report.
Results and financial position
The Group's NAV per share at 30 June 2019 was 411.9 pence, up 3.4% from 398.5 pence at 31 December 2018. The Group's EPRA NAV per share at 30 June 2019 was 415.9 pence and its pro forma EPRA NAV per share at that date (adjusted for the impact of the hospitals portfolio disposal) was 420.5 pence, an increase of 5.0% since 31 December 2018. Our primary focus remains on overall returns delivered to shareholders including capital and income growth, and performance in this regard was once again satisfactory, with a Total Accounting Return of 7.0% over the six months to 30 June 2019 adjusted on a pro forma basis for the hospitals portfolio disposal, and a Total Shareholder Return of 8.2% over the same period.
Total Accounting
GBPm Pence per share Return
--------------------------------- --------- --------------- ----------------
EPRA NAV at 1 January 2019 1,292.9 400.5
Investment property revaluation 48.6 15.0
Other retained earnings 26.6 8.3
Dividends paid (25.3) (7.9)
EPRA NAV at 30 June 2019 1,342.8 415.9 5.8%
Impact of hospitals portfolio
disposal in July 2019 14.8 4.6
Pro forma EPRA NAV at 30 June
2019 1,357.6 420.5 7.0%
--------------------------------- --------- --------------- ----------------
The like for like valuation increase over six months, excluding assets sold in the period and the hospitals portfolio disposal, was 2.0%. Rents increased by 1.9% on a like for like basis following the settlement of rent reviews on 61% of the total portfolio income. Following the rent reviews in the period and excluding the hospitals sold in July 2019, the blended Net Initial Yield was 5.1% at 30 June 2019, which was unchanged from the 31 December 2018 external valuations. As the hospitals portfolio disposal occurred after the balance sheet date, the external valuers have not taken the price achieved into account as valuation evidence as at 30 June 2019.
The Net Loan To Value ratio at 30 June 2019 was 42.2% and fell further to 33.0% on a pro forma basis following the hospitals portfolio disposal. This represents a very material reduction from the 43.0% reported at the end of 2018, in line with the Board's strategy to reduce the Net Loan to Value ratio over time. The uncommitted cash balance held by the group had increased from GBP66.4 million at 31 December 2018 to GBP68.0 million at 30 June 2019, and further increased to GBP232.0 million on a pro forma basis following the sale.
The Group's Adjusted EPRA EPS was 8.1 pence in the six months to 30 June 2019 compared to 6.2 pence for the equivalent period in 2018, an increase of 31% which reflects the positive impact of the two portfolio acquisitions during 2018 and the increase in like for like passing rents. The Group's EPS, measured on an IFRS basis without the industry standard EPRA adjustments, was 23.1 pence in the six months to 30 June 2019 compared to 23.0 pence for the equivalent period in 2018, also reflecting those rental increases and the positive impact of last year's acquisitions as well as the uplifts in property valuations recognised in the period.
With effect from the completion of the hospitals portfolio disposal in mid-August, the Group's Adjusted EPRA EPS will reduce as the GBP16.0 million per annum passing rent on the sold portfolio, net of a GBP6.5 million per annum saving in interest cost, is replaced by the return on c. GBP164 million of surplus cash realised on sale. We expect that the net impact on Adjusted EPRA EPS per share as at the date of completion of the sale is approximately 2.7 pence per annum. As announced at the time of the disposal, we intend to maintain dividends at the level achieved prior to the sale such that investors' income returns remain whole for as long as the Company holds surplus cash.
Outlook
Volatility has returned to equity markets as investors' attention has swung back to the twin threats of geo-political risks and slowing global growth. The resultant flight to safety has had a dramatic impact on the pricing of government bonds with 30 year US Treasury yields falling below 2% for the first time in history. In much of the developed world a government bond yield of 2% has become the stuff of dreams with all German and Swiss bonds across the entire maturity spectrum offering negative yields. In Japan and France bond yields only turn positive at durations over 16 years whilst in the UK 10 year gilts offer less than 0.5%. Inflation protection via long-dated index-linked gilts has been expensive for several years but investors now face an even steeper bill as yields have plummeted to minus 2.2%, pushing up their price by as much as 10% over the last month and 20% compared to six months ago. In contrast, the yields offered by well-let property with index-linked uplifts continue to be much more generous.
Political uncertainty is reaching a crescendo in the UK as the probability of a no-deal Brexit has risen significantly. Regrettably, uncertainty is also likely to continue into 2020 and quite possibly beyond. Any of the following: a disorderly Brexit, the prospects of an imminent general election or a far-left Labour government is likely to sustain demand for lower-risk inflation-protected investments. Continued Sterling weakness should also contribute to attracting overseas capital into these assets, especially if global economic concerns continue to suppress government bond yields across the world. The GBP347 million sale of our non-core hospitals at a 16% premium to valuation to a US healthcare REIT is an illustration of this trend. The fact that these assets delivered an unlevered total return of over 100% during the five years of our ownership as a quoted REIT demonstrates how ostensibly "boring" assets that churn out highly predictable income streams can deliver exciting returns.
The UK REIT market has become bifurcated with the ratings between the best and worst performing sectors at an all-time high. Shopping centre REIT share prices have collapsed as landlords have lost pricing power to their retail tenants whilst CVAs drive vacancy rates inexorably upwards. At the other end of the spectrum those parts of the alternatives and warehouse markets still judged to retain their capacity to deliver sustainably growing income streams are being rewarded with premium ratings.
In a world where it is increasingly difficult to find safe assets that still provide an attractive income return, Secure Income REIT's property portfolio has continued to offer a net initial yield of 5.1%. Its income security is delivered through owning key operating assets with high barriers to entry, let on long leases averaging 21.5 years unexpired term to strong businesses operating in defensive, less cyclical sectors. The Company's income growth is highly visible, generated by a c. 60/40 blend of upward only RPI-linked reviews and fixed uplifts averaging 2.8% per annum. Our manager has an enviable track record built up over many years of anticipating the peaks and troughs of market cycles and successfully navigating between sectors. They remain aligned and motivated to sustain this performance through their substantial holding in the Company which is approaching GBP200 million and is one of the largest in the quoted sector.
We have sought to prepare for this period of heightened uncertainty by reducing the Group's indebtedness to its lowest ever level at 33% Net Loan To Value, refining our portfolio to a GBP2.1 billion core of hard to replicate assets that should continue to generate attractive inflation-protected returns. Critically we now have over GBP230 million of uncommitted cash to redeploy as and when opportunities arise. The surprise referendum result in 2016 resulted in us sourcing the c. GBP200 million Travelodge package yielding 7%; only time will tell whether similarly attractive opportunities await us, but in the meantime we continue to view our future with confidence.
Martin Moore
Chairman
4 September 2019
Investment Adviser's Report
Prestbury Investments LLP, the investment adviser to Secure Income REIT Plc, is pleased to report on the operations of the Group for the six months ended 30 June 2019.
In our report, we focus on financial measures recommended by the European Public Real Estate Association ("EPRA") to facilitate comparison with other real estate investment companies. EPRA measures are reconciled to the main financial statements prepared under IFRS in the supplementary information included at the end of this report.
Pro forma adjustments for hospitals disposal
The strategic disposal of eight of the Group's 19 hospitals let to Ramsay Health Care Limited exchanged unconditionally on 22 July 2019 and completed on 16 August 2019. The sale, at a 16% premium of gross proceeds over their 30 June 2019 external valuation, had a material impact on the Group's financial position and will have a material impact on future earnings. In order to present a suitably clear picture, the portfolio and financial information in this report includes figures presented on a pro forma basis, which excludes the sold portfolio.
Hospitals
30 June portfolio
2019 disposal Pro forma
GBP000 GBP000 GBP000
----------------------------------- ----------- ---------- ---------
Investment properties at external
valuation 2,350,574 (300,355) 2,050,219
Cash 98,338 163,977 262,315
Secured debt:
Gross debt (1,089,995) 152,000 (937,995)
Unamortised finance costs 11,056 (835) 10,221
Other net liabilities (40,119) - (40,119) Net assets 1,329,854 14,787 1,344,641 EPRA adjustments (note 17) 12,921 - 12,921 ----------------------------------- ----------- ---------- --------- EPRA net assets 1,342,775 14,787 1,357,562 ----------------------------------- ----------- ---------- --------- EPRA NAV per share (pence) 415.9p 4.6p 420.5p Net debt (GBP000) 991,657 (315,977) 675,680 Net LTV 42.2% 33.0% ----------------------------------- ----------- ---------- ---------
The net EPRA NAV per share adjustment from the hospitals portfolio disposal comprises:
Pence per
share
------------------------------------- ---------
Surplus of gross proceeds over book
value 14.4
Early debt repayment cost (8.4)
Costs of disposal (1.0)
Unamortised finance fees written
off (0.4)
--------------------------------------- ---------
Net EPRA NAV per share impact 4.6
--------------------------------------- ---------
The disposal has the effect of reducing net earnings for as long as the cash surplus realised on sale is not fully reinvested. As announced at the time of the sale, the Board intends to top up dividend payments to the levels that would have been achieved without the disposal in order that shareholders' income returns remain whole for such time as the surplus funds remain uninvested or until they are returned to shareholders. The annualised reduction in Adjusted EPRA EPS is estimated at 2.7 pence per share. This is principally the impact of the GBP16.0 million reduction in the current passing rent net of a GBP6.5 million saving in interest payable, with a small offsetting effect from the estimated income that will be earned on surplus cash for as long as it is not fully redeployed in investment property acquisitions or returned to shareholders.
The portfolio
The portfolio held at 30 June 2019 comprised 172 properties and reduces to 164 properties when adjusted to exclude the hospitals portfolio disposal. The portfolio offers secure, long term income with contractual rental uplifts offering inflation protection. Annual passing rent was GBP127.1 million at 30 June 2019. When adjusted to exclude the hospitals portfolio disposal, passing rent is GBP111.1 million which represents a like for like increase of 1.9% over the period. This reflects completion of reviews on 61% of portfolio rents in the six months to 30 June 2019. A further 7% of rents were reviewed very shortly after the balance sheet date, in July 2019.
Passing
Number of Valuation rent
properties GBPm GBPm
--------------------------------------------- ----------- --------- -------
At the start of the period 175 2,306.7 125.0
Increase in portfolio valuation, net
of exchange rate movements - 48.7 2.5
Disposal of non-core budget hotels (3) (4.8) (0.4)
--------------------------------------------- ----------- --------- -------
At 30 June 2019 172 2,350.6 127.1
Hospitals portfolio disposal (8) (300.4) (16.0)
At 30 June 2019, adjusted for the hospitals
portfolio disposal 164 2,050.2 111.1
--------------------------------------------- ----------- --------- -------
Basis of review
The income arising on the portfolio benefits from RPI-linked rent reviews and from fixed contractual rental uplifts which average 2.8% per annum. The portfolio passing rents as at 30 June 2019, adjusted for the hospitals portfolio disposal, are subject to review on the following bases:
Pro forma 31 December
30 June 2019 2018
------------------------------- ----------------------------------- -----------
Reviewed
Reviewed three or Total Total
Percentage of passing rents annually five yearly portfolio portfolio
------------------------------- --------- ------------ ---------- -----------
Upwards only RPI:
Uncapped 25% 28% 53% 47%
Collared 4% 2% 6% 5%
------------------------------- --------- ------------ ---------- -----------
Total upwards only RPI-linked
reviews 29% 30% 59% 52%
------------------------------- --------- ------------ ---------- -----------
Fixed uplifts:
Annual reviews 38% - 38% 45%
Five-yearly reviews - 3% 3% 3%
------------------------------- --------- ------------ ---------- -----------
Total fixed uplifts 38% 3% 41% 48%
------------------------------- --------- ------------ ---------- -----------
Total portfolio 67% 33% 100% 100%
------------------------------- --------- ------------ ---------- -----------
Lease lengths
During the period, the lease term for The Brewery on Chiswell Street, London, was extended from 12 to 37 years unexpired without break, adding 0.7 years to the Group's weighted average unexpired lease term. The current passing rent at the property is GBP3.4 million per annum.
The leases on the Group's portfolio are very long: adjusted for the hospitals portfolio disposal in July 2019, the weighted average unexpired lease term is 21.5 years from 30 June 2019 and 97.5% of the portfolio has an unexpired lease term longer than 17.9 years without break.
Healthcare Leisure Budget hotels Total
----------------- --------------- --------------- -----------------
Pro forma Pro forma
30 June 31 Dec 30 June 31 Dec 30 June 31 Dec 30 June 31 Dec
2019 2018 2019 2018 2019 2018 2019 2018
------------------ --------- ------ ------- ------ ------- ------ --------- ------
Weighted average
unexpired lease
term (years) 18.3 18.6 23.1 21.7 22.9 23.4 21.5 20.9
------------------ --------- ------ ------- ------ ------- ------ --------- ------
Portfolio valuation
The portfolio is valued by qualified external valuers as at 30 June and 31 December each year. The change in portfolio rents and valuation over the period, adjusted for the hospitals portfolio disposal in July 2019, is as follows:
Healthcare Leisure Budget hotels Total
--------------------- ------------------- ------------------- ---------------------
Passing Like for Like for Like for Like for
rent GBPm like change GBPm like change GBPm like change GBPm like change
---------------- ------- ------------ ----- ------------ ----- ------------ ------- ------------
31 Dec 2018 50.2 45.7 29.1 125.0
Uplifts 1.4 2.8% 1.1 2.4% - - 2.5 1.9%
Disposals - - (0.4) (0.4)
---------------- ------- ------------ ----- ------------ ----- ------------ -------
30 June
2019 51.6 46.8 28.7 127.1
Hospitals
disposal (16.0) - - (16.0)
---------------- ------- ------------ ----- ------------ ----- ------------ -------
Pro forma
30 June
2019 35.6 46.8 28.7 111.1
---------------- ------- ------------ ----- ------------ ----- ------------ -------
Healthcare Leisure Budget hotels Total
--------------------- ------------------- ------------------- ---------------------
Like for Like for Like for Like for
Valuation GBPm like change GBPm like change GBPm like change GBPm like change
---------------- ------- ------------ ----- ------------ ----- ------------ ------- ------------
31 Dec 2018 984.8 826.7 495.2 2,306.7
Revaluation
at constant
currency 27.3 2.8% 21.6 2.6% - - 48.9 2.0%
Exchange
rate movement - (0.2) - (0.2)
Disposals - - (4.8) (4.8)
---------------- ------- ------------ ----- ------------ ----- ------------ -------
30 June
2019 1,012.1 848.1 490.4 2,350.6
Hospitals
disposal (300.4) - - (300.4) ---------------- ------- ------------ ----- ------------ ----- ------------ ------- Pro forma 30 June 2019 711.7 848.1 490.4 2,050.2 ---------------- ------- ------------ ----- ------------ ----- ------------ -------
In assessing the investment property valuations, the external valuers take into account evidence from comparable transactions in the market for the period up to and including the balance sheet date. As the hospitals portfolio disposal occurred after the balance sheet date, any impact on the external valuation of the remainder of the Healthcare portfolio that may arise from the evidence created by the sale in July will be reflected in the Group's results for the second half of the year.
