Final Results

RNS Number : 7155C

Ediston Property Inv Comp PLC

24 January 2018

 

24 January 2018

Ediston Property Investment Company plc 

( the "Company")

Report and Results Announcement

Ediston Property Investment Company plc (LSE: EPIC) announces its full year results for the year ended 30 September 2017.

Highlights in the year to 30 September 2017:

·      NAV per share at 30 September 2017 of 111.32 pence (30 September 2016: 107.07 pence), an increase of 4.0% after taking into account capital expenditure and transaction costs

·      Fair value independent valuation of the property portfolio as at 30 September 2017 of £173.4 million, a like-for-like increase of 4.8% on the valuation at 30 September 2016

·      The office at Cutlers Gate, Sheffield, was sold for £20.2 million, a 2.0% premium to the March 2017 valuation

·      The Sheffield sale proceeds were immediately reinvested in the acquisition of Pallion Retail Park, Sunderland for £25.6 million

·      The office building in Reading, Phoenix, was sold for £20.5 million, in line with the June 2017 valuation

·      Improved dividend cover

Post-period end activity, to 31 December 2017:

·      Dividend to be increased by 4.5% to 5.75 pence per share from January 2018, payable from February 2018

·      Acquired four prominent retail parks for £144.0 million

·      Raised approximately £88.7 million of new equity

·      Secured additional debt facility of £54.2 million, maturing in 2027. Total debt is now £111.1 million at an 'all-in' fixed rate of 2.86%

·      £25.8 million of cash available for further investment and development

·      Total assets of £347.3 million

William Hill, Chairman of the Company, said: "Demand for UK real estate remains strong from both domestic and international investors. However, it seems likely that the reduction in property yields we have seen over recent years is at or close to an end. Future returns will be generated from the resilience of portfolio income, the ability to grow income where there are supply/ demand imbalances and the skill to generate new sources of income from management initiatives.

Following the activity during the financial year and remaining part of the 2017 calendar year, with total assets of £347.3 million, the Company has made significant steps forward in its development and is well-set for further progression."

 

Calum Bruce, Investment Manager, said: "Investment volumes and the supply of investment stock will be key to the market going forward.

Retail warehousing is the one sector of the market which is looking attractive. We identified a portfolio of four retail parks which we were able to acquire in an off market transaction. The new properties are good quality, well-located, provide a good income stream and have asset management angles to exploit."

Enquiries:

Ediston Properties Limited (Investment Manager) Danny O'Neill Calum Bruce	0131 225 5599
Canaccord Genuity Limited                 Will Barnett                   Neil Brierley                   Dominic Waters             David Yovichic	0207 523 8000
Lansons David Masters Laura Cronin	0207 294 3687 0207 294 3607
Maitland Administration Services (Scotland) Limited (Company Secretary) Mike Woodward	0131 550 3761

 

Chairman's statement

Delivering on strategy: The Company has continued to make good progress, raising and investing new equity and announcing an increased dividend.

Summary

Property market returns in 2017 have surprised on the upside as investors have shaken off their Brexit blues and taken the loss of the Conservative Party's Parliamentary majority in their stride. This strength in the market, the effect of value generating management activity in the portfolio, and the payment of the dividend of 5.5 pence per share resulted in a net asset value (NAV) per share total return of 9.3% for the year to 30 September 2017.

The Company has taken the opportunity to sell into the stronger parts of the market with the disposal of two mature assets. The office buildings in Sheffield and Reading are the first sales since the Company was floated in late 2014. A new asset, a retail park in Sunderland, was added. The intention to rotate assets in favour of those with greater potential to add value and enhance income was trailed in my half-year statement.

That statement was titled 'Ready for Growth' and gave a clear sense of the direction in which the Board was looking to take the Company. However, it was not until close to the year end that a suitable opportunity to grow the Company in a cost-effective manner with suitable assets was identified. This was successfully converted in early December.

I believe the acquisition of the £144.0 million retail park portfolio and the associated capital raise that has increased the equity base of the Company by 60% is one of several significant steps forward for the Company and achieves a key strategic objective for 2017. I comment on it in more detail below. It is also reported on in the Investment Manager's review and shown in the accounts as a post-balance sheet event.

