TIDMSIR
RNS Number : 8728Q
Secure Income REIT PLC
03 March 2016
3 March 2016
Secure Income REIT Plc
(the "Company" or the "Group")
Results for the year ended 31 December 2015
Secure Income REIT Plc (AIM: SIR), the specialist long term
income UK REIT, today announces its results for the year ended 31
December 2015.
Highlights
-- EPRA NAV as at 31 December 2015 of 282.8 pence per share, up
9.4% after incurring early debt repayment costs amounting to nearly
16% of EPRA NAV as at 31 December 2014
-- New long term debt financing arrangements totalling GBP903
million completed between August and October 2015:
- reducing interest cost by 23% from 6.8% to 5.2% per annum,
saving c. GBP14 million on an annualised basis;
- extending term to maturity from less than two years to c. nine
years on significantly improved terms; and
- facilitating payment of maiden distributions to shareholders
-- Intention to pay quarterly distributions commencing in August
2016, initially reflecting a yield of 4.2% on 31 December 2015 EPRA
NAV, with highly predictable growth prospects underpinned by annual
contractual rental uplifts, either at fixed rates or upwards only
uncapped RPI
-- Net loan to value ratio of 61%, down from 70% at 31 December
2014 and 80% at listing in June 2014
-- Asset sales in the year of GBP382 million at c. 8% above 31
December 2014 book values, comprising the sales of the freehold of
Madame Tussauds in London for GBP332 million and New Hall hospital
in Salisbury for GBP50 million
-- Portfolio valuation up 6.3% since 31 December 2014 to GBP1.35
billion; net initial yield 5.3%, increasing to at least 5.45% on
completion of 2016 fixed rental uplifts in July 2016
-- Weighted average unexpired lease term of 23.5 years with no breaks
-- Passing rent of GBP76.3 million as at 31 December 2015, secured entirely against major global multi-billion pound quoted businesses
-- Announcement on 3 March 2016 of the intention to place a
minimum of 43% of the existing issued share capital held by certain
of the six founding shareholders of the Company, in order to:
- create more liquidity in share trading;
- better place the Company for expansion when new opportunities
are identified for earnings accretive acquisitions; and
- enable continued compliance with the UK REIT rules
31 December 31 December
2015 2014 Change in year
--------------------------------- ------------- ------------- ----------------
EPRA net asset value GBP510.1m GBP466.2m 9.4%
EPRA net asset value per share 282.8p 258.5p 9.4%
Net asset value GBP504.4m GBP344.3m 47%
Adjusted EPRA earnings per share 2.6p 0.0p n/a
--------------------------------- ------------- ------------- ----------------
Martin Moore, Independent Non-Executive Chairman of the Company,
commented: "The robustness of the Group's income streams and the
less cyclical nature of its properties provide a great deal of
comfort in turbulent markets. These market conditions also tend to
be more fertile grounds for Prestbury to source and the Board to
deliver favourable transactions. Our investment case remains that,
at a time of historically low interest rates and bond yields,
investors are faced with a shortage of places where they can obtain
a healthy and growing income return combined with a good prospect
of capital preservation. This is what we have set out to achieve
with Secure Income REIT and, with the intention to pay maiden
distributions in August this year, the Board views the future with
confidence."
ENQUIRIES:
Prestbury Investments LLP Tel: 020 7647 7647
Nick Leslau
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
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 26
well established operating real estate assets including some of the
UK's top visitor attractions and theme parks: namely Alton Towers
theme park and hotel, Thorpe Park and Warwick Castle, as well as 20
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
Dear Shareholder,
During 2015 we have made significant progress at Secure Income
REIT through a combination of selective disposals and a refinancing
of all of the Group's debt, which have together reduced the Group's
leverage and cost of debt. These initiatives have helped transform
Secure Income REIT into a company which is in a position to begin
making cash distributions as of August this year, thereby
delivering on our objective at listing of creating a company which
offers investors a growing distribution derived from a portfolio of
high quality assets generating long term, secure income.
The two sales during the year were the freehold of Madame
Tussauds in London, which was sold for GBP332.4 million reflecting
a net initial yield of 4.5%, and New Hall hospital in Salisbury,
which was sold for GBP49.8 million reflecting a net initial yield
of 5.3%. The sale prices achieved were 8% above December 2014 book
values and represented an important step on the way to securing new
financing and positioning the Company to become a distribution
paying REIT.
In August and September we secured over GBP900 million of new
financing, completely replacing our original debt, extending our
weighted average term to maturity by over seven years to nine
years, reducing our annual interest cost by 23%, down to 5.2%, and
reducing debt amortisation outflows.
These initiatives place the Company in a position where the
Board intends to begin making quarterly cash distributions
commencing with an interim payment in August 2016 at an annualised
11.75 pence per share, which equates to a distribution yield of
4.2% based on our 31 December 2015 EPRA NAV. Given that every
property in our current portfolio has the benefit of an annual RPI
review or fixed increase in rent, distributions should be able to
grow reliably at an attractive rate.
As announced today, the Board is facilitating the intention of
certain of the Company's six major shareholders to place a minimum
of 77,514,509 shares in order to widen the investor base. This is
intended to create more liquidity in the shares, ensure that the
Company is better placed for expansion when the time is right, and
enable it to continue to qualify under UK REIT rules.
Results and financial position
The EPRA NAV is 282.8 pence per share, which represents a 9.4%
increase over the year as follows:
Pence per
GBPm share
---------------------------------------- ------ -----------
EPRA NAV at 1 January 2015 466.2 258.5
Investment property revaluation* 83.4 46.3
Profit on sale of investment properties 24.0 13.3
Rental income net of finance costs and
administrative expenses* 13.3 7.4
Tax (1.3) (0.8)
Currency translation movements (1.2) (0.7)
EPRA NAV excluding early debt repayment
costs 584.4 324.0
Early debt repayment costs (74.3) (41.2)
EPRA NAV at 31 December 2015 510.1 282.8
----------------------------------------- ------ -----------
* adjusted by GBP13.0 million (7.2 pence per share) to remove
the effect of spreading fixed rental uplifts over the term of the
lease - adjustment reduces rental income and increases revaluation
movement in equal amounts.
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Adjusted EPRA EPS is 2.6 pence per share for the year as
follows:
Nine months
Year to to 31 December
31 December 2014*
2015 Pence per
Pence per share share
----------------------------------------- ------------------ ---------------
Rental income net of property outgoings:
Portfolio owned at 31 December 2015 41.9 33.8
Sold properties 6.0 8.2
Net finance costs (40.0) (39.1)
Administrative expenses and corporate
costs (4.5) (2.2)
Tax (0.8) (0.7)
Adjusted EPRA EPS 2.6 -
------------------------------------------ ------------------ ---------------
* 2014 comparative figures include two months prior to listing.
Shares issued in April 2015 in satisfaction of the 2014 incentive
fees are treated as having been issued on the last day of 2014 in
calculating the weighted average shares in issue.
Over the course of the year, the portfolio valuation rose by
6.3% to GBP1.35 billion, reflecting a net initial yield of 5.3% and
an equivalent yield of 6.4%. The Group enjoys significant income
security with financially strong covenants and a weighted average
unexpired lease term of 23.5 years. 58% of our rent roll is
guaranteed by Ramsay Health Care Limited, listed on the Australian
Stock Exchange with a market capitalisation of GBP6.9 billion* and
one of the five largest private healthcare groups in the world. A
further 39% of rents are guaranteed by Merlin Entertainments Plc, a
FTSE 100 constituent with a market capitalisation of GBP4.7
billion*, the largest operator of visitor attractions in Europe and
the second largest in the world. The remainder of our rent roll is
guaranteed by Orpea SA, the European leader in dependency care,
listed on Euronext Paris with a market capitalisation of GBP3.6
billion*.
As important as the security of income is its potential to grow.
Two thirds of our rent roll is subject to annual fixed uplifts
(ranging from 2.75% to 3.34% and averaging 2.8% per annum) and the
remaining third is subject to annual RPI-linked upward only
reviews. This combination of long income duration with rising
rents, underpinned by financially strong tenants, is not only well
sought after in the current market but proved highly resilient in
the last recession.
Outlook
2016 has so far brought turbulence to stock markets around the
world as investors grapple with greater uncertainty. China's
slowdown has spurred a dramatic fall in commodity and oil prices
which should benefit UK consumers, putting more money into their
pockets, but this will only boost the UK economy if they have the
confidence to go out and spend it. The risk of a possible Brexit
has pushed Sterling towards seven year lows and the chance of
further depreciation may deter some overseas investors from buying
real estate in London, at the very least until the outcome of the
referendum is known. We have also seen the share prices of major
REITs fall further and faster than the market indices this year
which may have been prompted by concerns as to whether we are
reaching the end of another cycle for conventional commercial
property. It is interesting to note that the share prices of REITs
specialising in alternative, less cyclical sectors have been much
more resilient.
The robustness of the Group's income streams and the less
cyclical nature of its properties provide a great deal of comfort
in turbulent markets. These market conditions also tend to be more
fertile grounds for the Investment Adviser to source and the Board
to deliver favourable transactions. Our investment case remains
that at a time of historically low interest rates and bond yields,
investors are faced with a shortage of places where they can
receive a healthy and growing income return combined with a good
prospect of capital preservation. This is what we have set out to
achieve with Secure Income REIT and with the intention to pay
maiden distributions in August this year the Board views the future
with confidence.
Martin Moore
Chairman
3 March 2016
* as at 2 March 2016
Strategic Report
Strategy and investment policy
The Group is a property investment business specialising in
owning long term, secure income streams from real estate
investments, offering inflation protection. A long term income
stream is considered to have a weighted average term to maturity in
excess of 15 years at the time of acquisition. Income security is
assessed by reference either to the financial strength of the
tenants or to the extent of asset cover provided by way of residual
asset value.
There are no other UK REITs specialising in long leases across a
range of property sectors. Against a backdrop of significant
reduction in income security in the UK real estate market caused by
a marked decline in the average term to first tenant lease break or
expiry, and mindful of the growing requirement amongst investors
for long term, secure income flows, the Board aims to fill this gap
in the market and further build a substantial diversified long term
income portfolio.
The existing portfolio comprises 26 freehold investment
properties let for a weighted average term of 23.5 years from 31
December 2015. All properties are fully let on full repairing and
insuring leases. The portfolio is considered by the Board to offer
attractive geared returns from high quality real estate, with
financially strong tenants operating with well established brands
in industry sectors with strong defensive characteristics. Having
listed in 2014 and refinanced the Group's entire secured debt in
2015 to reduce the cost of debt and extend its term to maturity,
the Board proposes to build on its existing portfolio to create a
diversified portfolio of long term, secure income streams from real
estate investments across a range of property sectors, enhancing
prospects for attractive total returns through earnings accretive
acquisitions.
The Board believes that it will be able to seek acquisition
opportunities from a range of sources including operating
businesses, non-REITs with latent capital gains fettering sale
prospects, and structures where the Company's shares may be used as
currency to unlock value. Throughout this process, the Directors'
intention is to exercise strong capital discipline, using equity
accretively and debt prudently to enhance returns for
shareholders.
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 has been 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. Once distributions are paid, this measure will
include distributions paid to encompass Total Shareholder
Return.