The movement in valuation in the period comprises:
Six months Six months
to 30 June to 30 June
2019 2018
GBPm GBPm
----------------------------------------------------- ------------- -------------
Investment properties at the start of the period 2,306.7 1,770.2
----------------------------------------------------- ------------- -------------
Portfolio held throughout the period:
Revaluation movement at constant currency 48.9 49.4
Currency translation movements on Euro denominated
investment properties (0.2) (0.3)
----------------------------------------------------- ------------- -------------
Like for like portfolio revaluation 48.7 49.1
Budget hotel disposals (4.8) -
Acquisitions - 434.2
Net increase in portfolio valuation 43.9 483.3
----------------------------------------------------- ------------- -------------
Investment properties at the end of the period 2,350.6 2,253.5
Hospitals portfolio disposal (300.4) -
----------------------------------------------------- ------------- -------------
Investment properties at the end of the period,
adjusted for the hospitals portfolio disposal 2,050.2 2,253.5
----------------------------------------------------- ------------- -------------
Yields
Healthcare Leisure Budget hotels Total
----------------- --------------- --------------- -----------------
Pro forma Pro forma
30 June 31 Dec 30 June 31 Dec 30 June 31 Dec 30 June 31 Dec
2019 2018 2019 2018 2019 2018 2019 2018
------------------- --------- ------ ------- ------ ------- ------ --------- ------
Net Initial
Yield * 4.7% 4.8% 5.1% 5.1% 5.5% 5.5% 5.1% 5.1%
Running Yield
within 12 months 4.8% 4.9% 5.3% 5.3% 5.5% 5.5% 5.2% 5.2%
------------------- --------- ------ ------- ------ ------- ------ --------- ------
* the healthcare yields take no account of any uplift from an outstanding May 2018 open market review on the Ramsay hospitals, which account for 94% of the healthcare rents at 30 June 2019 (adjusted for the hospitals portfolio disposal) and the leisure yields include the fixed uplifts on the German assets every July
the leisure and budget hotels Running Yields are calculated using the relevant external valuer's assessment of RPI at 2.6% and 2.5% respectively
Portfolio total rents
The Group's principal lease counterparties, analysed by passing rent as at 30 June 2019 and adjusted for the hospitals portfolio disposal are as follows:
Pro forma
30 June 31 December
2019 2018
Tenant/guarantor GBPm GBPm
------------------------------------------ ----------- -------------
Merlin Entertainments Plc * 34.7 33.9
Ramsay Health Care Limited:
Hospitals retained 33.5 32.6
Hospitals sold in July 2019 - 15.6
Travelodge Hotels Limited:
Budget hotels held throughout the period 28.7 28.7
Budget hotels sold during the period - 0.4
SMG Europe Holdings Limited & SMG 4.0 3.8
The Brewery on Chiswell Street Limited 3.4 3.4
Orpea SA 2.1 2.0
Stonegate Pub Company Limited 2.0 2.0
Others (each below GBP1.25 million) 2.7 2.6
111.1 125.0
------------------------------------------ ----------- -------------
* GBP6.6 million (31 December 2018: GBP6.6 million) of the Merlin rents are Euro denominated
Further information on the principal portfolio tenants and guarantors is given within the portfolio analyses that follow.
Leisure assets (41% of pro forma portfolio value)
30 June 31 December
2019 2018
Passing rents GBPm GBPm
----------------------------------------------- --------- -------------
UK assets 40.2 39.1
German assets (at constant Euro exchange rate) 6.6 6.6
46.8 45.7
----------------------------------------------- --------- -------------
The leisure properties comprise four well known visitor attractions let to Merlin Entertainments plc together with the Manchester Arena, The Brewery events venue on Chiswell Street in the City of London and a portfolio of 18 freehold high street pubs located in England and Scotland.
The Merlin assets include two of the UK's top three theme parks, Alton Towers and Thorpe Park, together with the Alton Towers hotel and Warwick Castle. The German assets operated by Merlin are Heide Park theme park (the largest in Northern Germany) and its adjacent hotel, located in Soltau, Saxony. These assets are all held freehold and are let to subsidiaries of Merlin Entertainments Plc, the guarantor of the leases. Measured by the number of visitors, Merlin is Europe's largest and the world's second largest operator of leisure attractions. Merlin has recently been the subject of a takeover offer from a consortium of well funded, long term investors to take the business private at a price that values Merlin at approximately GBP6 billion.
The average term to expiry of the Merlin leases is 23.0 years from 30 June 2019 without break and the tenants have two successive rights to renew them for 35 years at the end of each term. The leases are on full repairing and insuring terms. There are upwards only uncapped RPI-linked rent reviews every June throughout the term (based on RPI over the year to April) for the UK properties, which in 2019 resulted in a rental increase of 3.0%. The German properties are subject to fixed annual increases of 3.34% every July throughout the term, as a result of which the German rents increased from GBP6.6 million to GBP6.8 million on 29 July 2019 (translated at the 30 June 2019 exchange rate).
Manchester Arena is a strategic eight-acre leasehold site located on top of Manchester Victoria Railway and Metrolink station. It comprises the UK's largest indoor arena by capacity as well as 160,000 sq ft of additional office and leisure space, together with a 1,000 space multi-storey car park and advertising hoardings.
The Arena is let to SMG and SMG Europe Holdings Limited with 26.0 years unexpired from 30 June 2019 without break. Rent is reviewed annually every June in line with RPI, collared between 2% and 5%, which in 2019 resulted in a rental increase of 3.1%. SMG is the world's largest venue management company which operates c. 200 venues globally, hosting approximately 30,000 events each year. In its latest available results up to December 2017 it reported an unbroken 25 years of annual EBITDA growth. SMG announced in February 2019 that it is to merge with AEG Facilities, subject to certain competition authority clearances, to create a global venue services company with 310 venues in five continents. The offices and ancillary leisure space at Manchester Arena are let to tenants including Serco, Manchester City Council, Unison, JCDecaux and go-karting operator TeamSport. The leases on the Manchester site as a whole have an average term to expiry of 16.9 years from 30 June 2019 and produce net passing rent of GBP6.1 million per annum as at 30 June 2019.
The Brewery on Chiswell Street is a predominantly freehold investment let to a specialist venue operator on a full repairing and insuring lease. It is the largest catered event space in the City of London and is located within five minutes' walk of the Moorgate entrance to the new Crossrail Station at Liverpool Street. During the period, agreement was reached for a 25 year lease extension with no premium payable to the tenant, following which the term to expiry is now 37.0 years from 30 June 2019. The lease has five-yearly fixed uplifts of 2.5% per annum compounded and passing rent of GBP3.4 million per annum as at 30 June 2019, with the next uplift to GBP3.8 million taking effect in in July 2021.
The pubs portfolio produces passing rent of GBP2.0 million per annum as at 30 June 2019 and the leases have an average term to expiry of 20.6 years without break. Rents are subject to five-yearly RPI-linked increases collared between 1% and 4% per annum compounded, with the next reviews falling due in February 2020. The 18 high street pubs are let on individual leases either to, or guaranteed by, Stonegate Pub Company Limited. Following its proposed acquisition of the Ei group in a deal announced in July 2019 valuing Ei at approximately a GBP3 billion enterprise value, Stonegate will become the UK's largest pub operator with over 4,700 pubs once the acquisition completes. The acquisition is conditional on the approval of the Competition and Markets Authority, expected by Stonegate to conclude within the next five months.
Healthcare assets (35% of pro forma portfolio value)
Pro forma
30 June 31 December
2019 2018
Passing rents GBPm GBPm
----------------------------------------------- ----------- -------------
Ramsay hospitals excluding assets sold in July
2019 33.5 32.6
Ramsay hospitals sold in July 2019 - 15.6
London psychiatric hospital 2.1 2.0
35.6 50.2
----------------------------------------------- ----------- -------------
Following the sale of eight hospitals in July, the healthcare assets comprise 12 private hospitals: a portfolio of 11 freehold assets located throughout England let to a subsidiary of Ramsay Health Care Limited, the listed Australian healthcare company, and a private psychiatric hospital in central London, held freehold and let to Groupe Sinoué, a French company specialising in mental health.
The Ramsay hospitals are let on full repairing and insuring leases with a term to expiry at 30 June 2019 of 17.9 years without break. The rents increase in May each year by a minimum of a fixed 2.75% per annum throughout the lease term. Following the May 2019 fixed uplifts, the rents on the retained hospitals portfolio increased from GBP32.6 million to GBP33.5 million. There is also an upwards only open market review within each lease as at 3 May 2018 and then in May 2022 and every five years thereafter. The May 2018 open market review remains outstanding and these financial statements take no account of any potential increase in rental income that may arise from it.
The leases on the Ramsay hospitals are all guaranteed by Ramsay Health Care Limited, the listed parent company of 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 3 September 2019 of GBP7.4 billion.
The London psychiatric hospital is let on a full repairing and insuring lease with a term to expiry at 30 June 2019 of 25.1 years without break. The rent increases in May each year by a fixed 3.0% per annum throughout the lease term and as a result increased from GBP2.0 million to GBP2.1 million on 3 May 2019. The lease is guaranteed by Orpea SA, a leading European operator of nursing homes, post-acute care and psychiatric care, listed on Euronext Paris with a market capitalisation at
3 September 2019 of GBP6.8 billion.
Budget hotel assets (24% of pro forma portfolio value)
30 June 31 December
2019 2018
Passing rents GBPm GBPm
------------------------------------------ --------- -------------
Budget hotels held throughout the period 28.7 28.7
Non-core budget hotels sold in the period - 0.4
28.7 29.1
------------------------------------------ --------- -------------
The budget hotel assets at the balance sheet date comprise 126 Travelodges (31 December 2018: 129 Travelodges) located in England, Wales and Scotland, let to Travelodge Hotels Limited which is the main operating company within the Travelodge group trading in the UK, Ireland and Spain. Travelodge is the UK's second largest budget hotel brand, with 584 hotels and over 44,500 rooms as at 30 June 2019.
Three budget hotels not considered core to the portfolio were sold in the period for net proceeds of GBP5.2 million, representing a gain of GBP0.4 million over 31 December 2018 book value and GBP1.1 million over their March 2018 purchase price. One further sale has taken place since the balance sheet date for net proceeds of GBP1.8 million, which was in line with 30 June 2019 book value and a gain of GBP0.2 million over its September 2016 purchase price. Taken together, these disposals achieved proceeds 7.5% above their 31 December 2018 book values.
The average term to expiry of the Travelodge leases is 22.9 years from 30 June 2019 with no break clauses. The leases are on full repairing and insuring terms and Travelodge is also responsible for the cost of any headlease payments and other amounts owing to the superior landlords of the 54 leasehold properties. There are upwards only uncapped RPI-linked rent reviews every five years throughout the term of each lease, with reviews falling due over a staggered pattern across the portfolio. Reviews on four budget hotels with passing rent totalling GBP1.3 million as at 30 June 2019 (4% of the portfolio) will take effect in the second half 2019. 22% of the portfolio rents are then reviewed in 2020, 24% in 2021, 39% in 2022 and 11% in 2023.
Financing
The Group's operations are financed by a combination of cash resources and non-recourse debt finance, where the equity at risk is limited to the net assets within six ring-fenced subgroups. Each subgroup is self-contained, with no cross-default provisions between the six of them. In all cases substantial financial covenant headroom has been negotiated into loan terms together with appropriate remedial 'cure' rights where cash can be diverted to a security group in order to maintain covenant compliance if that becomes necessary.
The Group's Net Loan To Value ratio fell from 43.0% to 42.2% over the period and then further, to 33.0% on a pro forma basis, as a result of the hospitals portfolio disposal. Interest cover, measured for these purposes as passing rent divided by annualised interest cost, has remained at 2.4 times throughout the period and remains at approximately that level following the hospitals portfolio sale.
Hospitals
30 June portfolio Pro forma
2019 disposal 30 June 2019
GBPm GBPm GBPm
-------------------------------------- --------- ---------- -------------
Gross debt 1,090.0 (152.0) 938.0
Secured cash (26.8) - (26.8)
Free cash in ring-fenced subgroups (4.0) - (4.0)
-------------------------------------- --------- ---------- -------------
Net debt - secured 1,059.2 (152.0) 907.2
Regulatory capital (0.7) - (0.7)
Free cash - unsecured (66.8) (164.0) (230.8)
-------------------------------------- --------- ---------- -------------
Net debt 991.7 (316.0) 675.7
-------------------------------------- --------- ---------- -------------
Property valuation 2,350.6 (300.4) 2,050.2
-------------------------------------- --------- ---------- -------------
Net LTV 42.2% 33.0%
-------------------------------------- --------- ---------- -------------
Interest cover (passing rent divided
by interest) 2.4x 2.4x
-------------------------------------- --------- ---------- -------------
To reduce uncertainty over the Group's interest cost, rates are fixed or capped for the term of each loan. The actual weighted average cost of debt in the period was 4.8% (year to 31 December 2018: 4.9%). The pro forma maximum weighted average interest rate, adjusted for the hospitals portfolio disposal, is 4.9% per annum.
Pro forma 30 June
30 June 2019 2019 31 December 2018
Average Average Average
Principal interest Principal interest Principal interest
GBPm rate GBPm rate GBPm rate
------------------------- --------- --------- --------- --------- --------- ---------
Fixed rate debt 1,013.8 5.0% 861.8 5.1% 1,016.0 5.0%
Floating rate debt
fixed by interest rate
swaps 50.0 3.1% 50.0 3.1% 50.0 3.1%
Floating rate debt
with interest capped
* 26.2 3.6% 26.2 3.6% 26.5 3.6%
------------------------- --------- --------- --------- --------- --------- ---------
1,090.0 4.8% 938.0 4.9% 1,092.5 4.8%
------------------------- --------- --------- --------- --------- --------- ---------
* rate shown is maximum rate; actual rate on the facilities in the period was 3.0% (period from debt drawdown to 31 December 2018: 2.7%)
The pro forma weighted average term to maturity of the Group's debt, adjusted for the hospitals portfolio disposal where debt maturing in September 2025 was partly repaid, is 4.6 years at 30 June 2019 compared to 5.3 years at 31 December 2018.
Key terms of the facilities as adjusted for the hospitals portfolio disposal are set out below.
Pro forma
number of Maximum
Pro forma properties annual
principal securing interest Interest Annual cash Final repayment
GBPm loan rate rate protection amortisation date
--------------------- ---------- ----------- --------- ---------------- ------------- ---------------
GBP3.8m
from Oct
Merlin Leisure 381.0* 6 5.7% Fixed 2020 Oct 2022
Budget hotels loan 76% fixed
2 68.4 72 3.4% 24% capped None April 2023
83% fixed
Leisure loan 2 60.0 20 3.2% 17% capped None June 2023
Budget hotels loan
1 60.0 54 2.7% Fixed None Oct 2023
Healthcare loan
1 64.3 2 4.3% Fixed GBP0.3m Sept 2025
Healthcare loan
2 304.3 10 5.3% Fixed GBP3.2m Oct 2025
Total, adjusted
for hospitals sale 938.0 164 4.9%
--------------------- ---------- ----------- --------- ---------------- ------------- ---------------
* GBP316.8 million of senior and mezzanine Sterling loans secured on UK assets and EUR71.8 million of senior and mezzanine Euro denominated loans secured on German assets (translated at the period end exchange rate of EUR1:GBP0.8948) with all loan tranches cross-collateralised.
amortisation in each of the years ending October 2021 and October 2022 comprises GBP3.2 million on the Sterling facility and EUR0.7 million on the Euro facility.
There have been no defaults or potential defaults in any facility during the period or since the balance sheet date. The extent of headroom on financial covenants at the balance sheet date is analysed in the financial review on the following pages.
Financial review
The Board monitors the following key performance indicators, which are further commented on in this report.
