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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Secure Income Reit Plc | LSE:SIR | London | Ordinary Share | GB00BLMQ9L68 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 461.00 | 461.00 | 461.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMSIR
RNS Number : 2199H
Secure Income REIT PLC
12 March 2015
Results for the nine months ended 31 December 2014
Secure Income REIT Plc (the "Company" or the "Group"), the specialist long term income UK REIT, today announces its maiden preliminary results since its admission to AIM, covering the nine month period ended 31 December 2014.
Highlights
-- EPRA net asset value per share up 50% in seven months since listing to 258.5 pence
-- Portfolio valuation up 11.6% since listing to GBP1.63 billion; net initial yield of 5.4% and an equivalent yield of 7.0%
-- Weighted average unexpired lease term of 25.1years, with 57% of passing rent subject to annual fixed uplifts and 43% of passing rent subject to RPI linked upwards only rent reviews
-- Net loan to value ratio of 70%, down from 80% at listing, providing gearing in a strong investment market
-- 50% of passing rent guaranteed by Merlin Entertainments Plc, the second largest operator of visitor attractions in the world with a market capitalisation of GBP4.3 billion*, making it the 95th largest FTSE company
-- 48% of passing rent guaranteed by Ramsay Healthcare Limited, with a market capitalisation of GBP6.9 billion*, listed on the Australian Stock Exchange and one of the five largest private hospital groups in the world
Hot Features
Premium
Pro forma on listing
5 June 2014
31 December 2014 (unaudited)
--------------------------------- ------------------ ----------------------
EPRA net asset value per share 258.5p 172.0p
EPRA net asset value GBP466.2m GBP289.0m
Net asset value GBP344.3m GBP121.0m
Adjusted EPRA earnings per share 6.7p n/a
--------------------------------- ------------------ ----------------------
Martin Moore, Independent Non-Executive Chairman of the Company, commented: "Since listing we have continued to see growing demand for assets with high quality, long term income streams in alternative property sectors and this momentum, coupled with our strategy of being geared into market recovery, has led to the exceptional maiden annual results we are able to report today."
12 March 2015
* as at 11 March 2015
ENQUIRIES:
Prestbury Investments LLP Tel: 020 7647 7647
Nick Leslau
Mike Brown
Sandy Gumm
FTI Consulting Tel: 020 3727 1000
Richard Sunderland
Claire Turvey
Stifel Nicolaus Europe (Nominated Adviser and Broker) Tel: 020 7710 7600
David Arch
Mark Young
Tom Yeadon
Notes to Editors
Secure Income REIT Plc is a UK REIT specialising in generating long term, inflation protected, secure income from real estate investments. Its investment strategy is designed to satisfy investors' growing requirements for high quality, secure, inflation protected income flows. The Group owns a freehold portfolio of 28 well established operating real estate assets including some of the UK's top visitor attractions and theme parks: namely Madame Tussauds in London, Alton Towers theme park and hotel, Thorpe Park and Warwick Castle, as well as 21 private hospitals in the 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
I am delighted to report exceptional maiden annual results with a 50% rise in EPRA NAV per share in just seven months since listing.
The Group owns over GBP1.6 billion of high quality freehold properties which enjoy a rare combination of annual rental uplifts secured against strong covenants on very long leases, with average unexpired lease terms of over 25 years. Such assets are increasingly valued in a world of extraordinarily low interest rates and bond yields, where investors are finding it extremely difficult to earn a reasonable level of income return. We are now witnessing bond yields turning negative in a number of European countries whilst interest rates are not only at their lowest in the UK since the Bank of England commenced setting rates in 1694, but have remained at this level for six years - the longest period without change for over 60 years.
The yield profile of the 31 December 2014 valuation shows the net initial yield of 5.4% rising shortly to 5.5% in early May following the fixed annual uplifts of our healthcare rents and to 5.6% eight weeks later following the uplift of rents on our UK leisure assets. Valuation yields understate the income return actually earned by the Group as they make a hypothetical allowance for purchaser's costs in the event the properties are sold. In practice, the income return we enjoy from our properties is higher: 5.7% today, forecast to rise to 5.9% by July based on the same year end valuation.
We consider this to be a very attractive level of return for income of 25 years duration, 98% of which is secured on the parent guarantees of two strong global businesses in Ramsay Health Care Limited and Merlin Entertainments Plc, which are valued at GBP6.9 billion and GBP4.3 billion respectively. The commercial property market (represented by the IPD UK Quarterly Index at the same 31 December 2014 valuation date) has an initial yield of 5.1% but with much less income security with an average unexpired lease term of just over 10 years. The benefit of the Group's guaranteed uplifts is reflected in the portfolio's equivalent yield, which stands at 7.0% against IPD at 6.1%.
I would add that the combination of long income duration and rising rents is not only well sought after in the current market but also proved highly resilient in more difficult economic circumstances, with the portfolio showing a return that is some 6.5% per annum higher than the IPD UK Quarterly Index during its period of private ownership from purchase in mid-2007 to listing.
A feature of the London market has been an exceptional level of interest from overseas investors and, following a number of unsolicited approaches, in February we chose to market our freehold interest in Madame Tussauds in Marylebone Road. This is one of London's top visitor attractions and an iconic property, available on the market as an individual asset for the first time since the business started trading on this site 130 years ago. While the Group's strategy remains firmly to invest in and hold for the long term high quality assets with long term income characteristics, Madame Tussauds is our largest asset and with the London market so buoyant we felt we must explore this sale opportunity to ensure we continue to optimise shareholder returns. If successful, the sale would improve the income return on the remainder of the portfolio.
A corollary of a highly competitive market is that suitable acquisition opportunities have proved both scarce and competitively priced. I made the point in our interim results that the Board not only chooses to be patient in waiting for the right investment opportunity but that it can afford to be so, with no dilution of returns given that it holds little cash on its balance sheet. Indeed, the Group was floated with a high level of leverage in a rising market with the anticipation that this would augment shareholder returns. This has certainly proved to be the case since listing, with a valuation gain of 11.6% leading to a 50% EPRA NAV per share increase. It has also reduced our net loan to value ratio from 80% to 70%, and if Madame Tussauds is sold this will significantly reduce our levels of net borrowings, as this property has a value in excess of GBP300 million and represents 19% of our property portfolio.
With interest rates at historic lows, it makes sense for us to investigate whether an early refinancing of the portfolio would be in shareholders' best interests. This would present an opportunity to lock into lower interest rates for a longer period, but at the cost of breaking our interest rate swaps which otherwise expire in 2017 when the associated debt matures. An early refinancing should bring forward the date we could commence paying a dividend ahead of our previous indication of 2017. We will report further to shareholders if our investigations lead us to conclude that an early refinancing is in the best interests of shareholders.
In the meantime we note that the search for yield has continued to drive up values over the opening months of this year which provides a favourable backdrop for the Group's activities during 2015.
Results and financial position
The financial statements presented in this results announcement are for a nine month period ended 31 December 2014 with comparative figures at 31 March 2014, which predates the listing of the Company. The 31 March 2014 figures present the capital structure as it was prior to our listing on 5 June 2014 and consequently comparisons to the prior period are not particularly meaningful. Therefore we highlight in this report the growth in EPRA NAV per share since listing, when the current capital structure took effect. The growth achieved in that seven month period is 50%, which is driven principally by the 95.3 pence per share property valuation uplift and 37.2 pence per share of rent net of property costs. After all financing and running costs of the Group, an increase in shareholder value of 86.5 pence per share since listing has been achieved. The portfolio uplift of 11.6% translates into significant NAV per share performance through the strategy of being geared into the recovery as detailed in our previous statements.
The Group's 6.7 pence of adjusted EPRA earnings per share comprises 1.9 pence per share attributable to the period up to and including listing and 4.8 pence per share attributable to the period post listing, which is made up as follows:
Period from 5 June
to
31 December 2014
Pence per share
---------------------------------------- --------------------
Rental income net of property outgoings 37.2
Net finance costs (29.9)
Administrative expenses and corporate
costs (2.2)
Tax (0.3)
Adjusted EPRA EPS since listing 4.8
------------------------------------------ --------------------
Further details of the Group's capital structure and performance are set out in the Strategic Report and the Investment Adviser's Report.
Outlook
The world currently lacks an adequate supply of investments able to generate a safe and secure income stream at reasonable levels. The resultant search for yield is driving up the prices of those remaining assets that share such characteristics and this is likely to continue whilst most countries around the world maintain low interest rates and QE supresses bond yields. Of course there is always the possibility that events steer markets off course, but the early months of 2015 have seen a further continuation of this trend, which augurs well for the Company.
Martin Moore
Chairman
12 March 2015
Strategic Report
Business review
Key performance indicator - EPRA NAV per share
The principal financial outcome that the Board seeks to achieve is attractive growth in shareholder returns. Progress towards this objective is specifically measured through growth in EPRA NAV, which is a measure of the fair value of a company on a long term basis, ignoring the impact of hedging valuations and any deferred tax.
As the reporting period includes results both before and after listing, and as the capital structure of the Group prior to listing was very different to the structure since then, we believe that the most appropriate measure of growth for shareholders is progress in EPRA NAV per share since listing. The Group's EPRA NAV per share at 31 December 2014 was 258.5 pence, which represents a 50% increase over the unaudited pro forma EPRA NAV as at listing. In an effort to fairly reflect the capital reorganisation and effects of the listing, the following table summarises growth in EPRA NAV as adjusted for the reorganisation and listing.
Nine months
to 31 December
2014
Pence per
share
----------------------------------------------- ---------------
EPRA NAV per share at 1 April 2014 adjusted
for current capital structure 176.1
Investment property revaluation 95.3
Performance fee (20.1)
Rental income* less finance and administrative
costs 8.5
Tax (0.9)
Currency translation movements (0.4)
------------------------------------------------ ---------------
EPRA NAV per share at 31 December 2014 258.5
------------------------------------------------ ---------------
* including 6.7 pence from the impact of rent smoothing adjustments in the period, arising from the Group's accounting policy to spread the impact of fixed rental uplifts evenly over the whole term of relevant leases, in accordance with SIC 15 "Operating Leases - Incentives". The impact of this accounting treatment is to reflect 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. In order that the rent smoothing receivable does not, in combination with the book value of the investment properties, overstate the value of the property portfolio, any movement in the rent smoothing receivable is offset against property revaluation movements.
Key performance indicator - adjusted EPRA earnings per share
The Company intends to make distributions to shareholders once it generates sufficient profits. In order to monitor its ability to make distributions, the Board uses the Group's adjusted EPRA earnings per share as a key performance indicator. EPRA EPS excludes investment property revaluations, fair value movements in interest rate derivatives and deferred tax to give a measure of underlying earnings from core operating activities. An adjusted EPRA EPS figure is presented, also excluding any performance fee as that is largely derived from investment property revaluations, and the non-recurring costs of the reorganisation and listing, as the Board believes this enables a more consistent comparison of underlying earnings:
At or prior
to listing Nine months
in Since listing to 31 December
June 2014 in June 2014 2014
Pence per Pence per Pence per
share share share
---------------------------------------- ------------- --------------- ---------------
Rental income net of property outgoings 11.5 37.2 48.7
Net finance costs (10.0) (29.9) (39.9)
Performance fee - (21.1) (21.1)
Administrative expenses and corporate
costs (1.8) (2.2) (4.0)
Tax (0.4) (0.3) (0.7)
Unwinding discount on shareholder
loans net of deferred tax (note 5) 0.8 - 0.8
---------------------------------------- ------------- --------------- ---------------
EPRA EPS 0.1 (16.3) (16.2)
Performance fee - 21.1 21.1
One-off costs of reorganisation and
listing 1.8 - 1.8
---------------------------------------- ------------- --------------- ---------------
Adjusted EPRA EPS 1.9 4.8 6.7
---------------------------------------- ------------- --------------- ---------------
Further details of the Group's financial performance are given in the Investment Adviser's Report.
Principal risks and uncertainties
Risk Impact on the Group Mitigation
------------------------------ --------------------------------- ---------------------------------
Property valuation movements
The Group invests in Investment properties The Group uses experienced
commercial property make up the majority external valuers, whose
and so is exposed to of the Group's assets, work is reviewed by
movements in property so changes in their suitably qualified members
valuations, which are value can have a significant of the Board and Investment
subjective and may vary impact on EPRA NAV. Adviser, before being
as a result of a variety approved in the context
of factors, many of of the accounts as a
which are outside the whole by the Audit Committee
control of the Group. and the Board.
The Board's objective
is to seek to structure
the Group's capital
such that gearing is
appropriate having regard
to market conditions.
------------------------------ --------------------------------- ---------------------------------
Tenant risk
During the period the A default of lease obligations The lease guarantors
Group derived its rental would have a material are all listed companies
income from three tenants impact on the Group's with capital structures
with three guarantors, revenue and hence its considered appropriate
two of which accounted EPRA EPS, particularly by the Board and with
for 98% of passing rent. as the specialised use impressive long term
of the properties may earnings growth and
There can be no guarantee mean that re-letting share price track records.
that they will remain takes time.
able to comply with The Board reviews the
their obligations throughout Investment property financial position of
the term of the relevant valuations reflect the the tenants and guarantors
leases. valuer's assessment at least every quarter,
of the future security based on publicly available
of income. A loss of financial information
income would therefore and any other trading
impact EPRA NAV. information which may
be obtained under the
terms of a lease.
