TIDMDRIP
RNS Number : 3361V
Drum Income Plus REIT PLC
27 January 2017
Drum Income Plus REIT plc
LEI: 213800FG3PJGQ3KQH756
Report & Financial Statements for the period to 30 September
2016
Chairman's Statement
INTRODUCTION
Drum Income Plus REIT plc was established to provide investors
with a regular dividend income, plus the prospect of income and
capital growth over the longer term, by investing in regional real
estate assets. These financial statements cover the 18 month
accounting period ended 30 September 2016 and include 16 months of
activity following the IPO completed on 29 May 2015. The first
property acquisition was completed in August 2015.
NET ASSET VALUE *
The Group's net asset value (NAV) as at 30 September 2016 was
93.5 pence per share. The significant factors determining the
return over this first period have been the costs incurred in
respect of the launch (2.3 pence per share) and of purchasing the
properties identified by the manager (8.6 pence per share). These
costs have been mitigated by the success of the active management
initiatives implemented by your Investment Adviser which have
contributed to an increase in the valuation of the properties
purchased, excluding capitalised costs, equivalent to 2.8 pence per
share. This means that while the Group's total comprehensive loss
for the period was GBP66,000, when the capital property acquisition
costs of GBP2.9 million are stripped out a gain of GBP1.0 million
was made on the property purchase price.
As at 30 September 2016 the share price was 104 pence, an
increase of 4% from the 100 pence at launch. The share price stands
at 102 pence as I write, representing a premium of 6.8% to the 31
December 2016 NAV of 95.5 pence.
DIVIDS AND EARNINGS
The Company has declared four interim dividends of 1.3125 pence
per share in respect of the period since launch. The dividends paid
during the quarters to 31 March, 30 June and 30 September 2016 were
fully covered by the Group's earnings per share for the sixteen
months trading period of 6.47 pence and the Board is targeting
fully covered aggregate quarterly dividends of at least 5.5 pence
per share in respect of the year ending 30 September 2017 and at
least 6.0 pence per share in respect of the year ending 30
September 2018.
INVESTMENT ACTIVITY
During the sixteen month trading period under review the Group
acquired nine properties with a value at 30 September 2016 of
GBP48.2m.
The properties are in various regional locations and have in
total 83 tenants; as stated in the prospectuses the Company has no
exposure to Central London markets which might be more exposed to
political uncertainties.
Further details on the property portfolio and activity are given
in the Investment Adviser's Report, together with a description of
some of the active asset management initiatives that have added
value for the trading shareholders.
The Board is delighted that the whole of the proceeds of the
initial and subsequent issues have been invested at valuations and
yields very much in line with those described in the
prospectuses.
FUND RAISING
The Company published a prospectus in February 2016 relating to
an initial placing and subsequent 12 month placing programme. It
issued 2.8 million shares in March 2016 and 2.0 million shares in
August 2016, 0.4 million of them under the placing programme, all
at a price of GBP1.00 per share. The placing programme provides a
flexible and cost effective mechanism for issuing further shares to
meet investor demand and take advantage of new investment
opportunities.
GEARING
The Board stated in the prospectuses that it intended to target
initial gearing, calculated as borrowings as a percentage of the
Group's gross assets, of 40% and this remains the case. At 30
September 2016 the Group had in place a GBP20 million revolving
credit facility with the Royal Bank of Scotland plc, due to expire
in July 2017, of which it had drawn down GBP14.5 million. The
gearing percentage was 29.8%. On 6 January 2017, the Group replaced
this facility with a new GBP25 million 3 year revolving credit
facility agreement also with the Royal Bank of Scotland.
OUTLOOK
The Board believes that the outlook for the regional property
market in the UK remains strong, underpinned by high levels of
occupational demand and a shortage of supply. The Investment
Adviser's knowledge and experience will be key in continuing to
identify and effectively manage properties in this sector.
The Group will continue to focus on its differentiated
investment strategy of investing in multi-let assets in regional
locations with a value of between GBP2m and GBP15m. The positive
yield differential that these assets enjoy over larger and more
London and South East located assets persists and the Board looks
forward to further progress being made.
John Evans
Chairman
26 January 2017
* The pence per share numbers in this paragraph are calculated
on the basis of the number of shares in issue (launch costs) or the
weighted average number of shares in issue as appropriate.
Investment Adviser's Report
Drum Income Plus REIT plc ("DRIP" or "the Group") is a UK real
estate investment trust ("REIT") which listed on the main market of
the London Stock Exchange on 29 May 2015 ("Admission"). Its
portfolio comprises nine properties predominantly let to
institutional grade tenants on long leases throughout the UK and is
characterised by smaller lot sizes. The Group offers investors the
opportunity to access a diversified portfolio of UK commercial real
estate through a closed-ended fund. By targeting smaller lot size
properties, the Group intends to provide investors with an
attractive level of income and the potential for income and capital
growth.