Investment and share price performance

Over the period, the NAV per share has risen from 107.07 pence to 111.32 pence, an increase of 4.0%. Taking into account dividends paid in the period, the NAV total return per share over the year was 9.3%. Total return measured on share price movement over the same period was slightly lower at 8.3% based on a year-end share price of 106.5 pence per share. This is a slightly misleading statistic as, for much of the year, the share price traded in a tight range around the published NAV. The closing share price on the day before and after 30 September 2017 was 111.6 pence and 113.0 pence respectively.

Portfolio activity

In my report last year, I referred to the Board's immediate focus on income generation and distributing that income as dividends. The strategic objectives for the Investment Manager during the year were therefore income related, with targets to continue to reduce voids and to bolster the strength of the income stream through management activity.

I am pleased to report that these objectives were met. Another significant reduction in the void rate was achieved with lettings at Birmingham, Reading and Daventry taking the 4.7% rate at the start of the year down to 0.7% at the end. Income was further enhanced with the sale of Cutlers Gate, Sheffield for £20.2 million, reflecting an exit yield of 5.0%, and the simultaneous investment of £25.6 million in Pallion Retail Park, Sunderland at a yield of 6.7%. The combined result was to lift dividend cover to 115.3% putting the Company in a position where a sustainable increase in dividend could be contemplated.

Debt and Cash

The portfolio activity was undertaken within the Company's existing debt facility through the substitution rights that were negotiated when the original loan was signed. An additional £4.5 million was drawn. This increased the Company's borrowings to £56.9 million at a blended interest rate of 2.99% per annum fixed until the maturity of the loan in 2025. At 30 September 2017, the loan to value (LTV) was 29.6%.

At the year end £5.5 million of the sale proceeds from Reading were held by the lender in a deposit account pending reinvestment. The Company also held cash and cash equivalents of £24.6 million, resulting in gearing to total assets of 27.9%. Post-year end the £5.5 million held by the lender was used for the acquisition of the retail warehouse portfolio.

Dividends

Total dividends for the year were unchanged at 5.5 pence per share. The improvement in dividend cover referred to above enabled the Board to announce on 15 November 2017 that it intended to increase the annualised dividend by 4.5% to 5.75 pence per share. This will commence with the dividend for January 2018, payable in February 2018. Paying a progressive and sustainable monthly dividend remains a key investment objective for the Company.

Governance

The approach taken in relation to governance is set out in the governance section of the report and accounts. However, there are two aspects I wish to comment on specifically. The first relates to the composition of the Board and individual Director roles and the second to Board compensation.

I am pleased to report that, following an extensive recruitment process, Jamie Skinner was appointed a Director of the Company on 1 July 2017. He brings with him considerable experience of the investment trust sector through his roles at Martin Currie and Cazenove. Following his appointment, the Board expects to maintain a Board of four directors for the foreseeable future but with some revised roles and responsibilities. I will continue to chair the Company and lead the Valuation, Investment and the Management Engagement Committees. Robin Archibald is appointed to the currently unfilled role of Senior Independent Director, with specific responsibility for corporate matters, and will continue to chair the Nominations Committee. Robert Dick will remain as chair of the Audit and Risk Committee. Jamie Skinner will become chair of a newly formed Marketing Committee with responsibility for developing new markets for the Company's shares.

Board compensation has been effectively fixed since the Company was floated in 2014. Following consultation with the Company's advisors, it is proposed that this is now adjusted to reflect market conditions, the changed demands for exercising oversight of the Company and the specific roles and responsibilities of the individual non-executive Directors. Barring unforeseen circumstances, the Board is proposing that the revised remuneration and remuneration policy are fixed for a further three years. This is reported on in full in the Remuneration Report in the Annual Report and shareholders will be asked to approve the report and remuneration policy at the Company's forthcoming Annual General Meeting.

Corporate Strategy

From the date of the original flotation of the Company the Board has believed that it is in the interests of shareholders for the Company to grow its equity base. The advantages of spreading management costs over a greater asset base, improving portfolio diversity and enhancing the liquidity of shares are well understood in the development of successful investment companies.

For these reasons, the Company had authorities to issue new shares through its approved tap facility. During the year 2.73 million new shares were issued raising net proceeds of £3.03 million and the Company intends to continue to have tap issuance authority over the forthcoming year to capitalise on demand in the market when appropriate.