------------------------------ --------------------------------- ---------------------------------
Borrowing
Certain Group companies In the event of a breach There are no loan to
have granted security of covenant, the Group value tests over the
to lenders in the form may be required to pay remaining term of the
of mortgages over investment higher interest costs facilities.
property and fixed and or to make early repayment
floating charges over of borrowings in whole The Board reviews compliance
other assets. or in part, which would with interest cover
affect EPRA EPS. covenants every quarter,
including look forward
The Group might also tests for at least twelve
be required to terminate months, and considers
some or all of its interest that there is sufficient
rate hedging instruments headroom on relevant
which could result in loan covenants.
a cash cost, impacting
EPRA NAV.
Where the Group is unable
to make repayment out
of existing cash resources,
it may be forced to
sell assets to repay
part or all of the Group's
debt. It may be necessary
to sell assets at below
book value, which would
impact EPRA NAV.
------------------------------ --------------------------------- ---------------------------------
Access to financing
The Group's debt facilities The Group will be dependent The Board periodically
are due for repayment upon access to financing reviews the availability
in May and July 2017. from debt or equity of finance and the refinancing
This is likely to require markets or through asset options available.
new debt finance, asset sales to meet its repayment
sales, equity issues obligations. An inability There is very material
or a combination of to repay the debt in equity value in the
these sources of finance. full could mean a reduction portfolios providing
in the value of shareholders' flexibility to conduct
Access to such financing equity. asset sales or other
will depend on market capital raising if necessary
conditions at the time. Debt finance may only in the event that debt
be available at a higher markets are not favourable
interest cost, impacting at the time of refinancing.
EPRA EPS, while it may
be necessary to sell
assets at below book
value, which would impact
EPRA NAV.
------------------------------ --------------------------------- ---------------------------------
Risk Impact on the Group Mitigation
------------------------------- ------------------------------- --------------------------------
Interest rate risk
The Group has borrowed The current low interest The Board periodically
on a variable rate basis, rate environment has monitors the position
with rates effectively given rise to a significant of the loans and associated
fixed by way of interest theoretical mark to derivatives to ensure
rate swaps, and is therefore market liability relating that the hedging remains
exposed to changes in to the Group's hedging effective. The Group's
interest rates in the instruments. This does policy is that any future
event that swaps are not represent a cash variable rate borrowing
terminated prior to liability unless and should also be appropriately
maturity in mid 2017. until the instruments hedged.
are terminated, but
in that case would be The Board will consider
a cash cost that would the cost of terminating
impact EPRA NAV and any derivatives with
EPRA EPS. a view to only incurring
such costs if it results,
overall, in a beneficial
outcome for shareholders.
------------------------------- ------------------------------- --------------------------------
Exchange rate risk
The Group prepares its There could be an adverse Exchange rate risk is
financial statements impact on the Sterling partially hedged through
in Sterling but some valuation of unhedged the use of Euro denominated
of its business is conducted investments and income assets and liabilities,
in Germany, where both flows, which would affect limiting the exposure
assets and liabilities EPRA NAV and EPRA EPS to the Euro net asset
are Euro denominated, respectively. value which at the year
so it is subject to end rate of EUR1:GBP0.77877
foreign currency exchange amounts to just over
risk from exchange rate 4% of EPRA NAV.
movements between Sterling
and the Euro.
------------------------------- ------------------------------- --------------------------------
Tax risk
The Group is subject If subject to UK corporation The Board reviews compliance
to the UK REIT regime. tax, the Group's current with the UK REIT rules
A failure to comply tax charge would increase, every quarter.
with UK REIT conditions impacting EPRA EPS.
resulting in the loss
of this status would
make the whole Group
subject to UK corporation
tax.
------------------------------- ------------------------------- --------------------------------
Liquidity risk
Working capital must A breach of covenant, Unless there is a tenant
be managed to ensure or the insolvency of default (discussed under
that both the Group the Group as a whole tenant risk above) the
as a whole and all individual or an individual entity, Group's cash flows are
entities are able to could result in a loss generally highly predictable.
meet their liabilities of net assets, impacting The cash position is
as they fall due. EPRA NAV and EPRA EPS. reported to the Board
quarterly; projections
at least two years ahead
are included in the
Group budget and are
updated for review when
the interim and annual
reports are approved.
------------------------------- ------------------------------- --------------------------------
Investment Adviser's Report
Prestbury Investments LLP advises Secure Income REIT Plc and is pleased to report on the operations of the Group for the nine months ended 31 December 2014. Consistent with the Chairman's Statement and Strategic Report, we focus in this report on results since listing last June.
The portfolio
The portfolio throughout the period to 31 December 2014 comprised 28 properties with secure, long term income and contractual uplifts derived from tenants whose businesses offer global spread and have performed very well over many years, demonstrating their strong defensive qualities.
Healthcare assets (50% of portfolio value)
The healthcare assets comprised 21 freehold private hospitals located throughout England, 20 of which are let to a subsidiary of Ramsay Health Care Limited, the listed Australian healthcare company, and the other to Groupe Sinoue, a French company specialising in mental health. The hospitals let to Ramsay comprise 96% of the healthcare assets' passing rent and 95% of their fair value.
The Ramsay hospitals are let on full repairing and insuring leases with a term to expiry at 31 December 2014 of 22.4 years without break. The rent increases by a fixed 2.75% per annum throughout the lease term in May each year, except in 2017 when it is increased to the higher of 2.75% or 88.5% of 65% of site earnings before interest, tax, depreciation, amortisation, rent and head office costs, and every fifth year thereafter when it is increased to the higher of 2.75% or open market value. The rent from the Ramsay hospitals is currently GBP45.9 million per annum.
The leases on the Ramsay hospitals are all guaranteed by Ramsay Health Care Limited, Australia's largest hospital operator, one of the top five private hospital operators in the world and a constituent of the ASX 50 index of Australia's largest companies, with a market capitalisation at 11 March 2015 of GBP6.9 billion.
The tenant's rental obligations with regard to the central London psychiatric hospital in Lisson Grove are guaranteed by Orpea SA, the parent company of the Orpea Group, a leading European operator of nursing homes, post-acute care and psychiatric care, listed on Euronext Paris with a market capitalisation at 11 March 2015 of GBP2.6 billion. Orpea owns 45% of Group Sinoue.
With a current rent of GBP1.8 million per annum, the Lisson Grove hospital accounts for 2% of the Group's passing rent, and represents 2% of the gross property assets. The rent increases each year by 3%. A reversionary lease will take effect on expiry of the existing lease in May 2037 and extend the term by a further seven years, with fixed rental increases of 3% per annum throughout this extended term.
Total healthcare rent is currently GBP47.7 million per annum.
Leisure assets (50% of portfolio value)
The leisure assets comprise five well known visitor attractions and two hotels, located in England and Germany. The properties are all let to subsidiaries of Merlin Entertainments Plc, the guarantor of the leases. Merlin is a leisure group listed on the London Stock Exchange's FTSE 250 index with a market capitalisation at 11 March 2015 of GBP4.3 billion. Measured by the number of visitors, it is Europe's largest and the world's second largest operator of leisure attractions.
The UK leisure assets are:
-- Madame Tussauds London -- Alton Towers theme park and the Alton Towers Hotel -- Thorpe Park theme park -- Warwick Castle
In addition the leisure portfolio includes two German assets: Heide Park theme park and the Heide Park hotel, both located in Soltau, Saxony. The German assets, which generate Euro denominated rents, make up 11% of the leisure portfolio passing rent and 5% of the total Group rent.
Across the leisure portfolio the visitor attractions account for 88% of the passing rent and 89% of fair value, with hotels making up the balance.
The average unexpired lease term of the leisure assets is 27.5 years and the tenants have two rights to renew these leases for 35 years at the end of each term. The leases are full repairing and insuring leases and there are no break options. There are upwards only uncapped RPI-linked rent reviews every June throughout the term for the UK leisure portfolio and fixed annual increases of 3.34% every July throughout the term for the German properties. The 2014 rent reviews resulted in an average increase of 2.5% in the RPI-linked rents of the leisure assets, with the total rent currently GBP45.5 million per annum, including GBP5.0 million of Euro denominated German rents at a rate of EUR1:GBP0.77877.
Portfolio valuation yields at 31 December 2014
Rest of
London UK Germany Total
---------------------------------------- ---------- ---------- ---------- ----------
Healthcare:
Net initial yield 4.4% 5.6% n/a 5.6%
Equivalent yield 5.8% 6.8% n/a 6.8%
Reversionary yield 4.5% 5.8% n/a 5.7%
Leisure:
Net initial yield 4.8% 5.5% 6.5% 5.3%
Equivalent yield 6.5% 7.4% 8.7% 7.2%
Reversionary yield 4.9% 5.6% 6.8% 5.4%
Total portfolio:
Net initial yield 4.7% 5.6% 6.5% 5.4%
Equivalent yield 6.4% 7.0% 8.7% 7.0%
Reversionary yield 4.8% 5.7% 6.8% 5.6%
Weighted average unexpired lease term 27.8 years 24.2 years 27.6 years 25.1 years
---------------------------------------- ---------- ---------- ---------- ----------
Portfolio valuation by location
Healthcare Leisure Total
--------------------- --------------------- ----------------------------------
31 December 31 March 31 December 31 March 31 December 31 March Fair value
2014 2014 2014 2014 2014 2014 change
GBPm GBPm GBPm GBPm GBPm GBPm over nine
months
--------------------- ----------- -------- ----------- -------- ----------- --------- ----------
London 39.2 32.7 309.3 286.7 348.5 319.4 9.1%
Rest of UK 773.8 694.8 431.0 376.5 1,204.8 1,071.3 12.5%
Germany at constant
Euro exchange
rate - - 76.5 66.7 76.5 66.7 14.7%
Movement in Euro
exchange rate - - (4.4) n/a (4.4) n/a (6.6)%
--------------------- ----------- -------- ----------- -------- ----------- --------- ----------
813.0 727.5 812.4 729.9 1,625.4 1,457.4 11.5%
--------------------- ----------- -------- ----------- -------- ----------- --------- ----------
Portfolio valuation uplift in the period
The healthcare investment property valuations at 31 December 2014 reflect a weighted average net initial yield of 5.6% compared to 6.2% at 31 March 2014, resulting in a valuation uplift of GBP85.5 million (11.8%) in the period. The rental uplifts in May 2014 had already been reflected in the 31 March 2014 valuation.
The leisure investment property valuations at 31 December 2014 reflect a weighted average net initial yield of 5.3% compared to 5.8% at 31 March 2014. The net initial yield for the UK leisure assets is 5.2% compared to 5.6% at 31 March 2014 which, together with a 2.5% RPI rental uplift on 24 June 2014, has resulted in a valuation uplift of GBP77.1 million (11.6%) in the period. The fixed 3.34% rental income uplift on the German assets in July 2014 was reflected in the valuation at 31 March 2014, but a fall in the net initial yield from 7.3% to 6.5% has resulted in an uplift of EUR11.8 million (14.7%) in the Euro denominated valuation of those properties; currency translation movements have, however, reduced the Sterling equivalent by GBP4.4 million (6.6%), resulting in a net valuation uplift of GBP5.4 million (8.1%) in the German leisure assets over the period. Across the whole leisure portfolio, there has therefore been a valuation increase of GBP82.5 million (11.3%) in the period.
As a result of these valuation movements, the total portfolio uplift comprises:
Pence
GBPm per share
--------------------------------------------------- ------- ------------
Investment property revaluation movement 160.6 95.3
Currency translation movements on Euro denominated
investment properties (4.4) (2.7)
Movement in rent smoothing adjustment included
within rental income 11.2 6.7
Currency translation movements on Euro denominated
rent smoothing amounts 0.6 0.4
--------------------------------------------------- ------- ------------
168.0 99.7
--------------------------------------------------- ------- ------------
The rent smoothing adjustment arises from the Group's accounting policy to spread the impact of fixed rental uplifts evenly over the whole term of relevant leases. The adjustments relate to those rents on the healthcare assets which increase by 2.75% (on 96% of healthcare rents) and 3% (on 4% of healthcare rents) every May, and those rents on the German leisure assets which increase by 3.34% every July.
The impact of this accounting treatment is to reflect 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, reducing to zero over the second half of each lease term. The impact over time for each of the rental income flows subject to smoothing is as follows:
Maximum Midway
Receivable
at receivable point
31 December at midway in lease
2014 point term
GBPm GBPm
----------------- ----------- ------------ -------------
Healthcare 130.5 183.2 May 2023
German leisure* 23.9 39.1 Jan 2026
----------------- ----------- ------------ -------------
Total 154.4 222.3
----------------- ----------- ------------ -------------
* at the period end Euro conversion rate of EUR1:GBP0.77877
In order that the rent smoothing receivable does not, in combination with the book value of the investment properties, overstate the value of the property portfolio, any movement in the rent smoothing receivable is offset against property revaluation movements. As a result, this adjustment affects only the income statement presentation and does not change the Group's net assets.