Pro forma
Six months Six months Six months
to to to
30 June 2019 30 June 2019* 30 June 2018
------------------------------------ --------------- ---------------- ---------------
Financial measures:
Total Accounting Return 5.8% 7.0% 4.9%
Total Shareholder Return 8.2% 8.2% 8.1%
Adjusted EPRA Earnings per share 8.1p 8.1p 6.2p
Net Loan To Value ratio 42.2% 33.0% 44.4%
Uncommitted cash GBP68.0m GBP232.0m GBP59.6m
Other measures:
Headroom on debt covenants:
Value fall to trigger tightest
LTV default test 32% 34% 32%
Rent fall to trigger tightest ICR
default test 34% 35% 31%
------------------------------------ --------------- ---------------- ---------------
* adjusted where relevant for the hospitals portfolio disposal
Key performance indicator - Total Accounting Return
The principal financial outcome that the Board seeks to achieve is attractive growth in shareholder returns. In assessing the Group's results and financial position, the Board's primary focus is on financial results, principally Net Asset Value per share and Earnings Per Share, adjusted to conform with the industry standard EPRA guidelines which the Board considers provide a better comparison with other real estate companies. We also comment on the financial position and results prepared in accordance with IFRS, without adjustment.
The Board monitors both Total Accounting Return, which is the movement in EPRA NAV per share plus dividends, and Total Shareholder Return, which is the share price movement plus dividends. The principal focus for the Board is on Total Accounting Return as the Total Shareholder Return, while important, is also subject to wider market movements not necessarily related to the Group itself.
The movements in net asset value reported under IFRS and shown in the consolidated balance sheet, adjusted for the hospitals portfolio disposal, are as follows:
Six months to 30 June Six months to 30 June
2019 2018
------------------------ ------------------------
Pence per Pence per
GBPm share GBPm share
----------------------------------- ----------- ----------- ---------- ------------
NAV at start of period 1,281.6 398.5 860.6 373.3
Investment property revaluation 43.1 13.3 42.8 13.1
Rental income less administrative
expenses and finance costs 32.3 10.1 22.8 8.3
Dividends paid (25.3) (7.9) (16.1) (6.0)
Tax charge (0.9) (0.3) (1.0) (0.3)
Derivative revaluation (0.9) (0.3) - -
Dilution from shares issued
in settlement of previous
year's incentive fee - (1.5) - (7.3)
March 2018 share issue - - 309.8 (2.0)
NAV at end of period 1,329.9 411.9 1,218.9 379.1
Hospitals portfolio disposal
in July 2019 14.8 4.6 - -
----------------------------------- ----------- ----------- ---------- ------------
Pro forma NAV at end of period 1,344.7 416.5 1,218.9 379.1
----------------------------------- ----------- ----------- ---------- ------------
EPRA NAV takes the balance sheet measure of net asset value and excludes items that are considered to have no relevance to the assessment of long term performance. Consistent with the EPRA guidance, the Group's reported NAV is adjusted to exclude deferred tax on investment property revaluations (which in this case relate to the German assets) and fair value movements on derivatives.
The Group's EPRA NAV per share at 30 June 2019 was 415.9 pence, up 3.8% since 31 December 2018. The Group's pro forma EPRA NAV per share at that date, adjusted for the hospitals portfolio disposal, was 420.5 pence which represents a 5.0% increase since 31 December 2018. This 20.0 pence per share uplift, together with dividends of 7.9 pence per share, results in a 7.0% Total Accounting Return.
The analysis of movements in the Group's EPRA NAV and EPRA NAV per share is as follows:
Six months to 30 June Six months to 30 June
2019 2018
------------------------- -------------------------
Pence per Pence per
GBPm share GBPm share
--------------------------------- --------- -------------- --------- --------------
EPRA NAV at start of period 1,292.9 400.5 870.8 370.4
Investment property revaluation
* 48.6 15.0 48.1 14.9
Rental income* and other income
less administrative expenses,
finance costs and current
tax 26.6 8.3 17.3 6.3
Dividends paid (25.3) (7.9) (16.1) (6.0)
Currency translation and other
movements - - (0.1) (0.1)
March 2019 share placing (net
of costs) - - 309.8 (3.1)
EPRA NAV at end of period 1,342.8 415.9 1,229.8 382.4
Hospitals portfolio disposal
in July 2019 14.8 4.6 - -
--------------------------------- --------- -------------- --------- --------------
Pro forma EPRA NAV at end
of period 1,357.6 420.5 1,229.8 382.4
--------------------------------- --------- -------------- --------- --------------
Growth in NAV 49.9 15.4 49.2 12.0
Dividends paid 25.3 7.9 16.1 6.0
--------------------------------- --------- -------------- --------- --------------
Total Accounting Return 75.2 23.3 65.3 18.0
Hospitals portfolio disposal
in July 2019 14.8 4.6 - -
--------------------------------- --------- -------------- --------- --------------
Pro forma Total Accounting
Return 90.0 27.9 65.3 18.0
--------------------------------- --------- -------------- --------- --------------
Total Accounting Return -
percentage
Growth in EPRA NAV 5.8% 4.9%
Growth in pro forma EPRA NAV 7.0% 4.9%
--------------------------------- --------- -------------- --------- --------------
* adjusted by GBP5.5 million or 1.7 pence per share (2018: GBP5.2 million or 1.9 pence per share) of Rent Smoothing Adjustments
EPRA NAV is reconciled to the balance sheet net asset value measured in accordance with IFRS in note 17 to the interim financial statements.
The calculation of Total Accounting Return and Total Shareholder Return is included in the Supplementary Information in the section following the interim financial statements.
Rent Smoothing Adjustments
Rent Smoothing Adjustments to investment property revaluations and revenue arise from the Group's accounting policy, as required by IFRS, to spread the impact of any fixed or minimum rental uplifts evenly over the term of each relevant lease. This treatment gives rise to a mismatch between rental cash flows and reported rental revenue in any period. These adjustments relate to rents that are subject to fixed uplifts, which amounted to 49% of passing rent over the six months to 30 June 2019 (reducing to 41% following the hospitals portfolio disposal), together with the 5% of rents (increasing to 6% after the hospitals portfolio disposal) with fixed minimum uplifts on RPI-linked reviews.
The impact of this accounting treatment is to record a receivable, included in the book value of investment property, for the amount of rent included in the income statement ahead of actual cash receipts. This receivable increases over the first half of each lease term then unwinds to zero over the second half of each lease term. In order that the receivable does not overstate the value of the portfolio when included in the book value of the investment properties, any movement in the receivable is offset against property revaluation movements. Since this adjustment increases rental income and reduces property revaluation gains by the same amount (and vice versa in the second half of each lease term) it does not change the Group's retained earnings or net assets.
The impact of each of the rental income flows subject to a Rent Smoothing Adjustment is as follows:
Receivable Maximum receivable
at at midway
30 June 2019 point Midway point
GBPm GBPm in lease term
------------------------------------ --------------- -------------------- -------------------
Healthcare - Ramsay hospitals:
Retained Ramsay hospitals 104.8 111.8 May 2022
Hospitals portfolio sold in July
2019 50.0 53.4 May 2022
German leisure * 35.2 42.0 January 2025
Healthcare - Lisson Grove hospital 10.5 20.6 March 2035
Manchester Arena 1.3 8.9 December 2031
The Brewery 0.6 23.5 June 2041
Pubs 0.2 1.3 April 2029
------------------------------------ --------------- -------------------- -------------------
202.6 261.5
------------------------------------ --------------- -------------------- -------------------
* at the 30 June 2019 Euro conversion rate of EUR1:GBP0.8948
The future impact of this adjustment would only change if there were acquisitions, disposals or lease variations relating to properties with fixed or minimum RPI-linked rental uplifts. Assuming no change in the portfolio beyond the sale of the hospitals announced in July 2019, the adjustment that will be recognised on the portfolio during the year and that is expected for each of the next three financial years (translating the German adjustment at the 30 June 2019 Euro conversion rate of EUR1:GBP0.8948) is as follows:
GBPm
------ ---------
2019 10.6
2020 8.9
2021 7.3
2022 5.6
--------- ---------
Key performance indicator - Adjusted EPRA EPS
The Company's policy is to distribute its Adjusted EPRA EPS through payment of a fully covered cash dividend, paid quarterly. In addition to that fully covered distribution, the Board has announced its intention, for as long as the surplus proceeds of the hospitals portfolio disposal which completed in August 2019 are not fully deployed or returned to shareholders, to top up the dividend to the extent that Adjusted EPRA EPS has been reduced by that disposal.
The Group's basic and diluted EPS calculated in accordance with IFRS not only include property valuation movements and Rent Smoothing Adjustments but are also required to be calculated on the assumption that any shares issued in settlement of an incentive fee are treated as having been issued on the first day of the period, when in fact they are issued some three months after the end of the year in which they have been earned. As a result, basic EPS for 2019 is calculated on the basis that the 1.3 million shares issued in settlement of the 2018 incentive fee were in issue for the whole period, although they were not in fact issued until March 2019. This factor has a distorting effect on Dividend Cover and is therefore excluded from the Adjusted EPRA EPS measure.
Six months to 30 June Six months to 30 June
2019 2018
------------------------ ------------------------
Pence per Pence per
GBPm share GBPm share
Rental income net of property
outgoings 68.4 21.1 55.6 19.8
Investment property revaluation 43.1 13.3 42.8 15.2
Net finance costs (28.1) (8.6) (25.5) (9.1)
Administrative expenses (8.4) (2.5) (7.3) (2.6)
Tax charge (0.9) (0.3) (0.9) (0.3)
Profit on budget hotels disposals 0.4 0.1 - -
Basic and Diluted Earnings 74.5 23.1 64.7 23.0
----------------------------------- -------- -------------- -------- --------------
Any investment property revaluations, profits on the sale of investment properties, fair value movements on derivatives and related deferred tax are excluded from basic EPS in order to calculate EPRA EPS, and so provide a measure of underlying earnings from core operating activities using the industry standard guidance issued by EPRA. Calculations are based on the same share weightings as required for the calculation of basic earnings per share, details of which are included within the supplementary information at the end of this report.
Adjusted EPRA EPS takes EPRA EPS and then adjusts it by:
-- removing the effect of Rent Smoothing Adjustments; -- excluding any significant non-recurring costs;
-- excluding any incentive fee and the associated irrecoverable VAT, which are considered to be linked to revaluation movements and therefore best treated consistently with revaluations; and
-- calculating the weighted average number of shares to reflect the actual date on which shares are issued.
The Board considers this adjusted measure to be appropriate for comparison of the performance of the Group from year to year and with its peer group, and to avoid distortions in the per share figures which in turn can distort the measurement of Dividend Cover.
Adjusted EPRA EPS is reconciled to basic EPS in note 8 to the financial statements. EPRA earnings and Adjusted EPRA earnings are analysed as follows:
Six months to 30 June Six months to 30 June
2019 2018
------------------------- -------------------------
Pence per Pence per
GBPm share GBPm share
------------------------------------ --------- -------------- --------- --------------
Rental income net of property
outgoings:
Portfolio owned throughout
the period 54.1 16.8 53.1 19.0
Budget hotels portfolio purchased
April 2018 7.5 2.3 2.4 0.7
Leisure portfolio purchased
July 2018 6.0 1.8 - -
Net finance costs:
Facilities drawn throughout
the period (25.2) (7.9) (25.2) (8.9)
Budget hotels loan drawn
down April 2018 (1.4) (0.4) (0.4) (0.1)
Leisure loan drawn down July
2018 (0.9) (0.3) - -
Finance income 0.2 0.1 0.2 0.1
Administrative expenses (8.4) (2.5) (7.3) (2.6)
Tax (0.2) (0.1) (0.3) (0.2)
EPRA Earnings 31.7 9.8 22.5 8.0
Rent Smoothing Adjustments (5.5) (1.7) (5.2) (1.9)
Adjustment for weighted average
of shares - - - 0.1
Adjusted EPRA earnings 26.2 8.1 17.3 6.2
------------------------------------ --------- -------------- --------- --------------
Adjusted EPRA earnings per share - administrative expenses
The Group's administrative expenses for the period are the same under IFRS and the EPRA measure, while Adjusted EPRA EPS excludes any performance linked incentive fees which are payable in shares.
Six months to 30 June Six months to 30 June
2019 2018
----------------------- -----------------------
Pence per Pence per
GBPm share GBPm share
------------------------------- ----- ---------------- ----- ----------------
Advisory fees 7.3 2.2 6.2 2.2
Other administrative expenses 0.8 0.2 0.8 0.3
Corporate costs 0.3 0.1 0.3 0.1
------------------------------- ----- ---------------- ----- ----------------
Total administrative expenses 8.4 2.5 7.3 2.6
------------------------------- ----- ---------------- ----- ----------------
Because VAT cannot be applied to the rents on the Healthcare assets, there is an element of irrecoverable VAT incurred on the Group's running costs which is included within each relevant line item in the table above. The proportion of disallowed VAT on administrative expenses averaged 38% during the period and, following the hospitals portfolio disposal, reduced to 30% with effect from mid-August 2019.
As an externally managed business, the majority of the Group's overheads are covered by the advisory fees paid to the Investment Adviser, which in the period amounted to GBP6.8 million plus irrecoverable VAT of GBP0.5 million (30 June 2018: GBP5.6 million plus irrecoverable VAT of GBP0.6 million). The Investment Adviser itself meets office running costs, administrative expenses and remuneration for the whole management and support team. The advisory fees are further explained in note 18 to the financial statements.
Until 31 March 2019, advisory fees were calculated on a sliding scale based on the Group's EPRA NAV, payable at:
-- 1.25% per annum on EPRA NAV up to GBP500 million; plus -- 1.0% on EPRA NAV from GBP500 million to GBP1 billion; plus -- 0.75% thereafter.
With effect from 1 April 2019 and following an independent benchmarking exercise conducted by the Remuneration Committee and reviewed by the independent Directors, the tiered fee arrangements noted above remain in place but with a reduction in the level of advisory fees payable on EPRA NAV exceeding GBP1.5 billion from 0.75% per annum to 0.5%, reflecting the significant growth of the size of the Company since the fee arrangements were last formally reviewed by the Independent Directors.
The management contract between the Company and Prestbury Investments LLP expires in December 2025. There are no renewal rights or payments at the time of expiry. Any payments triggered by a change of control in the Company are limited to four times the most recent quarterly fee at the time any such change occurs.
The other recurring administrative expenses are principally professional fees, including the costs of the external property valuations, external trustee and administration costs, tax compliance fees and audit fees, which are largely billed directly to subsidiary undertakings.
Corporate costs are those costs necessarily incurred as a result of the Company being listed and comprise:
-- fees payable to the four Independent Directors amounting to GBP0.1 million in the period (2018: GBP0.1 million), with the other three Directors being partners in the Investment Adviser who receive no directors' fees from the Company; and
-- other costs of being listed, such as the fees of the nominated adviser required under the AIM Rules, registrars' fees and AIM fees, which together total GBP0.2 million (six months to 30 June 2018: GBP0.2 million) in the period.
An incentive fee becomes due if total returns to investors over a financial year, as set out in the audited accounts, exceed a compound growth rate of 10% per annum above the EPRA NAV per share the last time any incentive fee was paid. If the threshold return is exceeded, the Investment Adviser receives 20% of any surplus above that priority return to shareholders, subject to a cap of 5.0% of EPRA NAV. Any such fee is payable in shares which are not permitted to be sold, save in certain limited circumstances, for a period of between 18 and 42 months following the end of the year for which the fee was earned. In order to make a reasonable assessment of whether or not such a fee is likely to be payable in respect of the 2019 financial year, the Board has estimated the EPRA NAV of the Group at 31 December 2019 on the basis of the assumptions set out in note 18 to the financial statements. On the basis of that assessment no fee would be payable for the 2019 financial year and as a result no fee is accrued at 30 June 2019 (30 June 2018: GBPnil).