However, to achieve a significant step forward a larger capital raise was always recognised as required. The Board and Investment Manager had reviewed a number of strategies and opportunities during the year to grow the Company's assets and income in a sustainable and accretive manner for shareholders. It was not until the end of the financial year that the right situation presented itself, resulting in a significant post-balance sheet event that has transformed the shape of the Company from that reported on at 30 September 2017.

The Company announced on 7 December 2017 that shareholders had approved the acquisition of a portfolio of four retail warehouse parks for £144.0 million and had given the necessary authorities to issue 79.3 million new shares at 111.75 pence per share. Approximately £52.2 million of cash was raised with the balance of the acquisition price met from the issuance of 32.7 million shares to the vendor (with a cash equivalent of £36.5 million), £40.2 million drawn from a new debt facility of £54.2 million and the remainder from existing cash resources. The net effect of the transaction has been to increase the equity base of the Company by approximately 60% and to acquire a pool of attractive assets, with potential to add value from management activities in a very cost-efficient manner. The income from the portfolio improves diversification, enhances the unexpired lease term of the Company's rental base and increases the level of dividend cover. Further information on the transaction is provided in the Investment Manager's report in the Annual Report and in Note 12 to the Audited Consolidated Financial Statements below.

The Board is delighted that the Company has been able to achieve a key part of its growth strategy and is grateful for the support of existing shareholders. It also welcomes a number of new shareholders onto the register, including members of the Stadium Group, the vendor of the retail warehouse portfolio.

Lastly, there is the annual placing programme for up to 60 million new shares, which is available to fund larger opportunities if and when they arise.

Outlook

Demand for UK real estate remains strong from both domestic and international investors. However, with the possibility of headwinds from a further rise in interest rates, geopolitical uncertainty and the prospect of a slowing economy, it seems likely that the reduction in property yields we have seen over recent years is at or close to an end. Future returns will be generated from the resilience of portfolio income, the ability to grow income where there are supply/ demand imbalances and the skill to generate new sources of income from management initiatives. The Company is well-served by an Investment Manager who can take advantage of this type of market and, following the portfolio activity over the year and post-year end, has the asset base to exploit these opportunities to full advantage.

Following the activity during the financial year and remaining part of the 2017 calendar year, with total assets of £347.3 million, the Company has made significant steps forward in its development and is well-set for further progression.

William Hill

Chairman

23 January 2018

 

Investment Manager's review

Refreshing the portfolio: In order to keep the portfolio fresh, we have completed sales, purchases and asset management during the period.

Market commentary

The UK commercial real estate market surprised on the upside in the period ended 30 September 2017, following the uncertainty and hesitation caused by the EU referendum and the liquidity issues suffered by the open-ended, daily dealt funds who very quickly became distressed vendors. Whilst the impact of the result of the Brexit vote on the property market was not as severe as many commentators had predicted, it did result in capital value declines for many investors, resulting in the poor total return numbers for 2016 of just 3.0%.

This cautious and risk averse mind-set continued through the first quarter of 2017. Forecast returns for the year ranged from 0% to 5.0%, suggesting limited, if any capital growth.

This resulted in quite a benign market of limited sellers, especially as the open-ended funds had, in the main, re-opened and had returned to more neutral cash positions. Demand was still there, especially from overseas investors, attracted to the UK market as a result of weaker sterling and lower values. However, the lack of supply resulted in this demand becoming pent-up, as it was difficult for the capital to be deployed.

Following the summer period, which included the general election, investment activity picked up across the UK. There was greater demand from UK institutions and the demand from overseas investors remained strong. They were amongst the most active buyers for UK commercial real estate.

The level of investment stock available to purchase has increased, but there is still a notable supply/demand imbalance which has kept pricing firm for the good assets. Yields for industrial and logistics assets have hardened considerably and are starting to look overpriced. Yields for good multi-let estates have never been stronger and the yields on longer distribution income is almost at supermarket or annuity levels of pricing. This yield compression has been driven by strong institutional demand. These buyers are encouraged by the lack of supply (as there has been virtually no development for seven years) and the limited development pipeline.

Retail warehousing is the one sector of the market which is looking attractive, albeit approximately 70% of the market is over-rented, so care needs to be taken in selecting the right assets with rental growth potential. However, the vacancy rate for all retail warehousing is just 5.1%.