Financial review
Basis of preparation of the financial statements
Note 2 to the Group financial statements sets out the basis of preparation of the financial information in this report. Because the results and net assets presented for the year to 31 March 2014 relate to a period where the capital structure and tax status of the Group were different to that which has been in place since the listing of the Company, we have not sought in this report to compare all the elements of the results for the nine months ended 31 December 2014 with those of prior periods, as the comparison is not considered to be meaningful. Instead we focus on results and movements in net assets since listing on AIM in June 2014.
EPRA net asset value
The Board measures the Group's progress primarily through the growth in EPRA net asset value ("EPRA NAV") per share over the period since listing. EPRA NAV strips out the impact of hedging revaluations and any deferred tax on investment property revaluations to provide a measure of the fair value of a company on a long term basis. The EPRA NAV per share at 31 December 2014 of 258.5 pence per share represents a 50% increase over the unaudited pro forma EPRA NAV for the shares issued at listing. In an effort to fairly reflect the capital reorganisation and effects of the listing, the following table summarises growth in EPRA NAV before and after listing:
Pence per
GBPm share
----------------------------------------------------- ------- --------------
EPRA NAV at 1 April 2014 283.1 177.1
Proceeds of share issue net of costs of share
issue, listing and reorganisation 11.9 -
Dilution of existing shareholders from share
issue - (2.0)
Fair value adjustment on capitalisation of
shareholder loans prior to listing 1.6 1.0
----------------------------------------------------- ------- --------------
EPRA NAV at 1 April 2014 adjusted for current
capital structure 296.6 176.1
Investment property revaluation 160.6 95.3
Performance fee (3.1) (20.1)
Net results before investment property revaluation,
performance fee, tax and currency translation
movements 14.1 8.5
Tax (1.4) (0.9)
Currency translation movements (0.6) (0.4)
EPRA NAV at 31 December 2014 466.2 258.5
----------------------------------------------------- ------- --------------
The movements in investment property valuations shown in the income statement are described above in the portfolio section of this report. The Group's net results for the period are explained in the Income Statement section below.
EPRA triple net asset value
The EPRA triple net asset value includes the mark to market values of debt and hedging instruments, and any inherent tax liabilities not provided for in the financial statements. This is calculated as follows:
Pence per
GBPm share
--------- ---------
EPRA NAV at 31 December 2014 466.2 258.5
Fair value of hedging instruments, net of German
deferred tax (117.0) (64.8)
German deferred tax on investment property
revaluations (4.9) (2.7)
-------------------------------------------------- --------- ---------
EPRA triple net asset value at 31 December
2014 344.3 191.0
-------------------------------------------------- --------- ---------
Income statement
The income statement presented in these financial statements covers periods both before and after listing including a period of just over two months when the Group had a different capital structure and tax status. The following table distinguishes between the periods before and after the listing and capital restructuring:
Pence per
GBPm share
-------- --------------
Rental income net of property outgoings 19.1 11.9
Administrative expenses (0.1) -
Net financing costs (16.6) (10.4)
Investment property revaluation (2.8) (1.7)
Tax 0.6 0.4
--------------------------------------------- -------- --------------
Net result prior to listing 0.2 0.2
Costs of the reorganisation and listing (2.9) (1.8)
Dilution from issue of new shares - (2.1)
Tax credit on conversion to UK REIT 116.1 72.6
--------------------------------------------- -------- --------------
Net adjustment to results at listing 113.2 68.7
Investment property revaluation 163.4 98.2
Rental income net of property outgoings 61.8 37.2
Performance fees (35.2) (21.1)
Administrative expenses and corporate costs (3.6) (2.2)
Net financing costs (49.8) (29.9)
Tax (2.3) (1.4)
--------------------------------------------- -------- --------------
Net result since listing 134.3 80.8
--------------------------------------------- -------- --------------
Profit for the period 247.7 149.7
--------------------------------------------- -------- --------------
The rental income profile and the credit strengths of the businesses paying the rent are disclosed in the Portfolio section of this report, along with details of the investment property revaluations.
Administrative expenses charged to the income statement since listing include performance fees of GBP35.2 million, advisory fees of GBP2.7 million, other administrative expenses of GBP0.7 million and corporate costs of GBP0.2 million. As part of a balanced package of fees and incentive arrangements entered into between Prestbury and the Company at the time of listing, Prestbury is rewarded if and when the Company exceeds an EPRA NAV growth rate of 10% in each year, subject to meeting certain other detailed tests. In order for a performance fee to arise in the period, the EPRA NAV of the Group needed to grow by an annualised 10% from the 172 pence per share pro forma net asset value at the time of listing, to a minimum 182 pence per share. As the EPRA NAV of the Group actually grew by 50% in the period to 258.5 pence per share, the fee that arose amounted to GBP35.2 million as described in note 19.
As the Group's healthcare assets cannot be VAT elected, there is an element of irrecoverable VAT on all costs attributable to the healthcare business, including a GBP3.1 million irrecoverable VAT cost on the performance fee. As the fee itself is payable by way of a share issue, the only impact on the absolute net asset value is this irrecoverable VAT element. The net assets per share and earnings per share are diluted by 7.1% representing the 11.9 million shares to be issued to Prestbury in settlement of the fee. Sales of these shares are restricted, with the restriction only lifted on a phased basis over a period from 18 to 42 months from the date of listing, subject to a release in the event that Prestbury needs to sell shares to settle any tax liability on the fee income received.
Advisory fees were payable to Prestbury during the period, under an agreement entered into prior to listing by which it is entitled to receive cash fees based on a sliding scale relative to the Group's EPRA NAV, currently payable at 1.25% per annum of EPRA NAV. This amounted to a fee of GBP2.7 million in the period. Until July 2016, the cash required to satisfy this advisory fee is recovered from the pre-listing shareholders of the Company up to a maximum of GBP5.3 million per annum so for the period to 31 December 2014 the cash required to fund the advisory fee payment was met by those shareholders.
Corporate costs are those costs necessarily incurred as a result of the Company being listed, and principally comprise:
-- the cost of the board of seven Directors, four of whom are entitled to receive fees currently totalling GBP0.2 million per annum. The other three Directors are partners in the Investment Adviser and receive no remuneration from the Company; and
-- othercosts of being listed, includingbroker/nominated adviser fees, registrar fees and listing fees, which amountto a total of GBP0.5 million per annum.
External finance costs since listing comprise GBP45.3 million of interest payable, GBP1.7 million of amortised finance fees and GBP2.8 million of other fees.
The average interest rates paid during the period for each facility, excluding fees payable to lenders, were as follows:
Average
rate paid
--------------------- -----------
Healthcare portfolio 6.6%
Leisure portfolio 6.9%
--------------------- -----------
Total portfolio 6.8%
--------------------- -----------
Effective from the date of listing, the terms of the Group's two bank loan facilities were amended in order to remove any LTV tests until loan maturity and to permit the capital reorganisation, listing and conversion to REIT status. The healthcare facility was also varied so that from that date it became an interest only loan, and a covenant release fee of GBP11.9 million became payable as a result, falling due in quarterly instalments commencing on 29 July 2014. This fee is being charged to the income statement evenly over the remaining term of the loan from June 2014 to July 2017, resulting in a GBP2.3 million charge in the period.
Both of the bank loans are floating rate facilities with interest rate risk managed by way of interest rate swaps, with the entire principal amount of each facility fixed for the term of the relevant loan. The market value of these interest rate swaps at 31 December 2014 was a liability of GBP117.6 million; this liability will not, however, be immediately payable unless the interest rate swap contracts are terminated and will otherwise be expected to reduce to zero over the remaining term of the contracts, which expire in line with the debt maturity dates in mid 2017.
Tax
The Group entered the UK REIT regime on 5 June 2014, so all of the Group's UK rental operations became exempt from UK corporation tax from that date, subject to the Group's continuing compliance with the UK REIT rules. The Group is otherwise subject to UK corporation tax.
The Company's election into the REIT regime meant that certain items of deferred tax will no longer crystallise. This resulted in the reversal through the income statement of a deferred tax liability of GBP117.3 million relating to unrealised UK capital gains tax, and the release through the statement of other comprehensive income of a deferred tax asset of GBP26.9 million relating to the Group's Sterling interest rate swaps. These are allocated to the pre-listing period in the results analysis in this report.
In the event that a UK REIT has financing costs that are not covered at least 1.25 times by profits, tax is payable at the UK corporation tax rate on the interest over that level, up to a cap of 20% of taxable profit. In the period from 5 June 2014 to 31 December 2014, the Group incurred a current tax charge of GBP0.7 million on such excess interest at a tax rate of 21%.
Realised profits from the Group's German rental operations are taxable in Germany, though in the period a tax credit of GBP0.1 million arose as a result of a number of historic adjustments. The Group also retains a deferred tax liability of GBP4.9 million relating to unrealised German capital gains tax and a deferred tax asset of GBP0.6 million relating to the Group's Euro interest rate swaps.
Currency translation
The majority of the Group's operations are in the UK and the financial statements are therefore presented in Sterling. Just over 4% of the Group's EPRA NAV is in Germany, valued in and generating revenue in Euros. The debt financing these operations is also denominated in Euros, which acts as a partial hedge of the currency risk, but the Group remains exposed to translation differences on the results and net assets of these operations, with movements recognised in the statement of other comprehensive income. The Euro has weakened against Sterling over the period and as a result there was a net currency translation loss of GBP0.4 million in relation to the German operations.
Cash flow
The movement in cash over the period comprised:
Pence
GBPm per share
Cash from operating activities (1.0) (0.6)
Net interest and finance costs paid (19.6) (12.2)
Repayment of secured debt - loan amortisation (2.9) (1.8)
Proceeds of the share issue on listing net
of expenses 11.9 7.4
Dilution from share issue - (0.4)
----------------------------------------------- ----------- -----------------
Cash flow up to listing (11.6) (7.6)
Cash from operating activities 67.1 39.8
Net interest and finance costs paid (including
covenant release fee) (41.3) (24.6)
Repayment of secured debt - loan amortisation (3.2) (1.9)
Amounts received in respect of advisory fee
recovery 2.2 1.3
----------------------------------------------- ----------- -----------------
Cash flow since listing 24.8 14.6
Cash flow in the period 13.2 7.0
Cash at the start of the period 25.4 15.9
Effect of exchange rate movements 0.2 0.1
----------------------------------------------- ----------- -----------------
Cash at 31 December 2014 38.8 23.0
----------------------------------------------- ----------- -----------------
Pence per
Comprising: GBPm share
----------------------------------------------- ----------- -----------------
Free cash 13.0 7.7
Cash reserved for regulatory capital 0.5 0.3
Cash secured under lending facilities 25.3 15.0
----------------------------------------------- ----------- -----------------
Cash at 31 December 2014 38.8 23.0
----------------------------------------------- ----------- -----------------
The investment properties of the Group are let on full repairing and insuring terms, with each tenant obliged to keep the premises in good and substantial repair and condition, including rebuilding, reinstating, renewing or replacing the premises where necessary. Consequently it is not expected that material capital expenditure will be required for the current portfolio.
The placing of shares at listing on 5 June 2014 raised GBP11.9 million, from gross proceeds of GBP15.0 million net of costs of GBP3.1 million. GBP0.2 million of those costs related to the issue of new shares so was charged to the share premium reserve, while the remaining GBP2.9 million related to the listing and the reorganisation, and was therefore charged to the income statement.
Financing
The Group's operations are financed by a combination of cash resources and non-recourse debt finance, where the assets at risk in the event of a loan default are limited to those within a specific ring-fenced structure. The healthcare assets and the leisure assets each secure separate non-recourse facilities.
The loan financing the healthcare assets at 31 December 2014 was an interest only Sterling facility of GBP608.9 million.
The loans financing the leisure assets at 31 December 2014 comprised a Sterling facility of GBP497.2 million and a Euro facility of GBP51.5 million (EUR66.1 million translated at the year end rate), with security cross-collateralised between the UK and German leisure assets. The leisure facilities amortise quarterly by the application of net portfolio cash flow in repayment of debt and as a result amortisation payments of GBP3.2 million have been made since listing.
The Group's gross and net debt at 31 December 2014 is as follows:
Portfolio Group
Healthcare Leisure total Unsecured total
GBPm GBPm GBPm GBPm GBPm
------------------------------- ---------- -------- --------- --------- ---------
Gross debt 608.9 548.7 1,157.6 - 1,157.6
Other secured fee liabilities 14.0 - 14.0 - 14.0
Secured and regulatory cash (11.9) (13.4) (25.3) (0.5) (25.8)
Free cash (1.6) (0.8) (2.4) (10.6) (13.0)
------------------------------- ---------- -------- --------- --------- ---------
Net debt 609.4 534.5 1,143.9 (11.1) 1,132.8
------------------------------- ---------- -------- --------- --------- ---------
Property value at 31 December
2014 813.0 812.4 1,625.4 - 1,625.4
------------------------------- ---------- -------- --------- --------- ---------
Gross LTV 76.6% 67.5% 72.1%
Net LTV 75.0% 65.8% 70.4% 69.7%
------------------------------- ---------- -------- --------- --------- ---------
Secured cash is held in bank accounts under the control of the lenders. Free cash held within the secured portfolio structures is available to be applied for general corporate purposes for as long as there is no default under the relevant loan agreement. Free cash held by the Company outside the secure portfolio structures would not be at risk in the event of any default.
All facilities remain within the relevant financial covenants. There are no LTV tests before the loans mature, while interest cover is tested quarterly. When most recently tested in January 2015, there was headroom over the interest cover covenant thresholds in each facility of 13% or better.