Adjusted EPRA EPS: net finance costs
Six months to 30 June Six months to 30 June
2019 2018
----------------------- -----------------------
Pence per Pence per
GBPm share GBPm share
------- -------------- ------- --------------
Interest on secured debt held
throughout the period:
Interest on secured debt
retained 20.8 6.6 20.9 7.5
Interest on secured debt
repaid in August 2019 3.3 1.0 3.3 1.2
On facilities drawn throughout
the period 24.1 7.6 24.2 8.7
Interest on secured debt drawn
in the prior year:
On facility drawn in April
2018 1.1 0.3 0.4 0.1
On facility drawn in July
2018 1.0 0.3 - -
Total interest charge on secured
debt 26.2 8.2 24.6 8.8 Amortisation of costs of arranging facilities (non-cash) 1.2 0.4 1.0 0.4 Interest charge on headlease liabilities 0.8 0.1 0.1 - Loan agency fees 0.1 - - - Interest income (0.2) (0.1) (0.2) (0.1) Net finance costs for the period (IFRS and EPRA basis) 28.1 8.6 25.5 9.1 Reclassification of interest charge on headlease liabilities against revenue * (0.8) (0.1) (0.1) - Adjustment to weighted average number of shares - - - (0.2) ------------------------------------ ------- -------------- ------- -------------- Net finance costs for the period (Adjusted EPRA basis) 27.3 8.5 25.4 8.9 ------------------------------------ ------- -------------- ------- --------------
* headlease interest is reclassified against rental income net of property outgoings in Adjusted EPRA EPS
The nature and principal terms of the Group's loan facilities are explained in the Financing section earlier in this report.
Adjusted EPRA EPS - tax
The Group operates under the UK REIT regime so its rental operations, which make up the majority of the Group's earnings, 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.
German tax was charged in the period at an effective rate of 15% (2018: 15%) on realised profits from the Group's German rental operations and the resulting tax charge was GBP0.2 million (six months to 30 June 2018: GBP0.2 million). The balance sheet includes a deferred tax liability of GBP11.8 million (31 December 2018: GBP11.1 million) relating to unrealised German capital gains tax on investment properties which would only be crystallised on a sale of those assets. There are currently no plans to sell these assets.
On an IFRS basis, the current tax charge and the movement in deferred tax result in a net tax charge of GBP0.9 million (six months to 30 June 2018: GBP0.7 million). Deferred tax is excluded from Adjusted EPRA EPS as shown in note 8 to the financial statements.
Adjusted EPRA EPS - currency translation
The majority of the Group's assets are located in the UK and the financial statements are therefore presented in Sterling. 3.8% (31 December 2018: 3.9%) of the Group's pro forma EPRA NAV comprises assets and liabilities relating to properties located in Germany, valued in and generating net earnings in Euros. Exposure to currency fluctuations is partially hedged through both assets and liabilities being Euro denominated. The Group remains exposed to currency translation differences on the net results and net assets of these unhedged operations. Foreign currency movements are recognised in the statement of other comprehensive income.
The German properties are valued at EUR129.7 million as at 30 June 2019, with the Euro denominated secured debt amounting to EUR71.8 million. There was no material change in the Euro exchange rate against Sterling in the period or the prior year.
Key performance indicator - Net Loan To Value ratio
The Board structures debt facilities with a view to maintaining a capital structure that will enhance shareholder returns while withstanding a range of market conditions. During the period, the Group's Net LTV fell from 43.0% to 42.2% and has further reduced to 33.0% on a pro forma basis adjusted for the hospitals portfolio disposal. This reduction reflects the impact of GBP152.0 million of debt repayment on the hospitals portfolio, GBP48.9 million of property valuation uplifts, GBP2.1 million of scheduled debt amortisation in the six months to 30 June 2019 and the GBP164.0 million of surplus cash realised on completion of the hospitals portfolio disposal.
Key performance indicator - headroom on debt covenants
The Board's approach to managing the Group's capital structure includes ensuring that the risk of any breach of covenants within secured debt facilities is carefully monitored on a range of scenarios and, to the extent possible, able to be managed. This includes structuring facilities to ring fence the extent to which the Group's assets are at risk, ensuring that levels of headroom over financial covenants are appropriate and maintaining a level of uncommitted cash to apply in curing debt defaults in the event that it is needed.
When evaluating the appropriateness of the level of secured debt, the Board has regard to the unusual nature of the Group's income streams, specifically that all of the occupational leases are significantly longer than conventional leases for UK real estate and that the Group's rental income increases annually as a result of the annual minimum fixed rental uplifts on 38% of portfolio income (following the hospitals portfolio disposal), with a further 3% subject to three or five yearly fixed uplifts and the additional prospect of increases from the upwards only RPI-linked reviews on the rest of the portfolio. Overall two thirds of the portfolio rents are subject to annual review with the remainder subject to three or five yearly reviews. This structure gives rise to a naturally deleveraging debt profile on the assumption of constant valuation yields.
The Board reviews the headroom on all financial covenants at least quarterly. The headroom on key financial covenants at 30 June 2019 (adjusted for the hospitals portfolio disposal) is summarised below. We also disclose here the net initial valuation yield, the fall in valuation or the fall in rent that would trigger a breach of the relevant covenant at the first test date after the balance sheet date. The results shown in the following table do not include the effects of preventative measures that could be taken, including utilising the Group's significant uncommitted cash balance which stands at GBP232.0 million following the hospitals portfolio disposal and which is further explained in the following section.
Valuation Rental
Net Initial fall before fall before
Yield triggering LTV test ICR test
Actual Covenant LTV test triggered triggered
---------------------------------- ------ ----------- ----------------- ------------ ------------
Merlin leisure facility
(GBP381.0 million loans at
30 June 2019)
Cash trap LTV test (1% per annum
loan amortisation if triggered) 58% <80% 6.8% 27%
Cash trap LTV test (full cash
sweep if triggered) 58% <85% 7.2% 31%
Healthcare facility
(GBP304.3 million loan at 30
June 2019)
Cash trap LTV test (full cash
sweep if triggered) 53% <74% 6.5% 29%
LTV test 53% <80% 7.0% 34%
Cash trap projected interest
cover test (full cash sweep
if triggered) 184% >140% 24%
Projected interest cover test 184% >120% 35%
Healthcare facility
(GBP216.3 million loan at 30
June 2019 reduced to GBP64.3
million following completion
of the hospitals disposal)
LTV test 48% <80% 8.1% 40%
Cash trap projected debt service
cover test (full cash sweep
if triggered) 220% >150% 32%
Projected debt service cover
test 220% >125% 43%
Budget hotels facility
(GBP68.4 million loan at 30
June 2019)
Partial cash trap LTV test (50%
of surplus cash swept to lender
if triggered) 27% 40% - 45% 8.1% 32%
Cash trap LTV test (full cash
sweep if triggered) 27% 45% - 50% 9.1% 39%
LTV test 27% <50% 10.1% 46%
Cash trap projected interest
cover test (full cash sweep
if triggered) 635% >300% 53%
Projected interest cover test 635% >250% 61%
Budget hotels facility
(GBP60.0 million loan at 30
June 2019)
Partial cash trap LTV test (50%
of surplus cash swept to lender
if triggered) 25% 40% - 45% 8.8% 39%
Cash trap LTV test (full cash
sweep if triggered) 25% 45% - 50% 9.9% 45%
LTV test 25% <50% 11.0% 51%
Cash trap projected interest
cover test (full cash sweep
if triggered) 870% >300% 66%
Projected interest cover test 870% >250% 71%
Leisure facility
(GBP60.0 million loan drawn
at 30 June 2019)
Partial cash trap LTV test (50%
of surplus cash swept to lender
if triggered) 31% 40% - 45% 6.6% 23%
Cash trap LTV test (full cash
sweep if triggered) 31% 45% - 50% 7.5% 31%
LTV test 31% <50% 8.3% 38% Projected interest cover test 553% >150% 73% ---------------------------------- ------ ----------- ----------------- ------------ ------------
Key performance indicator - uncommitted cash
The Board considers that the ability to manage potential debt covenant breaches is an important part of a prudent leverage strategy. The Group has negotiated headroom on financial covenants considered appropriate to the business and has also obtained certain contractual cure rights, including the ability to inject cash (subject to certain limitations as to the frequency and duration of cash cures) into ring-fenced financing structures in the event of actual or prospective breaches of financial covenants. The Board regularly monitors the Group's levels of uncommitted cash which comprises cash balances outside ring-fenced structures secured to lenders, net of any creditors or other cash commitments at the balance sheet date and excluding any capital required to be retained under the AIFMD regulatory capital rules.
The Group's uncommitted cash was GBP68.0 million at 30 June 2019 and GBP232.0 million at that date on a pro forma basis following the hospitals disposal, up from GBP66.4 million as at 31 December 2018.
Cash flow
The movement in cash over the period and as adjusted for the hospitals portfolio disposal in July 2019 comprises:
Six months to30 June Six months to30 June
2019 2018
---------------------- ----------------------
Pence per Pence per
GBPm share GBPm share
------------------------------------- ----------- --------- --------- -----------
Cash from operating activities 47.1 14.8 46.2 16.4
Net interest and finance costs
paid (27.1) (8.4) (24.3) (8.6)
Tax paid (0.1) - (0.1) -
------------------------------------- ----------- --------- --------- -----------
19.9 6.4 21.8 7.8
Dividends paid (25.3) (7.9) (16.1) (6.0)
------------------------------------- ----------- --------- --------- -----------
(5.4) (1.5) 5.7 1.8
Disposals of non-core budget
hotel properties net of debt
repayment 4.0 1.2 - -
Scheduled debt amortisation
of secured debt (2.1) (0.7) (2.1) (0.7)
Issue of ordinary shares, net
of costs - - 309.8 96.3
Loans drawn down, net of costs - - 57.9 18.0
Acquisition of investment properties - - (233.5) (72.6)
------------------------------------- ----------- --------- --------- -----------
- - 134.2 41.7
Cash flow in the period (3.5) (1.0) 137.8 42.8
Cash at the start of the period 101.8 31.6 88.8 38.5
Dilution from incentive fee
share issues - (0.1) - (0.8)
Dilution from March 2019 share
issue - - - (10.0)
Cash at the end of the period 98.3 30.5 226.6 70.5
Hospitals portfolio disposal
in July 2019 164.0 50.7 - -
------------------------------------- ----------- --------- --------- -----------
Pro forma cash at the end of
the period 262.3 81.2 226.6 70.5
------------------------------------- ----------- --------- --------- -----------
Pence per Pence per
Comprising: GBPm share GBPm share
Cash and deposits:
Held at the balance sheet date 70.8 22.0 66.1 20.6
Pro forma disposal adjustment 164.0 50.7 - -
Cash held for completion of
leisure portfolio acquisition - - 132.8 41.3
------------------------------------- ----------- --------- --------- -----------
Free cash 234.8 72.7 198.9 61.9
Cash reserved for regulatory
capital 0.7 0.2 0.6 0.2
Cash held in secured subgroups 26.8 8.3 27.1 8.4
------------------------------------- ----------- --------- --------- -----------
Pro forma cash at the end of
the period 262.3 81.2 226.6 70.5
------------------------------------- ----------- --------- --------- -----------
Cash secured under credit facilities is represented by rent held in charged accounts between the date of receipt, which is typically in the week before each calendar quarter end, and the date of payment of interest and any debt amortisation, which is typically three to four weeks after the quarter end. Following the debt service payments those surpluses are then available to be released to free cash.
The Group's 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 premises where necessary. Consequently, no material unrecovered capital expenditure, property maintenance or insurance costs have been incurred in the period and it is not expected that material costs of that nature will be incurred on the current portfolio.
Following the hospitals portfolio disposal after the balance sheet date, the Board has committed to topping up the dividends payable to keep investors' income returns whole for the period during which the net proceeds realised on the sale are not fully deployed through either acquisitions or returns to shareholders. This top-up amount is currently estimated at 2.7 pence per share or approximately GBP8.7 million per annum. Other than the reduction in cash as a result of the top-up amount, in the absence of acquisitions or further disposals, cash balances are expected to remain relatively stable over time.
Nick Leslau
Chairman, Prestbury Investments LLP
4 September 2019
Independent Review Report
Introduction
We have been engaged by the Company to review the condensed financial statements included within this interim report for the six months to 30 June 2019 which comprise the Group Income Statement, the Group Statement of Other Comprehensive Income, the Group Statement of Changes in Equity, the Group Balance Sheet, the Group Cash Flow Statement and the related notes.
We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed financial statements.
Directors' responsibilities
The interim report, including the financial information contained therein, is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market ("AIM"). Those rules require that the interim report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.
As disclosed in note 2, the annual financial statements of the Group will be prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The condensed financial statements included in this interim report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed financial statements in the interim report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed financial statements in the interim report for the six months to 30 June 2019 are not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the rules of the London Stock Exchange for companies trading securities on AIM.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants and Registered Auditors
London, United Kingdom
4 September 2019
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Group Income Statement
Unaudited Unaudited
Six months Audited Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
Notes GBP000 GBP000 GBP000
--------------------------------- ----- ------------ ------------- ------------
Revenue 3,4 69,040 125,874 56,109
Property outgoings (668) (548) (569)
--------------------------------- ----- ------------ ------------- ------------
Gross profit 68,372 125,326 55,540
Administrative expenses 5 (8,353) (20,575) (7,257)
Profit on disposal of investment
properties 421 183 -
Investment property revaluation 9 43,089 98,167 42,835
Operating profit 103,529 203,101 91,118
Finance income 193 371 214
Finance costs 6 (28,354) (54,878) (25,720)
--------------------------------- ----- ------------ ------------- ------------
Profit before tax 75,368 148,594 65,612
Tax charge 7 (857) (1,081) (955)
--------------------------------- ----- ------------ ------------- ------------
Profit for the period 8 74,511 147,513 64,657
--------------------------------- ----- ------------ ------------- ------------
Pence Pence per Pence per
per share share share
--------------------------------- ----- ------------ ------------- ------------
Earnings per share
Basic 8 23.1 48.9 23.0
Diluted 8 23.1 48.7 23.0
--------------------------------- ----- ------------ ------------- ------------
All amounts relate to continuing activities.
Group Statement of Other Comprehensive Income
Unaudited Unaudited
Six months Audited Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
Notes GBP000 GBP000 GBP000
Profit for the period 74,511 147,513 64,657
--------------------------------------- ----- ------------ ------------- ------------
Items that may subsequently be reclassified
to profit or loss:
Fair value movements in
interest rate derivatives 6 (929) (200) -
Currency translation movements 26 468 (31)
Other comprehensive (loss)/income (903) 268 (31)
Total comprehensive income
for the period, net of tax 73,608 147,781 64,626
--------------------------------------- ----- ------------ ------------- ------------
The notes form part of these condensed financial statements.