The Group pays quarterly dividends, now fully covered on a
quarter-by-quarter basis, equating to an annualised dividend yield
of 5.05% at 30 September 2016. Despite the fund's rapid growth,
Drum Real Estate Investment Management limited ("DREIM") have
sought to minimise the impact of 'cash drag' following the issue of
new shares by taking advantage of the flexibility offered by the
Group's GBP20m revolving credit facility ("RCF"). The flexibility
of the RCF, coupled with proactive asset management by the
Investment Advisers and the rapid deployment of cash as it has been
raised, allowed DRIP to increase its targeted annualised dividend
from 5.0 pence per share indicated in the initial prospectus to
5.25 pence per share.
DRIP was listed in May 2015, with zero assets and GBP32 million
of cash following the initial placing. At 30 September 2016, 16
months later, DRIP now has 9 assets across major Commercial sectors
with a rent roll of GBP4.14m and a gross asset value of GBP48.2m
with a further GBP5m yet to be deployed.
DRIP is now firmly established as one of the UK's leading REIT's
focussed on regional UK commercial property with a well-balanced
geographical spread of assets across the UK. The Group owns over
280,000 sq ft of income producing assets and is well placed to
benefit from the ever evolving dynamics of the regional property
market.
SHAREHOLDER SUPPORT
A key highlight this period was the continuing strong support
from both our equity and debt stakeholders. In the Equity Capital
Markets, we undertook two successful fundraisings, raising a total
of GBP4.7 million from new and existing shareholders.
The new equity was rapidly deployed through strategic
acquisitions which increased both assets under management and the
market capitalisation of the Group.
Our debt providers continued to be supportive and the Group was
successful in raising GBP20 million of competitively priced
facilities to support our investment strategies. The Group prides
itself on an amount invested of GBP25 million in January 2017 the
highly efficient use of its balance sheet to maximise income, and
minimise cash drag, for our shareholders through rapid deployment
of capital and this period was no different. Nevertheless, we
retain a prudent approach as evidenced by our low Balance Sheet
gearing of just 29.8% at 30 September 2016.
ACTIVE ASSET MANAGEMENT
DRIP's portfolio was established through acquisitions and the
Group's core strategy of active asset management to drive income
returns continues apace.
The Group invests significantly in the portfolio which both
attracts new and retains existing high quality occupiers, evidenced
through our sustained high occupancy of greater than 95%.
DREIM believe our business model and team set us apart through
our ability to unlock and generate enhanced value to deliver
long-term capital and income returns to shareholders.
We have grown a team of highly focused, experienced and talented
individuals, who are passionate property experts, understand their
market intimately and are committed to delivering value to
shareholders.
INNOVATIVE INVESTMENT
We continue to invest strategically into our portfolio. A
physical change drives a clear perception change in our assets
which helps to facilitate corresponding investment from our
customers and fellow stakeholders, as well as helping to attract
new occupiers to the asset.
GENERATING A HIGH, SUSTAINABLE INCOME
DREIM believe the outlook is positive for regional commercial
property with limited supply of new space and favourable demand
conditions that play into DRIP's differentiated Investment business
model. Our national platform provides significant leverage and
efficiencies across the portfolio together with properties with low
affordable portfolio rents offering growth prospects and embedded
asset management opportunities. We continue to follow the Group's
strategy of investing in properties with low, affordable rents.
STRONG PLATFORM FOR FUTURE GROWTH
Success was achieved as a result of the drive, expertise and
passion of the DRIP team along with its key advisers together with
the support of our shareholders and lenders. We have created a
strong platform for future growth and demonstrated the scalability
of the business model.
STOCK SELECTION
To assist our decision making, we conduct detailed research on
demographic profiles of the consumer and tenant base. We take great
care to analyse spend patterns and the provision of commercial
space in the catchment area and constantly monitor potential
threats from competing developments or extensions and changing
demographics. We also undertake credit checks on major tenants and
review the supply/demand profile for each particular
opportunity.
We have been through an intensive period of activity for the
business, swiftly and effectively deploying the proceeds from the
initial equity raise plus two further equity raises into strategic
acquisitions and growing the portfolio to 9 assets.
A strong start to 2015 was halted as the UK General Election
approached in May and subsequently dampened activity. We went on to
see a high degree of re-trade stock and over ambitious pricing,
along with the uncertainties occasioned by the Brexit referendum.
Demand remains resilient for high quality prime assets but
investors are increasingly stock selective.
OUTLOOK
While the investment market appears to have become more
competitive, in large part this is being matched by a strengthening
occupational market. This, combined with a dearth of modern vacant
space, is leading to rental growth in most office and industrial
markets with reducing vacancy rates on the High Street driving a
return to rental growth in many retail centres.