There have been no defaults or potential defaults in either facility during the period or since the balance sheet date.
Group Income Statement
Nine months
to Year to
31 December 31 March
2014 2014
Notes GBP000 GBP000
---------------------------------------- ----- ------------- ----------
Gross rental income 80,946 107,331
Property outgoings (19) (23)
---------------------------------------- ----- ------------- ----------
Gross profit 80,927 107,308
Administrative expenses (38,568) (339)
Corporate costs (294) -
Costs of the reorganisation and listing (2,888) -
----- ------------- ----------
Total administrative expenses (41,750) (339)
Investment property revaluation 8 160,608 4,706
---------------------------------------- ----- ------------- ----------
Operating profit 4 199,785 111,675
Finance income 5 36 25
Finance costs 5 (66,366) (95,044)
---------------------------------------- ----- ------------- ----------
Profit before tax 133,455 16,656
Tax credit 6 114,291 15,145
---------------------------------------- ----- ------------- ----------
Profit for the period 247,746 31,801
---------------------------------------- ----- ------------- ----------
Pence per Pence per
Earnings per share share share
---------------------------------------- ----- ------------- ----------
Basic 7 149.7 24.6
Diluted 7 139.7 24.6
---------------------------------------- ----- ------------- ----------
All amounts relate to continuing activities.
The notes formpart of these financial statements.
Group Statement of Other Comprehensive Income
Nine months
to Year to
31 December 31 March
2014 2014
Notes GBP000 GBP000
----------------------------------------------------- ----- ------------- ----------
Profit for the period 247,746 31,801
Items that may subsequently be reclassified to
profit or loss:
Fair value adjustment of interest rate derivatives
in effective hedges 21,837 79,153
Tax effect of interest rate derivative valuation
adjustment 12 (26,918) (23,244)
Currency translation differences (370) (159)
----------------------------------------------------- ----- ------------- ----------
Total comprehensive income for the period, net
of tax 242,295 87,551
----------------------------------------------------- ----- ------------- ----------
The notes formpart of these financial statements.
Group Statement of Changes in Equity
Share Capital Cash flow
Share premium Merger contribution Other hedging Retained
capital reserve reserve reserve reserves reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- -------- ---------- ---------- -------------- ----------- ----------- ----------- ----------
Period ended 31 December 2014
At 1 April 2014 - - - 23,530 1,921 (114,120) 17,387 (71,282)
----------------- -------- ---------- ---------- -------------- ----------- ----------- ----------- ----------
Profit for the
period - - - - - - 247,746 247,746
Fair value
adjustment
of interest rate
derivatives in
effective
hedges - - - - - 21,837 - 21,837
Tax effect of
interest
rate derivative
valuation
adjustment - - - - - (26,918) - (26,918)
Currency
translation
differences - - - - (370) - - (370)
----------------- -------- ---------- ---------- -------------- ----------- ----------- ----------- ----------
Total
comprehensive
income, net of
tax - - - - (370) (5,081) 247,746 242,295
Issue of shares
on
capitalisation
of
shareholder
loans 7,791 70,123 - (17,492) - - - 60,422
Issue of shares
on
acquisition of
the
Healthcare group 8,191 - 73,718 (18,435) - - - 63,474
Capital reduction
and cancellation - (70,123) (73,718) - - - 143,841 -
Reclassification
on
capitalisation
of shareholder
loans - - - 12,397 - - (12,397) -
Proceeds from
share
issue net of
capitalised
expenses 862 16,156 - - - - - 17,018
Shares to be
issued - - - - 32,378 - - 32,378
At 31 December
2014 16,844 16,156 - - 33,929 (119,201) 396,577 344,305
----------------- -------- ---------- ---------- -------------- ----------- ----------- ----------- ----------
Share Capital Cash flow
Share premium Merger contribution Other hedging Retained
capital reserve reserve reserve reserves reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- -------- ---------- ---------- -------------- ----------- ----------- ----------- ----------
Year ended 31 March 2014
At 1 April 2013 - - - 30,870 2,080 (170,029) (21,754) (158,833)
----------------- -------- ---------- ---------- -------------- ----------- ----------- ----------- ----------
Profit for the
year - - - - - - 31,801 31,801
Fair value
adjustment
of interest rate
derivatives in
effective
hedges - - - - - 79,153 - 79,153
Tax effect of
interest
rate derivative
valuation
adjustment - - - - - (23,244) - (23,244)
Currency
translation
differences - - - - (159) - - (159)
----------------- -------- ---------- ---------- -------------- ----------- ----------- ----------- ----------
Total
comprehensive
income, net of
tax - - - - (159) 55,909 31,801 87,551
Reclassification
of realised
amount - - - (7,340) - - 7,340 -
-------- ---------- ---------- -------------- ----------- ----------- ----------- ----------
At 31 March 2014 - - - 23,530 1,921 (114,120) 17,387 (71,282)
----------------- -------- ---------- ---------- -------------- ----------- ----------- ----------- ----------
The notes formpart of these financial statements.
Group Balance Sheet
31 December 31 March
2014 2014
Notes GBP000 GBP000
----------------------------- ----- ------------- -------------
Non-current assets
Investment properties 8 1,625,435 1,457,374
Deferred tax asset 12 627 28,506
----------------------------- ----- ------------- -------------
1,626,062 1,485,880
Current assets
Trade and other receivables 10 103 69
Current tax recoverable 401 39
Cash and cash equivalents 11 38,771 25,367
----------------------------- ----- ------------- -------------
39,275 25,475
Total assets 1,665,337 1,511,355
----------------------------- ----- ------------- -------------
Current liabilities
Trade and other payables 13 (41,035) (37,097)
Secured debt 14 (4,908) (11,103)
Current tax payable (166) -
----------------------------- ----- ------------- -------------
(46,109) (48,200)
Non-current liabilities
----------------------------- ----- ------------- -------------
Secured debt 14 (1,152,407) (1,152,540)
Shareholder loans 14 - (113,238)
----------------------------- ----- ------------- -------------
(1,152,407) (1,265,778)
Interest rate derivatives 14 (117,578) (138,706)
Deferred tax liability 12 (4,938) (129,953)
----------------------------- ----- ------------- -------------
(1,274,923) (1,534,437)
Total liabilities (1,321,032) (1,582,637)
----------------------------- ----- ------------- -------------
Net assets / (liabilities) 344,305 (71,282)
----------------------------- ----- ------------- -------------
Equity
Share capital 15 16,844 -
Share premium reserve 16 16,156 -
Retained earnings 16 396,577 17,387
Cash flow hedging reserve 16 (119,201) (114,120)
Other reserves 16 33,929 1,921
Capital contribution reserve - 23,530
Total equity 344,305 (71,282)
----------------------------- ----- ------------- -------------
Pence per Pence
share per share
----------------------------- ----- ------------- -------------
Adjusted basic NAV per share 18 204.4 32.1
Diluted NAV per share 18 190.9 32.1
EPRA NAV per share 18 258.5 177.1
----------------------------- ----- ------------- -------------
The notes formpart of these financial statements.
Group Cash Flow Statement
Nine months Year to
to 31 December 31 March
2014 2014
Notes GBP000 GBP000
----------------------------------------------------- ----- ---------------- ----------
Operating activities
Profit before tax 133,455 16,656
Adjustments for non-cash items:
Investment property revaluation 8 (160,608) (4,706)
Movement in rent smoothing adjustment 8 (11,287) (16,524)
Administrative expenses settled in shares 32,378 -
Finance income 5 (36) (25)
Finance costs 5 66,366 95,044
----------------------------------------------------- ----- ---------------- ----------
Cash flows from operating activities before changes
in working capital 60,268 90,445
Changes in working capital:
Trade and other receivables (194) (52)
Trade and other payables 6,770 753
----------------------------------------------------- ----- ---------------- ----------
Cash generated from operations 66,844 91,146
German tax paid (743) (386)
----------------------------------------------------- ----- ---------------- ----------
Cash flows from operating activities 66,101 90,760
----------------------------------------------------- ----- ---------------- ----------
Investing activities
Interest received 36 25
----------------------------------------------------- ----- ---------------- ----------
Cash flows from investing activities 36 25
----------------------------------------------------- ----- ---------------- ----------
Financing activities
Repayment of secured debt (6,166) (10,056)
Interest and finance costs paid (60,882) (79,913)
Net proceeds of share issue 14,131 -
----------------------------------------------------- ----- ---------------- ----------
Cash flows from financing activities (52,917) (89,969)
----------------------------------------------------- ----- ---------------- ----------
Increase in cash and cash equivalents 13,220 816
Cash and cash equivalents at the beginning of
the period 25,367 24,581
Effect of exchange rate changes 184 (30)
----------------------------------------------------- ----- ---------------- ----------
Cash and cash equivalents at the end of the period 38,771 25,367
----------------------------------------------------- ----- ---------------- ----------
The notes form part of these financial statements.
Notes to the Group Financial Statements
1. General information about the Group
The financial information set out in this report covers the nine month period to 31 December 2014, with comparative amounts relating to the year to 31 March 2014, and includes the results and net assets of the Company and its subsidiaries, together referred to as the Group.
The Company is incorporated and domiciled in the United Kingdom. The address of the registered office and principal place of business is Cavendish House, 18 Cavendish Square, London, W1G 0PJ. The nature and scope of the Group's operations and principal activities are described in the Chairman's Statement the Strategic Report, and the Investment Adviser's Report.
The Company was listed on AIM on 5 June 2014. Further information about the Group can be found on its website, www.SecureIncomeREIT.co.uk.
2. Basis of preparation and accounting policies a) Statement of compliance
Prior to 21 May 2014, the Company and SIR Hospital Holdings Limited (the holding company of the Group that owns the healthcare assets) were entities under common control but did not form a single legal group. On 21 May 2014, by virtue of a reorganisation, the groups headed by these two companies became a legal group headed by the Company. This reorganisation is deemed to be a "combination under common control" and as a result is outside the scope of IFRS 3 "Business Combinations". As such it is considered appropriate that the principles of merger accounting, as set out under UK GAAP, are used to account for the reorganisation and these entities are treated as if they had always been part of a single group. No fair value adjustments are required.
Accordingly, although these entities did not form a legal group for the comparative period reported herein, the comparatives comprise the net assets of all entities as if the subsequently formed legal group had been in existence throughout all periods reported on. In particular:
-- earnings per share figures (including diluted, EPRA and adjusted EPRA EPS) have been calculated on the assumption that the capitalisation of shareholder loans which occurred in May 2014 had been in place throughout the whole period from 1 April 2013, with a corresponding effect on earnings and number of shares used in the EPS calculations (see note 7); and
-- NAV per share figures (including adjusted basic, diluted and EPRA NAV) have been calculated on the assumption that the capitalisation of shareholder loans had been in place throughout the whole period from 1 April 2013 with a corresponding effect on the number of shares used in the NAV per share calculations (see note 18).
Except for the above EPS and NAV matters, the consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ("IFRS") adopted for use in the European Union.
The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the financial statements for the year ended 31 December 2014. Whilst the financial information included in this announcement has been computed in accordance with IFRS, as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The financial information does not constitute the Group's financial statements for the periods ended 31 December 2014 or 31 March 2014, but is derived from those financial statements. Those accounts give a true and fair view of the assets, liabilities, financial position and results of the Group. Financial statements for the year ended 31 March 2014 have been delivered to the Registrar of Companies and those for the period ended 31 December 2014 will be delivered following the Company's Annual General Meeting. The auditors' reports on both the 31 December 2014 and 31 March 2014 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.
b) Basis of preparation
The Group financial statements are presented in Sterling as this is the currency of the primary economic environment in which the Group operates. Amounts are rounded to the nearest thousand, unless otherwise stated.
Euro denominated results for the German assets have been converted to Sterling at an average exchange rate for the period of EUR1:GBP0.79916 (year to 31 March 2014: EUR1:GBP0.84337) and period end balances converted to Sterling at the 31 December 2014 exchange rate of EUR1:GBP0.77877 (31 March 2014: EUR1:GBP0.82629).
The Directors have, at the time of preparing the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis of accounting in preparing the financial statements.
The financial statements have been prepared on the historical cost basis except that investment properties and interest rate derivatives are stated at fair value. The accounting policies have been applied consistently in all material respects.
(i) Estimates and judgements
The preparation of financial statements requires the Directors to make judgements, estimates and assumptions that may affect the applicationof accounting policies and reported amounts of assets and liabilities as at each balance sheet date and the reported amounts of revenue and expenses during the reporting period. Any estimates and assumptions are based on experience and any other factors that are believed to be relevant under the circumstances and which the Board considers reasonable. Actual outcomes may differ from these estimates.
Certain accounting policies which have a significant bearing on the reported financial condition and results of the Group require subjective or complex judgements. The principal ongoing areas of judgement are:
-- investment property valuation where, as described in note 8, the opinion of independent, external valuers has since listing been obtained at each reporting date using recognised valuation techniques and the principles of IFRS 13 "Fair Value Measurement". The opinion of an appropriately qualified director was used in valuing the investment properties in the prior year; and
-- the valuation of interest rate derivatives used to hedge interest rate exposures, shown in note 14, where the valuations are independently assessed by expert valuers on the basis of market rates and credit risk at each reporting date.