The Group's EPRA NAV per share at 31 December 2015 was 282.8
pence, which represents a 9.4% increase over the year as
follows:
Nine months
to 31 December
Year to 2014
31 December 2015 Pence per
Pence per share share
----------------------------------------------------- ----------------- ---------------
EPRA NAV per share at start of period 258.5 176.1
Investment property revaluation* 46.3 102.0
Profit on sale of investment properties 13.3 -
Rental income* less finance costs and administrative
expenses 7.4 1.8
Incentive fee - (20.1)
Tax (0.8) (0.9)
Currency translation movements (0.7) (0.4)
----------------------------------------------------- ----------------- ---------------
EPRA NAV excluding early debt repayment costs 324.0 258.5
Early debt repayment costs (41.2) -
EPRA NAV per share at end of period 282.8 258.5
----------------------------------------------------- ----------------- ---------------
* adjusted by 7.2 pence (2014: 6.7 pence) to remove the impact
of rent smoothing adjustments, which arise from the Group's
accounting policy to spread the impact of fixed rental uplifts
evenly over the whole term of relevant leases. The rent smoothing
adjustments reflected in the financial information currently
increase rental income and reduce property valuation gains, and are
excluded in this table to better reflect the Group's actual rental
income flows.
Key performance indicator - adjusted EPRA earnings per share
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The Company will initiate quarterly payments of cash
distributions to shareholders in August 2016. In order to monitor
its ability to make distributions, the Board uses the Group's
adjusted EPRA earnings per share ("EPS") as a key performance
indicator. EPRA EPS excludes investment property revaluations,
profits on sale of investment properties, fair value movements in
any interest rate derivatives and deferred tax from the Group's
reported earnings to give a measure of underlying earnings from
core operating activities. Adjusted EPRA EPS excludes the incentive
fee (largely derived from investment property revaluations) and the
non-recurring costs of the reorganisation and listing (nil this
year but expected to include the costs of the secondary placing,
currently estimated at c. GBP2.0 million, in the 2016 financial
year), and is further adjusted to remove the effect of smoothing
the fixed rental uplifts in order not to artificially flatter
dividend cover calculations now that distributions are to be
initiated.
Since the Group's financing costs changed materially as a result
of the refinancing, the table below shows adjusted EPRA EPS before
and after completion of the refinancing to illustrate the position
under the current capital structure:
Nine months
Year to to 31 December
31 December 2014
2015 Pence per
Pence per share share
-------------------------------------------------- ---------------- ---------------
Rental income net of property outgoings,
excluding rent smoothing 36.8 42.0
Net finance costs (33.2) (39.9)
Administrative expenses and corporate costs (3.4) (2.2)
Tax (0.8) (0.7)
Unwinding discount on shareholder loans
net of deferred tax - 0.8
Adjusted EPRA EPS prior to completion of
refinancing * (0.6) -
--------------------------------------------------- ---------------- ---------------
Rental income net of property outgoings,
excluding rent smoothing 11.1 -
Net finance costs (6.8) -
Administrative expenses and corporate costs (1.1) -
Tax - -
-------------------------------------------------- ---------------- ---------------
Adjusted EPRA EPS since completion of refinancing
* 3.2 -
--------------------------------------------------- ---------------- ---------------
Adjusted EPRA EPS for the period 2.6 -
--------------------------------------------------- ---------------- ---------------
* completion of final tranche of refinancing on 2 October
2015
Further details of the Group's financial performance are given
in the Investment Adviser's Report.
Key performance indicator - net loan to value ratio
The Board monitors the Group's net loan to value ratio ("net
LTV") with a view to managing the capital structure of the business
throughout varying market conditions. During the year, the net LTV
has fallen from 70% to 61% reflecting reduced debt levels following
asset sales and the impact of unrealised property valuation
surpluses.
Key performance indicator - uncommitted cash
The Board considers that the ability to manage potential debt
covenant breaches is at least as important as the level of the net
loan to value ratio. The Group has negotiated headroom on financial
covenants considered appropriate to the business and also certain
cure rights, including the ability to inject cash into ring-fenced
financing structures in the event of actual or prospective breaches
of loan to value covenants. Consequently, along with managing the
execution risk inherent in arranging and documenting credit
facilities, the Board regularly monitors the Group's levels of
uncommitted cash. Uncommitted cash is measured as cash balances
outside ring-fenced structures secured to lenders, net of any
creditors or other cash commitments and net of any cash required to
be retained under the regulatory capital rules of the AIFMD
regime.
The Group's uncommitted cash was GBP52.7 million as at 31
December 2015, compared to GBP12.2 million as at 31 December 2014.
The balance increased materially during the year following the new
loan financing arrangements and asset sales.
Key performance indicator - headroom on debt covenants
The extent to which financial covenants are tested varies across
the portfolio. Covenants have been negotiated with the aim of
protecting the Group as far as possible from movements in
investment property valuations which are not related to changes in
the rental cash flows:
-- the Healthcare 2 loan is subject to LTV and interest cover tests throughout the loan term;
-- the Healthcare 1 loan is not tested for LTV until September
2019 but is subject to an interest cover cash trap test throughout
the loan term; and
-- the Leisure loans are not subject to any LTV default covenant
or interest cover tests throughout the loan term, though there are
LTV levels which could trigger a cash trap or full cash sweep from
August 2018.
The Board reviews the headroom on all financial covenants at
least quarterly. As at 31 December 2015 the relevant positions were
as follows, alongside the property net initial yield or the fall in
projected rent that would be trigger the relevant covenant at the
first test date:
Initial yield Rental headroom
triggering over ICR
Actual Covenant LTV test* test
----------------------------------------- ------- -------- ------------- ---------------
Leisure facility (GBP369.5 million
loan at 31 December 2015)
Cash trap LTV test (from August
2018 - 1% per annum loan amortisation) 71.7% <80.0% 6.6%
Cash trap LTV test (from August
2018 - full cash sweep) 71.7% <85.0% 7.0%
Healthcare facility 1 (GBP219.8
million loan at 31 December
2015)
LTV test (from September 2019) 59.1% <80.0% 8.3%
Cash trap projected interest
cover test 224% >150% 49%
Healthcare facility 2 (GBP315.6
million loan at 31 December
2015)
Cash trap LTV test 68.5% <80.0% 6.1%
LTV test 68.5% <85.0% 6.5%
Cash trap projected interest
cover test 157% >140% 12%
Projected interest cover test 157% >120% 31%
Historic interest cover test 154% >120% 28%
----------------------------------------- ------- -------- ------------- ---------------
* assuming UK leisure rents increase in line with the RPI swap
curve as at 23 February 2016
Principal risks and uncertainties
Risk Impact on the Group Mitigation
--------------------------- -------------------------------- -------------------------------------
Property valuation
movements Investment properties The Group uses experienced
The Group invests make up the majority independent valuers, whose
in commercial property of the Group's assets, work is reviewed by suitably
and so is exposed so changes in their qualified members of the
to movements in property value can have a significant Board and the Investment
valuations which impact on EPRA NAV, Adviser, before being approved
are subjective and with valuation changes in the context of the accounts
may vary as a result magnified by the impact as a whole by the Audit
of a variety of factors, of gearing. Committee and the Board.
many of which are
outside the control The Board notes the The Board seeks to structure
of the Group. relative resilience the Group's capital such
in value demonstrated that gearing is appropriate
by the Group's assets having regard to market
through the wider capital conditions and covenant
market declines of levels, with appropriate
2008 to 2011. cure rights within debt
facilities.
--------------------------- -------------------------------- -------------------------------------
Tenant risk
During the year the A default of lease The lease guarantors are
Group derived its obligations would have all large listed companies
rental income from a material impact on with capital structures
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three tenant groups the Group's revenue considered strong by the
with three guarantors, and hence its EPRA Board and with impressive
two of which accounted EPS, particularly as long term earnings growth
for 98% of passing the specialised use and share price track records.
rent. of the properties may
mean that re-letting The Board reviews the financial
Although the Board takes time. position of the tenants
considers the tenant and guarantors at least
and guarantor groups Investment property every quarter, based on
to be financially valuations reflect publicly available financial
strong, there can the valuer's assessment information and any other
be no guarantee that of the future security trading information which
they will remain of income. A loss of may be obtained under the
able to comply with income would therefore terms of a lease.
their obligations impact EPRA NAV. It
throughout the term could also result in
of the relevant leases, penalties, restricted
and will not suffer cash flows out of secured
any insolvency events. debt groups or ultimately
default under secured
debt agreements.
--------------------------- -------------------------------- -------------------------------------
Borrowing
Certain Group companies In the event of a breach The Group's borrowing arrangements
have granted security of a lending covenant, comprise three ring-fenced
to lenders in the the Group may be required subgroups with no cross-guarantees
form of mortgages to pay higher interest between them and no recourse
over all of the Group's costs, to increase to other assets outside
investment property debt amortisation out the secured subgroups.
and fixed and floating of free cash flow or
charges over certain to make early repayment Only one facility has an
other assets. of debt, which would annual LTV default covenant
affect cash flows and and another has a default
EPRA EPS. In certain LTV covenant starting in
circumstances the Company's September 2019. Group borrowing
ability to make cash arrangements also include
distributions to shareholders interest cover or debt
may be curtailed. service cover tests.
Where the Group is The Board reviews compliance
unable to make loan with all financial covenants
repayments out of existing at least every quarter,
cash resources, it including look forward
may be forced to sell tests for at least twelve
assets to repay part months, and considers that
or all of the Group's there is sufficient headroom
debt. It may be necessary on relevant loan covenants.
to sell assets at below
book value, which would The Board reserves unsecured
impact EPRA NAV. Early cash outside ring-fenced
debt repayments are debt structures which would
likely to crystallise be available to be used
early repayment penalties. to cure certain covenant
defaults to the extent
of the uncommitted cash
available.
Exchange rate risk
The Group prepares There could be an adverse Exchange rate risk is partially
its financial statements impact on the Sterling hedged through the use
in Sterling but some valuation of unhedged of Euro denominated assets
of its assets are investments and income and liabilities, limiting
located in Germany, flows, which would the exposure to the Euro
where both assets affect cash flows, net asset value which at
and liabilities are EPRA NAV and EPRA EPS. the year end exchange rate
Euro denominated. amounts to c. 4% of EPRA
The surplus of Euro NAV as at 31 December 2015.
denominated asset
value over debt value
is subject to foreign
currency exchange
risk from exchange
rate movements. This
currency exposure
is not hedged.
--------------------------- -------------------------------- -------------------------------------
Tax risk
The Group is subject If subject to UK corporation The Board documents compliance
to the UK REIT regime. tax, the Group's current with the UK REIT rules
A failure to comply tax charge would increase, at least every quarter.
with UK REIT conditions impacting cash flows,
resulting in the EPRA NAV and EPRA EPS, The proposed placing announced
loss of this status and reducing cash available on 3 March 2016 is expected
would make the property for distributions. to result in the Company
income subject to no longer being considered
UK corporation tax. a close company.
In particular, the
Company is required
to cease being a
close company by
4 June 2017.
--------------------------- -------------------------------- -------------------------------------
Liquidity risk
Working capital must A breach of a lending Unless there is a tenant
be managed to ensure covenant, or the insolvency default (discussed under
that both the Group of the Group as a whole tenant risk above) the
as a whole and all or an individual entity, Group's cash flows are
individual entities could result in a loss generally highly predictable.
are able to meet of net assets, impacting The cash position is reported
their liabilities EPRA NAV and EPRA EPS, to the Board at least quarterly;
as they fall due. and reducing cash available projections at least two
for distributions. years ahead are included
With highly predictable in the Group budget and
income and costs, BEPS proposals could are updated for review
there is limited be implemented in such when the interim and annual
scope for unexpected a way as to increase reports are approved.
liquidity pressures the Group's Property
outside the main Income Distribution The Group has uncommitted
tenant risk. However, ("PID") requirement cash reserves out of which
there is a risk that beyond the surplus increases in required PIDs
the OECD's Base Erosion cash flow available. could be met in the medium
and Profit Shifting term, or a scrip dividend
("BEPS") proposals alternative could be offered.
could affect the
Group's cash flows.