DREIM anticipate occupational demand, combined with a limited
supply of new development, will drive further rental growth across
regional markets, supporting the delivery of both sustainable
income returns and capital value growth to our shareholders over
the long-term.
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
forthcoming financial year and could cause actual results to differ
materially from expected and historical results.
The Directors have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten the business model, future performance, solvency or
liquidity.
The table below outlines the key risk factors identified, but
does not purport to be exhaustive as there may be additional risks
that materialise over time that the Group has not yet identified or
has deemed not likely to have a potentially material adverse effect
on the business.
RISK TYPE RISKS MITIGATING FACTORS
Strategic -- Political; the -- Well diversified
impact of Brexit regional property
remains portfolio, with no
unclear and there exposure to London.
are a number of
European elections
pending.
Investment portfolio -- Tenant default. -- Investment policy
-- Change in demand limits the Group's
for space. rent roll to no more
-- Market pricing than 20% to a
affecting value. single tenant.
-- Excess concentration -- Focused on established
in geographical business
location or sector. locations for investment.
-- Lease expiries -- Active portfolio
concentrated in a diversification between
specific year. office, industrial
-- Decrease in occupancy. and retail.
-- Active management
of lease expiry
profile in forming
acquisition decisions.
-- Building specifications
not tailored to
one user.
Investment management -- Poor investment -- Experienced Investment
decisions. Adviser.
-- Over exposure -- Agreed concentration
to a specific tenant, limits reviewed
sector or geographic quarterly by the
location Board and continuously
-- Ineffective added by the Investment
value asset Adviser.
management of properties. -- Investment Adviser
is experienced in
active asset management
and pro-active
with regard to lease
and development
opportunities.
Financial -- Reduced availability -- New 3 year GBP25m
or increased cost revolving credit
of debt. facility entered
-- Breach of borrowing into in January 2017.
covenants. -- Board has stated
that it intends to
target
a gearing level of
40% and this gearing
number at the point
of drawdown is
lower than that in
the new facility
covenants.
-- New facility more
than sufficient for
spending plans.
-- On-going monitoring
and management
of the forecast liquidity
and covenant
position.
Operational -- Inadequate performance -- Ongoing review
controls or of performance by
systems operated independent Board
by the Investment of Directors.
Adviser and Administrator.
Regulatory -- Adverse impact -- External professional
of new or revised advisers are
legislation or regulations engaged to review
or by and advise upon
changes in the interpretation control environment
or and ensure
enforcement of existing regulatory compliance.
laws and -- REIT regime compliance
regulations. is reviewed by
-- Non-compliance external tax advisers
with the REIT and considered by
regime. the Board in assessing
the Group's
financial position
and by the Manager
in
making operational
decisions
Directors' responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company and the undertakings included in the consolidation
taken as a whole;
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face;
and
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
This responsibility statement was approved by the board of
directors and is signed on its behalf by.
John Evans
Chairman
26 January 2017
Consolidated Statement of Comprehensive Income (Audited)
For the eighteen months ended 30 September 2016
Eighteen months ended 30 September 2016
-------------------------------------------------------------------------
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
----------------------------------- ------ -------- -------- --------
Capital losses on investments
----------------------------------- ------ -------- -------- --------
Held at fair value 4 - (1,895) (1,895)
----------------------------------- ------ -------- -------- --------
Revenue
----------------------------------- ------ -------- -------- --------
Rental income 3,121 - 3,121
----------------------------------- ------ -------- -------- --------
Total income/(expense) 3,121 (1,895) 1,226
----------------------------------- ------ -------- -------- --------
Expenditure
----------------------------------- ------ -------- -------- --------
Investment Adviser's fees 1 (267) - (267)
----------------------------------- ------ -------- -------- --------
Other expenses (739) (83) (822)
----------------------------------- ------ -------- -------- --------
Total expenditure (1,006) (83) (1,089)
----------------------------------- ------ -------- -------- --------
Profit/(loss) before finance
costs and taxation 2,115 (1,978) 137
----------------------------------- ------ -------- -------- --------
Net finance costs
----------------------------------- ------ -------- -------- --------
Interest receivable 46 - 46
----------------------------------- ------ -------- -------- --------
Interest payable (249) - (249)
----------------------------------- ------ -------- -------- --------
(Loss)/profit before taxation 1,912 (1,978) (66)
----------------------------------- ------ -------- -------- --------
Taxation - - -
----------------------------------- ------ -------- -------- --------
(Loss)/profit for the period 1,912 (1,978) (66)
----------------------------------- ------ -------- -------- --------
Total comprehensive (loss)/profit
for the period 1,912 (1,978) (66)
----------------------------------- ------ -------- -------- --------
Basic and diluted earnings
per ordinary share 3 6.47p (6.69p) (0.22p)
----------------------------------- ------ -------- -------- --------
The total column of this statement represents the Group's
Consolidated Statement of Comprehensive Income, prepared in
accordance with IFRS. There are no other gains and losses for the
period other than total comprehensive loss reported above.