The retail warehouse sector is well placed to benefit from yield compression. Following the EU referendum, institutional investors pulled away from the retail warehouse sector. As a result, values fell. As discussed above investors turned their attentions to the industrials and logistics sector, but with this sector now looking expensive, buyers are turning to retail warehousing which offers an attractive yield, the prospect of yield compression, good unexpired lease terms and deliverable asset management and development angles.

Outlook

Investment volumes and the supply of investment stock will be key to the market going forward. Demand looks set to remain steady, however, in a lower return environment transaction costs could be seen as an impediment by some investors in making the decision to trade assets. This could reduce the level of stock being offered to the market for sale. The hunt for yield could overtake the current focus on liquidity as investors seek more value-add assets in core locations, especially where the underlying land values are high and there is an opportunity for alternative uses on the site.

 

Portfolio valuation

The Company's property portfolio is valued by Knight Frank on a quarterly basis throughout the year. As at 30 September 2017 it was valued at £173.4 million, a like-for-like increase of 4.8% over the period.

Property Portfolio as at 30 September 2017
Location	Name	Sector	Market Value Range (£)	Tenure
Birmingham	St Philips Point	Office	30-35m	Freehold
Newcastle	Citygate 2	Office	15-20m	Leasehold
Edinburgh	145 Morrison Street	Office	10-15m	Heritable
Bath	Midland Bridge House	Office	5-10m	Freehold
Sunderland	Pallion Retail Park	Retail	25-30m	Freehold
Wrexham	Plas Coch Retail Park	Retail	20-25m	Freehold
Coatbridge	B&Q	Retail	15-20m	Heritable
Rhyl	Clwyd Retail Park	Retail	15-20m	Freehold
Daventry	Abbey Retail Park	Retail	10-15m	Leasehold
Telford	Mecca Bingo	Leisure	0-5m	Freehold
Liverpool	Mecca Bingo	Leisure	0-5m	Freehold
Hartlepool	Mecca Bingo	Leisure	0-5m	Freehold

Asset management

During the period, the void rate was reduced from 4.7% to 0.7%. In December 2016, we completed the letting of the eighth floor at St Philips Point, Birmingham. Existing tenant AXA Insurance UK plc leased their fifth floor in the building, taking their occupation to approximately 33,000 sq. ft. over five floors. As a result of this letting, the property is 100% let.

At Reading, we leased 4,333 sq. ft. to Handd Business Solutions Limited. Handd signed a 10 year lease with a five-year option to break at a rent of £30.50 per sq. ft. per annum, which enhanced the rental tone of the building.

During the period, we delivered a complex asset management strategy at Abbey Retail Park in Daventry, which culminated in the successful letting of 17,610 sq. ft. to B&M Retail Limited (B&M). In order to provide the space which B&M required, we had to negotiate two lease surrenders, relocate one tenant to a new unit, then carry out construction work. B&M signed a 10-year full repairing and insuring lease at a rent of £246,540 per annum. The letting has improved footfall for the retail park and has added another strong income stream to the portfolio.

We are working on a number of other asset management opportunities which, if successfully completed, will improve both the capital and income of the Company.

Tenant Covenant Profile: D&B risk ratings of tenant income as a percentage of the portfolio income
D&B Rating	%
Minimal	87.9
Low	9.9
Medium to high	1.9
No report	0.3

Void rate and weighted average unexpired lease term (WAULT) at 30 September

Year	Void (%)	WAULT (Years)
2014	25.0	5.9
2015	7.4	8.6
2016	4.7	7.9
2017	0.7	6.3

Fully covered dividend

Over the period we improved our dividend cover. As a result, in November 2017 the Board announced a 4.5% increase in the dividend, to 5.75 pence per share. This will be effective from January 2018, payable in February 2018.

Summary of sales and purchases

During the period the office buildings in Sheffield and Reading were sold for a combined total of £40.7 million. £25.6 million was reinvested by acquiring Pallion Retail Park in Sunderland. These transactions are discussed in more detail in the Annual Report. The remaining capital was put towards acquiring the portfolio of retail warehouse assets after the year end and described in more detail in the Annual Report.

Calum Bruce

Investment Manager

23 January 2018

 

Financial Review

2017 has been another active year of intensive asset management which has improved the Company's fully covered dividend and allowed progress on asset value growth.