--------------------------- -------------------------------- -------------------------------------
Following the refinancing during the year, the Directors
consider that the access to financing risk previously reported is
no longer significant as at 31 December 2014. Apart from the BEPS
issue included under liquidity risk there are no new risks reported
this year.
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 year ended
31 December 2015.
Portfolio
The portfolio comprises 26 properties with secure, long term
income and contractual uplifts offering inflation protection. The
rent is derived from tenants whose businesses offer global spread
and have performed very well over many years, including the recent
recession, demonstrating their strong defensive qualities.
Healthcare assets (62% of portfolio value)
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The healthcare assets comprise 20 freehold private hospitals: a
portfolio of 19 located throughout England let to a subsidiary of
Ramsay Health Care Limited, the listed Australian healthcare
company, and a single property in central London let to Groupe
Sinoue, a French company specialising in mental health. Passing
rent on the current portfolio is as follows:
31 December 31 December
2015 2014*
GBPm GBPm
----------------------------------------------- ------------- -------------
Acute hospitals - guaranteed by Ramsay Health
Care Limited 44.4 43.2
Lisson Grove psychiatric hospital - guaranteed
by Orpea SA 1.9 1.8
46.3 45.0
----------------------------------------------- ------------- -------------
* excluding property sold in 2015
The leases on the Ramsay hospitals are all guaranteed by Ramsay
Health Care Limited, the listed parent company of one of the top
five private hospital operators in the world and a constituent of
the ASX 50 index of Australia's largest companies, with a market
capitalisation at 2 March 2016 of GBP6.9 billion.
The Ramsay hospitals are let on full repairing and insuring
leases with a term to expiry at 31 December 2015 of 21.4 years
without break. The rent increases by a fixed 2.75% per annum
throughout the lease term in May each year. In addition, at Secure
Income REIT's option rent could be increased in 2017 to the higher
of 2.75% or 57.525% of site earnings before interest, tax,
depreciation, amortisation, rent and head office costs, and every
fifth year thereafter to the higher of a 2.75% uplift and open
market rental value. As a result of the fixed uplift, the passing
rent on this sub-portfolio will increase to GBP45.6 million on 3
May 2016.
The lease on the London psychiatric hospital in Lisson Grove is
guaranteed by Orpea SA, the listed 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 2 March 2016 of GBP3.6 billion. Orpea owns 45% of
Group Sinoue, which is the parent company of the tenant.
The Lisson Grove hospital is let on a full repairing and
insuring lease with a term to expiry at 31 December 2015 of 28.6
years without break. The rent increases by a fixed 3.0% per annum
throughout the lease term in May each year and, as a result, the
passing rent on the property will increase from GBP1.87 million to
GBP1.92 million on 3 May 2016.
Leisure assets (38% of portfolio value)
The leisure assets comprise four well known visitor attractions
and two hotels, located in England and Germany, including two of
the UK's top three theme parks. The UK assets are Alton Towers
theme park and the Alton Towers hotel, Thorpe Park theme park and
Warwick Castle, while the German assets are Heide Park theme park
(the largest in Northern Germany) and the Heide Park hotel, both
located in Soltau, Saxony. Passing rent on the current portfolio is
as follows:
31 December 31 December
2015 2014*
GBPm GBPm
--------------------------------------------- ------------- -------------
UK 25.1 24.9
Germany (at 31 December 2015 exchange rates) 4.9 4.8
Total leisure 30.0 29.7
--------------------------------------------- ------------- -------------
* excluding property sold in 2015
The properties are all let to substantial operating subsidiaries
of Merlin Entertainments Plc, the guarantor of the leases. Merlin
is a FTSE 100 company with a market capitalisation at 2 March 2016
of GBP4.7 billion. Measured by the number of visitors, it is
Europe's largest and the world's second largest operator of leisure
attractions.
The average unexpired lease term of the leisure assets is 26.5
years and the tenants have two successive rights to renew these
leases for 35 years at the end of each term. The leases are on full
repairing and insuring terms. There are upwards only uncapped
RPI-linked rent reviews every June throughout the term (based on
RPI in the twelve months to April each year) for the UK leisure
portfolio, which in 2015 resulted in an increase of 0.9%. The
German properties are subject to fixed annual increases of 3.34%
every July throughout the term, as a result which the German rents
will increase to GBP5.1 million on 29 July 2016 (translated at the
31 December 2015 rate).
Portfolio valuation yields at 31 December 2015
UK Germany Total
---------------------------------------- ---------- ---------- ----------
Healthcare:
Net initial yield 5.2% n/a 5.2%
Equivalent yield 6.4% n/a 6.4%
Reversionary yield 5.4% n/a 5.4%
Leisure:
Net initial yield 5.4% 6.3% 5.5%
Equivalent yield 6.4% 7.9% 6.6%
Reversionary yield 5.5% 6.5% 5.6%
Total portfolio:
Net initial yield 5.3% 6.3% 5.3%
Equivalent yield 6.4% 7.9% 6.4%
Reversionary yield 5.4% 6.5% 5.5%
Weighted average unexpired lease term 23.4 years 26.6 years 23.5 years
----------------------------------------- ---------- ---------- ----------
Portfolio valuation by location
Healthcare Leisure Total
---------------------- -------------------- --------------------------------
31 December 31 31 31 31 31 Fair value
2015 December December December December December change
GBPm 2014 * 2015 2014 * 2015 2014 * over the
GBPm GBPm GBPm GBPm GBPm year
--------------------- ----------- --------- --------- --------- --------- --------- ----------
England 834.4 767.0 441.6 431.0 1,276.0 1,198.0 6.5%
Germany at constant
Euro exchange
rate - - 77.9 72.1 77.9 72.1 8.1%
Movement in Euro
exchange rate - - (4.4) - (4.4) - (6.0)%
--------------------- ----------- --------- --------- --------- --------- --------- ----------
834.4 767.0 515.1 503.1 1,349.5 1,270.1 6.3%
--------------------- ----------- --------- --------- --------- --------- --------- ----------
* adjusted for sales in the year to exclude sold assets from
comparative figures
Portfolio valuation uplift in the year
The healthcare valuations at 31 December 2015 reflect a weighted
average net initial yield of 5.2% compared to 5.5% at 31 December
2014, resulting in a valuation uplift of GBP67.4 million (8.8%) in
the year.
The UK leisure valuations at 31 December 2015 reflect a weighted
average net initial yield of 5.4% compared to 5.5% at 31 December
2014, resulting in a valuation uplift of GBP10.6 million (2.4%) in
the year. The German leisure valuations at 31 December 2015 reflect
a weighted average net initial yield of 6.3% compared to 6.5% at 31
December 2014, resulting in a valuation uplift of EUR7.5 million
(8.1%) in the year; currency translation movements have, however,
reduced the Sterling equivalent resulting in a net valuation uplift
of GBP1.4 million (2.1%) in those German leisure assets over the
year. Across the whole leisure portfolio, there has therefore been
a valuation increase of GBP12.0 million (2.4%) in the year.
As a result of these valuation movements, the total portfolio
uplift comprises:
Year to Nine months
31 December to 31 December
2015 2014
GBPm GBPm
--------------------------------------------------- ------------ ---------------
Investment property revaluation movement 83.4 171.8
Currency translation movements on Euro denominated
investment properties (4.0) (3.8)
79.4 168.0
--------------------------------------------------- ------------ ---------------
In addition to these movements, a rent smoothing adjustment
arises on investment property revaluations from the Group's
accounting policy, consistent with International Financial
Reporting Standards, to spread the impact of fixed rental uplifts
evenly over the term of the relevant lease. The adjustments relate
to those rents on the healthcare assets which increase by 2.75% (on
96% of healthcare rents) and 3.0% (on 4% of healthcare rents) every
May, and those rents on the German leisure assets which increase by
3.34% every July.
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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
2015 point term
GBPm GBPm
------------------------------ ----------- ------------ -------------
Healthcare - acute hospitals 128.1 165.2 May 2022
Healthcare - Lisson Grove 5.8 7.6 May 2022
German leisure* 22.7 34.5 Jan 2025
------------------------------ ----------- ------------ -------------
Total 156.6 207.3
------------------------------ ----------- ------------ -------------
* at the year end Euro conversion rate of EUR1:GBP0.7350
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, increasing rental income and reducing
property revaluation gains, and does not change the Group's net
assets.
The annual impact of this adjustment is known with certainty
unless there are acquisitions, disposals or lease variations. The
additional revenue and reduced valuation movement recognised during
the year and for each of the next three financial years is as
follows:
Healthcare German leisure* Total
GBPm GBPm GBPm
------ ------------ ----------------- ----------
2015 10.9 2.1 13.0
2016 9.6 2.0 11.6
2017 8.3 1.8 10.1
2018 7.0 1.6 8.6
------ ------------ ----------------- ----------
* at the 2015 average Euro conversion rate of EUR1:GBP0.7256
Property sales in the year
During the year the Group sold Ramsay's New Hall Hospital in
Salisbury and Madame Tussauds London. The sales raised funds at
very attractive prices to repay debt and, in the case of Madame
Tussauds, represented an opportunity to sell by far the largest
asset by value in the portfolio.
New Hall Hospital was sold in March 2015 for GBP49.8 million,
which represented a net initial yield of 5.3% and a sale price
GBP3.8 million (8.2%) above its 31 December 2014 valuation. The
sale completed in May 2015 and the net proceeds of GBP49.2 million
were used in part repayment of secured debt and early debt
repayment costs.
Madame Tussauds was sold in May 2015 for GBP332.4 million, which
represented a net initial yield of 4.5% and a sale price GBP23.0
million (7.4%) above its 31 December 2014 valuation. The sale
completed in August 2015 and the net proceeds of GBP330.1 million
were used in part repayment of secured debt and early debt
repayment costs, with surplus cash added to the Group's cash
resources.
Financing
During the year and following repayment of a portion of the
existing debt out of the proceeds of two asset sales, the Group's
debt was refinanced with three new secured facilities, in order to
provide a spread of risk and to better achieve improved financing
terms. Following the refinancing, 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 three ring-fenced sub-structures.
The impact of the sales and refinancing on the Group
included:
-- weighted average cost of debt reduced by 23% from 6.8% to
5.2% per annum, saving c. GBP14 million on an annualised basis on
the GBP902.6 million (at exchange rates at the time of drawdown) of
new debt;
-- weighted average term to maturity at drawdown increased from
under two years to nearly nine years;
-- term to first debt expiry at drawdown increased from under two years to seven years; and
-- while there remains some scheduled amortisation there are no
full cash sweep arrangements, further freeing up cash flow to
service distributions.
As noted in the Chairman's Statement in the 2014 annual report,
accelerated repayment of the loan facilities previously in place
resulted in various costs, including costs of termination of
interest rate swaps. Prior to embarking on the early debt
repayments, the Board first sought agreement with the previous
lender, Bank of Scotland Plc, to share the early termination costs,
mindful of the benefits to the lender of early repayment.