There was no activity during the prior period to 31 March
2015.
The supplementary revenue and capital return columns are
prepared under guidance published by the Association of Investment
Companies. All revenue and capital items in the above statement are
derived from continuing operations.
No operations were acquired or discontinued in the period.
The accompanying notes are an integral part of these financial
statements.
Consolidated Statement of Financial Position (Audited)
As at 30 September 2016
As at As at
30 September 31 March
Notes 2016 2015
GBP'000 GBP'000
-------------------------------- ------ -------------- ----------
Non-current assets
Investment properties 4 48,238 -
-------------------------------- ------ -------------- ----------
48,238 -
-------------------------------- ------ -------------- ----------
Current assets
-------------------------------- ------ -------------- ----------
Trade and other receivables 388 50
-------------------------------- ------ -------------- ----------
Cash and cash equivalents 718 -
-------------------------------- ------ -------------- ----------
1,106 50
-------------------------------- ------ -------------- ----------
Total assets 49,344 50
-------------------------------- ------ -------------- ----------
Current liabilities
-------------------------------- ------ -------------- ----------
Trade and other payables (767) -
-------------------------------- ------ -------------- ----------
Loan 6 (14,350) -
-------------------------------- ------ -------------- ----------
Total liabilities (15,117) -
-------------------------------- ------ -------------- ----------
Net assets 34,227 50
-------------------------------- ------ -------------- ----------
Equity and reserves
-------------------------------- ------ -------------- ----------
Called up equity share capital 8 3,659 1
-------------------------------- ------ -------------- ----------
Share premium 3,921 49
-------------------------------- ------ -------------- ----------
Special distributable reserve 26,840 -
-------------------------------- ------ -------------- ----------
Capital reserve (1,978) -
-------------------------------- ------ -------------- ----------
Revenue reserve 1,785 -
-------------------------------- ------ -------------- ----------
Equity shareholders' funds 34,227 50
-------------------------------- ------ -------------- ----------
Net asset value per Ordinary
Share 7 93.53p 100.00p
-------------------------------- ------ -------------- ----------
The accompanying notes are an integral part of these financial
statements.
Company number: 09511797.
Consolidated Statement of Changes in Equity (Audited)
For the eighteen months ended 30 September 2016
Share Special
capital Share distributive Capital Revenue Total
account premium reserve reserve reserve equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ------ --------- --------- -------------- --------- --------- --------
As at 31 March 2015 1 49 - - - 50
----------------------- ------ --------- --------- -------------- --------- --------- --------
Profit and total
comprehensive
loss for the period - - - (1,978) 1,912 (66)
----------------------- ------ --------- --------- -------------- --------- --------- --------
Transactions with
owners
recognised in equity:
----------------------- ------ --------- --------- -------------- --------- --------- --------
Issue of Ordinary
Share capital 3,658 32,883 - - - 36,541
----------------------- ------ --------- --------- -------------- --------- --------- --------
Issue costs - (971) - - - (971)
----------------------- ------ --------- --------- -------------- --------- --------- --------
Dividends paid 2 - - - - (1,327) (1,327)
----------------------- ------ --------- --------- -------------- --------- --------- --------
Cancellation of share
premium account - (28,040) 28,040 - - -
Transfer to revenue
reserves - - (1,200) - 1,200 -
----------------------- ------ --------- --------- -------------- --------- --------- --------
As at 30 September
2016 3,659 3,921 26,840 (1,978) 1,785 34,227
----------------------- ------ --------- --------- -------------- --------- --------- --------
For the period to 31 March 2015
Share Special
capital Share distributive Capital Revenue Total
account premium reserve reserve reserve equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ------- --------- --------- -------------- --------- --------- --------
Profit and total
comprehensive
profit for the period - - - - - -
----------------------- ------- --------- --------- -------------- --------- --------- --------
Transactions with
owners
recognised in equity:
----------------------- ------- --------- --------- -------------- --------- --------- --------
Issue of Ordinary
Share capital 1 49 - - - 50
-------------------------------- --------- --------- -------------- --------- --------- --------
As at 31 March 2015 1 49 - - - 50
-------------------------------- --------- --------- -------------- --------- --------- --------
The accompanying notes are an integral part of these financial
statements.