Group Statement of Changes in Equity
Share
Share premium Other Retained Total
capital reserve reserves earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ---------- ---------- ----------- ----------- ---------
Six months to 30 June 2019 (unaudited)
At 1 January 2019 32,156 513,675 9,977 725,780 1,281,588
-------------------------------- ---------- ---------- ----------- ----------- ---------
Profit for the period - - - 74,511 74,511
Other comprehensive loss - - (903) - (903)
Total comprehensive income - - (903) 74,511 73,608
Issue of shares 129 4,743 (4,872) - -
Interim dividends of 7.9 pence
per share - - - (25,342) (25,342)
-------------------------------- ---------- ---------- ----------- ----------- ---------
At 30 June 2019 32,285 518,418 4,202 774,949 1,329,854
-------------------------------- ---------- ---------- ----------- ----------- ---------
Year to 31 December 2018 (audited)
At 1 January 2018 23,054 196,975 20,852 619,696 860,577
-------------------------------- ---------- ---------- ----------- ----------- ---------
Profit for the year - - - 147,513 147,513
Other comprehensive income - - 268 - 268
Total comprehensive income - - 268 147,513 147,781
Issue of shares 9,102 316,700 (16,015) - 309,787
Shares to be issued - - 4,872 - 4,872
Interim dividends of 13.9 pence
per share - - - (41,429) (41,429)
-------------------------------- ---------- ---------- ----------- ----------- ---------
At 31 December 2018 32,156 513,675 9,977 725,780 1,281,588
-------------------------------- ---------- ---------- ----------- ----------- ---------
Six months to 30 June 2018 (unaudited)
At 1 January 2018 23,054 196,975 20,852 619,696 860,577
-------------------------------- ---------- ---------- ----------- ----------- ---------
Profit for the period - - - 64,657 64,657
Other comprehensive loss - - (31) - (31)
Total comprehensive income - - (31) 64,657 64,626
Issue of shares 9,102 316,749 (16,015) - 309,836
Interim dividends of 6.0 pence
per share - - - (16,138) (16,138)
-------------------------------- ---------- ---------- ----------- ----------- ---------
At 30 June 2018 32,156 513,724 4,806 668,215 1,218,901
-------------------------------- ---------- ---------- ----------- ----------- ---------
The notes form part of these condensed financial statements.
Group Balance Sheet
Unaudited Audited Unaudited
30 June 31 December 30 June
2019 2018 2018
Notes GBP000 GBP000 GBP000
---------------------------- ----- ------------- ------------- -------------
Non-current assets
Investment properties 3,9 2,378,998 2,335,220 2,282,028
Headlease rent deposits 2,775 2,766 2,766
Interest rate derivatives 82 306 -
---------------------------- ----- ------------- ------------- -------------
2,381,855 2,338,292 2,284,794
---------------------------- ----- ------------- ------------- -------------
Current assets
Cash and cash equivalents 10 98,338 101,745 226,629
Trade and other receivables 11 4,539 3,436 909
Current tax asset - 40 -
102,877 105,221 227,538
Total assets 2,484,732 2,443,513 2,512,332
---------------------------- ----- ------------- ------------- -------------
Current liabilities
Trade and other payables 12 (34,604) (41,727) (243,546)
Secured debt 13 (1,715) (1,771) (1,674)
Interest rate derivatives (229) - -
Current tax liability (66) - (48)
---------------------------- ----- ------------- ------------- -------------
(36,614) (43,498) (245,268)
---------------------------- ----- ------------- ------------- -------------
Non-current liabilities
Secured debt 13 (1,077,224) (1,078,495) (1,008,777)
Head rent obligations under
finance leases 9 (28,424) (28,511) (28,524)
Deferred tax liability 14 (11,768) (11,110) (10,862)
Interest rate derivatives (848) (311) -
(1,118,264) (1,118,427) (1,048,163)
Total liabilities (1,154,878) (1,161,925) (1,293,431)
---------------------------- ----- ------------- ------------- -------------
Net assets 1,329,854 1,281,588 1,218,901
---------------------------- ----- ------------- ------------- -------------
Share capital 15 32,285 32,156 32,156
Share premium reserve 16 518,418 513,675 513,724
Other reserves 16 4,202 9,977 4,806
Retained earnings 16 774,949 725,780 668,215
Total equity 1,329,854 1,281,588 1,218,901
---------------------------- ----- ------------- ------------- -------------
Pence per Pence per Pence per
share share share
---------------------------- ----- ------------- ------------- -------------
Basic NAV per share 17 411.9 398.5 379.1
Diluted NAV per share 17 411.9 397.0 379.1
EPRA NAV per share 17 415.9 400.5 382.4
---------------------------- ----- ------------- ------------- -------------
The notes form part of these condensed financial statements.
Group Cash Flow Statement
Unaudited Unaudited
Six months Audited Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
Notes GBP000 GBP000 GBP000
---------------------------------- ----- ------------ ------------- ------------
Operating activities
Profit before tax 75,368 148,594 65,612
Adjustments for non-cash
items:
Investment property revaluation 9 (48,851) (102,466) (48,117)
Administrative expenses payable
in shares - 4,872 -
Profit on disposal of investment
properties (421) (183) -
Finance income (193) (371) (214)
Finance costs 6 28,354 54,878 25,720
---------------------------------- ----- ------------ ------------- ------------
Cash flows from operating
activities before changes
in working capital 54,257 105,324 43,001
Changes in working capital:
Trade and other receivables (139) (507) (515)
Trade and other payables (7,014) 6,111 3,791
Headlease rent deposits (9) - -
Cash generated from operations 47,095 110,928 46,277
Tax paid (67) (234) (142)
---------------------------------- ----- ------------ ------------- ------------
Cash flows from operating
activities 47,028 110,694 46,135
---------------------------------- ----- ------------ ------------- ------------
Investing activities
Disposal of investment properties 4,351 443 -
Interest received 193 371 214
Acquisition of investment
properties - (435,536) (232,240)
Headlease rent deposits acquired - (1,225) (1,225)
Cash flows from investing
activities 4,544 (435,947) (233,251)
---------------------------------- ----- ------------ ------------- ------------
Financing activities
Interest and finance costs
paid (27,247) (51,998) (24,555)
Dividends paid (25,342) (41,429) (16,138)
Scheduled amortisation of
secured debt (2,078) (4,156) (2,078)
Repayment of secured debt
from proceeds of disposal
of investment properties (307) - -
Proceeds of share issue - 315,500 315,500
Costs of share issue - (5,713) (5,664)
Drawdown of new secured debt - 128,700 59,193
Loan costs paid on new facilities - (2,462) (1,261)
Purchase of interest rate
derivatives - (220) -
Cash flows from financing
activities (54,974) 338,222 324,997
---------------------------------- ----- ------------ ------------- ------------
(Decrease)/increase in cash
and cash equivalents (3,402) 12,969 137,881
Cash and cash equivalents
at the beginning of the period 101,745 88,755 88,755
Effect of currency translation
movements (5) 21 (7)
---------------------------------- ----- ------------ ------------- ------------
Cash and cash equivalents
at the end of the period 10 98,338 101,745 226,629
---------------------------------- ----- ------------ ------------- ------------
The notes form part of these condensed financial statements.
Notes to the Condensed Financial Statements
1. General information about the Group
The condensed financial statements set out in this report cover the six months to 30 June 2019, with comparative amounts shown for the year to 31 December 2018 and the six months to 30 June 2018, 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 registered office and principal place of business is Cavendish House, 18 Cavendish Square, London, W1G 0PJ.
The Company is listed on the AIM market of the London Stock Exchange.
Further information about the Group and Company can be found on its website, www.SecureIncomeREIT.co.uk.
2. Basis of preparation and accounting policies
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 which the Directors have considered and believe remains appropriate for the financial statements. The accounting policies adopted in this report are consistent with those applied in the Group's statutory accounts for the year to 31 December 2018, apart from the adoption of IFRS 16 "Leases" which has not had a material impact on the Group's financial statements. The accounting policies are expected to be consistently applied in the financial statements for the year to 31 December 2019.
No other new or revised standard is expected to be relevant to the Group and have a material effect on the Group's financial statements in future.
Euro denominated results for the Group's German operations have been converted to Sterling at an average exchange rate for the period of EUR1:GBP0.8732 (year to 31 December 2018: EUR1:GBP0.8846; six months to 30 June 2018: EUR1:GBP0.8795) and period end balances converted to Sterling at the 30 June 2019 exchange rate of EUR1:GBP0.8948 (31 December 2018: EUR1:GBP0.8969; 30 June 2018: EUR1:GBP0.8843).
The condensed financial statements for the period are unaudited and the financial information for the year ended 31 December 2018 contained therein does not constitute statutory accounts for the purposes of the Companies Act 2006. The annual report and financial statements for 2018 have been filed at Companies House. The independent auditor's report on the annual report and financial statements for 2018 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.
The Directors are required to assess whether it is appropriate to make provision at the balance sheet date for the relevant proportion of any incentive fee expected to be payable for the whole of the current financial year. In making this assessment, the Directors estimate the EPRA NAV per share of the Group at the end of the financial year. As described in note 18, this estimate does not constitute a forecast but represents an estimated illustrative case only, and is considered to provide a reasonable basis for estimating whether an incentive fee will be payable while recognising the limitations inherent in any estimate of future values.
3. Operating segments
IFRS 8 "Operating Segments" requires operating segments to be identified on a basis consistent with 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 the Board.
The Group owned 172 properties at 30 June 2019, originally acquired in five separate portfolios. Although certain information about these portfolios is described on a portfolio basis within the Investment Adviser's report or grouped by property type (Healthcare, Leisure and Budget Hotels), when considering resource allocation and performance the Board reviews quarterly management accounts prepared on a basis which aggregates the performance of the portfolios and focuses on the Group's Total Accounting Return. The Board has therefore concluded that the Group has operated in, and was managed as, one reportable segment of property investment in both the current period and prior year.
The geographical split of revenue and applicable non-current assets was as follows:
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
----------------------- ------------ ------------ ------------
Revenue
UK 64,902 117,470 51,939
Germany 4,138 8,404 4,170
----------------------- ------------ ------------ ------------
69,040 125,874 56,109
----------------------- ------------ ------------ ------------
Unaudited Audited Unaudited
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
----------------------- ------------ ------------ ------------
Investment properties
UK 2,262,948 2,222,670 2,171,048
Germany 116,050 112,550 110,980
----------------------- ------------ ------------ ------------
2,378,998 2,335,220 2,282,028
----------------------- ------------ ------------ ------------
Revenue by tenant comprises:
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
Revenue including Rent Smoothing 2019 2018 2018
Adjustments GBP000 GBP000 GBP000
------------------------------------ ------------ ------------ ------------
Ramsay Healthcare UK Operations
Limited 27,320 55,045 27,116
Travelodge Hotels Limited 15,318 25,398 10,031
Merlin Attractions Operations
Limited 13,592 26,804 13,151
Other tenants (each less than
10% of revenue) 12,810 18,627 5,811
------------------------------------ ------------ ------------ ------------
Reported revenue 69,040 125,874 56,109
------------------------------------ ------------ ------------ ------------
Revenue excluding Rent Smoothing
Adjustments
------------------------------------ ------------ ------------ ------------
Ramsay Healthcare UK Operations
Limited 24,425 48,385 23,571
Travelodge Hotels Limited 15,318 25,398 10,031
Merlin Attractions Operations
Limited 13,592 26,804 13,151
Other tenants (each less than
10% of revenue) 10,212 14,337 4,133
------------------------------------ ------------ ------------ ------------
Revenue on Adjusted EPRA Earnings
basis 63,547 114,924 50,886
------------------------------------ ------------ ------------ ------------
4. Revenue
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
----------------------------------- ------------ ------------ ------------
Rental income 62,742 113,540 50,292
Rent Smoothing Adjustments (note
9) 5,493 10,950 5,223
Recovery of head rent and service
charge costs from occupational
tenants 805 1,384 594
----------------------------------- ------------ ------------ ------------
69,040 125,874 56,109
----------------------------------- ------------ ------------ ------------
The Rent Smoothing Adjustments arise 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 49% of passing rent as at 30 June 2019 (31 December 2018: 48%; 30 June 2018: 45%) that increases by a fixed percentage each year and the 5% of passing rent as at 30 June 2019 (31 December 2018: 5%; 30 June 2018: 0%) that is subject to minimum fixed uplifts on RPI-linked reviews. At this stage in the lease terms, which is before the midway point of each lease, this results in an increase in revenue and an offsetting entry is recognised in the income statement as a reduction in the gains on investment property revaluation.
5. Administrative expenses
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------
Advisory fee (note 18) 7,306 13,295 6,214
Other administrative expenses 774 1,485 779
Corporate costs 273 517 264
Incentive fee (note 18) - 5,278 -
8,353 20,575 7,257
------------------------------- ------------ ------------ ------------
Amounts shown above include any irrecoverable VAT.
6. Finance costs
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
--------------------------------------- ------------ ------------ ------------
Interest on secured debt 26,019 51,075 24,552
Amortisation of loan costs (non-cash) 1,211 2,225 1,009
Interest charge on headlease
liabilities 822 1,191 95
Loan agency fees 124 213 64
Amortisation of interest rate
derivatives, transferred from
other reserves 117 149 -
Fair value adjustment of interest
rate derivatives 61 25 -
Finance costs recognised in
the income statement 28,354 54,878 25,720
--------------------------------------- ------------ ------------ ------------
Fair value adjustment of interest
rate derivatives 1,046 349 -
Amortisation of interest rate
derivatives, transferred to
the income statement (117) (149) -
Finance costs recognised in
other comprehensive (loss) /
income 929 200 -
----------------------------------- ----- -----
7. Tax
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
Analysis of tax charge in the 2019 2018 2018
period GBP000 GBP000 GBP000
---------------------------------- ------------ ------------ ------------
Current tax - Germany
Corporation tax charge 167 282 175
Adjustments in respect of prior
periods 22 52 125
Deferred tax - Germany
Deferred tax charge 668 747 655
---------------------------------- ------------ ------------ ------------
857 1,081 955
---------------------------------- ------------ ------------ ------------
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
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
------------------------------------- ------------ ------------ ------------
Profit before tax 75,368 148,594 65,612
------------------------------------- ------------ ------------ ------------
Tax charge at the standard rate
of corporation tax in the UK
of 19% 14,320 28,233 12,466
Effects of:
Investment property revaluation
not taxable (8,579) (20,001) (8,476)
Qualifying property rental business
not taxable under UK REIT rules (5,597) (8,585) (3,547)
Recognition of tax losses 384 733 211
Finance costs disallowed under
corporate interest restriction
rules 220 401 -
German current tax charge 167 282 175
Profit on disposal of investment
properties not taxable (80) (35) -
Adjustments in respect of prior
periods 22 52 125
Amounts not deductible for tax - 1 1
Tax charge for the period 857 1,081 955
------------------------------------- ------------ ------------ ------------
The Company and its subsidiaries operate as a UK Group REIT. Subject to continuing compliance with certain rules, the UK REIT rules exempt the profits of the Group's UK and German property rental business from UK corporation tax. Gains on the Group's UK and German properties are also generally exempt from UK corporation tax, provided they are not held for trading or in certain circumstances sold in the three years after completion of a development. None of the Group's properties were developed in the last three years.
To remain a UK REIT, there are a number of conditions to be met in respect of the Company, the Group's qualifying activity and the Group's balance of business. Since entering the UK REIT regime the Group has complied with all applicable conditions.
The Group is subject to German corporation tax on its German property rental business at an effective rate of 15%, resulting in a tax charge of GBP0.2 million (year to 31 December 2018: GBP0.3 million; six months to 30 June 2018: GBP0.2 million). A deferred tax liability of GBP11.8 million (31 December 2018: GBP11.1 million; 30 June 2018: GBP10.9 million) is recognised for the German capital gains tax that would potentially be payable on the sale of the relevant investment properties.
Certain non-resident unit trust Group entities intend to enter into transparency elections under schedule 5AAA to the Taxation of Chargeable Gains Act 1992, such that any disposals of properties by those entities will be deemed to arise in their parent companies and can therefore benefit from the REIT exemption.
8. Earnings per share
Basic EPS
Earnings per share ("EPS") is calculated as the 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. In calculating the weighted average number of shares in issue:
-- where shares have been issued during the period in settlement of an incentive fee relating to the results of the prior year, they are treated as having been issued on the first day of the period rather than their actual date of issue, which is typically in March; and
-- shares to be issued at the balance sheet date in settlement of an incentive fee relating to the results of that period are not taken into account.
Diluted EPS
The weighted average number of shares used in the calculation of diluted EPS is required to include any shares to be issued in respect of an incentive fee, as if those shares had been in issue throughout the whole of the period over which the fee was earned, although in fact they will not have been issued until the following period.