Consequently, the total GBP88.1 million cash cost of early
termination of the interest rate swaps as a result of the asset
sales and refinancing was reduced by GBP27.5 million to a net
GBP60.6 million. In addition, exit fees and other early termination
costs payable in cash amounted to GBP8.4 million and a non-cash
charge relating to the write off of the unamortised finance costs
on the old loans amounted to GBP5.3 million, bringing total early
repayment costs to GBP74.3 million.
As the balance sheet already recorded interest rate derivatives
at their market values, there was minimal impact on the reported
net asset value as a result of the swap terminations. However,
since EPRA NAV excludes the market valuation of interest rate
derivatives, the Group's EPRA NAV was reduced by GBP74.3 million or
41.2 pence per share in early debt repayment costs.
Each new facility is self-contained, with no cross default
provisions between the three of them, and the key terms at drawdown
were as follows:
Healthcare Healthcare
1 2 Leisure
--------------------------------- ---------- ------------ -------------
Loan principal GBP220.0m GBP315.6m GBP367.0m*
Number of assets securing loan 9 11 6
Fixed interest rate 4.29% 5.30% 5.72%
GBP3.7m
Amortisation per annum assuming (years 6 and
full covenant compliance GBP1.0m GBP3.2m 7)
September
Final repayment date 2025 October 2025 October 2022
--------------------------------- ---------- ------------ -------------
* comprising GBP316.8 million of senior and mezzanine sterling
loans secured on the UK assets and EUR71.8 million of senior and
mezzanine Euro denominated loans secured on the German assets
(translated at the actual exchange rate of EUR1:GBP0.6992 at the
date of drawdown) with all leisure loans cross-collateralised.
The Group's gross and net debt at 31 December 2015 was as
follows:
Healthcare Healthcare Portfolio Group
1 2 Leisure total Unsecured total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ---------- ---------- -------- --------- --------- ---------
Gross debt 219.8 315.6 369.5* 904.9 - 904.9
Secured and regulatory
cash (5.2) (12.7) (7.7) (25.6) (0.4) (26.0)
Free cash - - (1.6) (1.6) (54.0) (55.6)
------------------------ ---------- ---------- -------- --------- --------- ---------
Net debt 214.6 302.9 360.2 877.7 (54.4) 823.3
------------------------ ---------- ---------- -------- --------- --------- ---------
Property value 371.9 462.5 515.1 1,349.5 - 1,349.5
------------------------ ---------- ---------- -------- --------- --------- ---------
Net LTV 57.7% 65.5% 69.9% 65.0% 61.0%
------------------------ ---------- ---------- -------- --------- --------- ---------
* including EUR71.8 million of Euro loans translated at the year
end exchange rate of EUR1:GBP0.7350
Following scheduled amortisation payments in January 2016, total
gross debt at the date of this report, including Euro denominated
debt at the 31 December 2015 exchange rate, is GBP903.6
million.
There have been no defaults or potential defaults in any
facility during the year or since the balance sheet date.
Financial review
EPRA net asset value
The Board measures the Group's progress primarily through the
growth in EPRA net asset value ("EPRA NAV") per share. EPRA NAV
strips out the impact of any hedging revaluations and deferred tax
on investment property revaluations to provide a measure of the
fair value of a property company on a long term basis. Once
distributions are initiated the measure monitored by the Board will
include distributions paid so as to represent Total Shareholder
Return.
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The EPRA NAV at 31 December 2015 of 282.8 pence per share
represents a 9.4% increase over the year, which arose as
follows:
Year to 31 December Nine months to 31 December
2015 2014
------------------------ ----------------------------
Pence per Pence per
GBPm share GBPm share
--------------------------------- -------- -------------- --------- -----------------
EPRA NAV at start of period 466.2 258.5 283.1 177.1
Investment property revaluation 83.4 46.3 160.6 95.3
Profit on sale of investment
properties 24.0 13.3 - -
Net results: rental income
less administrative expenses
and finance costs 13.3 7.4 14.1 8.5
Tax:
UK REIT excess interest
charge (1.3) (0.8) (0.7) (0.3)
Deferred tax charge - - (0.9) (0.6)
Currency translation movements (1.2) (0.7) (0.6) (0.4)
Incentive fee - - (3.1) (20.1)
Adjustments in relation
to listing - - 13.5 (1.0)
--------------------------------- -------- -------------- --------- -----------------
EPRA NAV excluding early
debt repayment costs 584.4 324.0 466.2 258.5
Early debt repayment costs (74.3) (41.2) - -
EPRA NAV at end of period 510.1 282.8 466.2 258.5
--------------------------------- -------- -------------- --------- -----------------
The movements in investment property valuations are described
above in the Portfolio section of this report. The other elements
of the Group's EPRA NAV movements for the year are explained in the
Income Statement section below.
EPRA triple net asset value
The EPRA triple NAV includes the mark to market values of any
debt and hedging instruments, and any inherent tax liabilities not
provided for in the financial information. This is calculated as
follows:
31 December 2015 31 December 2014
------------------ --------------------
Pence per Pence per
GBPm share GBPm share
------- --------- --------- ---------
EPRA NAV 510.1 282.8 466.2 258.5
Fair value of fixed rate debt (7.3) (4.0) - -
Deferred tax on German investment
property revaluations (5.7) (3.1) (4.9) (2.7)
Fair value of hedging instruments,
net of German deferred tax - - (117.0) (64.8)
EPRA triple NAV at end of period 497.1 275.7 344.3 191.0
------------------------------------ ------- --------- --------- ---------
EPRA earnings per share
In order to monitor the Group's recurring profitability and its
ability to make appropriately covered distributions, the Board uses
the Group's adjusted EPRA earnings per share ("EPRA EPS") as a key
performance indicator. EPRA EPS excludes investment property
revaluations, fair value movements and early termination costs of
interest rate derivatives, and the relevant deferred tax on those
items to give a measure of underlying earnings from core operating
activities.
Adjusted EPRA EPS excludes the incentive fee (largely derived
from investment property revaluations) and the non-recurring costs
of the reorganisation and listing, and is further adjusted to
exclude the effect of smoothing the fixed rental uplifts included
in rental income (where the EPRA adjustments already exclude the
rent smoothing impact in revaluations) in order not to artificially
flatter dividend cover calculations now that distributions are to
be initiated.
As a result, EPRA EPS and adjusted EPRA EPS are calculated as
follows:
Year to 31 December Nine months to 31 December
2015 2014
------------------------ ----------------------------
Pence per Pence per
GBPm share GBPm share
----------------------------------- -------- -------------- ---------- ----------------
Rental income net of property
outgoings 99.4 55.1 80.9 48.7
Net finance costs (72.3) (40.0) (66.3) (39.9)
Administrative expenses
and corporate costs (8.1) (4.5) (6.6) (4.0)
Tax (1.3) (0.8) (1.2) (0.7)
Incentive fee - - (35.2) (21.1)
Unwinding discount on shareholder
loans net of deferred tax - - 1.4 0.8
----------------------------------- -------- -------------- ---------- ----------------
EPRA earnings 17.7 9.8 (27.0) (16.2)
Rent smoothing (13.0) (7.2) (11.3) (6.7)
Incentive fee - - 35.2 21.1
One-off costs of reorganisation
and listing - - 2.9 1.8
Adjusted EPRA earnings 4.7 2.6 (0.2) -
----------------------------------- -------- -------------- ---------- ----------------
Income statement
The rental income profile and the credit strengths of the
businesses paying the rent are disclosed in the Portfolio section
of this report, along with details of the investment property
revaluations and profits on disposals.
Administrative expenses and corporate costs charged to the
income statement in the year, as shown in the table below, are not
directly comparable year on year because the prior period only
included nine months; because the Group's cost base changed
significantly at listing in June 2014, with two months of the prior
period reflecting the different cost base; and because the Group
incurred material one-off costs in 2014 in connection with the
pre-listing corporate reorganisation and listing.
The Group's administrative expenses are largely accounted for by
the Investment Adviser's fee:
Year to 31 December Nine months to 31 December
2015 2014
--------------------- ----------------------------
Pence per Pence per
GBPm share GBPm share
------------------------------- ----- -------------- ------- -------------------
Advisory fees 6.9 3.8 2.7 1.6
Other administrative expenses 0.7 0.4 0.7 0.4
Corporate costs 0.5 0.3 0.3 0.2
Costs of the reorganisation
and listing - - 2.9 1.8
------------------------------- ----- -------------- ------- -------------------
8.1 4.5 6.6 4.0
------------------------------- ----- -------------- ------- -------------------
Irrecoverable VAT, which is included as appropriate in each of
the line items above, arises on the proportion of the advisory fees
and any other expenses incurred by the healthcare portfolio. The
VAT disallowed averaged 54% in the year and is currently c.
61%.
The majority of the Group's overhead is borne by the Investment
Adviser and compensated for by way of advisory fees payable to the
Investment Adviser under an agreement entered into prior to
listing, by which it is entitled to receive cash fees based on a
sliding scale relative to the Group's EPRA NAV: fees are payable at
1.25% per annum on EPRA NAV up to GBP500 million, plus 1.0% on EPRA
NAV from GBP500 million to GBP1,000 million plus 0.75% thereafter.
Until July 2016, the cash required to satisfy this advisory fee is
subsidised by the pre-listing shareholders of the Company up to a
maximum of GBP1.3 million per quarter. During the year GBP5.0
million of the cash required to fund advisory fee payments was met
by those shareholders.
Corporate costs are those costs necessarily incurred as a result
of the Company being listed and comprise:
-- the cost of the four Independent Directors, whose fees
totalled GBP0.2 million in the year. The other three Directors are
partners in the Investment Adviser and receive no remuneration from
the Company; and
-- other costs of being listed, including nominated adviser
fees, registrar fees and ongoing listing fees, which amounted to
GBP0.3 million in the year.
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Finance costs reflect amounts payable on the new and old debt
facilities as follows:
Year to 31 December Nine months to 31 December
2015 2014
------------------------ ----------------------------
Pence per Pence per
GBPm share GBPm share
-------- -------------- -------- ------------------
Interest payable on old facilities 54.3 30.2 59.4 35.9
Exit and covenant release fees
on old facilities 3.3 1.8 3.1 1.8
Loan cost amortisation on old
facilities (non cash) 1.7 0.9 2.2 1.6
Finance costs on old facilities 59.3 32.9 64.7 39.3
---------------------------------------- -------- -------------- -------- ------------------
Hedging break costs at refinancing 88.1 48.9 - -
Exit and covenant release fees
payable at refinancing 8.4 4.6 - -
Lender's credit against early
debt repayment costs (27.5) (15.2)
Loan costs written off at refinancing
(non cash) 5.3 2.9 - -
Early debt repayment costs 74.3 41.2 - -
---------------------------------------- -------- -------------- -------- ------------------
Interest payable on new facilities
since drawdown 12.5 6.9 - -
Loan cost amortisation on new
facilities since drawdown (non
cash) 0.5 0.3 - -
---------------------------------------- -------- -------------- -------- ------------------
Finance costs on new facilities 13.0 7.2 - -
---------------------------------------- -------- -------------- -------- ------------------
Finance income (0.1) - - -
Shareholder loans: unwinding
of discount to date of capitalisation
(non-cash) - - 1.7 1.0
---------------------------------------- -------- -------------- -------- ------------------
Net finance costs for the period 146.6 81.3 66.4 40.3
---------------------------------------- -------- -------------- -------- ------------------
The average interest rate paid across the old and new facilities
during the year, excluding fees payable to lenders, was 6.4% per
annum (2014: 6.8%). As at 31 December 2015, the average interest
rate payable on the new facilities, which is expected to apply in
future financial years until the first debt maturity in October
2022, was 5.2% per annum.