This report summarises the financial performance for the year and provides a number of statistics, illustrating how the Company is delivering on its objectives.

Income Statement

This year, following property sales of £40.7 million, the Company has reinvested capital through acquisitions of £25.6 million and combined with letting activity has helped to achieve a revenue profit before tax of £8.2 million, an increase of 7.9% from 2016. Rental income generated in the year was £12.2 million. Expenditure in the period was £2.3 million, including £0.1 million of property specific expenditure and £1.4 million related to the Investment Manager's fee. Net interest costs were £1.7 million.

The positive movement in the value of our investment properties was £4.4 million, which enabled the Company to report a total profit of £12.6 million.

	2017 £m	2016 £m
Rental income	12.2	11.3
Property expenditure	(0.1)	(0.2)
Net rental income	12.1	11.1
Administration expenses	(2.2)	(2.0)
Net financing costs	(1.7)	(1.5)
Revenue profit	8.2	7.6
Gain on revaluation of investment properties	4.4	0.2
Accounting profit after tax	12.6	7.8
EPRA earnings per share	6.34p	5.90p
Dividend per share	5.50p	5.50p
Basic earnings per share	9.75p	6.08p

Rent

Contracted rent was £12.1 million (2016: £12.1 million) per annum at the year end. As all sale proceeds were not redeployed during the reporting period, this income was maintained through asset management initiatives. Rent-free periods as a percentage of contracted rent at the year end was 10.5% which fell to 4.0% from 31 December 2017. 89.1% (2016: 87.3%) of rent for the year was collected within seven days with 93.0% of rent collected within 14 days (2016: 95.0%).

The portfolio continues to provide relatively long-term stability to the Company's income. The EPRA vacancy rate has reduced to 0.7% from 4.7% in 2016 due to letting activity. As a result of a year passing and the sale of an asset with long term income, the WAULT has decreased to 6.3 years from 7.9 years in 2016.

EPRA Performance Measures

As a member of EPRA, we support EPRA's drive to bring consistency to the comparability and quality of information provided to investors and other key stakeholders of the Company. We have therefore included a number of performance measures which are based on EPRA methodology. It should be noted that there is no difference between the Company's IFRS and EPRA NAV in this year's accounts.

All these statistics have improved due to portfolio and asset management initiatives which have strengthened the financial performance.

	2017	2016
EPRA earnings	£8.2m	£7.6m
EPRA earnings per share	6.34p	5.90p
Diluted EPRA earnings per share	6.34p	5.90p
EPRA NAV per share	111.32p	107.07p
EPRA cost ratio (including direct vacancy costs)	18.6%	20.0%
EPRA cost ratio (excluding direct vacancy costs)	18.2%	19.2%
EPRA net initial yield	6.0%	5.3%
EPRA topped up net initial yield	6.5%	6.2%
EPRA vacancy rate	0.7%	4.7%

Net Asset Value (NAV)

At 30 September 2017 our net assets were £145.8 million, equating to net assets per share of 111.32 pence (2016: 107.07 pence) resulting in year-on-year growth in the NAV of 4.0%. This is positive especially given the slight cash drag effect from the proceeds from the sale of Reading in August which were not reinvested before the year end.

The increase in net assets to £145.8 million is summarised in the table below.

NAV at 30 September 2016	£137.3m
Increase in value of investment properties (net of capital expenditure and transaction costs)	£4.4m
Net earnings in the year	£8.2m
Less: dividends paid in the year	(£7.1m)
Equity raised in the year	£3.0m
NAV at 30 September 2017	£145.8m

The NAV is primarily represented by our investment properties, which have a fair value of £173.4 million at the year end. This is included in the financial statements as Investment Properties at £171.7 million, with the remainder relating to capital incentives. The remaining £25.9 million of net liabilities is made up of: i) £56.2 million of debt; ii) £24.6 million of cash and cash equivalents; and iii) £5.7 million of net current assets.

Debt

Following the acquisition of the Sunderland property in June 2017, the existing debt facility was increased by £4.5 million to £56.9 million, by way of an amendment and restatement of the original facility. The blended rate of interest of the £56.9 million of debt is now 2.99% which is fixed until the loan matures in 2025. £5.5 million of the proceeds from the sale of Reading was transferred into a deposit account with the lender as a temporary measure until the funds are reinvested. Further details are included within Note 6 of the financial statements. At the year end the Loan to Value was 29.6%, based on debt net of the amount placed in the Lender deposit account of £51.4 million and the fair value of investment properties of £173.4 million.