Consolidated Statement of Cash Flow (Audited)
For the eighteen months ended 30 September 2016
Period
to 30
September
2016
Notes GBP'000
--------------------------------------------- ------- -----------
Cash flows from operating activities
Loss before tax (66)
Adjustments for:
Interest payable 249
Interest receivable (46)
Unrealised revaluation loss on property
portfolio 1,895
Operating cash flows before working capital
changes 2,032
Increase in trade and other receivables (388)
Increase in trade and other payables 557
Net cash inflow from operating activities 2,201
Cash flows from investing activities
Purchase of investment properties (45,644)
Property capitalised costs (2,837)
Net cash outflow from investing activities (48,481)
Cash flows from financing activities
Bank loan drawn down net of arrangement
fees 14,253
Issue of Ordinary Share capital 34,061
Interest received 46
Interest paid (107)
Equity dividends paid (1,255)
Net cash inflow from financing activities 46,998
Net increase in cash and cash equivalents 718
Opening cash and cash equivalent -
Closing cash and cash equivalents 718
There was no cash flow activity during the period to 31 March
2015.
The accompanying notes are an integral part of these financial
statements.
Notes to the Audited Consolidated Financial Statements
For the eighteen months ended 30 September 2016
1. INVESTMENT ADVISER'S FEE
Period ended 30 September
2016
GBP'000
-------------------------- --------------------------
Investment Adviser's fee 267
-------------------------- --------------------------
Total 267
-------------------------- --------------------------
The Group's Alternative Investment Fund Manager ("AIFM") and
Investment Manager, R&H Fund Services (Jersey) Limited was
appointed on 28 April 2015. The property management arrangements of
the Group were delegated by R&H Fund Services (Jersey) Limited,
with the approval of the Group, to Drum Real Estate Investment
Management Limited ("the Investment Adviser") on 28 April 2015. The
Investment Adviser is responsible for the day to day management of
the portfolio.
The capital of the Group is managed in accordance with its
investment policy, in pursuit of its investment objective. Capital
management activities may include the allotment of new shares, the
buy back or re-issuance of shares from treasury, the management of
the Group's discount to net asset value and consideration of the
Group's net gearing level.
There have been no changes in the capital management objectives
and policies or the nature of the capital managed during the
period.
2. DIVIDS
In the period ended 30 September 2016 the Group declared the
following dividends:
Period ended 30
September 2016
GBP'000
---------------------------------------------- ----------------
A first interim dividend of 1.3125p
(GBP417,000) in respect of the period
ended 31 December 2015 was paid
to shareholders on 26 February 2016. 417
A second interim dividend of 1.3125p
(GBP455,000) in respect of the period
ended 31 March 2016 was paid to
shareholders on 27 May 2016. 455
A third interim dividend of 1.3125p
(GBP455,000) in respect of the period
ended 30 June 2016 was paid to shareholders
on 26 August 2016. 455
Total dividends paid 1,327
---------------------------------------------- ----------------
A fourth interim dividend of 1.3125p (GBP480,000) in respect of
the period ended 30 September 2016 was paid on to shareholders on 2
December 2016.
3. TOTAL EARNINGS PER SHARE
The Group's basic and diluted revenue profit per ordinary share
of 6.47p (period to 31 March 2015: nil) per share is based on the
net revenue profit for the period of GBP1,912,000 (period to 31
March 2015: GBPnil) and 29,561,058 (period to 31 March 2015:
50,000) ordinary shares, being the weighted average number of
shares in issue during the period.
The Group's basic and diluted capital loss per ordinary share of
(6.69p) (period to 31 March 2015: nil) per share is based on the
capital loss for the period of (GBP1,978,000) (period to 31 March
2015: GBPnil) and on 29,561,058 (period to 31 March 2015: 50,000)
ordinary shares, being the weighted average number of shares in
issue during the period.
The Group's basic and diluted total loss per ordinary share of
(0.22p) (period to 31 March 2015: nil) per share is based on the
loss for the period of (GBP66,000) (period to 31 March 2015:
GBPnil) and on 29,561,058 (period to 31 March 2015: 50,000)
ordinary shares, being the weighted average number of shares in
issue during the period.
4. INVESTMENT PROPERTIES
As at As at
30 September 31 March
2016 2015
GBP'000 GBP'000
--------------------- -------------- ----------
Opening fair value - -
Purchases 47,204 -
Acquisition costs 2,929 -
Revaluation movement (1,895) -
--------------------- -------------- ----------
Closing fair value 48,238 -
--------------------- -------------- ----------
Changes in the valuation of investment properties
As at As at
30 September 31 March
2016 2015
GBP'000 GBP'000
------------------------------- -------------- ----------
Unrealised loss on revaluation (1,895) -
of investment properties
--------------------------------- -------------- ----------
The properties were valued at GBP48,238,000 as at 30 September
2016 (31 March 2015: GBPnil) by Savills (UK) Limited ('Savills'),
in their capacity as external valuers.