Currency translation
The majority of the Group's assets are located in the UK and the
financial information is therefore presented in Sterling. Just over
4% of the Group's EPRA NAV relates to assets and liabilities
relating to properties located in Germany, valued in and generating
net earnings in Euros. The fact that assets and liabilities are
Euro denominated acts as a partial hedge of the currency risk, but
the Group remains exposed to translation differences on the net
results and net assets of these operations which are not hedged,
with movements recognised in the statement of other comprehensive
income.
The German properties are valued at EUR100.1 million as at 31
December 2015, with the Euro tranches of the Group's secured debt
facilities amounting to EUR71.8 million. The Euro weakened against
Sterling over the year by 5.6% and as a result there was a net
currency translation loss of GBP1.2 million in EPRA NAV in relation
to the German operations.
Tax
The Group operates under the UK REIT regime, so its UK and
German rental operations are exempt from UK corporation tax,
subject to the Group's continuing compliance with the UK REIT
rules. The Group is otherwise subject to UK corporation tax.
In the event that a UK REIT has financing costs within its
exempt UK property business that are not covered at least 1.25
times by profits (calculated on a tax basis but before deducting
financing costs and capital allowances), tax is payable at the UK
corporation tax rate on the interest over that level, up to a cap
of 20% of taxable property business profits before financing costs
and capital allowances. During the year, the Group incurred a tax
charge of GBP1.3 million (nine months to 31 December 2014: GBP0.7
million) on such excess interest at the average tax rate for the
year of 20.25% (2014: 21%). The drawdown of the new financing
facilities will result in this interest cover test being met, so
this tax cost will reduce to zero at the start of the 2016
financial year.
German tax is payable on realised profits from the Group's
German rental operations. The tax charge for the year of GBP0.2
million has been offset by a prior period credit of GBP0.2 million,
which is the result of a number of historic adjustments to the tax
charges up to and including 2014 following the conclusion of a tax
audit relating to the years 2007 to 2012. The balance sheet also
includes a deferred tax liability of GBP5.7 million (2014: GBP5.4
million) relating to unrealised German capital gains tax on the
investment properties. A deferred tax asset of GBP0.5 million that
previously arose on the Group's Euro interest rate swaps was
written off during the year following the refinancing of the Euro
loan facility and the termination of those swaps.
Cash flow
The movement in cash over the year comprised:
Year to 31 December Nine months to 31 December
2015 2014
------------------------------ ------------------------------
Pence Pence
GBPm per share GBPm per share
Cash from operating activities 69.8 38.7 66.1 39.2
Net proceeds from sale of investment
properties 379.3 210.3 - -
Net interest and finance costs
paid (86.7) (48.1) (60.9) (36.8)
Net repayment of secured debt
- accelerated (244.4) (135.5) - -
Repayment of secured debt -
scheduled amortisation (5.4) (3.0) (6.1) (3.7)
Early debt repayment costs (60.3) (33.4) - -
Loan costs on new facilities (14.4) (8.0) - -
Amounts received in respect
of advisory fee recovery 5.0 2.8 2.2 1.3
Proceeds of the share issue
on listing net of expenses - - 11.9 7.0
Cash flow in the period 42.9 23.8 13.2 7.0
Cash at the start of the period 38.8 23.0 25.4 15.9
Dilution from share issue - (1.5) - -
Effect of exchange rate movements (0.1) - 0.2 0.1
-------------------------------------- ----------- ----------------- ----------- -----------------
Cash at the end of the period 81.6 45.3 38.8 23.0
-------------------------------------- ----------- ----------------- ----------- -----------------
Pence Pence
Comprising: GBPm per share GBPm per share
-------------------------------------- ----------- ----------------- ----------- -----------------
Free cash 55.6 30.9 13.0 7.7
Cash reserved for regulatory
capital 0.4 0.2 0.5 0.3
Cash secured under lending
facilities 25.6 14.2 25.3 15.0
-------------------------------------- ----------- ----------------- ----------- -----------------
Cash at the end of the period 81.6 45.3 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, no capital expenditure, property maintenance or
insurance costs have been incurred and it is not expected that
material costs of that nature will be incurred on the current
portfolio in future.
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Group Income Statement
Nine months
Year to to
31 December 31 December
2015 2014
Notes GBP000 GBP000
---------------------------------------- ----- ------------- -------------
Revenue 4 99,479 80,946
Property outgoings (33) (19)
---------------------------------------- ----- ------------- -------------
Gross profit 99,446 80,927
Administrative expenses (7,656) (38,568)
Corporate costs (482) (294)
Costs of reorganisation and listing - (2,888)
----- ------------- -------------
Total administrative expenses (8,138) (41,750)
Investment property revaluation 10 70,435 160,608
Profit on sale of investment properties 7 23,962 -
---------------------------------------- ----- ------------- -------------
Operating profit 5 185,705 199,785
Finance income 6 61 36
Finance costs 6 (146,613) (66,366)
---------------------------------------- ----- ------------- -------------
Profit before tax 39,153 133,455
Tax (charge) / credit 8 (2,382) 114,291
---------------------------------------- ----- ------------- -------------
Profit for the period 36,771 247,746
---------------------------------------- ----- ------------- -------------
Pence per Pence per
Earnings per share share share
---------------------------------------- ----- ------------- -------------
Basic 9 20.4 149.7
Diluted 9 20.4 139.7
---------------------------------------- ----- ------------- -------------
All amounts relate to continuing activities.
The notes form part of this financial information.
Group Statement of Other Comprehensive Income
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
------------------------------------------------------- ------------- -------------
Profit for the period 36,771 247,746
Items that may subsequently be reclassified to
profit or loss:
Fair value adjustment of interest rate derivatives
in effective hedges 31,703 21,837
Reclassification of interest rate derivative
fair value adjustment to the income statement 88,125 -
Tax effect of interest rate derivative fair value
adjustment (147) (26,918)
Deferred tax written off following early termination
of interest rate derivatives (480) -
Currency translation differences (899) (370)
-------------------------------------------------------- ------------- -------------
Total comprehensive income for the period, net
of tax 155,073 242,295
-------------------------------------------------------- ------------- -------------
The notes form part of this financial information.
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
----------------- -------- ---------- ---------- --------------- ----------- ----------- ----------- ---------
Year to 31 December 2015
At 1 January 2015 16,844 16,156 - - 33,929 (119,201) 396,577 344,305
----------------- -------- ---------- ---------- --------------- ----------- ----------- ----------- ---------
Profit for the
year - - - - - - 36,771 36,771
Other
comprehensive
income - - - - (899) 119,201 - 118,302
----------------- -------- ---------- ---------- --------------- ----------- ----------- ----------- ---------
Total
comprehensive
income, net of
tax - - - - (899) 119,201 36,771 155,073
Issue of shares 1,190 36,221 - - (32,378) - - 5,033
At 31 December
2015 18,034 52,377 - - 652 - 433,348 504,411
----------------- -------- ---------- ---------- --------------- ----------- ----------- ----------- ---------
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
----------------- -------- ---------- ---------- --------------- ----------- ----------- ----------- ---------
Nine months to 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
Other
comprehensive
income - - - - (370) (5,081) - (5,451)
----------------- -------- ---------- ---------- --------------- ----------- ----------- ----------- ---------
Total
comprehensive
income, net of
tax - - - - (370) (5,081) 247,746 242,295
Issue of shares
on
capitalisation
of
shareholder
loans 7,791 70,123 - (17,492) - - - 60,422
Issue of shares
on
acquisition of
the
Healthcare group 8,191 - 73,718 (18,435) - - - 63,474
Capital reduction
and cancellation - (70,123) (73,718) - - - 143,841 -
Reclassification
on
capitalisation
of shareholder
loans - - - 12,397 - - (12,397) -
Proceeds from
share
issues 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
----------------- -------- ---------- ---------- --------------- ----------- ----------- ----------- ---------
The notes form part of this financial information.
Group Balance Sheet
31 December 31 December
2015 2014
Notes GBP000 GBP000
---------------------------- ----- ------------ -------------
Non-current assets
Investment properties 10 1,349,547 1,625,435
Deferred tax asset 14 - 627
---------------------------- ----- ------------ -------------
1,349,547 1,626,062
---------------------------- ----- ------------ -------------
Current assets
Trade and other receivables 12 114 103
Current tax recoverable - 401
Cash and cash equivalents 13 81,611 38,771
---------------------------- ----- ------------ -------------
81,725 39,275
Total assets 1,431,272 1,665,337
---------------------------- ----- ------------ -------------
Current liabilities
Trade and other payables 15 (29,293) (41,035)
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Secured debt 16 (2,707) (4,908)
Current tax payable (862) (166)
---------------------------- ----- ------------ -------------
(32,862) (46,109)
---------------------------- ----- ------------ -------------
Non-current liabilities
Secured debt 16 (888,312) (1,152,407)
Interest rate derivatives 16 - (117,578)
Deferred tax liability 14 (5,687) (4,938)
---------------------------- ----- ------------ -------------
(893,999) (1,274,923)
Total liabilities (926,861) (1,321,032)
---------------------------- ----- ------------ -------------
Net assets 504,411 344,305
---------------------------- ----- ------------ -------------
Equity
Share capital 17 18,034 16,844
Share premium reserve 18 52,377 16,156
Retained earnings 18 433,348 396,577
Cash flow hedging reserve 18 - (119,201)
Other reserves 18 652 33,929
Total equity 504,411 344,305
---------------------------- ----- ------------ -------------
Pence per Pence
share per share
---------------------------- ----- ------------ -------------
Basic NAV per share 20 279.7 204.4
Diluted NAV per share 20 279.7 190.9
EPRA NAV per share 20 282.8 258.5
---------------------------- ----- ------------ -------------
The notes form part of this financial information.
Group Cash Flow Statement
Year to Nine months
31 December to 31 December
2015 2014
Notes GBP000 GBP000
-------------------------------------------------------- ----- ------------- ----------------
Operating activities
Profit before tax 39,153 133,455
Adjustments for non-cash items:
Investment property revaluation 10 (70,435) (160,608)
Profit on sale of investment properties 7 (23,962) -
Movement in rent smoothing adjustment 10 (13,011) (11,287)
Administrative expenses settled in shares - 32,378
Finance income 6 (61) (36)
Finance costs 6 146,613 66,366
-------------------------------------------------------- ----- ------------- ----------------
Cash flows from operating activities before changes
in working capital 78,297 60,268
Changes in working capital:
Trade and other receivables (11) (194)
Trade and other payables (8,155) 6,770
-------------------------------------------------------- ----- ------------- ----------------
Cash generated from operations 70,131 66,844
Tax paid (316) (743)
-------------------------------------------------------- ----- ------------- ----------------
Cash flows from operating activities 69,815 66,101
-------------------------------------------------------- ----- ------------- ----------------
Investing activities
Proceeds from sale of investment properties 7 379,316 -
Interest received 6 61 36
-------------------------------------------------------- ----- ------------- ----------------
Cash flows from investing activities 379,377 36
-------------------------------------------------------- ----- ------------- ----------------
Financing activities
Drawdown of secured debt 905,158 -
Repayment of secured debt (1,154,923) (6,166)
Interest and finance costs paid (86,804) (60,882)
Costs of early termination of interest rate derivatives (60,289) -
Loan costs paid on new facilities (14,437) -
Net proceeds of share issues 5,033 14,131
-------------------------------------------------------- ----- ------------- ----------------
Cash flows from financing activities (406,262) (52,917)
-------------------------------------------------------- ----- ------------- ----------------
Increase in cash and cash equivalents 42,930 13,220
Cash and cash equivalents at the beginning of
the period 38,771 25,367
Effect of exchange rate changes (90) 184
-------------------------------------------------------- ----- ------------- ----------------
Cash and cash equivalents at the end of the period 81,611 38,771
-------------------------------------------------------- ----- ------------- ----------------
The notes form part of this financial information.