It is the intention of the Board that gearing will not be greater than 35% of total assets and will more normally be around 30% or less, which represents significant headroom against the loan to value covenants on the property portfolio.

Cash

As at 30 September 2017 the Company had cash and cash equivalents of £24.6 million.

Dividends

Dividend cover for the year was 115.3%. The Company has now provided a fully covered dividend since early 2016.

The Board declared a dividend of 0.46 pence per share for the month of September which was paid in October 2017. Taking this last dividend with dividends paid to September 2017 of 5.04 pence, the total dividend for the year is 5.5 pence per share in line with the targeted dividend policy. Taking the total dividend paid for the year, this equates to a dividend yield of 5.2%, based on closing share price on 29 September 2017. The Company remains committed to monthly dividend payments.

Tax

Owing to the Company's REIT status, income and capital gains from our property rental business are exempt from corporation tax, therefore, the tax charge for the year is nil.

We continue to pass all the REIT tests to ensure our REIT status is maintained.

Outlook

As a result of the continued strong financial performance of the Company, the Board announced on 15 November 2017 a 4.5% increase in dividend from 5.5 pence per share to 5.75 pence from January 2018. The Board projects that dividends will continue to be fully covered for the foreseeable future.

On 8 December 2017, the Company successfully acquired a portfolio of four assets at a value of £144.0 million. This was funded by equity raised of £88.7 million and debt of £40.2 million and existing cash. The total debt facility is now £111.1 million at a blended all in rate of 2.86%. Loan to value at 31 December 2017 is 30.4% net of the £13.9 million held in the lender deposit account. Annual contracted rent from the new assets is £9.3 million.

The Company has a strong balance sheet position and good sustainable income. Going forward, it is anticipated that the portfolio asset management initiatives will be financed through available cash resources of £25.8 million.

Neelum Yousaf

Financial Controller, Ediston Properties Limited

Principal Risks and Risk Management

The successful management of risk is essential in ensuring that the Company delivers on its strategic priorities and aligns the Company's interests with its shareholders'.

The Audit and Risk Committee recognises that there are risks and uncertainties that could have a material effect on the Company's results. Under the UK Corporate Governance Code, Directors of listed companies are required to confirm in the annual report that they have performed a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The Group's risk register is the core element of the risk management process. The register is prepared, in conjunction with the Board, by the Administrator, Company Secretary and Investment Manager. The Directors review and challenge the register on a quarterly basis, assessing the likelihood of each risk, the impact on the Group and the strength of controls operating over each risk. An assessment is also made as to whether any changes have occurred in the nature of the risks faced by the Company, or whether any new risks have arisen, to ensure that appropriate mitigating controls are in operation.

The principal risks facing the business, with their likelihood and impact and how the Company mitigates these, are set out in the table below.