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
------------------------------------- ------------ ------------ ------------
Profit for the period 74,511 147,513 64,657
------------------------------------- ------------ ------------ ------------
Weighted average number of shares
in issue Number Number Number
------------------------------------- ------------ ------------ ------------
Basic EPS calculation 322,850,595 301,549,670 281,091,238
Shares to be issued in satisfaction
of incentive fee - 1,287,242 -
Diluted EPS calculation 322,850,595 302,836,912 281,091,238
------------------------------------- ------------ ------------ ------------
Pence Pence per Pence per
per share Share share
------------- ---------- --------- ---------
Basic EPS 23.1 48.9 23.0
Diluted EPS 23.1 48.7 23.0
------------- ---------- --------- ---------
EPRA EPS
EPRA, the European Public Real Estate Association, publishes guidelines for calculating adjusted earnings designed to represent core operational activities. These guidelines have been applied and the calculation of EPRA EPS set out below.
An Adjusted EPRA earnings calculation has also been presented. This removes the effect of the Rent Smoothing Adjustments (in order not to artificially flatter Dividend Cover calculations) and any non-recurring costs such as those for share placings. The adjusted measure also excludes any incentive fees which are paid in shares, as they are considered to be linked to revaluation movements and are therefore best treated consistently with revaluations.
In calculating Adjusted EPRA EPS, the weighted average number of shares is 322,224,754 (31 December 2018: 299,730,384; 30 June 2018: 277,535,542), calculated using the actual date on which any shares are issued during the period so as not to create a mismatch between the basis of calculation of Adjusted EPRA EPS and the dividends per share paid in the period. In this way the Group's measure of Dividend Cover is considered to be more precisely calculated.
The weighted average number of shares applied in calculating Adjusted EPRA EPS has been derived as follows:
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
Number Number Number
---------------------------------- ------------ ------------ ------------
Shares in issue throughout the
period 321,563,353 230,536,874 230,536,874
Pro rata adjustment for:
Shares issued in March 2019
in settlement of 2018 incentive
fee 661,401 - -
Shares issued in March 2018
in settlement of 2017 incentive
fee - 3,595,356 2,585,773
Shares issued in March 2018
share placing - 65,598,153 44,412,895
322,224,754 299,730,383 277,535,542
---------------------------------- ------------ ------------ ------------
EPRA and Adjusted EPRA earnings are calculated as:
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
----------------------------------- ------------ ------------ ------------
Profit for the period 74,511 147,513 64,657
EPRA adjustments:
Investment property revaluation
(note 9) (43,089) (98,167) (42,835)
Profit on disposal of investment
properties (421) (183) -
German deferred tax on investment
property revaluations (note
7) 668 747 655
Fair value adjustment of interest
rate derivatives 27 25 -
EPRA earnings 31,696 49,935 22,477
Other adjustments:
Rent Smoothing Adjustments (note
9) (5,493) (10,950) (5,223)
Incentive fee - 5,278 -
Adjusted EPRA earnings 26,203 44,263 17,254
----------------------------------- ------------ ------------ ------------
As a result of those adjustments, the EPRA EPS and Adjusted EPRA EPS figures are as follows:
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
Pence per share Pence per share Pence per share
------------------- ----------------- ---------------- -----------------
EPRA EPS 9.8 16.6 8.0
Diluted EPRA EPS 9.8 16.5 8.0
Adjusted EPRA EPS 8.1 14.7 6.2
------------------- ----------------- ---------------- -----------------
9. Investment properties
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
Freehold investment properties GBP000 GBP000 GBP000
-------------------------------------- ------------ ------------ ------------
At the start of the period 2,018,115 1,693,956 1,693,956
Revaluation movement 48,851 97,015 47,720
Disposals (3,480) (2,731) -
Currency translation movement (171) 1,233 (330)
Additions - 228,642 228,574
At the end of the period 2,063,315 2,018,115 1,969,920
-------------------------------------- ------------ ------------ ------------
Leasehold investment properties
-------------------------------------- ------------ ------------ ------------
At the start of the period 317,105 87,928 87,928
Revaluation movement - 5,451 397
Disposals (1,335) - -
Movement in headlease liabilities (87) (72) (59)
Additions - 206,936 206,980
Recognition of headlease liabilities
acquired - 16,862 16,862
At the end of the period 315,683 317,105 312,108
-------------------------------------- ------------ ------------ ------------
Total investment properties
-------------------------------------- ------------ ------------ ------------
At the start of the period 2,335,220 1,781,884 1,781,884
Revaluation movement 48,851 102,466 48,117
Disposals (4,815) (2,731) -
Currency translation movement (171) 1,233 (330)
Movement in headlease liabilities (87) (72) (59)
Additions - 435,578 435,554
Recognition of headlease liabilities
acquired - 16,862 16,862
At the end of the period 2,378,998 2,335,220 2,282,028
-------------------------------------- ------------ ------------ ------------
As at 30 June 2019 the properties were valued at GBP2,350.6 million by CBRE Limited or Christie & Co in their capacity as external valuers (31 December 2018: GBP2,306.7 million by CBRE Limited or Christie & Co; 30 June 2018: GBP2,253.5 million by CBRE Limited, Christie & Co or another qualified valuer). The valuations were prepared on a fixed fee basis, independent of the portfolio value, and were undertaken in accordance with RICS Valuation - Global Standards 2017 on the basis of fair value, supported by reference to market evidence of transaction prices for similar properties.
The hospitals sold on 22 July 2019 are included in the figures above at a valuation of GBP300.4 million as at 30 June 2019 (31 December 2018 and 30 June 2018: GBP292.3 million).
The historic cost of the Group's investment properties as at 30 June 2019 was GBP1,686.8 million (31 December 2018: GBP1,690.9 million; 30 June 2018: GBP1,693.5 million).
Other than headlease payments, the majority of which are recoverable from tenants, the Group did not have any material contractual investment property obligations at either balance sheet date. All responsibility for property liabilities on the Group's portfolio, including repairs and maintenance, resides directly with the tenants, except at Manchester Arena where such costs relating to the structure and common areas are liabilities of the Group but are generally recoverable from tenants via service charges.
Of the total fair value, GBP116.1 million (31 December 2018: GBP112.6 million; 30 June 2018: GBP111.0 million) relates to the Group's German investment properties, the valuations of which are translated into Sterling at the prevailing exchange rate at each balance sheet date.
All of the investment properties are held within six (31 December 2018 and 30 June 2018: six) ring-fenced security pools as security under fixed charges in respect of separate secured debt facilities.
Under the Group's accounting policy for leasehold properties, the book values of those properties are grossed up by the present value of minimum headlease payments. The corresponding liability to the head leaseholder is included in the balance sheet as a finance lease obligation. The resulting reconciliation between the book values of the investment properties and their external valuations is as follows:
Unaudited Audited Unaudited
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
----------------------------------- ---------- ------------ ----------
Book value 2,378,998 2,335,220 2,282,028
Gross-up of headlease liabilities (28,424) (28,511) (28,524)
----------------------------------- ---------- ------------ ----------
External valuation 2,350,574 2,306,709 2,253,504
----------------------------------- ---------- ------------ ----------
Included within the book value of investment properties at 30 June 2019 is GBP202.6 million (31 December 2018: GBP197.1 million; 30 June 2018: GBP190.9 million) in respect of Rent Smoothing Adjustments as described in note 4, representing the amount of rent included in the income statement ahead of actual cash receipts. This receivable increases over the first half of each lease term and then unwinds, reducing to zero over the second half of each lease term, and comprises:
Unaudited Audited Unaudited
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
------------------------------------ ---------- ------------ ----------
Healthcare - Ramsay hospitals
(maximum receivable GBP165.2
million in May 2022) 154,757 151,863 148,749
Leisure - German theme park/hotel
(maximum receivable GBP42.0
million in Jan 2025) 35,210 34,345 32,911
Healthcare - Lisson Grove hospital
(maximum receivable GBP20.6
million in March 2035) 10,516 9,902 9,277
Leisure - Manchester Arena
(maximum receivable GBP8.9
million in Dec 2031) 1,243 640 -
Leisure - The Brewery
(maximum receivable GBP23.5
million in June 2041) 606 269 -
Leisure - Stonegate pubs
(maximum receivable GBP1.3
million in April 2029) 244 122 -
202,576 197,141 190,937
------------------------------------ ---------- ------------ ----------
The difference between rents on a straight line basis and rents actually receivable is included within the book value of investment properties, but does not increase the book value over fair value. The effect of this Rent Smoothing Adjustment on the revaluation movement, together with the impact of back rent received during the prior year from a May 2017 rent review on the healthcare portfolio but not yet fully recognised in revenue, and movements on the headlease liabilities is as follows:
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
----------------------------------- ------------ ------------ ------------
Revaluation movement 48,851 102,466 48,117
Rent Smoothing Adjustments (note
4) (5,493) (10,950) (5,223)
Adjustment for 2017 back rent
received (182) 6,723 -
Movement in gross-up of headlease
liabilities (87) (72) (59)
Revaluation movement in the
income statement 43,089 98,167 42,835
----------------------------------- ------------ ------------ ------------
The Board determines the Group's valuation policies and procedures, and is responsible for overseeing the valuations. Valuations are based on information extracted from the Group's financial and property reporting systems, such as current rents and the terms and conditions of lease agreements, together with assumptions used by the external valuers (based on market observation and their professional judgement) in their valuation models.
At each reporting date, certain partners of the Investment Adviser, who have recognised and relevant professional qualifications and are experienced in valuing the types of property owned by the Group, initially analyse the external valuers' assessment of movements in the property valuations from the prior reporting date or, if later, the date of acquisition. Positive or negative fair value changes over a certain materiality threshold are considered and are also compared to external sources, such as the MSCI indices and other relevant benchmarks, for reasonableness. Once the Investment Adviser has considered the valuations, the results are discussed with the Group's external valuers, with particular focus on properties with unexpected fair value changes or any with unusual characteristics. The Audit Committee also considers the valuation process as part of its overall responsibilities, including meetings with the external valuers, and reports on that assessment to the Board.
The fair value of the investment properties 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 period.
The key inputs for the level 3 valuations were as follows:
Fair value Inputs
----------------------------
Portfolio GBP000 Key unobservable input Range Blended yield
---------------------- ----------- ----------------------- ------------- -------------
At 30 June 2019:
Healthcare 1,012,050 Net Initial Yield 3.9% - 5.5% 4.8%
Running Yield by June
2020 4.0% - 5.7% 4.9%
Leisure - UK 741,478 Net Initial Yield 4.8% - 6.3% 5.1%
Running Yield by June
2020 4.8% - 6.9% 5.2%
Future RPI assumption
per annum 2.6%
Leisure - Germany 116,050 Net Initial Yield 5.3% 5.3%
Running Yield by July
2020 5.5% 5.5%
Budget hotels 509,420 Net Initial Yield 4.5% - 10.1% 5.5%
Running Yield by June
2020 4.5% - 10.1% 5.5%
Future RPI assumption
per annum 2.5%
---------------------- ----------- ----------------------- ------------- -------------
Total at 30 June
2019 2,378,998 5.1%
---------------------- ----------- ----------------------- ------------- -------------
At 31 December
2018:
Healthcare 984,845 Net Initial Yield 3.9% - 5.5% 4.8%
Running Yield by June
2019 4.0% - 5.6% 4.9%
Leisure - UK 723,503 Net Initial Yield 4.7% - 5.9% 5.1%
Running Yield by June
2019 4.2% - 6.3% 5.2%
Future RPI assumption
per annum 2.6%
Leisure - Germany 112,550 Net Initial Yield 5.5% 5.5%
Running Yield by July
2019 5.7% 5.7%
Budget hotels 514,322 Net Initial Yield 4.5% - 10.1% 5.5%
Running Yield by June
2019 4.5% - 10.1% 5.5%
Future RPI assumption
per annum 2.5%
---------------------- ----------- ----------------------- ------------- -------------
Total at 31 December
2018 2,335,220 5.1%
---------------------- ----------- ----------------------- ------------- -------------
At 30 June 2018:
Healthcare 967,920 Net Initial Yield 3.9% - 5.5% 4.9%
Running Yield by June
2019 4.0% - 5.7% 5.0%
Leisure - UK 701,868 Net Initial Yield 5.0% - 7.0% 5.3%
Running Yield by June
2019 5.1% - 7.0% 5.5%
Future RPI assumption
per annum 2.5% - 2.7%
Leisure - Germany 110,975 Net Initial Yield 5.3% 5.3%
Running Yield by July
2019 5.5% 5.5%
Budget hotels 501,265 Net Initial Yield 4.5% - 10.1% 5.6%
Running Yield by June
2019 4.5% - 10.1% 5.7%
Future RPI assumption
per annum 2.5%
---------------------- ----------- ----------------------- ------------- -------------
Total at 30 June
2018 2,282,028 5.2%
---------------------- ----------- ----------------------- ------------- -------------
The principal sensitivity of measurement to variations in the significant unobservable outputs is that decreases in Net Initial Yield, decreases in Running Yield and increases in RPI will increase the fair value (and vice versa).
10. Cash and cash equivalents
Unaudited Audited Unaudited
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
------------------------------------- ---------- ------------ ----------
Cash and deposit accounts 70,853 71,133 66,144
Cash held for portfolio acquisition - - 132,782
------------------------------------- ---------- ------------ ----------
Free cash 70,853 71,133 198,926
Secured cash 26,828 29,972 27,070
Regulatory capital 657 640 633
98,338 101,745 226,629
------------------------------------- ---------- ------------ ----------
Secured cash is held in accounts over which the providers of secured debt have fixed security. The Group is unable to access this cash until it is released to free cash each quarter, which takes place once quarterly interest and loan repayments have been made as long as there is no default or cash trap in operation.
As the Company is considered to be an internally managed Alternative Investment Fund, it is required by the Financial Conduct Authority to hold a balance of regulatory capital in liquid funds, which is maintained in cash.
11. Trade and other receivables
Unaudited Audited Unaudited
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
------------------------------------ ---------- ------------ ----------
Trade receivables 51 267 115
Amounts receivable from investment
property disposals 3,467 2,503 -
Prepayments and accrued income 1,021 666 793
Other receivables - - 1
4,539 3,436 909
------------------------------------ ---------- ------------ ----------
12. Trade and other payables
Unaudited Audited Unaudited
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
--------------------------------- ---------- ------------ ----------
Trade payables 400 135 878
Rent received in advance and
other deferred income 22,732 27,696 25,448
Interest payable on secured
debt 9,082 9,248 8,765
Tax and social security 1,221 3,526 2,743
Accruals and deferred income 1,090 1,061 1,079
Accrued property sale costs 79 61 -
Property acquisition completion
liability - - 198,508
Accrued property acquisition
costs - - 4,646
Accrued loan costs - - 1,479
34,604 41,727 243,546
--------------------------------- ---------- ------------ ----------
13. Secured debt
Unaudited Audited Unaudited
30 June 31 December 30 June
Amounts falling due within one 2019 2018 2018
year GBP000 GBP000 GBP000
----------------------------------- ---------- ------------ ----------
Secured debt at fixed interest
rates 4,156 4,156 4,156
Unamortised finance costs (2,441) (2,385) (2,482)
----------------------------------- ---------- ------------ ----------
1,715 1,771 1,674
----------------------------------- ---------- ------------ ----------
Amounts falling due in more
than one year
----------------------------------- ---------- ------------ ----------
Secured debt at fixed interest
rates 1,009,619 1,011,846 1,020,041
Secured debt at floating interest
rates 76,220 76,528 -
Unamortised finance costs (8,615) (9,879) (11,264)
----------------------------------- ---------- ------------ ----------
1,077,224 1,078,495 1,008,777
----------------------------------- ---------- ------------ ----------
Secured debt, which comprises fixed and floating rate loans, is measured at amortised cost. As at 30 June 2019 its fair value was GBP1,129.9 million (31 December 2018: GBP1,117.7 million; 30 June 2018: GBP1,050.4 million), which includes GBP160.0 million attributable to debt repaid after the balance sheet date following the hospitals portfolio disposal. The secured debt was valued in accordance with IFRS 13 by reference to interbank bid market rates at the close of business on the relevant balance sheet date by JC Rathbone Associates Limited. All secured debt was classified as level 2 in the fair value hierarchy as defined in IFRS 13 and its fair value was calculated using the present values of future cash flows, based on market benchmark rates (interest rate swaps) and the estimated credit risk of the Group for similar financings.