In addition, during the period the following specific matters also required judgement:
-- whether the services to the Group that generated a performance fee of GBP35.2 million were provided by employees or non-employees;
-- the allocation of GBP3.1 million of listing expenses between the income statement and the share premium account; and
-- whether the amendment that resulted in an GBP11.9 million covenant release fee on one of the Group's loan facilities represented a "substantial modification" of the loan.
The Group's accounting policies for these matters, together with other policies material to the Group, are set out in paragraphs (c) to (j) below.
(ii) Adoption of new and revised standards
During the period, the Group has adopted IFRS 10 "Consolidated financial statements", IFRS 11 "Joint arrangements" and IFRS 12 "Disclosure of interests in other entities", along with the related amendments to IAS 27 (revised) "Separate financial statements" and IAS 28 (revised) "Investments in associates and joint ventures". The requirements of IFRS 10 have not changed the scope of the Group's consolidation and the Group has no associates or joint ventures, so the only impact of these new and revised standards on the financial statements results from IFRS 12, which expands the disclosures on subsidiary undertakings in note 9.
None of the other new standards or interpretations issued by the International Accounting Standards Board ("IASB") or the IFRS Interpretations Committee ("IFRIC") has led to any material changes in the Group's accounting policies or disclosures during the period.
(iii) Standards and interpretations in issue not yet adopted
The IASB have issued the following standards that are mandatory for later accounting periods, subject to endorsement by the EU, and which are relevant to the Group but have not been adopted early:
Effective date
------------------------------------ ---------------
IFRS 9 Financial instruments 1 January 2018
IFRS 15 Revenue from contracts with
customers 1 January 2017
------------------------------------ ---------------
The Group's revenue is derived entirely from leases, which are outside the scope of IFRS 15. IFRS 9 deals with the classification and measurement of financial instruments but since the Group only has relatively straightforward hedging transactions using interest rate swaps, the Directors do not anticipate that the adoption of this standard will have a material impact on the Group's financial statements in the period of initial application, other than on presentation and disclosure.
The IASB and IFRIC have also issued or revised IFRS 14, IAS 1, IAS 16, IAS 19, IAS 38, IAS 39 and IAS 41 but these are not expected to have a material effect on the operations of the Group.
c) Basis of consolidation
Subsidiaries are those entities controlled by the Group. The Group has control within the meaning of this policy when it has power over an entity, is exposed to or has rights to variable returns from its involvement with the entity, and has the ability to use its power over the entity to affect those returns.
The consolidated financial statements include the financial statements of its subsidiaries prepared to 31 December under the same accounting policies as the Group as a whole, using the acquisition method. All intra-group balances and transactions are eliminated on consolidation.
d) Property portfolio (i) Investment properties
Investment properties comprise properties owned by the Group which are held for capital appreciation, rental income or both. They are initially recorded at cost and subsequently valued at each balance sheet date at fair value as determined by professionally qualified independent external valuers.
Valuations are calculated, in accordance with RICS Valuation - Professional Standards January 2014, by applying capitalisation yields to current and future rental cash flows, with reference to data from comparable market transactions, together with an assessment of the security of income. Gains or losses arising from changes in the fair value of investment properties are recognised in the income statement in the period in which they arise. Depreciation is not provided in respect of investment properties.
Acquisitions and disposals of investment properties are recognised on unconditional exchange of contracts where it is reasonable to assume at the balance sheet date that completion of the acquisition or disposal will occur. Gains on disposal are determined as the difference between the net disposal proceeds and the carrying value of the asset in the previous balance sheet adjusted for any subsequent capital expenditure or capital receipts.
(ii) Occupational leases
The Directors exercise judgement in considering the potential transfer of the risks and rewards of ownership in accordance with IAS 17 "Leases" for all properties leased to tenants and determines whether such leases are operating leases. A lease is classified as a finance lease if substantially all of the risks and rewards of ownership transfer to the lessee. If the Group substantially retains those risks, a lease is classified as an operating lease. All leases reflected in these financial statements are classified as operating leases.
(iii) Rental income
Revenue comprises rental income exclusive of VAT. Rental income is recognised in the income statement on an accruals basis. Contingent income, arising from RPI-linked rent reviews, is recorded in the income statement in the periods in which it is earned. Rental income from leases with fixed rent uplifts is recognised on a straight line basis over the term of the lease. Where income is recognised in advance of the related cash flows, an adjustment is made to ensure that the carrying value of the relevant investment property including accrued rent does not exceed the valuation.
e) Financial assets and liabilities
Financial assets and liabilities are recognised when the relevant Group entity becomes a party to the unconditional contractual terms of the instrument. Unless otherwise indicated, the carrying amounts of financial assets and liabilities are considered by the Directors to be a reasonable estimate of their fair values.
(i) Financial assets
Financial assets are recognised initially at their fair value and are classified into one of the categories set down in IFRS 7 "Financial Instruments: Disclosures" at the time of initial recognition. All financial assets currently qualify as "loans and receivables", which are measured at amortised cost using the effective interest method, less any impairment.
(ii) Trade and other payables
Trade and other payables are recognised initially at their fair value and subsequently at amortised cost.
(iii) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with banks and financial institutions, and other short term highly liquid investments with original maturities of three months or less.
(iv) Borrowings and finance charges
Secured debt is initially recognised at its fair value, net of any transaction costs directly attributable to its issue. Subsequently, secured debt is carried at amortised cost. Transaction costs are amortised over the life of the loan and charged to the income statement as part of the Group's financing costs, unless they represent a substantial modification of the loan in which case they are taken immediately to the income statement in full.
(v) Interest rate derivatives
The Group uses interest rate derivatives to hedge its exposure to cash flow interest rate risks. Derivatives are initially recognised at fair value on the date on which the derivative contract is entered into and subsequently measured at fair value.
Derivatives are classified either as derivatives in effective hedges or derivatives held for trading. It is anticipated that hedging arrangements will generally be "highly effective" within the meaning of IAS 39 "Financial Instruments: Recognition and Measurement" and that the criteria necessary for applying hedge accounting will therefore be met. All derivatives held in the period covered by these financial statements have met these criteria. Hedges are assessed on an ongoing basis to ensure they continue to be effective.
The gain or loss on the revaluation of the portion of an instrument that qualifies as an effective hedge of cash flow interest rate risk is recognised directly in other comprehensive income through the cash flow hedging reserve. Amounts accumulated in equity will be reclassified to the income statement in the period when the hedged items affect the income statement. The gain or loss on the revaluation of any derivative financial instrument classified as held for trading because it is not an effective hedge is recognised directly in the income statement.
There has been no hedge ineffectiveness to recognise in the income statement in the current period or prior year, so all movements in the fair value of these instruments are reflected in other comprehensive income.
f) Tax
Tax is included in the income statement except to the extent that it relates to income or expense items recognised through reserves, in which case the related tax is recognised either in other comprehensive income or directly in equity.
Current tax is the expected tax payable on taxable income for a reporting period, using tax rates enacted or substantively enacted at the balance sheet date, together with any adjustment in respect of previous periods. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
g) Foreign currency translation
The results of subsidiary undertakings with a functional currency other than Sterling are translated into Sterling at the average rate for a reporting period.
The gains or losses arising on the end of year translation of the net assets of such subsidiary undertakings at closing rates and the difference between translating the results at average rates compared to the closing rates are taken to Other reserves. Monetary assets and liabilities denominated in foreign currencies are translated into Sterling at the rates of exchange ruling at the balance sheet date with any gains or losses arising on translation recognised in the income statement.
h) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of directly attributable issue costs. Costs not directly attributable to the issue are disclosed within administrative expenses in the income statement.
i) Share based payments
The fair value of payments that are to be settled by the issue of shares is determined on the basis of an estimate of the value of the services provided by non-employees over the relevant accounting period. The estimated number of shares to be issued in satisfaction of the services provided is calculated using the average closing share price of the Company for that period.
j) Fair value measurements
Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market. It uses the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. A fair value measurement of a non-financial asset takes into account the highest and best use for that asset.
3. Operating segments
IFRS 8 "Operating Segments" requires operating segments to be identified on the basis of internal reports about components of the Group that are reviewed by the chief operating decision maker to make decisions about resources to be allocated between segments and assess their performance. The Group's chief operating decision maker is considered to be the Board as a whole.
The Group owns two property portfolios. Although these are described individually within the Investment Adviser's report, the Board receives quarterly management accounts prepared on a basis which aggregates the performance of the portfolios and focuses on total returns on shareholders' equity. The Board has therefore concluded that the Group has operated in and was managed as one business segment, being property investment, in the current period and prior year.
The geographical split of revenue and applicable non-current assets required by IFRS 8 was as follows:
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
----------------------- ----------- ---------
Revenue
UK 75,251 99,319
Germany 5,695 8,012
----------------------- ----------- ---------
80,946 107,331
----------------------- ----------- ---------
Investment properties
UK 1,553,364 1,390,697
Germany 72,071 66,677
----------------------- ----------- ---------
1,625,435 1,457,374
----------------------- ----------- ---------
Revenue, which reflects the impact of rent smoothing adjustments, includes GBP42.9 million (year to 31 March 2014: GBP57.8 million) relating to the Group's largest tenant, and GBP35.8 million (year to 31 March 2014: GBP47.2 million) relating to the Group's second largest tenant. No other single tenant or guarantor contributed more than 10% of the Group's revenue in either reporting period.
4. Operating profit
Operating profit is stated after charging:
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
---------------------------------------------------- ----------- --------
Audit of the Company's consolidated and individual
financial statements 75 20
Audit of subsidiaries, pursuant to legislation 90 40
Non-audit services in connection with the
listing 273 -
---------------------------------------------------- ----------- --------
The Group had no employees other than the Directors, who are also the key management personnel, in either the current period or the prior year. Directors' remuneration, all of which represents fees for services provided, was as follows:
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
--------------------------------------- ----------- --------
Martin Moore 44 -
Leslie Ferrar 23 -
Jonathan Lane 21 -
Ian Marcus 21 -
--------------------------------------- ----------- --------
Total charged to the income statement 109 -
--------------------------------------- ----------- --------
Mike Brown, Tim Evans, Sandy Gumm and Nick Leslau received no Directors' fees from the Group in either the current period or prior year.
5. Finance income and costs
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
--------------------------------------------- ----------- --------
Recognised in the income statement:
Finance income
Interest on cash deposits 36 25
--------------------------------------------- ----------- --------
Finance costs
Interest on secured debt (64,690) (83,535)
Shareholder loans: unwinding of discount to
date of capitalisation (non-cash) (1,676) (11,509)
--------------------------------------------- ----------- --------
Total finance costs (66,366) (95,044)
--------------------------------------------- ----------- --------
Net finance costs recognised in the income
statement (66,330) (95,019)
--------------------------------------------- ----------- --------
As required for disclosure by IFRS 7, included within interest on secured debt is an amount of GBP40.7 million (31 March 2014: GBP55.1 million) which has been reclassified from other comprehensive income in respect of the Group's interest rate derivatives in effective hedges.
On issue in 2007, interest free shareholder loans were measured at fair value using imputed interest rates of between 11.2% and 11.7%. The difference between the fair value of the loans on inception and their face values at that date was being unwound over the minimum term of the loans prior to their capitalisation in May 2014.
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
------------------------------------------------------- ----------- --------
Recognised in other comprehensive income:
Fair value adjustment of interest rate derivatives
in effective hedges 21,837 79,153
------------------------------------------------------- ----------- --------
Total finance costs recognised in other comprehensive
income 21,837 79,153
------------------------------------------------------- ----------- --------
Net finance costs analysed by the categories of financial asset and liability shown in note 14 are as follows:
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
-------------------------------------------- ----------- --------
Loans and receivables 36 25
Financial liabilities at amortised cost (66,366) (95,044)
-------------------------------------------- ----------- --------
Net finance costs recognised in the income
statement (66,330) (95,019)
-------------------------------------------- ----------- --------
The Group's sensitivity to changes in interest rates, calculated on the basis of a 10 basis point increase or decrease in LIBOR, was as follows:
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
------------------------------------------------- ----------- --------
Effect on other comprehensive income and equity 3,993 3,749
------------------------------------------------- ----------- --------
The Group receives interest on the majority of its bank balances but a 10 basis point change in LIBOR would have no material effect on finance income in the income statement. There would also be no significant impact on finance costs in the income statement because the floating rate secured debt is effectively hedged with interest rate swaps. Movements in interest rates would therefore only have an impact on the valuation of those interest rate swaps through other comprehensive income and equity. An increase in interest rates would result in a credit to other comprehensive income.