The fair value of investment properties is determined by
independent real estate valuation experts using recognised
valuation techniques. The properties have been valued on the basis
of 'Fair Value' and VPGA1 Valuations for Inclusion in Financial
Statements, which adopt the definition of Fair Value as adopted by
the International Accounting Standards Board. In line with the
recommendation of the European Public Real Estate Association, all
properties have been deemed to be Level 3 under the fair value
hierarchy classification. Revisions to accounting estimates are
recognised in the period in which the estimate is revised, if the
revision affects only that period, or in the period of the revision
and future period/years, if the revision affects both current and
future period/years.
The Group is required to classify fair value measurements of its
investment properties using a fair value hierarchy, in accordance
with IFRS 13 'Fair Value Measurement'. In determining what level of
the fair value hierarchy to classify the Group's investments
within, the Directors have considered the content of IFRS 13. The
position paper on IFRS 13 prepared by the European Public Real
Estate Association concludes that, it is likely that valuers of
investment property will use unobservable inputs resulting in the
vast majority of investment properties being classified as level
3.
After significant consideration of the Group's valuation process
and IFRS 13, the Directors believe it is reasonable to classify the
Group's assets within level 3 of the fair value hierarchy.
5. INVESTMENT IN SUBSIDIARY
The Group's results consolidate those of Drum Income Plus
Limited, a wholly owned subsidiary, incorporated in England &
Wales (Company Number: 09515513). Drum Income Plus Limited was
incorporated on 28 March 2015, acquired on 19 August 2015 and began
trading on 19 January 2016, when it was transferred the ownership
of the entirety of the Group's property portfolio. Drum Income Plus
Limited continues to hold all the investment properties owned by
the Group and is also the party which holds the Group's
borrowings.
6. LOAN
As at As at
30 September 31 March
2016 2015
GBP'000 GBP'000
----------------------------- -------------- ----------
Principal amount outstanding 14,460 -
Set-up costs (110) -
Total 14,350 -
----------------------------- -------------- ----------
In January 2016 the Group entered into a GBP20 million secured
18 month revolving credit facility agreement with the Royal Bank of
Scotland ('the Bank') at a rate of 1.1% plus LIBOR per annum which
has a maturity date of July 2017.
As part of the loan agreement the Bank has a standard security
over the properties currently held by the Group, with an aggregate
value of GBP48,238,000 at 30 September 2016.
Under the financial covenants related to this loan, the Group
has to ensure that for Drum Income Plus Limited:
- the interest cover, being the rental income as a percentage of
finance costs is at least 250%;
- the loan to value ratio, being the value of the loan as a
percentage of the aggregate market value of the relevant
properties, must not exceed 50%.
Breach of the financial covenants, subject to various cure
rights, may lead to the loans falling due for repayment earlier
than the final maturity date stated above. The Group has complied
with all the loan covenants during the period.
On 6 January 2017 the Group replaced the existing loan facility
with a new GBP25 million secured 3 year revolving credit facility
agreement with the Royal Bank of Scotland ("the Bank"). Details of
the new facility are contained in Note 11.
7. NET ASSET VALUE
The Group's net asset value per ordinary share of 93.53 pence
(31 March 2015: 100.00 pence) is based on equity shareholders'
funds of GBP34,227,000 (31 March 2015: GBP50,000) and on 36,594,900
(31 March 2015: 50,000) ordinary shares, being the number of shares
in issue at the period end.
8. CALLED UP EQUITY SHARE CAPITAL
Eighteen Eighteen
months Period months Period
to to to to
30 September 31 March 30 September 31 March
2016 2015 2016 2015
Shares Shares GBP'000 GBP'000
---------------------- -------------- ---------- -------------- ----------
Issued and fully
paid
Opening total issued
ordinary shares of
10p each 50,000 - 1 -
Issued during the
period 36,544,900 50,000 3,658 1
Closing total issued
ordinary shares 36,594,900* 50,000* 3,659 1
---------------------- -------------- ---------- -------------- ----------
* Share capital as at 31 March 2015 was unpaid; share capital as
at 30 September 2016 was fully paid.
On 29 May 2015 31,814,000 ordinary 10p shares were issued for a
consideration of GBP1 per share.
On 24 March 2016 2,770,900 ordinary 10p shares were issued for a
consideration of GBP1 per share.
On 18 August 2016 1,960,000 ordinary 10p shares were issued for
a consideration of GBP1 per share.
Shares were issued to increase the capital base of the
Company.
Ordinary shareholders are entitled to all dividends declared by
the Company and to all of the Company's assets after repayment of
its borrowings and ordinary creditors. Ordinary shareholders have
the right to vote at meetings of the Company. All Ordinary Shares
carry equal voting rights.
An application to Court was successfully made for the
cancellation of the launch share premium account which allowed the
transfer of monies to the special distributable reserve. This
reserve is available for paying dividends and buying back the
Company's shares.
GBP1.2m was transferred from the special distributable reserve
to the revenue reserve during the period.
There is only one class of share in issue.