It should be noted that fair value is not the same as a liquidation valuation, or the amount required to prepay the loans at the balance sheet date, and therefore does not represent an estimate of the cost to the Group of repaying the debt before the scheduled maturity date, which would be materially higher.
The debt is secured by charges over the Group's investment properties and by fixed and floating charges over the other assets of certain Group companies, not including the Company itself save for a limited share charge over the parent company of one of the ring-fenced subgroups.
There have been no defaults or breaches of any loan covenants during the current or any prior period.
The Group had no undrawn, committed borrowing facilities at any of the balance sheet dates shown above.
14. Deferred tax
The movements in the deferred tax liability, which relate entirely to unrealised gains on the Group's German investment properties, were as follows:
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
---------------------------------------- ------------ ------------ ------------
At the start of the period 11,110 10,238 10,238
Charge to the income statement
(note 7) 668 747 609
(Credit)/charge to other comprehensive
income (10) 125 15
At the end of the period 11,768 11,110 10,862
---------------------------------------- ------------ ------------ ------------
15. Share capital
Share capital represents the aggregate nominal value of shares issued. The movement over the period in the number of shares in issue, all of which were fully paid ordinary shares of GBP0.10 each, was as follows:
Unaudited
Unaudited Audited Six months
Six months Year to to
to 30 June 31 December 30 June
2019 2018 2018
Number Number Number
----------------------------------- ------------ ------------ ------------
Shares in issue at the start
of the period 321,563,353 230,536,874 230,536,874
Issue of ordinary shares:
in settlement of prior year's
incentive fee 1,287,242 4,588,479 4,588,479
in respect of March 2018 placing - 86,438,000 86,438,000
Actual shares in issue at the
end of the period 322,850,595 321,563,353 321,563,353
Dilution from settlement of
shares to be issued for 2018
incentive fee - 1,287,242 -
Diluted shares in issue at the
end of the period 322,850,595 322,850,595 321,563,353
----------------------------------- ------------ ------------ ------------
16. Reserves
The 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 those equity issues.
Retained earnings represent the cumulative profits and losses recognised in the income statement together with any amounts transferred or reclassified from the Group's share premium reserve and other reserves, less dividends paid.
Other reserves represent:
-- the cumulative exchange gains and losses on foreign currency translation; -- the cumulative gains or losses, net of tax, on effective cash flow hedging instruments; and
-- the impact on equity of any shares to be issued after the balance sheet date, as described in note 18, under the terms of the incentive fee arrangements.
17. Net asset value per share
Net asset value (NAV) per share is calculated as the net assets of the Group attributable to shareholders divided by the number of shares in issue at the end of each period.
Diluted NAV per share is adjusted for any shares that will be issued in future at the balance sheet date, including those in settlement of any incentive fee that may become payable as explained in note 18.
EPRA, the European Public Real Estate Association, publishes 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 deferred tax on investment properties held for long term benefit. The calculation of EPRA NAV per share uses as its denominator the same number of shares in issue as is used in calculating Diluted NAV per share.
The Group's basic NAV, diluted NAV and EPRA NAV is as follows:
Unaudited Audited Unaudited
30 June 2019 31 December 2018 30 June 2018
----------------------------- -------------------- ---------------------- ----------------------
Pence per Pence per Pence per
GBP000 share GBP000 share GBP000 share
----------------------------- --------- --------- ----------- --------- ----------- ---------
Basic NAV 1,329,854 411.9 1,281,588 398.5 1,218,901 379.1
Dilution from shares
to be issued in settlement
of 2018 incentive
fee - - - (1.5) - -
Diluted NAV 1,329,854 411.9 1,281,588 397.0 1,218,901 379.1
EPRA adjustments:
Deferred tax on investment
property revaluations 11,768 3.6 11,110 3.4 10,862 3.3
Fair value of interest
rate derivatives 1,153 0.4 197 0.1 - -
EPRA NAV 1,342,775 415.9 1,292,895 400.5 1,229,763 382.4
----------------------------- --------- --------- ----------- --------- ----------- ---------
The number of shares used in the NAV per share calculations are as follows
Audited
Unaudited 31 December Unaudited
30 June 2019 2018 30 June 2018
Number Number Number
----------- ------------- -------------- ---------------
Basic NAV 322,850,595 321,563,353 321,563,353
----------- ------------- -------------- ---------------
EPRA NAV 322,850,595 322,850,595 321,563,353
----------- ------------- -------------- ---------------
18. Related party transactions and balances
Interests in shares
The direct and indirect interests of the Directors and their families in the share capital of the Company are as follows:
Unaudited Audited Unaudited
30 June 2019 31 December 2018 30 June 2018
-------------------------- -------------------------- --------------------------
Number Percentage Number Percentage Number Percentage
of of issued of of issued of of issued
shares share capital shares share capital shares share capital
--------------- ---------- -------------- ---------- -------------- ---------- --------------
Nick Leslau * 24,016,096 7.44% 24,016,096 7.47% 24,016,096 7.47%
Mike Brown 1,183,580 0.37% 1,183,580 0.37% 1,183,580 0.37%
Sandy Gumm 192,573 0.06% 192,573 0.06% 192,573 0.06%
Martin Moore 118,357 0.04% 118,357 0.04% 118,357 0.04%
Ian Marcus 87,002 0.03% 87,002 0.03% 87,002 0.03%
Jonathan Lane 57,471 0.02% 57,471 0.02% 57,471 0.02%
Leslie Ferrar 22,739 0.01% 22,739 0.01% 22,739 0.01%
--------------- ---------- -------------- ---------- -------------- ---------- --------------
* comprising 22,466,916 ordinary shares held by PIHL Property LLP, 1,491,709 shares held by Yoginvest Limited and 57,471 ordinary shares held by the Saper Trust. Nick Leslau has a 71% indirect interest in PIHL Property LLP, owns Yoginvest Limited and is a beneficiary of the Saper Trust.
in addition to the amounts shown in the table above, as at 30 June 2019 a further 19,059,132 ordinary shares (31 December 2018 and 30 June 2018: 17,771,890 ordinary shares), representing 5.9% (31 December 2018 and 30 June 2018: 5.5%) of the issued share capital, were owned by a subsidiary of Prestbury Investments LLP ("Prestbury"), the Investment Adviser to the Group. Nick Leslau, Mike Brown and Sandy Gumm hold partnership interests in, and are respectively Chairman, Chief Executive and Chief Operating Officer of Prestbury.
During the period, the Company paid dividends totalling GBP2.0 million (year to 31 December 2018: GBP3.5 million; six months to 30 June 2018: GBP1.5 million) in aggregate to Directors on their shareholdings. A further GBP1.4 million (year to 31 December 2018: GBP2.3 million; six months to 30 June 2018: GBP0.9 million) was paid to the Prestbury group on its shareholding.
Directors' fees
Fees totalling GBP200,000 per annum (year to 31 December 2018 and six months to 30 June 2018: GBP185,000 per annum up to 31 March 2018 and GBP200,000 per annum thereafter) were payable to the four independent non-executive Directors. The Directors connected to Prestbury (Nick Leslau, Mike Brown and Sandy Gumm) do not receive Directors' fees. Total Directors' fees of GBP100,000 were therefore payable in the period (year to 31 December 2018: GBP196,000; six months to 30 June 2018: GBP96,000). No fees were outstanding at any balance sheet date.
Advisory fees payable
Nick Leslau, Mike Brown and Sandy Gumm are Directors of the Company and are respectively Chairman, Chief Executive and Chief Operating Officer of Prestbury, in which they also hold partnership interests. Prestbury is Investment Adviser to the Group under the terms of an agreement that became effective on listing in June 2014 (the "Investment Advisory Agreement"). Under the terms of the Investment Advisory Agreement, advisory fees of GBP6.7 million (year to 31 December 2018: GBP12.3 million; six months to 30 June 2018: GBP5.7 million) plus VAT were payable in cash to Prestbury in respect of the period, of which GBP0.1 million (31 December 2018: GBP0.1 million; 30 June 2018: GBP0.1 million) was outstanding at the balance sheet date and is included in trade and other payables.
Advisory fees are calculated at 1.25% per annum on EPRA NAV up to GBP500 million, 1.0% per annum on EPRA NAV between GBP500 million and GBP1 billion, 0.75% per annum on EPRA NAV between GBP1 billion and GBP1.5 billion, and 0.5% on EPRA NAV over GBP1.5 billion.
The Investment Advisory Agreement expires in December 2025. There are no renewal rights or termination payments at the time of expiry. Any payments triggered by a change of control in the Company are limited to four times the most recent quarterly fee at the time any change occurs.
Incentive fee payable
Under the terms of the Investment Advisory Agreement, a Prestbury group company may become entitled to an incentive fee intended to reward growth in Total Accounting Return ("TAR") above an agreed benchmark and to maintain strong alignment of Prestbury's interests with those of shareholders. TAR is measured as growth in EPRA NAV per share plus dividends paid in the period. The fee entitlement is calculated annually on the basis of the Group's audited financial statements, with any fee payable settled in shares in the Company (subject to certain limited exceptions). Sales of these shares are restricted, with the restriction lifted on a phased basis over a period from 18 to 42 months from the date of issue, subject to a specific release in the event that Prestbury needs to sell shares to settle the tax liability on the fee income it earns. The incentive fee payable in any year is subject to a cap of 5% of EPRA NAV.
The incentive fee is calculated in accordance with the Investment Advisory Agreement by reference to growth in TAR. If TAR growth exceeds a hurdle rate of 10% over a given financial year, an incentive fee equal to 20% of the surplus is payable to Prestbury. The first 10% return is therefore always a priority return to shareholders.
In the event of an incentive fee being payable at the end of an accounting period, a "high water mark" is established, represented by the closing EPRA NAV per share (after the impact of the incentive fee - that is, the published EPRA NAV per share), which is then the starting point for the cumulative hurdle calculations for future periods. The hurdle will therefore be set at the higher of (a) the EPRA NAV at the start of the year plus 10%; and (b) the high water mark EPRA NAV plus 10% per annum. Dividends or other distributions paid in any period are treated as payments on account against achievement of the hurdle rate of return.
A high water mark EPRA NAV per share of 400.5 pence per share was established at 31 December 2018 when a fee was last earned, therefore TAR will have to exceed 40.0 pence per share for the year ending 31 December 2019 for a fee to be earned; that is, EPRA NAV before distributions for the year will therefore have to exceed 440.5 pence per share (GBP1,422.2 million) at 31 December 2019 before any incentive fee becomes payable.
In order to make a reasonable assessment of whether or not such a fee will be payable, the Board has estimated the EPRA NAV of the Group at 31 December 2019, assuming that:
-- there are no acquisitions, disposals or lease variations in the second half of 2019 other than those disclosed in note 19;
-- the property portfolio valuation yields do not change from those applied as at 30 June 2019;
-- no additional uplift in rent from the outstanding Ramsay rent review is included, on the basis that the outcome of the review is not yet known with sufficient certainty;
-- there are no currency translation gains or losses:
-- RPI uplifts are consistent with the expectations reflected in the June 2019 external investment property valuations; and
-- the Group's Adjusted EPRA EPS over the remainder of the year is fully distributed on a quarterly basis, together with top-up dividends from the proceeds of the hospitals portfolio disposal to bring distributions back to the levels anticipated prior to that disposal.
This estimate does not constitute a forecast but represents an illustrative case considered to provide a reasonable basis for assessing whether an incentive fee will be payable, while recognising the limitations inherent in any estimate of future values. On the basis of these assumptions, no fee will be payable for the 2019 year and as a result no fee is accrued at 30 June 2019 (30 June 2018: GBPnil).
Irrecoverable VAT arises on any element of the Group's costs, including any incentive fee, that relate to the healthcare portfolio. Since new ordinary shares are issued in satisfaction of an incentive fee, the cost of that fee in the financial statements only impacts the net asset value of the Group to the extent of the irrecoverable VAT but the shares to be issued do reduce the Group's net asset value per share.
19. Events after the balance sheet date
On 22 July 2019, the Group sold eight of its nineteen freehold healthcare investment properties let to Ramsay Health Care Limited for gross cash consideration of GBP347.0 million (GBP343.7 million after disposal costs), realising a profit of GBP43.3 million over book value as at 30 June 2019. At completion of the sale on 16 August 2019, secured fixed interest rate debt of GBP152.0 million was repaid with the proceeds of sale, incurring debt break costs of GBP27.1 million and other loan costs of GBP0.6 million. The surplus proceeds of GBP164.0 million added to the Group's free cash balance.
On 26 July 2019, the Group simultaneously exchanged and completed on the sale of one of its budget hotels for net proceeds of GBP1.8 million, which was broadly in line with its book value. Secured debt of GBP0.6 million was repaid with the proceeds of sale and the remaining proceeds of GBP1.2 million have increased the Group's free cash balance.
On 30 August 2019, the Company paid a distribution of GBP13.6 million as an interim dividend of 4.2 pence per share.
Supplementary information
Shareholder Return - TAR and TSR
Shareholder return is one of the Group's principal measures of performance. Total Shareholder Return is measured as the movement in the Company's share price over a period, plus dividends. Total Accounting Return is a shareholder return measure calculated as the movement in EPRA NAV per share plus dividends per share over the period.
When providing illustrations of future performance, the Company measures shareholder return by reference to illustrative EPRA NAV as a proxy for the share price performance.
The Group sold eight of the nineteen hospitals let to Ramsay Health Care after the balance sheet date. The disposal had a material impact on the Group's balance sheet and will have an impact on future earnings. In order to present a suitably clear picture, the relevant supplementary information as at 30 June 2019 in the following pages is presented on a pro forma basis to exclude the sold portfolio. The pro forma adjustments are presented on the first page of the Investment Adviser's Report.