Notes to the Group Financial Information
1. General information about the Group
The financial information set out in this report covers the year
to 31 December 2015, with comparative figures relating to the nine
month period to 31 December 2014, and includes the results and net
assets of the Company and its subsidiaries, together referred to as
the Group.
The Company is incorporated in the United Kingdom. The address
of the registered office and principal place of business is
Cavendish House, 18 Cavendish Square, London, W1G 0PJ. The 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 has been listed on AIM since 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 subgroup that owns the
healthcare assets) were entities under common control but did not
form a single legal group. On 21 May 2014, by way 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 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 the nine month
period ended 31 December 2014. 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
nine month period from 1 April 2014 with a corresponding effect on
earnings and number of shares used in the EPS calculations (see
note 9).
Except for the calculation of the number of shares in issue for
EPS purposes, the consolidated financial information has been
prepared in accordance with the International Financial Reporting
Standards adopted for use in the European Union ("IFRS").
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 2015.
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 2015 or 31 December 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 period ended 31 December 2014
have been delivered to the Registrar of Companies and those for the
year ended 31 December 2015 will be delivered following the
Company's Annual General Meeting. The auditors' reports on both the
31 December 2015 and 31 December 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.
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b) Basis of preparation
The Group financial information is 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 year of
EUR1:GBP0.7256 (nine months to 31 December 2014: EUR1:GBP0.79916),
which is not materially different from the actual rates at the time
of the transactions. Year end balances have been converted to
Sterling at the 31 December 2015 exchange rate of EUR1:GBP0.7350
(2014: EUR1:GBP0.77877).
The Directors have, at the time of preparing the financial
information, 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
information. Further details are given in the Strategic Report.
The financial information has 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.
The preparation of financial information requires the Directors
to make judgements, estimates and assumptions that may affect the
application of 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 year. 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.
Accounting policies which have a significant bearing on the
reported financial condition and results of the Group may require
subjective or complex judgements. The principal ongoing area of
judgement is the investment property valuation where, as described
in note 10, the opinion of independent, external valuers has been
obtained at each reporting date using recognised valuation
techniques and the principles of IFRS 13 "Fair Value
Measurement".
The Group's accounting policies for this matter, together with
other policies material to the Group, are set out in paragraphs (c)
to (j) below.
(i) Adoption of new and revised standards
No amended standard or interpretation 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
year.
(ii) Standards and interpretations in issue not yet adopted
The IASB have issued the following standards that are mandatory
for later accounting years, 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 2018
IFRS 16 "Leases" 1 January 2019
------------------------------------- ---------------
IFRS 9 deals with the classification and measurement of
financial instruments and the Directors do not anticipate that its
adoption will have a material impact on the Group's financial
statements assuming that the existing capital structure and
financing arrangements remain in place at that time. The Group's
revenue is derived entirely from leases, which are outside the
scope of IFRS 15 but within the scope of IFRS 16. IFRS 15 is not
therefore expected to have an impact on the Group. Since IFRS 16
will not result in significant changes of accounting policies for
lessors, the Directors do not expect that the adoption of this
standard will have a material impact on the Group's financial
statements.
The IASB and IFRIC have also issued or revised IFRS 11, IAS 16,
IAS 38 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 information includes the financial
information of the Group's 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 or losses 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 this financial information 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 period 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.
All financial assets currently constitute "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 and deposits
held at call with banks and financial institutions, 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. Where there is a change in the terms of an existing loan
that is not considered to be a substantial modification of that
loan, any associated transaction costs are also amortised over the
remaining life of the loan.
(v) Interest rate derivatives
The Group has used 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 any
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 by the Group
in the year met these criteria.
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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 year or prior period, so all
movements in the fair value of these instruments are reflected in
other comprehensive income.
The Group ceases to use hedge accounting if the forecast
transaction being hedged against is no longer expected to occur. In
such circumstances, the cumulative amounts in other comprehensive
income are then reclassified from equity to profit or loss.
(vi) Derecognition of financial liabilities
The Group derecognises financial liabilities when its
obligations are discharged, cancelled or they expire. The
difference between the carrying amount of those financial
liabilities and the consideration paid, including any non-cash
assets transferred and any new liabilities assumed is recognised in
profit or loss.
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
actual exchange rates prevailing at the time of the transaction,
unless the average rate for the reporting period is not materially
different from the actual rate, in which case that average rate is
used.
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 daily
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.
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 shareholder returns. The Board has therefore concluded that
the Group has operated in and was managed as one business segment,
being property investment, in the current year and prior
period.
The geographical split of revenue and applicable non-current
assets required by IFRS 8 was as follows:
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
----------------------- ----------- -----------
Revenue
UK 92,587 75,251
Germany 6,892 5,695
----------------------- ----------- -----------
99,479 80,946
----------------------- ----------- -----------
Investment properties
UK 1,276,003 1,553,364
Germany 73,544 72,071
----------------------- ----------- -----------
1,349,547 1,625,435
----------------------- ----------- -----------
Revenue, which reflects the impact of rent smoothing
adjustments, includes GBP55.3 million (nine months to 31 December
2014: GBP42.9 million) relating to the Group's largest tenant, and
GBP41.8 million (nine months to 31 December 2014: GBP35.8 million)
relating to the Group's second largest tenant. No other single
tenant or guarantor contributed more than 10% of the Group's
revenue in either reporting period.
4. Revenue
Revenue comprises:
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
---------------------------- ----------- -----------
Rental income 86,468 69,659
Rent smoothing adjustments 13,011 11,287
---------------------------- ----------- -----------
99,479 80,946
---------------------------- ----------- -----------
The rent smoothing adjustment arises through the Group's
accounting policy in respect of leases, which requires the
recognition of rental income on a straight line basis over the
lease term in certain circumstances, including for the 67% (2014:
57%) of passing rent as at 31 December 2015 which increases by a
fixed percentage each year. During the year, this resulted in an
increase in revenue and an offsetting entry is recognised in the
income statement as a reduction in the gains on investment property
revaluation.
5. Operating profit
Operating profit is stated after charging fees for:
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
---------------------------------------------------- ----------- -----------
Audit of the Company's consolidated and individual
financial statements 67 75
Audit of subsidiaries, pursuant to legislation 99 90
Non-audit services in connection with the
listing - 273
---------------------------------------------------- ----------- -----------
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The Group had no employees in either the current year or the
prior period. The Directors, who are the key management personnel
of the Company, are appointed under letters of appointment for
services. Directors' remuneration, all of which represents fees for
services provided, was as follows:
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
--------------------------------------- ----------- -----------
Martin Moore 75 44
Leslie Ferrar 40 23
Jonathan Lane 35 21
Ian Marcus 35 21
--------------------------------------- ----------- -----------
Total charged to the income statement 185 109
--------------------------------------- ----------- -----------
Mike Brown, Sandy Gumm and Nick Leslau received no Directors'
fees from the Group in either the current year or prior period.
6. Finance income and costs
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
--------------------------------------------- ----------- -----------
Recognised in the income statement:
Finance income
Interest on cash deposits 61 36
--------------------------------------------- ----------- -----------
Finance costs
Interest on secured debt (66,781) (59,387)
Amortisation of loan costs (non-cash) (7,561) (2,168)
Exit and other fees (11,646) (3,135)
Reclassification of fair value adjustment
of interest rate derivatives from the cash
flow hedging reserve net of lender's share
of early termination costs (60,625) -
Shareholder loans: unwinding of discount to
date of capitalisation (non-cash) - (1,676)
--------------------------------------------- ----------- -----------
Total finance costs (146,613) (66,366)
--------------------------------------------- ----------- -----------
Net finance costs recognised in the income
statement (146,552) (66,330)
--------------------------------------------- ----------- -----------
Included within interest on secured debt is an amount of GBP35.0
million (nine months to 31 December 2014: GBP40.7 million) which
has been reclassified from other comprehensive income in respect of
the Group's interest rate derivatives in effective hedges.
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
-------------------------------------------------------- ----------- -----------
Recognised in other comprehensive income:
Fair value adjustment of interest rate derivatives
in effective hedges 31,703 21,837
Reclassification of fair value adjustments
to the income statement 88,125 -
-------------------------------------------------------- ----------- -----------
Total finance income recognised in other comprehensive
income 119,828 21,837
-------------------------------------------------------- ----------- -----------
Net finance costs analysed by the categories of financial asset
and liability shown in note 16 are as follows:
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
-------------------------------------------- ----------- -----------
Loans and receivables 61 36
Financial liabilities at amortised cost (50,982) (25,651)
Derivatives in effective hedges (95,631) (40,715)
-------------------------------------------- ----------- -----------
Net finance costs recognised in the income
statement (146,552) (66,330)
-------------------------------------------- ----------- -----------
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
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
------------------------------------------------- ----------- -----------
Effect on profit for the year 816 -
Effect on other comprehensive income and equity - 3,993
------------------------------------------------- ----------- -----------
The Group receives interest on its bank balances so an increase
in interest rates would increase finance income. There would be no
impact on finance costs from a change in interest rates because all
of the secured debt in place since 2 October 2015 is at fixed
rates.
At the previous balance sheet date, interest on secured debt was
fixed through interest rate swaps and as a result, changes in
interest rates had an impact on the valuation of those interest
rate swaps through other comprehensive income and equity, such that
an increase in interest rates would result in a credit to other
comprehensive income. Since those interest rate swaps were
terminated during the year, at 31 December 2015 there were
therefore no longer any changes in interest rates that would
directly affect other comprehensive income and equity.
7. Profit on sale
The profit on sale of investment properties arose as
follows:
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
------------------------------- ----------- -----------
Sale proceeds 382,136 -
Sale costs (2,820) -
Book value of sold properties (355,354) -
------------------------------- ----------- -----------
23,962 -
------------------------------- ----------- -----------
8. Tax
Nine months
Year to to
31 December 31 December
2015 2014
Analysis of tax charge / (credit) for the
period GBP000 GBP000
---------------------------------------------- ----------- -----------
Current tax - UK
UK REIT excess interest charge 1,293 665
Adjustments in respect of prior periods 50 -
Current tax - Germany
Corporation tax charge / (credit) 242 (130)
Adjustments in respect of prior periods (226) -
Deferred tax
Deferred tax charge / (credit) (see note 14) 1,023 (114,826)
---------------------------------------------- ----------- -----------
2,382 (114,291)
---------------------------------------------- ----------- -----------
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
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
------------------------------------------------- ----------- -----------
Profit before tax 39,153 133,455
------------------------------------------------- ----------- -----------
Profit before tax multiplied by the standard
rate of corporation tax in the UK of 20.25%
(nine months to 31 December 2014: 21%) 7,928 28,026
Effects of:
Investment property revaluation not taxable (15,875) (34,275)
Movement in previously unrecognised tax losses 15,512 3,231
Profit on sale of investment properties not
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taxable (4,852) -
Qualifying property rental business not taxable (3,633) 4,908
Expenses and finance costs not deductible 1,943 -
UK REIT excess interest charge 1,293 665
German current tax charge / (credit) for the
period 242 (130)
Adjustments in respect of prior period (176) -
UK deferred tax released on conversion to
REIT status - (117,276)
Costs of the reorganisation and listing not
deductible for tax - 606
Double tax relief - (58)
Other items - 12
Tax charge / (credit) for the period 2,382 (114,291)
------------------------------------------------- ----------- -----------
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 and German
property rental business from UK corporation tax. Gains on the
Group's UK and German properties are also generally exempt from UK
corporation tax, provided they are not held for trading or in
certain circumstances sold in the three years after completion of a
development.