9. RELATED PARTY TRANSACTIONS
The Directors are considered to be related parties. No Director
had an interest in any transactions which are, or were, unusual in
their nature or significant to the nature of the Group.
The Group purchased the property situated at Burnside Industrial
Centre, Dyce, Aberdeen, from Drum Commercial Asset Investments
Limited, a private limited company owned by Graeme Bone, the
founder and principal owner of Drum Property Group, which is the
Investment Adviser's parent company. The property was valued at
GBP2.6 million by the Company's independent property valuers,
Savills (UK) Limited. 1,560,000 ordinary shares were issued at
GBP1.00 each on 18 August 2016 in part payment for the acquisition,
with the balance of GBP1.04 million paid in cash. Shareholders
approved this purchase in advance at a General Meeting of the Group
held on 8 August 2016.
The Directors of the Group received fees for their services.
Total fees for the period were GBP100,000 (for the period from
incorporation to 31 March 2015: GBPnil) of which GBP7,000 was
payable at the period end (for the period from incorporation to 31
March 2015: GBPnil).
The Investment Manager, Investment Adviser and Economic Adviser
are considered to be related parties.
Under the terms of the agreements amongst the Group, R&H
Fund Services (Jersey) Limited (the "AIFM"), Drum Real Estate
Investment Management Limited (the "Investment Adviser") and Turcan
Connell Asset Management Limited (the "Economic Adviser"), the
Group paid to the AIFM a fixed fee of GBP15,000 per annum plus an
annual portfolio management fee of 0.80% of the net assets of the
Group and an economic advisory fee of 0.45% of the net assets of
the Group. The AIFM agreed that the annual portfolio management fee
and economic advisory fee would be paid to the Investment Adviser
and Economic Adviser respectively, in accordance with the terms of
the agreements.
With effect from 1 January 2016, the total management fee was
reduced to 1.15% per annum of the Group's net assets up to GBP150
million and 1.00% of net assets over GBP150 million. All of this
amount is due to the Investment Adviser.
The management agreements are terminable by any party on 12
months' written notice, provided that such notice shall expire no
earlier than the fourth anniversary of Admission.
As per the prospectus published in April 2015, the Investment
Adviser agreed to reduce its portfolio management fee under the
AIFM agreement to the extent necessary to ensure that the core
annual expenses of the Group did not exceed 2.0% of the Group's net
assets. Certain expenses (in particular marketing, broking and some
loan related costs) fall outwith the ongoing charges calculation,
resulting in the ongoing charges ratio being 2.4% of net
assets.
R&H Fund Services (Jersey) Limited, as AIFM and Investment
Manager, earned GBP20,000 during the period (for the period from
incorporation to 31 March 2015: GBPnil). GBP10,000 was payable at
the period end (for the period from incorporation to 31 March 2015:
GBPnil).
Drum Real Estate Investment Management Limited, as Investment
Adviser, earned GBP267,000 during the period (for the period from
incorporation to 31 March 2015: GBPnil). GBP35,000 was payable at
the period end.
Turcan Connell Asset Management Limited, as Economic Adviser,
earned GBP81,000 during the period (for the period from
incorporation to 31 March 2015: GBPnil). No fee was payable at the
period end (for the period from incorporation to 31 March 2015:
GBPnil).
10. FINANCIAL INSTRUMENTS
Consistent with its objective, the Group holds UK commercial
property investments. In addition, the Group's financial
instruments comprise cash and receivables and payables that arise
directly from its operations. The Group does not have exposure to
any derivative instruments.
The Group is exposed to various types of risk that are
associated with financial instruments. The most important types are
credit risk, liquidity risk, interest rate risk and market price
risk. There is no foreign currency risk as all assets and
liabilities of the Group are maintained in pounds sterling.
The Board reviews and agrees policies for managing the Group's
risk exposure. These policies are summarised below. These
disclosures include, where appropriate, consideration of the
Group's investment properties which, whilst not constituting
financial instruments as defined by IFRS, are considered by the
Board to be integral to the Group's overall risk exposure.
CREDIT RISK
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group.
In the event of default by a tenant if it is in financial
difficulty or otherwise unable to meet its obligations under the
lease, the Group will suffer a rental shortfall and incur
additional expenses until the property is re-let. These expenses
could include legal and surveyor's costs in reletting, maintenance
costs, insurances, rates and marketing costs and may have a
material adverse impact on the financial condition and performance
of the Group and/or the level of dividend cover. The Board receives
regular reports on concentrations of risk and any tenants in
arrears. The Investment Adviser monitors such reports in order to
anticipate, and minimise the impact of, defaults by occupational
tenants.
Where there are concerns over the recoverability of rental
income, the amounts outstanding will be fully provided for. There
was no such provision recognised as there were no financial assets
which were either past due or considered impaired at 30 September
2016 or at 31 March 2015.