6. Tax
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
--------------------------------------------------- ----------- --------
Analysis of tax credit in the period
Current tax (credit) / charge: German corporation
tax (130) 304
Current tax charge: UK REIT excess interest
charge 665 -
Deferred tax credit (see note 12) (114,826) (15,449)
--------------------------------------------------- ----------- --------
(114,291) (15,145)
--------------------------------------------------- ----------- --------
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:
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
------------------------------------------------- ----------- --------
Profit before tax 133,455 16,656
------------------------------------------------- ----------- --------
Profit before tax multiplied by the standard
rate of corporation tax in the UK of 21% (year
to 31 March 2014: 23%) 28,026 3,831
Effects of:
UK deferred tax released on conversion to
REIT status (117,276) -
Investment property revaluation not taxable (36,098) -
Losses from qualifying property rental business
disallowed 4,908 -
Movement in previously unrecognised tax losses 3,231 144
German deferred tax charge for the period 1,823 3,429
REIT excess interest charge 665 -
Costs of the reorganisation and listing not
deductible for tax 606 -
German current tax (credit) / charge for the
period (130) 304
Double tax relief (58) (338)
Other items 12 (19)
Changes in indexation on investment property
revaluations - (3,687)
Reduction in UK corporation tax rate - (18,809)
------------------------------------------------- ----------- --------
Tax credit for the period (114,291) (15,145)
------------------------------------------------- ----------- --------
The Group elected into the UK REIT regime with effect from 5 June 2014. Subject to continuing compliance with certain rules, the UK REIT rules exempt the profits of the Group's UK property rental business from corporation tax. Gains on the Group's UK properties are also exempt from tax, provided they are not held for trading or sold in the three years after completion of development. Corporation tax could also be payable were the shares in a subsidiary company to be sold.
To remain a UK REIT, there are a number of conditions to be met in respect of the Group's principal company, qualifying activity and balance of business. Since entering the REIT regime the Group has continued to meet these conditions. There are certain other conditions which if not met, do not result in expulsion from the REIT regime, including two with which the Group does not currently comply:
-- within three years of entry into the REIT regime, a company must not be a close company. The Company was a close company when it entered the REIT regime, and continues to be so. The Board intends, in the course of implementing its investment strategy, to issue new shares or to place sufficient of the existing shares to new investors (or a combination of both) so that the shares of the Company are widely enough held to meet this requirement by 5 June 2017; and
-- an interest cover test requires the profits of the tax exempt business of the Group to be at least 1.25 times its cost of financing. If this condition is not met, the Group is required to pay UK corporation tax on an amount equivalent to the excess interest costs or 20% of the tax exempt business profits if that is less. The Group has not met this test for the period between 5 June and 31 December 2014, so tax of GBP0.7 million is payable.
The Group is subject to German corporation tax on its German property rental business. Historically this has been at an effective rate of 21%, though during the period a tax credit has arisen as a result of changes to a number of underlying assumptions following discussions with local tax authorities. In addition, a deferred tax liability is recognised for the German capital gains tax that would potentially be payable on the sale of those investment properties, and a deferred tax asset is recognised against the interest rate derivatives hedging the loan facility secured on those properties (note14).
7. Earnings per share
Earnings per share is calculated as profit attributable to ordinary shareholders of the Company for each period divided by the weighted average number of ordinary shares in issue throughout each relevant period during which those profits were earned.
On 21 May 2014, by virtue of the reorganisation set out in note 2, the Company and SIR Hospital Holdings Limited (the "Combined Companies") became a legal group. During the year ended 31 March 2014 and in the current period until 20 May 2014, the Combined Companies were entities under common control. It is considered that the use of the actual number of shares of the Combined Companies in issue prior to 21 May 2014 as a denominator in the EPS calculation would not provide meaningful information. Instead, the weighted average number of shares in issue has been determined based on the number of shares that would have been in issue in each period had the shareholder loans to the Combined Companies been capitalised on the basis of one share for each GBP1 of shareholder loans at the time they were advanced. The profit attributable to the shareholders of the Combined Companies prior to 20 May 2014 has also been adjusted to remove the impact of the amount included in finance costs in respect of the shareholder loans together with the related deferred tax.
Diluted EPS reflects the shares that will need to be issued in settlement of the performance fee, as explained in more detail in note 19.
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
-------------------------------------------- ----------- --------
Profit for the period 247,746 31,801
Adjusted for:
Unwinding of discount on shareholder loans
(note 5) 1,676 11,509
Deferred tax on the unwinding of discount
on shareholder loans (note 12) (335) (4,045)
-------------------------------------------- ----------- --------
Adjusted profit for EPS 249,087 39,265
-------------------------------------------- ----------- --------
Nine months
to Year to
31 December 31 March
2014 2014
Number Number
-------------------------------------------------- ----------- -----------
Weighted average number of shares in issue
- basic EPS 166,406,143 159,823,056
Shares to be issued in settlement of performance
fee 11,900,432 -
-------------------------------------------------- ----------- -----------
Weighted average number of shares in issue
- diluted EPS 178,306,575 159,823,056
-------------------------------------------------- ----------- -----------
Pence per Pence per
share share
------------- --------- ---------
Basic EPS 149.7 24.6
Diluted EPS 139.7 24.6
------------- --------- ---------
The European Public Real Estate Association ("EPRA") publishes guidelines for calculating adjusted earnings designed to represent core operational activities. As well as the standard EPRA earnings figure, an adjusted EPRA earnings calculation has also been presented, excluding the performance fee, which is largely derived from investment property revaluations, and the non-recurring costs of the reorganisation and listing. The Directors consider this enables a more consistent comparison of underlying earnings.
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
--------------------------------------------- ----------- --------
Basic earnings attributable to shareholders 249,087 39,265
EPRA adjustments:
Investment property revaluations (160,608) (4,706)
UK deferred tax released on conversion to
REIT status (117,276) -
Other deferred tax on investment property
revaluations 1,823 (12,787)
--------------------------------------------- ----------- --------
EPRA earnings (26,974) 21,772
Other adjustments:
Performance fee 35,186 -
Costs of the reorganisation and listing 2,888 -
--------------------------------------------- ----------- --------
Adjusted EPRA earnings 11,100 21,772
--------------------------------------------- ----------- --------
Pence per Pence per
share share
--------------------------- ----------- ---------
EPRA EPS (16.2) 13.6
Diluted EPRA EPS (15.1) 13.6
Adjusted EPRA EPS 6.7 13.6
Diluted adjusted EPRA EPS 6.2 13.6
--------------------------- ----------- ---------
8. Investment properties
Nine months
to Year to
31 December 31 March
2014 2014
Freehold investment properties GBP000 GBP000
------------------------------------------- ----------- ---------
Carrying value at the start of the period 1,457,374 1,437,489
Revaluation movement 160,608 4,706
Movement in rent smoothing adjustment 11,287 16,524
Currency translation movement (3,834) (1,345)
------------------------------------------- ----------- ---------
Carrying value at the end of the period 1,625,435 1,457,374
------------------------------------------- ----------- ---------
The properties were independently valued at GBP1,625.4 million as at 31 December 2014 by CBRE Limited, Commercial Real Estate Advisers, in their capacity as external valuers. The valuation was prepared on a fixed fee basis, independent of the portfolio value, and was undertaken in accordance with RICS Valuation - Professional Standards January 2014 on the basis of fair value, supported by reference to market evidence of transaction prices for similar properties.
The properties were valued at GBP1,457.4 million as at 31 March 2014 by Nick Leslau BSc (Hons) FRICS, a Chartered Surveyor and Director of the Company, on the basis of fair value.
The Group did not have any contractual obligations to purchase, construct or develop investment property at either balance sheet date. The responsibility for repairs and maintenance resides with the tenants.
All of the investment properties are held as security under fixed charges in respect of secured debt.
The historic cost of the Group's investment properties at both reporting dates was GBP1,315.1 million.
The Board determines the Group's valuation policies and procedures, and is responsible for overseeing the valuations. Valuations are based on information provided from the Group's financial and property reporting systems, such as current rents and the terms and conditions of lease agreements, and assumptions used by the valuer (based on market observation and their professional judgement) in the valuation model.
At each reporting date, certain partners and employees of the Investment Adviser, who have recognised professional qualifications and are experienced in valuing the types of property owned by the Group, initially analyse movements in the property valuations from the prior reporting date. Fair value changes (positive or negative) over a certain threshold are considered. Changes in fair value are also compared to external sources (such as the Investment Property Databank or other relevant benchmarks) for reasonableness. Once the Investment Adviser has considered the valuations, the results are discussed with the Group's independent auditors, focusing on properties with unexpected fair value changes and, if applicable, properties undergoing significant refurbishment. The Audit Committee also considers the valuation process as part of its overall responsibilities.
The fair value of the investment property portfolio has been determined using an income capitalisation technique, whereby contracted and market rental values are capitalised with a market capitalisation rate. This technique is consistent with the principles in IFRS 13 and uses significant unobservable inputs, such that the fair value measurement of each property within the portfolio has been classified as level 3 in the fair value hierarchy as defined in IFRS 13. There have been no transfers to or from other levels of the fair value hierarchy during the year.
The key inputs for the level 3 valuations were as follows:
Inputs
----------------------------------
Fair value
Portfolio GBP000 Key unobservable input Range Weighted average
------------------- ----------- ----------------------- ---------------- ----------------
At 31 December
2014:
Healthcare 812,981 Net initial yield 4.4% - 5.8% 5.6%
Reversionary yield 4.5% - 6.0% 5.7%
Leisure - UK 740,383 Net initial yield 4.8% - 6.5% 5.2%
Reversionary yield 4.9% - 6.6% 5.3%
Future RPI assumption 2.2% for 2015, 2.2% for 2015,
3.5% thereafter 3.5% thereafter
Leisure - Germany 72,071 Net initial yield 6.5% 6.5%
Reversionary yield 6.8% 6.8%
------------------- ----------- ----------------------- ---------------- ----------------
At 31 March 2014:
Healthcare 727,458 Net initial yield 5.2% - 6.5% 6.2%
Reversionary yield 5.3% - 6.5% 6.3%
Leisure - UK 663,239 Net initial yield 5.0% - 7.0% 5.6%
Reversionary yield 5.1% - 7.2% 5.8%
Future RPI assumption 2.6% for 2014, 2.6% for 2014,
3.0% for 2015, 3.0% for 2015,
3.5% thereafter 3.5% thereafter
Leisure - Germany 66,677 Net initial yield 7.3% 7.3%
Reversionary yield 7.5% 7.5%
------------------- ----------- ----------------------- ---------------- ----------------
The principal sensitivity of measurement to variations in the significant unobservable outputs is that decreases in net initial yield, decreases in reversionary yield and increases in RPI will increase the fair value.
Included within the carrying value of investment properties at 31 December 2014 is GBP154.4 million (31 March 2014: GBP142.7 million) in respect of the smoothing of fixed contractual rental uplifts. This balance arises through the Group's accounting policy in respect of leases with fixed uplifts, which requires the recognition of rental income on a straight line basis over the lease term. The difference between rents on a straight line basis and rents actually receivable are included within, but do not increase, the carrying value of investment properties.
All of the Group's revenue as reflected in the income statement is derived from rental income on investment properties. Property outgoings arising on investment properties, all of which generated rental income in each period, were GBP19,000 (year to 31 March 2014: GBP23,000).
9. Principal subsidiaries
The companies listed below were the principal subsidiary undertakings of the Company at 31 December 2014, all of which are wholly owned and incorporated in England.
Company name Nature of business
--------------------------------- ---------------------------------------
SIR Theme Parks Limited Intermediate parent company and
borrower under secured debt facility
SIR ATH Limited Property investment - leisure
SIR ATP Limited Property investment - leisure
SIR MTL Limited Property investment - leisure
SIR TP Limited Property investment - leisure
SIR WC Limited Property investment - leisure
SIR HP Limited * Property investment - leisure
SIR Hospital Holdings Limited ** Intermediate parent company and
borrower under secured debt facility
SIR Ashtead Limited Property investment - healthcare
SIR Downs Limited Property investment - healthcare
SIR Duchy Limited Property investment - healthcare
SIR Euxton Limited Property investment - healthcare
SIR Fitzwilliam Limited Property investment - healthcare
SIR Fulwood Limited Property investment - healthcare
SIR Lisson Limited Property investment - healthcare
SIR Midlands Limited Property investment - healthcare
SIR Mt Stuart Limited Property investment - healthcare
SIR New Hall Limited Property investment - healthcare
SIR Oaklands Limited Property investment - healthcare
SIR Oaks Limited Property investment - healthcare
SIR Pinehill Limited Property investment - healthcare
SIR Reading Limited Property investment - healthcare
SIR Renacres Limited Property investment - healthcare
SIR Rivers Limited Property investment - healthcare
SIR Rowley Limited Property investment - healthcare
SIR Springfield Limited Property investment - healthcare
SIR Winfield Limited Property investment - healthcare
SIR Woodland Limited Property investment - healthcare
SIR Yorkshire Limited Property investment - healthcare
--------------------------------- ---------------------------------------
* operating in Germany; all other companies operate in England
** directly owned by the Company; all other entities listed above are indirectly owned
The Group has taken advantage of the exemption in section 410 of the Companies Act 2006 to disclose a list of the principal subsidiaries only. A full list of subsidiaries will be sent to Companies House with the next annual return.
The terms of the bank loans may, in the event of a covenant default, restrict the ability of certain subsidiaries to transfer funds to the Company, which is outside the relevant security groups.
10. Trade and other receivables
31 December 31 March
2014 2014
GBP000 GBP000
------------- ----------- --------
Prepayments 103 69
------------- ----------- --------
11. Cash and cash equivalents
Included within the Group's cash balances at 31 December 2014 is GBP25.3 million (31 March 2014: GBP24.9 million) of cash in accounts held as fixed security by the providers of secured bank debt. In addition, as the Company is considered to be an internally managed Alternative Investment Fund, it is required to hold regulatory capital of GBP0.5 million at 31 December 2014, which is held separately in cash by the Company.