TAR - EPRA NAV performance
Pro forma
Six months Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
Pence Pence Pence
------------------------------------- ----------- ------------ ----------
EPRA NAV per share:
at the start of the period 400.5 370.4 370.4
at the end of the period 420.5 400.5 382.4
Increase in EPRA NAV per share 20.0 30.1 12.0
Dividends per share 7.9 13.9 6.0
-------------------------------------- ----------- ------------ ----------
Increase in EPRA NAV plus dividends
per share 27.9 44.0 18.0
-------------------------------------- ----------- ------------ ----------
TAR 7.0% 11.9% 4.9%
-------------------------------------- ----------- ------------ ----------
TSR - share price performance
Six months Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
Pence Pence Pence
---------------------------------------- ---------- ------------ ----------
Mid-market closing share price:
at the start of the period 377.0 360.8 360.8
at the end of the period 400.0 377.0 384.0
Increase in share price 23.0 16.2 23.2
Dividends per share 7.9 13.9 6.0
----------------------------------------- ---------- ------------ ----------
Increase in share price plus dividends
per share 30.9 30.1 29.2
----------------------------------------- ---------- ------------ ----------
TSR 8.2% 8.3% 8.1%
----------------------------------------- ---------- ------------ ----------
EPRA measures
Pro forma
30 June 31 December 30 June
2019 2018 2018
EPRA NAV per share 420.5p 400.5p 382.4p
EPRA Triple Net Asset Value Per
Share 406.6p 389.2p 370.9p
EPRA Net Initial Yield 5.0% 5.0% 5.2%
EPRA Topped Up Net Initial Yield 5.0% 5.1% 5.2%
EPRA Vacancy Rate - - -
----------------------------------- --------- ----------- --------
Six months Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
EPRA EPS 9.8p 16.6p 8.0p
Adjusted EPRA EPS 8.1p 14.7p 6.0p
EPRA Capital Expenditure - GBP435.5m GBP435.5m
EPRA Cost Ratio excluding direct
vacancy costs 12.8% 16.8% 13.3%
EPRA Cost Ratio including direct
vacancy costs 12.9% 16.9% 13.3%
Adjusted EPRA Cost Ratio excluding
direct vacancy costs 13.9% 14.1% 14.7%
Adjusted EPRA Cost Ratio including
direct vacancy costs 14.0% 14.2% 14.7%
------------------------------------- ---------- ------------ -----------
EPRA NAV per share
30 June 2019 31 December 2018 30 June 2018
---------------------------- -------------------- ---------------------- ----------------------
Pence per Pence per Pence per
GBP000 share GBP000 share GBP000 share
---------------------------- --------- --------- ----------- --------- ----------- ---------
Basic NAV 1,329,854 411.9 1,281,588 398.5 1,218,901 379.1
Dilution from shares
to be issued for 2018
incentive fee - - - (1.5) - -
Diluted NAV 1,329,854 411.9 1,281,588 397.0 1,218,901 379.1
EPRA adjustments:
Deferred tax on investment
property revaluations 11,768 3.6 11,110 3.4 10,862 3.3
Fair value of derivatives 1,153 0.4 197 0.1
EPRA NAV 1,342,775 415.9 1,292,895 400.5 1,229,763 382.4
Hospitals portfolio
disposal in July 2019 14,787 4.6 - - - -
---------------------------- --------- --------- ----------- --------- ----------- ---------
Pro forma EPRA NAV 1,357,562 420.5 1,292,895 400.5 1,229,763 382.4
---------------------------- --------- --------- ----------- --------- ----------- ---------
Basic NAV, diluted NAV and EPRA NAV are calculated on the number of shares in issue at each balance sheet date as follows:
30 June 31 December 30 June
2019 2018 2018
Number Number Number
------------------------------------- ------------- ------------- -------------
Basic NAV 322,850,595 321,563,353 321,563,353
Shares to be issued in satisfaction
of incentive fee (note 18) - 1,287,242 -
Diluted EPRA and EPRA NAV 322,850,595 322,850,595 321,563,353
-------------------------------------- ------------- ------------- -------------
EPRA Triple Net Asset Value Per Share
The EPRA Triple NAV is adjusted to reflect the fair values of any debt and hedging instruments, and any inherent tax liabilities not provided for in the financial statements. This is calculated as follows:
30 June 2019 31 December 2018 30 June 2018
---------------------------- -------------------- ---------------------- ----------------------
Pence per Pence per Pence per
GBP000 share GBP000 share GBP000 share
---------------------------- --------- --------- ----------- --------- ----------- ---------
EPRA NAV 1,342,775 415.9 1,292,895 400.5 1,229,763 382.4
Revaluation of fixed
rate debt to fair
value (39,950) (12.4) (25,176) (7.8) (26,172) (8.2)
Deferred tax on investment
property revaluations (11,768) (3.6) (11,110) (3.4) (10,862) (3.3)
Fair value of interest
rate derivatives (1,153) (0.4) (197) (0.1) - -
EPRA Triple NAV 1,289,904 399.5 1,256,412 389.2 1,192,729 370.9
Hospitals portfolio
disposal in July
2019 14,787 4.6 - - - -
Revaluation to fair
value of fixed rate
debt repaid on hospitals
portfolio disposal 8,044 2.5 - - - -
---------------------------- --------- --------- ----------- --------- ----------- ---------
Pro forma EPRA Triple
NAV 1,312,735 406.6 1,256,412 389.2 1,192,729 370.9
---------------------------- --------- --------- ----------- --------- ----------- ---------
The fair value of the fixed rate debt is defined by EPRA as a mark-to-market adjustment measured in accordance with IFRS 9 in respect of all debt not held on the balance sheet at its fair value. It should be noted that that the fair value of debt is not the same as a liquidation valuation, so the fair value adjustment above does not reflect the liability that would crystallise if the debt was repaid on the balance sheet date, which would be materially higher.
EPRA Net Initial Yield and EPRA Topped Up Net Initial Yield
Pro forma
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
----------------------------------------- ----------- ----------- -----------
Investment property, all of which
is completed and wholly owned,
at external valuation 2,050,219 2,306,709 2,253,503
Allowance for estimated purchasers'
costs 138,340 155,628 152,032
------------------------------------------ ----------- ----------- -----------
Grossed up completed property portfolio
valuation 2,188,559 2,462,337 2,405,535
------------------------------------------ ----------- ----------- -----------
Annualised cash passing rental
income 111,080 124,989 124,514
Annualised non-recoverable property
outgoings (813) (815) (682)
------------------------------------------ ----------- ----------- -----------
Annualised net rents 110,267 124,174 123,832
Notional rent increase on expiry
of rent free periods and other
lease incentives 97 187 187
------------------------------------------ ----------- ----------- -----------
Topped-up annualised net rents 110,364 124,361 124,019
------------------------------------------ ----------- ----------- -----------
EPRA Net Initial Yield 5.0% 5.0% 5.2%
EPRA Topped Up Net Initial Yield 5.0% 5.1% 5.2%
------------------------------------------ ----------- ----------- -----------
EPRA Vacancy Rate
30 June 31 December 30 June
2019 2018 2018
EPRA Vacancy Rate 0% 0% 0%
-------------------- ------- ----------- -------
EPRA EPS
Six months Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
----------------------------------- ----------- ------------ ----------
Profit for the period 74,511 147,513 64,657
EPRA adjustments:
Investment property revaluation (43,089) (98,167) (42,835)
German deferred tax on investment
property revaluation 668 747 655
Profit on disposal of investment
properties (421) (183) -
Fair value adjustment of interest
rate derivatives 27 25
EPRA earnings 31,696 49,935 22,477
Other adjustments:
Rent Smoothing Adjustments (5,493) (10,950) (5,223)
Incentive fee - 5,278 -
Adjusted EPRA earnings 26,203 44,263 17,254
----------------------------------- ----------- ------------ ----------
Six months Six months
to Year to to
30 June 31 December 30 June
Weighted average number of shares 2019 2018 2018
in issue Number Number Number
------------------------------------- ----------- ------------ -----------
Adjusted EPRA EPS 322,224,754 299,730,383 277,535,542
Adjustment for weighting of
shares issued during the period
* 625,841 1,819,287 3,555,696
------------------------------------- ----------- ------------ -----------
EPRA EPS 322,850,595 301,549,670 281,091,238
Shares to be issued in satisfaction
of 2018 incentive fee - 1,287,242 -
Diluted EPRA EPS 322,850,595 302,836,912 281,091,238
------------------------------------- ----------- ------------ -----------
* Adjusted EPRA EPS is calculated using the weighted average number of shares reflecting the actual date on which shares are issued in settlement of any incentive fee. EPRA EPS and Diluted EPRA EPS are calculated on the assumption that those shares were in issue throughout the period.
Six months Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
Pence per share Pence per share Pence per share
------------------- ----------------- ---------------- ----------------
EPRA EPS 9.8 16.6 8.0
Diluted EPRA EPS 9.8 16.5 8.0
Adjusted EPRA EPS 8.1 14.7 6.2
------------------- ----------------- ---------------- ----------------
EPRA Capital Expenditure
Six months Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
-------------------------------------- ------------ ------------ ----------
Acquisitions completed and committed - 435,515 435,515
Development - - -
Expenditure on like for like -
portfolio - -
Other - - -
-------------------------------------- ------------ ------------ ----------
EPRA Capital Expenditure - 435,515 435,515
-------------------------------------- ------------ ------------ ----------
The expenditure on acquisitions in the prior year represents the purchase of two investment property portfolios including costs. The Group does not capitalise any overheads or interest into its property portfolio and it does not develop properties.
The Group's properties are let on full repairing and insuring leases, so the Group incurs no routine ongoing capital expenditure on its property portfolio except at Manchester Arena where such costs relating to the structure and common areas are liabilities of the Group but are generally recoverable from tenants via service charges.
There was only negligible vacant space at each balance sheet date.
EPRA Cost Ratios
Six months Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
------------------------------------- ----------- ------------ ----------
Revenue (note 4) 69,040 125,874 56,109
Tenant contributions to property
outgoings (805) (1,384) (594)
------------------------------------- ----------- ------------ ----------
EPRA gross rental income 68,235 124,490 55,515
Non-recoverable property operating
expenses * 423 427 129
Administrative expenses 8,353 20,575 7,257
------------------------------------- ----------- ------------ ----------
EPRA costs including direct vacancy
costs 8,776 21,002 7,386
Direct vacancy costs (46) (90) -
------------------------------------- ----------- ------------ ----------
EPRA costs 8,730 20,912 7,386
------------------------------------- ----------- ------------ ----------
EPRA Cost Ratio including direct
vacancy costs 12.9% 16.9% 13.3%
EPRA Cost Ratio excluding direct
vacancy costs 12.8% 16.8% 13.3%
------------------------------------- ----------- ------------ ----------
* included within the GBP0.7 million (31 December 2018: GBP0.5 million; 30 June 2018 GBP0.6 million) of property costs charged to the income statement are GBP0.3 million (31 December 2018: GBP0.1 million; 30 June 2018 GBP0.5 million) of headlease costs and costs that are recoverable from the tenant.
The Group capitalises the incremental costs of negotiating and arranging leases, which are then released to the income statement over the term of the relevant lease. Costs of GBPnil (year to 31 December 2018: GBP0.4 million; six months to 30 June 2018 GBPnil) were capitalised during the period, of which GBP11,000 (year to 31 December 2018: GBP36,000; six months to 30 June 2018: GBPnil) was subsequently released to the income statement in the period. The Group otherwise has no capitalised overheads or operating expenses.
Adjusted EPRA Cost Ratios excluding non-cash items
The Group also calculates an Adjusted EPRA Cost Ratio excluding the following non-cash items to present what the Board considers to be a measure of cost efficiency more directly relevant to its business model. The Adjusted EPRA Cost Ratio excludes:
-- revenue recognised ahead of cash receipt as a result of Rent Smoothing Adjustments (note 4); and
-- any incentive fee, included in administrative expenses, which is settled in shares (note 18).
Six months Six months
to Year to to
30 June 31 December 30 June
2019 2018 2018
GBP000 GBP000 GBP000
----------------------------------- ----------- ------------ ----------
EPRA gross rental income 68,235 124,490 55,515
Rent Smoothing Adjustments (5,493) (10,950) (5,223)
----------------------------------- ----------- ------------ ----------
Adjusted EPRA gross rental income
excluding
non-cash items 62,742 113,540 50,292
EPRA costs 8,776 21,002 7,386
Incentive fee settled in shares - (4,872) -
----------------------------------- ----------- ------------ ----------
Adjusted EPRA costs including
direct vacancy costs 8,776 16,130 7,386
Direct vacancy costs (46) (90) -
Adjusted EPRA costs excluding
direct vacancy costs 8,730 16,040 7,386
----------------------------------- ----------- ------------ ----------
EPRA Cost Ratio including direct
vacancy costs 14.0% 14.2% 14.7%
EPRA Cost Ratio excluding direct
vacancy costs 13.9% 14.1% 14.7%
----------------------------------- ----------- ------------ ----------
Glossary
Adjusted EPRA EPS EPRA EPS adjusted to exclude non-cash and non-recurring
costs, calculated on the basis of the time-weighted
number of shares in issue
AIFMD Alternative Investment Fund Managers Directive
Dividend Cover Adjusted EPRA EPS divided by dividends per share
EPRA European Public Real Estate Association
EPRA EPS A measure of EPS designed by EPRA to present
underlying earnings from core operating activities
EPRA Guidance The EPRA Best Practices Recommendations Guidelines
November 2016
EPRA NAV A measure of NAV designed by EPRA to present
the fair value of a company on a long term basis,
by excluding items such as interest rate derivatives
that are held for long term benefit, net of deferred
tax
EPS Earnings per share, calculated as the profit
for the period after tax attributable to members
of the parent company divided by the weighted
average number of shares in issue in the period
IFRS International Financial Reporting Standards adopted
for use in the European Union
Investment Advisory The agreement between the Company (and its subsidiaries)
Agreement and the Investment Adviser, key terms of which
are set out on pages 204 to 221 of the Secondary
Placing Disclosure Document
Key Operating Asset An asset where the operations conducted from
the property are integral to the tenant's business
LTV Loan to value: the outstanding amount of a loan
as a percentage of the property value
NAV Net asset value
Net Initial Yield Annualised net rents on investment properties
as a percentage of the investment property valuation,
less purchaser's costs
Net Loan To Value LTV calculated on the gross loan amount less
or Net LTV cash balances
REIT Real Estate Investment Trust
Rent Smoothing Adjustments The adjustment required to recognise rent received
in the income statement ahead of cash received,
as a result of the requirement to spread rental
income evenly over the lease term
Running Yield The anticipated Net Initial Yield at a future
date, taking account of any rent reviews in the
intervening period
Secondary Placing The Secondary Placing Disclosure Document dated
Disclosure Document 14 March 2016 which is available in the Investor
Centre of the Company's website under "Circulars
to Shareholders/2016"
Total Accounting The movement in EPRA NAV over a period plus dividends
Return paid in the period, expressed as a percentage
of the EPRA NAV at the start of the period
Total Shareholder The movement in share price over a period plus
Return dividends paid in the period, expressed as a
percentage of the share price at the start of
the period
Company Information
Registered office Cavendish House, 18 Cavendish Square, London
W1G 0PJ
Directors Martin Moore, Non-Executive Chairman
Mike Brown
Leslie Ferrar, Chairman of the Audit Committee
Sandy Gumm
Jonathan Lane, Chairman of the Nominations Committee
Nick Leslau
Ian Marcus, Senior Independent Director and
Chairman of the Remuneration Committee
Company Secretary Sandy Gumm
Investment Adviser Prestbury Investments LLP
Cavendish House, 18 Cavendish Square, London
W1G 0PJ
Nominated Adviser Stifel Nicolaus Europe Limited
and Broker 150 Cheapside, London EC2V 6ET
Auditors BDO LLP
55 Baker Street, London W1U 7EU
Property valuers CBRE Limited
Henrietta House, Henrietta Place, London W1G
0NB
Christie & Co
Whitefriars House, 6 Carmelite Street, London
EC4Y 0BS
Derivatives valuers JCRA Limited
12 St James's Square, London SW1Y 4LB
Financial PR adviser FTI Consulting LLP
200 Aldersgate, Aldersgate Street, London EC1A
4HD
Registrar Link Asset Services
The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU
Helpline: 0871 664 0300
Calls cost 12p per minute plus your phone company's
access charge. If you are outside the United
Kingdom, please call +44 371 664 0300. Calls
outside the United Kingdom will be charged at
the applicable international rate. The helpline
is open 9.00am - 5.30pm, Monday to Friday excluding
public holidays in England and Wales
Registrar's email: shareholderenquiries@linkgroup.co.uk
Company website www.SecureIncomeREIT.co.uk
Company email enquiries@SecureIncomeREIT.co.uk
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR SSMFWDFUSELU
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