All of the Group's cash was placed with The Royal Bank of
Scotland plc as at 30 September 2016. Bankruptcy or insolvency of
the bank holding cash balances may cause the Group's ability to
access cash placed with them to be delayed, limited or lost. RBS is
rated at BBB- or better by the main rating agencies, with a stable
or positive outlook. Should the credit quality or the financial
position of the banks currently employed significantly deteriorate,
cash holdings would be moved to another bank.
LIQUIDITY RISK
Liquidity risk is the risk that the Group will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. The Group's investments comprise commercial
properties.
Property and property-related assets in which the Group invests
are not traded in an organised public market and may be illiquid.
As a result, the Group may not be able to liquidate quickly its
investments in these properties at an amount close to their fair
value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the
Investment Adviser and monitored on a quarterly basis by the Board.
In order to mitigate liquidity risk the Group has a comprehensive
three year cashflow forecast that aims to have sufficient cash
balances, taking into account projected receipts for rental income
and property sales, to meet its obligations for a period of at
least 12 months.
INTEREST RATE RISK
Some of the Group's financial instruments will be
interest-bearing. During the period to 30 September 2016, the Group
only held interest-bearing financial instruments that carried
interest at a variable rate. As a consequence, the Group will be
exposed to cash flow interest rate risk due to fluctuations in the
prevailing market rate. The Group did not hold any interest-bearing
financial instruments that carried interest at a fixed interest
rate and was therefore not exposed to fair value interest rate
risk.
When the Group retains cash balances, they will ordinarily be
held on interest-bearing deposit accounts. The Group's policy is to
hold cash in variable rate or short-term fixed rate bank accounts.
Exposure varies throughout the period as a consequence of changes
in the composition of the net assets of the Group arising out of
the investment and risk management policies.
MARKET PRICE RISK
The management of market price risk is part of the investment
management process and is typical of a property investment company.
The portfolio is managed with an awareness of the effects of
adverse valuation movements through detailed and continuing
analysis, with an objective of maximising overall returns to
shareholders. Investments in property and property related assets
are inherently difficult to value due to the individual nature of
each property. As a result, valuations are subject to substantial
uncertainty. There is no assurance that the estimates resulting
from the valuation process will reflect the actual sales price even
where such sales occur shortly after the valuation date. Such risk
is minimised through the appointment of external property valuers.
The basis of valuation of the property portfolio is set out in
detail in the accounting policies.
Any changes in market conditions will directly affect the profit
and loss reported through the Statement of Comprehensive Income.
Details of the Group's investment property portfolio held at the
balance sheet date are disclosed in Note 4.
The calculations are based on the investment property valuations
at the respective balance sheet date and are not representative of
the period as a whole, nor reflective of future market
conditions.
11. POST-BALANCE SHEET EVENTS
On 6 January 2017 the Group replaced its existing GBP20m 18
month secured loan facility with a new GBP25 million secured 3 year
revolving credit facility agreement, both with the Royal Bank of
Scotland. The interest rate on the new facility is 1.75% plus LIBOR
per annum and has a maturity date of 6 January 2020.
As part of the loan agreement the Bank has a standard security
over properties currently held by the Group, with an aggregate
value of GBP48,775,000 at 31 December 2016.
Under the financial covenants related to this loan, the Group
has to ensure that for Drum Income Plus Limited:
- the interest cover, being the rental income as a percentage of
finance costs, is at least 250%;
- the loan to value ratio, being the value of the loan as a
percentage of the aggregate market value of the relevant
properties, must not exceed 50%.
On 19 January 2017 the Group published its 31 December 2016 NAV.
The NAV per share at 31 December 2016 was 95.5 pence (30 September
2016: 93.5 pence). The fair independent valuation of the property
portfolio was GBP48.8 million at 31 December 2016 (30 September
2016: GBP48.2 million).
12. FINANCIAL STATEMENTS
These are not full statutory accounts. The report and financial
statements for the year to 30 September 2016 will be posted to
shareholders and made available on the website: www.dripreit.co.uk
. Copies may also be obtained from the Company Secretary, R&H
Fund Services Limited, 20 Forth Street, Edinburgh, EH1 3LH.
Enquiries:
Drum Real Estate Investment Management (Investment Manager)
Bryan Sherriff 0131 285 0050
R&H Fund Services Limited (Company Secretary)
Martin Cassels 0131 550 3760
Cantor Fitzgerald Europe (Financial Adviser and Corporate Broker)
Sue Inglis (Corporate Finance) 020 7894 8016
Ben Heatley / Richard Sloss (Sales) 020 7894 8529 / 0131 240 3863
Dickson Minto W.S. (Sponsor)
Douglas Armstrong 020 7649 6823
Weber Shandwick (Financial PR)
Richard Bright 0131 556 6649
Nick Oborne 020 7067 0721
This information is provided by RNS
The company news service from the London Stock Exchange
END
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