12. Deferred tax
The movements in deferred tax balances in each period were as follows:
Unrealised Interest
gains on Tax losses rate derivatives
investment carried Shareholder at fair
properties forward loans value Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 1 April
2014 (120,636) 962 (9,317) 27,544 (101,447)
Credit / (charge) to
the income statement
(note 6) 115,453 (962) 335 - 114,826
Charge to other comprehensive
income - - - (26,918) (26,918)
Deferred tax released
on capitalisation of
shareholder loans - - 8,982 - 8,982
Currency translation
differences 245 - - 1 246
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 31 December
2014 (4,938) - - 627 (4,311)
------------------------------- ------------ ------------ ------------ -------------------- ----------
Unrealised Interest
gains on Tax losses rate derivatives
investment carried Shareholder at fair
properties forward loans value Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 1 April
2013 (133,492) 2,345 (13,362) 50,788 (93,721)
Credit / (charge) to
the income statement
(note 6) 12,787 (1,383) 4,045 - 15,449
Charge to other comprehensive
income - - - (23,244) (23,244)
Currency translation
differences 69 - - - 69
------------------------------- ------------ ------------ ------------ -------------------- ----------
Balance at 31 March
2014 (120,636) 962 (9,317) 27,544 (101,447)
------------------------------- ------------ ------------ ------------ -------------------- ----------
The deferred tax balances are classified for financial reporting purposes as follows:
31 December 31 March
2014 2014
GBP000 GBP000
-------------------------- ----------- ---------
Deferred tax assets 627 28,506
Deferred tax liabilities (4,938) (129,953)
-------------------------- ----------- ---------
(4,311) (101,447)
-------------------------- ----------- ---------
13. Trade and other payables
31 December 31 March
2014 2014
GBP000 GBP000
------------------------------ ----------- --------
Tax and social security 5,163 2,219
Accruals and deferred income 35,872 34,878
------------------------------ ----------- --------
41,035 37,097
------------------------------ ----------- --------
14. Financial assets and liabilities
Borrowings
31 December 31 March
2014 2014
GBP000 GBP000
------------------------------------------- ----------- ---------
Amounts falling due within one year
Secured bank loans 6,853 13,052
Unamortised finance costs (1,945) (1,949)
------------------------------------------- ----------- ---------
4,908 11,103
------------------------------------------- ----------- ---------
Amounts falling due in more than one year
Secured bank loans 1,150,712 1,153,628
Exit fee 3,978 3,158
Unamortised finance costs (2,283) (4,246)
------------------------------------------- ----------- ---------
1,152,407 1,152,540
Shareholder loans - 113,238
------------------------------------------- ----------- ---------
1,152,407 1,265,778
------------------------------------------- ----------- ---------
Bank loans
The Group's secured debt arrangements as at 31 December 2014 were as follows:
Healthcare Leisure
------------------------------------------- ------------- ----------------
Bank of Bank of
Lender Scotland Plc Scotland Plc
Recourse beyond ring-fenced group holding
the portfolio None None
Secured debt outstanding GBP608.9m GBP548.7m
Other secured liabilities GBP14.0m -
Fair value of secured properties GBP813.0m GBP812.4m
Gross LTV ratio 76.6% 67.5%
Net LTV ratio 75.0% 65.8%
Current repayment terms Interest only Capital/interest
Final repayment date May 2017 July 2017
------------------------------------------- ------------- ----------------
With effect from 5 June 2014, there are no scheduled capital repayments, only quarterly repayments from the surplus net income on the leisure assets. Any balances not settled by quarterly repayments are payable in full at the end of the terms of the loans in 2017. The secured debt due within one year includes an estimate of amortisation out of surplus net rental income (rental income less certain finance costs and administrative expenses) for the ensuing 12 months.
Interest has been hedged by way of interest rate swaps which fix the rate payable (inclusive of lenders' margin) at between 6.6% and 6.9%, equivalent to a blended 6.8%, until the loan maturity dates.
There is no material difference between the fair value of the secured debt and its carrying value at either balance sheet date, and the Group had no undrawn, committed borrowing facilities at either balance sheet date.
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 but not including the Company itself. There have been no defaults or breaches of any loan covenants during the current period or prior year.
The terms of one of the secured loans were altered with effect from 5 June 2014 such that a covenant release fee of GBP11.9 million became payable to the lender. The fee, which is being paid in quarterly instalments, is charged to the income statement over the remaining term of the loan. GBP9.5 million of this fee remained outstanding as at 31 December 2014.
At 31 December 2014, the leisure facilities compriseda Sterling facility of GBP497.2 million (31 March 2014: GBP500.6 million) and a Euro facility of GBP51.5 million (31 March 2014: GBP55.6 million), with security cross-collateralised between the UK and German leisure assets.
Shareholder loans
Shareholder loans amounting to GBP159.8 million were capitalised on 20 and 21 May 2014 (see note 2). Prior to their capitalisation, the shareholder loans were unsecured, interest free, subordinated to the secured debt and had no fixed repayment date. The earliest date that the shareholder loans could be repaid was following the repayment of the secured debt. At 31 March 2014 there was no material difference between the fair value of the shareholder loans and their carrying value.
Interest rate derivatives
The fair values of the Group's interest rate derivatives were as follows:
Notional amount Fair value
--------------------------- ---------------------- ----------------------
31 December 31 March 31 December 31 March
2014 2014 2014 2014
GBP000 GBP000 GBP000 GBP000
--------------------------- ----------- --------- ----------- ---------
5.1% swap (31 March 2014:
amortising swap) 608,920 612,800 (56,849) (67,507)
5.4% amortising swap 304,008 306,818 (32,955) (38,463)
5.4% swaps 196,622 196,622 (21,804) (25,227)
4.4% amortising swap* 33,091 35,600 (3,579) (4,518)
4.4% swaps* 21,529 22,843 (2,391) (2,991)
1,164,170 1,174,683 (117,578) (138,706)
--------------------------- ----------- --------- ----------- ---------
* denominated in Euros, converted at the relevant period end rate.
All of the above instruments expire between April and July 2017 and are included in non-current liabilities.
The Group uses all of its interest rate derivatives in risk management as cash flow hedges to protect against exposures to variability in future interest cash flows on bank loans which bear interest at variable rates. The amounts and timing of future cash flows are projected on the basis of their contractual terms.
Categories of financial instruments
31 December 31 March
2014 2014
GBP000 GBP000
------------------------------------------ ----------- -----------
Financial assets
Loans and receivables:
Cash and cash equivalents (note 11) 38,771 25,367
------------------------------------------ ----------- -----------
38,771 25,367
------------------------------------------ ----------- -----------
Financial liabilities
Financial liabilities at amortised cost:
Accrued interest (13,530) (13,264)
Secured bank loans (1,157,315) (1,163,643)
Shareholder loans - (113,238)
Derivatives in effective hedges:
Interest rate derivatives (117,578) (138,706)
------------------------------------------ ----------- -----------
(1,288,423) (1,428,851)
------------------------------------------ ----------- -----------
At 31 December 2014, all financial assets and liabilities were measured at amortised cost except for interest rate derivatives which are measured at fair value. The derivatives have been valued in accordance with IFRS 13 by reference to interbank bid market rates as at the close of business on the last working day prior to each balance sheet date by JC Rathbone Associates Limited. All interest rate derivatives are classified as "level 2" as defined in IFRS 13 and their fair values are calculated using the present values of future cash flows, based on market forecasts of interest rates and adjusted for the credit risk of the counterparties. There were no transfers to or from other levels of the fair value hierarchy during the period or the prior year.
Financial risk management
Through the Group's operations and use of debt financing it is exposed to certain risks. The Group's financial risk management objectives are to minimise the effect of these risks by using derivative financial instruments, particularly to manage exposure to fluctuations in interest rates. Such instruments are not employed for speculative purposes. The use of any derivatives is approved by the Board, which provides guidelines on acceptable levels of interest rate risk, credit risk and liquidity risk.
The exposure to each financial risk considered potentially material to the Group, how it arises and the policy for managing it is summarised below.
Market risk
Market risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group's market risk arises from open positions in interest bearing assets/liabilities and foreign currencies, to the extent that these are exposed to general and specific market movements. Further details are provided below.
(a) Market risk - interest rate risk
The Group's interest bearing assets comprise only cash and cash equivalents which do not generate significant amounts of interest, so changes in market interest rates do not have any significant direct effect on the Group's income.
The Group is exposed to cash flow interest rate risk from its variable rate borrowings. The Group's policy is to fix the interest rate on all of its secured debt by entering into interest rate derivatives (at present, all interest rate swaps) in order to mitigate this risk. The Group agrees to exchange with an institutional counterparty, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed schedule of notional principal amounts. For the period ended 31 December 2014 and year ended 31 March 2014, after taking into account the effect of interest rate swaps, all of the Group's borrowings were at a fixed rate of interest. The Group's remaining sensitivity to changes in interest rates is disclosed in note 5.
Trade and other payables are interest free and have payment terms of less than one year, so it is assumed that there is no interest rate risk associated with these financial liabilities.
(b) Market risk - currency risk
The Group prepares its financial statements in Sterling. Some of the Group's assets are located in Germany and as a result the Group is subject to foreign currency exchange risk due to exchange rate movements between Sterling and the Euro, though this risk is partially hedged because both assets and liabilities are held in Euros, and both revenue and expenditure arise in Euros. An unhedged currency risk therefore exists on the value of the Group's net investment in, and returns from, its German operations.
The Group's sensitivity to changes in foreign currency exchange rates, calculated on the basis of a 10% increase or decrease in Sterling against the Euro, was as follows:
Nine months
to Year to
31 December 31 March
2014 2014
GBP000 GBP000
------------------------------------------------- ----------- --------
Effect on profit 204 113
Effect on other comprehensive income and equity 1,046 483
------------------------------------------------- ----------- --------
Credit risk
Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations. The principal counterparties are the Group's tenants (in respect of trade receivables arising under operating leases) and banks (acting either as hedging counterparties or as holders of the Group's cash deposits). The credit risk of trade receivables is limited because the counterparties to the operating leases are considered by the Board to be high quality tenants with lease guarantors of appropriate financial strength, and rent over at least the last seven years has historically always been paid on or before its due date. Recovery details and statistics are benchmarked in Board reports to identify any problems at any early stage, and if necessary rigorous credit control procedures will be applied to facilitate the recovery of trade receivables. The Group does not hold any financial assets which are either past due or impaired.
The Group's credit risk on hedging instruments and cash deposits is limited because the counterparties are banks with credit ratings which are acceptable to the Board and are kept under review each quarter.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the finance costs and principal repayments on its debt instruments. It is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group seeks to manage its liquidity risk by ensuring that sufficient cash is available to meet its foreseeable needs. The Group's ongoing liquidity needs (excluding debt repayment obligations) are very modest and are managed principally through the deduction of operating costs from rental receipts, before any surplus is applied in payment of interest and part repayment of debt as required by the credit agreements relating to the Group's secured debt.
Before entering into any debt instrument, the Board assesses the resources that are expected to be available to the Group to meet the liabilities when they fall due. These assessments are made on the basis of both conservative and downside scenarios. The Group prepares budgets and working capital forecasts which are reviewed by the Board at least quarterly to assess ongoing cash requirements and compliance with loan covenants. The Board also keeps under review the maturity profile of the Group's cash deposits in order to have reasonable assurance that cash will be available for the settlement of liabilities when they fall due.
The following tables show the maturity analysis for financial assets and liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities, including future interest payments, based on the earliest date on which the Group can be required to pay.
Effective Between two
interest Less than Between one and five
31 December 2014 rate one year and two years years Total
GBP000 GBP000 GBP000 GBP000
--------------------------- --------- --------- -------------- ----------- -----------
Financial assets:
--------------------------- --------- --------- -------------- ----------- -----------
Cash and cash equivalents 0.3% 38,771 - - 38,771
--------------------------- --------- --------- -------------- ----------- -----------
Financial liabilities:
Accrued interest (13,530) - - (13,530)
Secured debt 2.5% (22,420) (42,057) (1,172,006) (1,236,483)
Interest rate derivatives 4.3% (42,978) (48,054) (26,546) (117,578)
--------------------------- --------- --------- -------------- ----------- -----------
(78,928) (90,111) (1,198,552) (1,367,591)
--------------------------- --------- --------- -------------- ----------- -----------
Effective Between two
interest Less than Between one and five
31 March 2014 rate one year and two years years Total
GBP000 GBP000 GBP000 GBP000
--------------------------- --------- --------- -------------- ----------- -----------
Financial assets:
--------------------------- --------- --------- -------------- ----------- -----------
Cash and cash equivalents 0.3% 25,367 - - 25,367
--------------------------- --------- --------- -------------- ----------- -----------
Financial liabilities:
Accrued interest (13,264) - - (13,264)
Secured debt 2.5% (25,434) (48,392) (1,200,135) (1,273,961)
Shareholder loans - - - (159,823) (159,823)
Interest rate derivatives 4.3% (44,917) (46,372) (47,417) (138,706)
--------------------------- --------- --------- -------------- ----------- -----------
(83,615) (94,764) (1,407,375) (1,585,754)
--------------------------- --------- --------- -------------- ----------- -----------
Capital risk management in respect of the financial period
The Board's primary objective when monitoring capital is to safeguard the Group's ability to continue as a going concern, while ensuring it remains within its banking covenants so as to safeguard secured assets and avoid financial penalties. Borrowings are secured on the property portfolio by way of fixed charges and also by floating charges on the assets of the relevant subsidiary companies. The Group is subject to the externally imposed capital requirements disclosed in note 11.