To remain a UK REIT, there are a number of conditions to be met
in respect of the Company, the Group's qualifying activity and the
Group's balance of business. Since entering the UK REIT regime the
Group has continued to meet these conditions. The condition
requiring that the Company must not be a close company includes a
grace period of three years from entry into the UK REIT regime. The
Company was a close company when it entered the UK REIT regime and
continues to be so, but has until 4 June 2017 to comply. The Board
is seeking to widen its shareholder base with a view to meeting
this requirement within the three year grace period.
One of the ongoing REIT tests is an interest cover test that
requires the profits of the tax exempt property business of the
Group (calculated on a tax basis, but before deducting financing
costs and capital allowances) to be at least 1.25 times its cost of
financing. If this condition is not met, the Company remains within
the UK REIT regime but is required to pay UK corporation tax on an
amount equivalent to the excess interest costs or 20% of the tax
exempt business profits (calculated on a tax basis but before
deducting financing costs and capital allowances) if that is less.
The Group did not meet this test throughout the year, so tax of
GBP1.3 million (nine months to 31 December 2014: GBP0.7 million)
was payable. Following the debt refinancing during the year, the
interest cover test is being met and therefore, assuming no
material changes to the Group's capital structure, no such tax is
expected to be payable in future financial years.
The Group is subject to German corporation tax on its German
property rental business at a rate of 21%. During the year, the
German tax charge of GBP0.2 million has been offset by a credit of
GBP0.2 million arising from a tax audit relating to the years
between 2007 and 2012 which has now been finalised, and further
repayments relating to 2013 and 2014. This is expected to result in
a net repayment of tax to the Group of GBP0.8 million, of which
GBP0.7 million had been received by 31 December 2015. In addition,
a deferred tax liability of GBP5.7 million (2014: GBP4.9 million)
is recognised for the German capital gains tax that would
potentially be payable on the sale of the relevant investment
properties (see note 14).
9. Earnings per share
Earnings per share ("EPS") is calculated as profit attributable
to ordinary shareholders of the Company for each period divided by
the weighted average number of ordinary shares in issue throughout
the relevant period. Diluted EPS reflects shares to be issued,
including any to be issued in settlement of incentive fees that
were earned in the relevant period. Where shares are issued in one
reporting period relating to the results of the prior period, the
shares are treated, for the purposes of calculating the weighted
average of shares in issue, as having been issued at the end of
that prior period regardless of the actual date of issue.
On 20 May 2014, the Company and SIR Hospital Holdings Limited
(the "Combined Companies") became a legal group. During the prior
period until that date, 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 the 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.
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
-------------------------------------------- ----------- -----------
Profit for the period 36,771 247,746
Unwinding of discount on shareholder loans
net of tax - 1,341
Adjusted profit for EPS 36,771 249,087
-------------------------------------------- ----------- -----------
Weighted average number of shares in issue Number Number
-------------------------------------------- ----------- -----------
Basic EPS 180,344,213 166,406,143
Diluted EPS 180,344,213 178,306,575
-------------------------------------------- ----------- -----------
Pence per Pence per
share share
------------- --------- ---------
Basic EPS 20.4 149.7
Diluted EPS 20.4 139.7
------------- --------- ---------
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 is presented,
excluding the incentive fee, largely derived from investment
property revaluations, and the non-recurring costs of the
reorganisation and listing. EPRA EPS has also been adjusted in the
current year and (for the first time this year) in the prior period
to exclude the effect of smoothing fixed rental uplifts in order
not to artificially flatter dividend cover calculations now that
distributions are to be initiated. This results in a restatement of
the prior period comparatives.
Restated
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
--------------------------------------------- ----------- -----------
Basic earnings attributable to shareholders 36,771 249,087
EPRA adjustments:
Investment property revaluation (70,435) (160,608)
Profit on sale of investment properties (23,962) -
Costs of early termination of interest rate
swaps 60,625 -
Other early debt repayment costs 13,666 -
German deferred tax on investment property
revaluation 1,023 1,823
UK deferred tax released on REIT conversion - (117,276)
EPRA earnings 17,688 (26,974)
Other adjustments:
Rent smoothing (13,011) (11,287)
Incentive fee - 35,186
Costs of the reorganisation and listing - 2,888
--------------------------------------------- ----------- -----------
Adjusted EPRA earnings 4,677 (187)
--------------------------------------------- ----------- -----------
Pence per Pence per
share share
--------------------------- ----------- ---------
EPRA EPS 9.8 (16.2)
Diluted EPRA EPS 9.8 (15.1)
Adjusted EPRA EPS 2.6 -
Diluted adjusted EPRA EPS 2.6 -
--------------------------- ----------- ---------
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March 03, 2016 02:02 ET (07:02 GMT)
10. Investment properties
Nine months
Year to to
31 December 31 December
2015 2014
Freehold investment properties GBP000 GBP000
-------------------------------- ----------- -----------
At the start of the period 1,625,435 1,457,374
Disposals (355,354) -
Revaluation movement 83,446 171,895
Currency translation movement (3,980) (3,834)
-------------------------------- ----------- -----------
At the end of the period 1,349,547 1,625,435
-------------------------------- ----------- -----------
As at 31 December 2015 the properties were independently valued
at GBP1,349.5 million (2014: GBP1,625.4 million) 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 historic cost of the Group's investment properties as at 31
December 2015 was GBP1,063.6 million (2014: GBP1,315.1 million).
The Group did not have any contractual investment property
obligations at either balance sheet date and responsibility for
property liabilities including repairs and maintenance resides with
the tenants.
All of the investment properties are held as security under
fixed charges in respect of secured debt.
Included within the carrying value of investment properties at
31 December 2015 is GBP156.6 million (2014: GBP154.4 million) in
respect of the smoothing of fixed contractual rental uplifts as
described in note 4. The difference between rents on a straight
line basis and rents actually receivable is included within, but
does not increase, the carrying value of investment properties. The
effect of this adjustment on the revaluation movement is as
follows:
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
---------------------------------------------- ----------- -----------
Revaluation movement 83,446 171,895
Rent smoothing adjustment (13,011) (11,287)
---------------------------------------------- ----------- -----------
Revaluation movement in the income statement 70,435 160,608
---------------------------------------------- ----------- -----------
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, together with
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 the independent valuer's assessment of
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 valuers, 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, and
reports on its assessment of the procedures to the Board.
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
2015:
Healthcare 834,437 Net initial yield 4.5% - 5.8% 5.2%
Reversionary yield 4.6% - 5.9% 5.4%
Leisure - UK 441,560 Net initial yield 5.2% - 6.1% 5.4%
Reversionary yield 5.3% - 6.2% 5.5%
Future RPI assumption
per annum 2.0% 2.0%
Leisure - Germany 73,550 Net initial yield 6.3% 6.3%
Reversionary yield 6.5% 6.5%
------------------- ----------- ----------------------- ---------------- ----------------
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
per annum 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%
------------------- ----------- ----------------------- ---------------- ----------------
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 (and vice versa).
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 GBP33,000 (nine months to 31
December 2014: GBP19,000).
11. Subsidiaries
The companies listed below were the subsidiary undertakings of
the Company at 31 December 2015, all of which are wholly owned and
incorporated in England unless otherwise indicated.
Company name Nature of business
--------------------------------- --------------------------------------------------
SIR Theme Park Subholdco Limited Intermediate parent company and borrower
* under mezzanine secured debt facility
Charcoal Midco 2 Limited Intermediate parent company
SIR Theme Parks Limited Intermediate parent company and borrower
under senior secured debt facility
SIR ATH Limited Property investment - leisure
SIR ATP Limited Property investment - leisure
SIR HP Limited Property investment - leisure and borrower
under senior secured debt facility (registered
in England, operating in Germany)
SIR TP Limited Property investment - leisure
SIR WC Limited Property investment - leisure
SIR Hospital Holdings Limited Intermediate parent company
*
SIR Umbrella Limited Intermediate parent company
SIR Hospitals Propco Limited Intermediate parent company and borrower
under secured debt facility
SIR Downs Limited Property investment - healthcare
SIR Duchy Limited Property investment - healthcare
SIR Euxton Limited Property investment - healthcare
SIR Midlands Limited Property investment - healthcare
SIR Mt Stuart Limited Property investment - healthcare
SIR Oaklands Limited Property investment - healthcare
SIR Renacres Limited Property investment - healthcare
SIR Rivers Limited Property investment - healthcare
SIR Springfield Limited Property investment - healthcare
Thomas Rivers Limited Property investment - healthcare
SIR Healthcare 1 Limited Intermediate parent company
SIR Healthcare 2 Limited Intermediate parent company and borrower
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under secured debt facility
SIR Ashtead Limited Property investment - healthcare
SIR Fitzwilliam Limited Property investment - healthcare
SIR Fulwood Limited Property investment - healthcare
SIR Lisson Limited Property investment - healthcare
SIR Oaks Limited Property investment - healthcare
SIR Pinehill Limited Property investment - healthcare
SIR Reading Limited Property investment - healthcare
SIR Rowley Limited Property investment - healthcare
SIR Winfield Limited Property investment - healthcare
SIR Woodland Limited Property investment - healthcare
SIR Yorkshire Limited Property investment - healthcare
UK Healthcare Partners (General
Partner) Limited Dormant (in voluntary liquidation) (registered
in Guernsey)
SIR New Hall Limited * Dormant
SIR MTL Limited * Dormant
Charcoal Bidco Limited * Dormant
--------------------------------- --------------------------------------------------
* directly owned by the Company; all other entities are
indirectly owned
The terms of the secured debt facilities 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.
12. Trade and other receivables
31 December 31 December
2015 2014
GBP000 GBP000
-------------------------------- ----------- -----------
Prepayments and accrued income 114 103
-------------------------------- ----------- -----------
13. Cash and cash equivalents
31 December 31 December
2015 2014
GBP000 GBP000
-------------------- ----------- -----------
Secured cash 25,598 25,335
Regulatory capital 375 450
Free cash 55,638 12,986
-------------------- ----------- -----------
81,611 38,771
-------------------- ----------- -----------
Secured cash is held in accounts over which the providers of
secured debt have fixed security. As the Company is considered to
be an internally managed Alternative Investment Fund, it is also
required by the Financial Conduct Authority to hold a balance of
regulatory capital in liquid funds, which is maintained in
cash.