At 31 December 2014 the capital structure of the Group consisted of debt (which included the borrowings disclosed in note 14), cash and cash equivalents (see note 11), and equity attributable to the shareholders of the Company (comprising share capital, retained earnings and the other reserves referred to in note 16).
As part of the Group's management of its capital structure, consideration is given to the cost of capital. In order to maintain or adjust the capital structure, the Group keeps under review the amount of any dividends or other returns to shareholders, and monitors the extent to which the issue of new shares or the realisation of assets may be required.
Details of the significant accounting policies adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in the accounting policies in note 2.
15. Share capital
Share capital represents the aggregate nominal value of shares issued. At 31 December 2014, the Company had an issued and fully paid share capital of 168,443,772 ordinary shares of GBP0.10 each (31 March 2014: one ordinary share of GBP1).
On 16 April 2014, the Company's one ordinary share in issue of GBP1 was subdivided into ten ordinary shares of GBP0.10 each, such shares having the same rights and being subject to the same restrictions as the existing ordinary share of GBP1.
Non-interest bearing shareholder loans of GBP77.9 million were capitalised on 20 May 2014 in exchange for the issue of 77,914,338 ordinary shares of GBP0.10 each at a value of GBP1 each. The excess over nominal value was credited to the share premium account. The Directors of the Company considered that the market value of the loans as at the date of capitalisation was equal to their face value.
On 21 May 2014, the Company entered into a sale and purchase agreement pursuant to which it issued 81,908,717 ordinary shares of GBP0.10 each at a value of GBP1 each to Prestbury 1 Limited Partnership in consideration for the transfer of the entire issued share capital of SIR Hospital Holdings Limited to the Company. The merger relief principles of the Companies Act 2006 were applied in connection with this acquisition such that the excess consideration over nominal value was not credited to the share premium account. The investment in SIR Hospital Holdings Limited was transferred at fair value and accordingly the credit was taken to the merger reserve.
On 23 May 2014, the Company, by written resolution, approved a reduction in the GBP70.1 million standing to the credit of the share premium account at that date and the cancellation of the GBP73.7 million standing to the credit of the merger reserve. The amounts were transferred to retained earnings and are treated as realised profits.
The Company was re-registered as a public company limited by shares on 27 May 2014 and was admitted to trading on AIM on 5 June 2014, raising GBP15.0 million before expenses through a placing of 8,620,689 new ordinary shares of GBP0.10 each at a price of 174 pence per share. The excess over nominal value was credited to the share premium account. Transaction costs of GBP3.1 million were incurred on this transaction.
Under the terms of a Commitment Agreement described in note 19, the Company's shareholders prior to listing have each agreed to subscribe in cash for one ordinary share per quarter to cover the fees payable to the Investment Adviser during the year. During the period, 18 ordinary shares of GBP0.10 each have been issued under this arrangement for total proceeds of GBP2.2 million. The excess over nominal value was credited to the share premium account. The remaining GBP0.3 million of advisory fees recognised in the income statement for the period will be invoiced in early 2015.
As a result of these transactions, the movement in the number of shares in issue over the period was as follows:
Nine months
to Year to
31 December 31 March
2014 2014
Number Number
---------------------------------------------- ----------- --------
At the start of the period 1 1
Subdivision of ordinary share 9 -
Capitalisation of shareholder loans 77,914,338 -
Issue of ordinary shares prior to listing 81,908,717 -
Issue of ordinary shares on listing 8,620,689 -
Issue of ordinary shares since listing under
Commitment Agreement 18 -
---------------------------------------------- ----------- --------
At the end of the period 168,443,772 1
---------------------------------------------- ----------- --------
16. Reserves
The nature and purpose of each of the reserves included within equity at 31 December 2014 is as follows:
-- Share premium reserve: represents the surplus of the gross proceeds of share issues over the nominal value of the shares, net of the direct costs of equity issues.
-- Other reserves: represents the cumulative exchange gains and losses on the translation of the Group's net investment in its German operations, as well as the impact on equity of the shares to be issued after the balance sheet date, as described in note 19, under the terms of both the Commitment Agreement and the performance fee arrangements.
-- Cash flow hedging reserve: represents cumulative gains or losses, net of tax, on effective cash flow hedging instruments.
-- Retained earnings: represent the cumulative profits and losses recognised in the income statement, together with any amounts transferred or reclassified from the other Group reserves.
17. Operating leases
The Group's principal assets are investment properties which are leased to third parties under non-cancellable operating leases. The average remaining lease term is 25.1 years and the leases contain either fixed or RPI-linked uplifts, with no break options. Contingent rental income arises as a result of the RPI-linked uplifts and amounted to GBP1.0 million (year to 31 March 2014: GBP1.2 million) in the period. The future minimum lease payments receivable under the Group's leases, translated at the relevant period end exchange rates, are as follows:
31 December 31 March
2014 2014
GBP000 GBP000
--------------------------------- ----------- ---------
Within one year 94,190 92,398
Between one year and five years 392,413 384,907
More than five years 2,355,051 2,399,896
--------------------------------- ----------- ---------
2,841,654 2,877,201
--------------------------------- ----------- ---------
18. Net asset value per share
Net asset value per share is calculated as the net assets of the Group attributable to shareholders at each balance sheet date, divided by the number of shares in issue at that date as follows:
31 December 31 March
2014 2014
Number Number
-------------------------------------------------- ----------- -----------
Number of shares in issue - basic NAV per
share 168,443,772 159,823,056
Shares to be issued in settlement of performance
fee (note 19) 11,900,432 -
-------------------------------------------------- ----------- -----------
Number of shares in issue - diluted NAV per
share 180,344,204 159,823,056
-------------------------------------------------- ----------- -----------
On 21 May 2014, by virtue of the reorganisation explained in note 2, the Company and SIR Hospital Holdings Limited (the "Combined Companies") became a legal group. During and at the end of the year ended 31 March 2014, and in the current period until 20 May 2014, the Combined Companies were entities under common control. It is considered that the use of the actual number of shares of the Combined Companies in issue at 31 March 2014 as a denominator in the NAV per share calculations above would not provide meaningful information. Instead, the number of shares in issue at that date has been determined based on the number of shares that would have been in issue had the shareholder loans been capitalised into shares on the basis of one share for each GBP1 of shareholder loans. The basic NAV has also been adjusted to reflect what it would have been had these loans been capitalised at that date.
Diluted NAV per share is adjusted for any shares that will be issued in settlement of performance fees payable, as explained in more detail in note 19. The diluted NAV per share at 31 December 2014 was 190.9 pence per share (31 March 2014: 32.1 pence per share).
The European Public Real Estate Association ("EPRA") has issued guidelines aimed at providing a measure of net asset value on the basis of long term fair values. The EPRA measure excludes items that are considered to have no impact in the long term, such as the fair value of interest rate derivatives and deferred tax balances. The Group's EPRA NAV is calculated as follows:
31 December 2014 31 March 2014
------------------------------- ------------------ -------------------
Pence per Pence per
GBP000 share GBP000 share
------------------------------- ------- --------- -------- ---------
Basic NAV 344,305 204.4 (71,282) (44.6)
Capitalisation of shareholder
loans - - 113,238 70.9
Deferred tax on shareholder
loans - - 9,317 5.8
------------------------------- ------- --------- -------- ---------
Adjusted basic NAV 344,305 204.4 51,273 32.1
EPRA adjustments:
Deferred tax on investment
property revaluations 4,938 2.7 120,636 75.5
Fair value of interest
rate derivatives 117,578 65.2 138,706 86.7
Deferred tax on interest
rate derivatives (627) (0.3) (27,544) (17.2)
Dilution from shares
issued for performance
fee - (13.5) - -
------------------------------- ------- --------- -------- ---------
EPRA NAV 466,194 258.5 283,071 177.1
------------------------------- ------- --------- -------- ---------
19. Related party transactions and balances
Commitment Agreement
On 29 May 2014, in connection with its listing, the Company entered into a Commitment Agreement with its existing investors at that time in order to fund (in whole or in part) the Company's payment of its contracted advisory fee to Prestbury during the period from listing on 5 June 2014 to 10 July 2016 (the "Commitment Agreement Period").
Under the terms of the Commitment Agreement, the cash funding of the advisory fees is required to be satisfied by way of subscription for shares. Each existing investor has agreed to subscribe for one share per quarter over the Commitment Agreement Period amounting to an aggregate of 18 new shares in the Company during this reporting period. The total subscription price payable by the existing investors for the shares to be issued to them in any quarter is equal to the advisory fee payable by the Company to Prestbury in respect of that quarter (subject to a maximum aggregate subscription price of GBP1.3 million per quarter).
Advisory fees payable
Nick Leslau, Mike Brown and Sandy Gumm are Directors of the Company and also hold partnership interests in, and are Chairman, Chief Executive and Chief Operating Officer respectively of, Prestbury Investments LLP ("Prestbury"), which is Investment Adviser to the Group under the terms of an agreement dated 30 May 2014 (the "Investment Advisory Agreement"). Under the terms of the Investment Advisory Agreement, advisory fees of GBP2.7 million were payable in cash to Prestbury in respect of the period to 31 December 2014, GBP0.2 million of which was outstanding as at the balance sheet date.
Performance fee
Under the terms of the Investment Advisory Agreement, a wholly owned subsidiary of Prestbury may become entitled to a performance fee which rewards growth and aligns Prestbury's interests with those of shareholders. The fee entitlement is calculated annually, with any fee payable settled in shares in the Company subject to certain limited exceptions. It is calculated as the lower of:
(i) 20% of the excess of shareholder returns over a 10% annual return with the hurdle automatically resetting each year to 10% over theprevious year's EPRA NAV per share plus cumulative distributions paid since listing; and
(ii) 20% of the excess of year end EPRA NAV per share plus cumulative distributions paid over the "high watermark", being EPRA NAV per share plus cumulative distributions per share as at the last time a performance fee was paid (or 172 pence per share, being the pro forma EPRA NAV per share at the time of listing, if a performance fee has yet to be earned).
For a performance fee to arise in the period, the EPRA NAV per share of the Group had to exceed 182 pence per share at 31 December 2014. Since this has been achieved, 20% of shareholder returns in excess of that level are attributable to Prestbury, payable by the issue of shares. Sales of these shares are restricted, with the restriction only lifted on a phased basis over a period from 18 to 42 months from the date of listing, subject to a release in the event that Prestbury needs to sell shares to settle any tax liability on the fee income it recognises.
The performance fee which has been charged in the income statement for the period from listing to 31 December 2014 amounts to GBP35.2 million (representing a fee of GBP32.1 million plus irrecoverable VAT of GBP3.1 million). The fee is largely offset in the Group's net asset value by an increase in reserves representing the shares to be issued in satisfaction of the fee, with only the irrecoverable VAT settled in cash. In order to satisfy the GBP32.1 million fee, 11,900,432 shares (c. 7.1% of the Company's issued share capital) will be issued at the average mid-market closing share price of the Company for the period to 31 December 2014 of 270 pence per share. Recognising the cost of the performance fee in these financial statements only impacts the net asset value of the Group to the extent of the irrecoverable VAT but, by reflecting the shares to be issued, it further reduces the Group's net asset value per share and earnings per share.
Share purchase agreement
As described in note 15, on 21 May 2014 the Company entered into a sale and purchase agreement with Prestbury 1 Nominee Limited (as nominee) and Prestbury 1 Limited Partnership (as beneficial owner), pursuant to which the Company issued 81,908,717 ordinary shares of GBP0.10 each (at a value of GBP1 each) to Prestbury 1 Nominee Limited as nominee for Prestbury 1 Limited Partnership in consideration for the transfer of the entire issued share capital of SIR Hospital Holdings Limited (formerly P1 Hospital Holdings Limited) to the Company. All of the members of Prestbury 1 Limited Partnership at the time of the sale and purchase agreement thereby became shareholders in the Company and still hold these shares, amounting to 95% of the issued share capital of the Company at 31 December 2014.
Glossary
EPRA European Public Real Estate Association
EPRA EPS A measure of earnings per share designed by EPRA
to present underlying earnings from core operating
activities
EPRA NAV A measure of net asset value 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 earnings
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
Equivalent yield The constant capitalisation rate which, if applied
to all cash flows from an investment property,
equates to the fair value
ERV Estimated rental value, which is the open market
rental value expected to be achievable at the
date of valuation
Gross LTV LTV calculated on the gross loan amount and any
other secured liabilities
IFRS International Financial Reporting Standards adopted
for use in the European Union
Net initial yield Annualised net rents on investment properties
as a percentage of the investment property valuation,
less purchaser's costs
LTV The outstanding amount of a loan as a percentage
of property value
NAV Net asset value
Net LTV LTV calculated on the gross loan amount and any
other secured liabilities, less cash balances
Reversionary yield The anticipated yield to which the net initial
yield will rise once the rent reaches the ERV
This information is provided by RNS
The company news service from the London Stock Exchange
END
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