14. 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 January
2015 (4,938) - - 627 (4,311)
Charge to the income
statement (note 8) (1,023) - - - (1,023)
Movement in other comprehensive
income 274 - - (627) (353)
Balance at 31 December
2015 (5,687) - - - (5,687)
--------------------------------- ------------ ------------ ------------ -------------------- ----------
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 8) 115,453 (962) 335 - 114,826
Movement in other comprehensive
income 245 - - (26,917) (26,672)
Deferred tax released
on capitalisation of
shareholder loans credited
directly to equity - - 8,982 - 8,982
Balance at 31 December
2014 (4,938) - - 627 (4,311)
--------------------------------- ------------ ------------ ------------ -------------------- ----------
15. Trade and other payables
31 December 31 December
2015 2014
GBP000 GBP000
------------------------------ ----------- -----------
Trade payables 251 -
Tax and social security 1,347 5,163
Accruals and deferred income 27,695 35,872
------------------------------ ----------- -----------
29,293 41,035
------------------------------ ----------- -----------
16. Financial assets and liabilities
Borrowings
31 December 31 December
2015 2014
GBP000 GBP000
--------------------------------------------- ----------- -----------
Amounts falling due within one year
Secured debt - current portion of long term
facilities 4,387 6,853
Unamortised finance costs (1,680) (1,945)
--------------------------------------------- ----------- -----------
2,707 4,908
--------------------------------------------- ----------- -----------
Amounts falling due in more than one year
Secured debt 900,521 1,150,712
Exit fee - 3,978
Unamortised finance costs (12,209) (2,283)
--------------------------------------------- ----------- -----------
888,312 1,152,407
--------------------------------------------- ----------- -----------
As at 31 December 2015, the fair value of the Group's secured
debt was GBP912.2 million (2014: GBP1,158.6 million). 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, not including the Company itself save
for a limited share charge over the parent company of one of the
ring-fenced subgroups. There have been no defaults or breaches of
any loan covenants during the current year or prior period.
The analysis of borrowings by currency is as follows:
31 December 31 December
2015 2014
GBP000 GBP000
---------------------------- ----------- -----------
Sterling:
Secured debt 852,150 1,106,109
Exit fee - 3,978
Unamortised finance costs (13,093) (4,008)
839,057 1,106,079
---------------------------- ----------- -----------
Euro:
Secured debt 52,758 51,456
Unamortised finance costs (796) (220)
---------------------------- ----------- -----------
51,962 51,236
---------------------------- ----------- -----------
Interest rate derivatives
The fair values of the Group's interest rate derivatives were as
follows:
Notional amount Fair value
----------------------- ------------------------ ------------------------
31 December 31 December 31 December 31 December
2015 2014 2015 2014
GBP000 GBP000 GBP000 GBP000
----------------------- ----------- ----------- ----------- -----------
5.1% swap - 608,920 - (56,849)
5.4% amortising swap - 304,008 - (32,955)
5.4% swaps - 196,622 - (21,804)
4.4% amortising swap* - 33,091 - (3,579)
4.4% swaps* - 21,529 - (2,391)
- 1,164,170 - (117,578)
----------------------- ----------- ----------- ----------- -----------
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March 03, 2016 02:02 ET (07:02 GMT)
* denominated in Euros, converted at the relevant period end
rate.
Categories of financial instruments
31 December 31 December
2015 2014
GBP000 GBP000
------------------------------------------ ----------- -----------
Financial assets
Loans and receivables:
Cash and cash equivalents (note 13) 81,611 38,771
------------------------------------------ ----------- -----------
81,611 38,771
------------------------------------------ ----------- -----------
Financial liabilities
Financial liabilities at amortised cost:
Accrued interest (9,592) (13,530)
Secured debt (904,908) (1,157,315)
Derivatives in effective hedges:
Interest rate derivatives - (117,578)
------------------------------------------ ----------- -----------
(914,500) (1,288,423)
------------------------------------------ ----------- -----------
At each balance sheet date, all financial assets and liabilities
were measured at amortised cost except for interest rate
derivatives which were measured at fair value. Secured debt, which
comprises fixed rate loans, is measured at amortised cost but its
fair value is also disclosed as required by IFRS 7. The derivatives
and secured debt were valued in accordance with IFRS 13 by
reference to interbank bid market rates as at the close of business
on the balance sheet date by JC Rathbone Associates Limited. All
interest rate derivatives and secured debt were classified as
"level 2" as defined in IFRS 13 and their fair values were
calculated using the present values of future cash flows, based on
market forecasts of interest rates and adjusted for the credit risk
of the counterparties. There were no transfers to or from other
levels of the fair value hierarchy during the current year or the
prior period.
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 fixed
rate debt or derivative financial instruments to manage exposure to
fluctuations in interest rates. Any such derivative financial
instruments are not employed for speculative purposes. Any use of
any derivatives is approved by the Board, which monitors 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 and liabilities and foreign
currencies, to the extent that these are exposed to general and
specific market movements.
(a) Market risk - interest rate risk
The Group's interest bearing assets comprise only cash and cash
equivalents. Changes in market interest rates therefore affect the
Group's finance income. The Group's borrowings since 2 October 2015
are all at fixed rates. Prior that date, the Group was exposed to
cash flow interest rate risk as its borrowings were at variable
rates. The Group's policy was to fix the interest rate on that debt
by entering into interest rate derivatives in order to mitigate
this risk. As a result, for both the year ended 31 December 2015
and the period ended 31 December 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 sensitivity to
changes in interest rates is disclosed in note 6.
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 information 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 remains 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
average and closing Sterling rates against the Euro, was as
follows:
Nine months
Year to to
31 December 31 December
2015 2014
GBP000 GBP000
------------------------------------------------- ----------- -----------
Effect on profit 204 204
Effect on other comprehensive income and equity 1,862 1,046
------------------------------------------------- ----------- -----------
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 (as
holders of the Group's cash deposits).
The credit risk of trade receivables is considered low 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
nine 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 credit risk on 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 or more often
if required.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the finance costs and principal repayments on its
secured debt. 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. These
liquidity needs are relatively modest and are managed principally
through the deduction of operating costs from rental receipts,
before any surplus is applied in payment of interest and loan
amortisation 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
interest Less than One to two Two to five More than
rate one year years years five years Total
31 December 2015 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- --------- --------- ---------- ----------- ----------- -----------
Financial assets:
--------------------------- --------- --------- ---------- ----------- ----------- -----------
Cash and cash equivalents 0.3% 81,611 - - - 81,611
--------------------------- --------- --------- ---------- ----------- ----------- -----------
Financial liabilities:
Accrued interest (9,592) - - - (9,592)
Secured debt 5.2% (52,833) (51,093) (152,941) (1,043,396) (1,300,263)
(62,425) (51,093) (152,941) (1,043,396) (1,309,855)
--------------------------- --------- --------- ---------- ----------- ----------- -----------
Effective
interest Less than One to two Two to five More than
rate one year years years five years Total
31 December 2014 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- --------- --------- ---------- ----------- ----------- -----------
Financial assets:
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--------------------------- --------- --------- ---------- ----------- ----------- -----------
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)
--------------------------- --------- --------- ---------- ----------- ----------- -----------
Capital risk management in respect of the financial year
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 debt covenants so as to safeguard
secured assets and avoid financial penalties. Borrowings are
secured on the property portfolio by way of fixed charges over
property assets and over the shares in the parent company of each
ring-fenced borrower subgroup, and also by floating charges on the
assets of the relevant subsidiary companies.
The Group is subject to the externally imposed capital
requirements under the AIFMD regime as disclosed in note 13. There
have been no breaches of those capital requirements, which have
been complied with at all times during the year and up to the date
of this report.
At 31 December 2015 the capital structure of the Group consisted
of debt (note 16), cash and cash equivalents (note 13), and equity
attributable to the shareholders of the Company (comprising share
capital, retained earnings and the other reserves referred to in
note 18).
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.
17. Share capital
Share capital represents the aggregate nominal value of shares
issued. At 31 December 2015, the Company had an issued and fully
paid share capital of 180,344,228 (2014: 168,443,772) ordinary
shares of GBP0.10 each.
Under the terms of the Commitment Agreement described in note
21, the Company's shareholders prior to listing agreed to subscribe
in cash for one ordinary share per quarter until 10 July 2016 to
cover the fees payable to the Investment Adviser during the year.
During the year, 24 ordinary shares of GBP0.10 each (nine months to
31 December 2014: 18 ordinary shares) were issued under this
arrangement for total proceeds of GBP5.0 million (nine months to 31
December 2014: GBP2.2 million). The excess over nominal value was
credited to the share premium reserve.
Under the terms of the Investment Advisory Agreement described
in note 21, during the year the Company issued 11,900,432 ordinary
shares of GBP0.10 each in settlement of incentive fees payable to
the Investment Adviser in respect of services provided during the
prior period.
As a result of these transactions, the movement in the number of
shares in issue over the year was as follows:
Nine months
Year to to
31 December 31 December
2015 2014
Number Number
----------------------------------------------- ----------- -----------
At the start of the period 168,443,772 1
Issue of ordinary shares in settlement of
incentive fee 11,900,432 -
Issue of ordinary shares under the Commitment
Agreement 24 18
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
At the end of the period 180,344,228 168,443,772
----------------------------------------------- ----------- -----------
18. Reserves
The nature and purpose of each of the reserves included within
equity at 31 December 2015 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 any shares to
be issued after the balance sheet date, as described in note 21,
under the terms of both the Commitment Agreement and the incentive
fee arrangements.
-- Cash flow hedging reserve: represents cumulative gains or
losses, net of tax, on effective cash flow hedging instruments.
Following the termination of the interest rate swaps during the
year, all amounts on this reserve were reclassified to retained
earnings and the balance has therefore fallen to GBPnil.
-- 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.
19. 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 23.5 years (2014: 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 GBP0.6 million recognised in the
income statement in the year (nine months to 31 December 2014:
GBP1.0 million). 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 December
2015 2014
GBP000 GBP000
--------------------------------- ----------- -----------
Within one year 77,371 94,190
Between one year and five years 324,167 392,413
More than five years 1,845,457 2,355,051
--------------------------------- ----------- -----------
2,246,995 2,841,654
--------------------------------- ----------- -----------
20. Net asset value per share
The net asset value per share of 279.7 pence (2014: 204.4 pence)
is calculated as the net assets of the Group attributable to
shareholders divided by the number of shares in issue at the end of
the year of 180,344,228 (2014: 168,443,772). Diluted NAV per share
is adjusted for any shares that will be issued, including any in
settlement of incentive fees payable, as explained in note 21.
Since no incentive fee was payable at 31 December 2015, the number
of shares for that calculation was 180,344,228 (2014: 180,344,204)
and diluted NAV per share at that date was the same as the basic
NAV per share at 279.7 pence (2014: 190.9 pence).
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 2015 31 December 2014
---------------------------- ------------------ ------------------
Pence per Pence per
GBP000 share GBP000 share
---------------------------- ------- --------- ------- ---------
Basic NAV 504,411 279.7 344,305 204.4
EPRA adjustments:
Deferred tax on investment
property revaluations 5,687 3.1 4,938 2.7
Fair value of interest
rate derivatives - - 117,578 65.2
Deferred tax on interest
rate derivatives - - (627) (0.3)
Dilution from shares
issued for incentive
fee - - - (13.5)
---------------------------- ------- --------- ------- ---------
EPRA NAV 510,098 282.8 466,194 258.5
---------------------------- ------- --------- ------- ---------
21. Related party transactions and balances
Advisory fees payable
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