Risk	Impact	Controls and mitigation in place	Probability of occurring	Impact if occurred	Change from last year
INVESTMENT MANAGEMENT
Lack of investment opportunities reducing the ability to acquire properties at the required return. Poor investment decisions, incomplete due diligence and mistimed investment of capital.	An inappropriate use of capital which hinders investor returns. Reduction in revenue profits impacting on cash flow and dividends.	Thorough due diligence and investment process with regular reviews of property performance against acquisition plan. Experienced Investment Manager who sources assets which meet agreed investment criteria. Investment committee scrutinises and approves all proposed acquisitions. Comprehensive profit and cash flow forecasting which models the impact of property transactions at Company level.	Low	Medium	No Change The Company completed its first disposals in the year, with one disposal being completed back to back with a property acquisition. Following thorough due diligence, investment process and comprehensive modelling, a £144 million portfolio was acquired post year end.
Over-exposure to a specific property, tenant, sector, geographic location or to lease expiries in a given year.	Reduced liquidity resulting in a reduction in the capital value of investment properties. Tenant failure causing a material reduction in revenue profits impacting on cash flow and dividends.	Concentration limits are set by the Board and reviewed quarterly. The limits are monitored at all times by the Investment Manager. Board approval memoranda state whether there are any concentration issues.	Low	Medium	No Change Following the portfolio acquisition on 8 December 2017, the Company has increased its exposure to the retail warehouse sector, whilst improving tenant diversification and the portfolio's overall WAULT.
Ineffective active asset management of properties.	High vacancy levels, low tenant retention, sub-optimal rental levels and break clauses exercised. Reduction in revenue profits impacting on cash flow and dividends.	Investment Manager is experienced in active asset management. Pro-active approach to key lease events. Letting and managing agents are also employed.	Low	Medium	No Change The Investment Manager has identified and undertaken various active asset management activities during the year and has others identified, within both the existing and recently acquired properties.
FINANCIAL
Non-Compliance with debt facilities.	A substantial fall in the property asset values or rental income levels could lead to a breach of financial covenants within its debt funding arrangements. This could lead to a cancellation of debt funding which could leave the Company without sufficient long term resources to meet its commitments.	Forecasts of covenant compliance are reviewed on a regular basis. Compliance certificates and reports are prepared on a quarterly basis by the Investment Manager then reviewed and signed by a Director. The Board intends to maintain gearing at 30% but will not exceed 35% of Company gross assets at drawdown.	Low	High	No Change The Company's LTV increased to 30.4% following the drawdown of the additional debt facilities during the year and in December 2017, although this also reduced the blended fixed interest rate from 3.06% to 2.86% and staggered the dates by which the various debt facilities fall due for renewal.
ECONOMY/TAXATION/REGULATORY
Weak economic and/or political environment (including the potential impact of Brexit).	Lower occupational demand impacting on income, rental growth and capital performance.	To a large extent outwith the Company's control. Although it is known that Brexit will happen, the Company cannot know how it will happen and the resulting impact. However, sensitivity analysis of the portfolio is undertaken via a comprehensive cash flow model.	Medium	High	Increasing The Board believes the Company faces increasing uncertainty, particularly in relation to Brexit and the outlook for interest rates.
Non-compliance with laws and regulations.	The Company is required to comply with REIT rules, the Listing Rules, Disclosure Guidance and Transparency Rules, IFRS accounting standards and UK legislation.	The Company uses experienced tax advisers, auditors, Investment Manager, Administrator and solicitors. Strong compliance culture with regular risk reviews undertaken by the Audit and Risk Committee.	Low	High	No Change No significant changes have occurred in the regulatory environment over the year.
OPERATIONAL
Health and Safety.	Health and safety processes could fail leading to serious financial or reputational damage to the Company.	The Board regularly receives and reviews a report detailing any relevant matters. The managing agent ensures all matters raised are dealt with promptly. Insurance cover is in place and insurers visit each property and undertake a risk assessment.	Low	High	No Change No significant changes have occurred in relation to Health and Safety matters over the year.
Lack or failure of internal controls of the Investment Manager or Administrator.	The possibility of self review, human error, cyber risk and even fraud can occur.	Significant segregation of duties within the Investment Manager and Administrator as well as between them both, with oversight from the Depositary. Clear structure on internal controls, including disaster recovery.	Low	High	No Change No significant changes have occurred in the internal control environment over the year.

Consolidated Statement of Comprehensive Income (audited)

For the year ended 30 September 2017     

		Year ended 30 September 2017			Year ended 30 September 2016
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
Rental income		12,154	-	12,154	11,323	-	11,323
Total revenue		12,154	-	12,154	11,323	-	11,323
Unrealised gain on revaluation of investment properties		-	4,613	4,613	-	231	231
Losses of sale of investment properties realised		-	(203)	(203)	-	-	-
Total income		12,154	4,410	16,564	11,323	231	11,554
Expenditure
Investment management fee	1	(1,352)	-	(1,352)	(1,309)	-	(1,309)
Other expenses		(902)	-	(902)	(958)	-	(958)
Total expenditure		(2,254)	-	(2,254)	(2,267)	-	(2,267)
Profit before finance costs and taxation		9,900	4,410	14,310	9,056	231	9,287
Net finance costs
Interest receivable		8	-	8	65	-	65
Interest payable		(1,708)	-	(1,708)	(1,553)	-	(1,553)
Profit before taxation		8,200	4,410	12,610	7,568	231	7,799
Taxation		-	-	-	-	-	-
Profit and total comprehensive income for the year		8,200	4,410	12,610	7,568	231	7,799
Basic earnings per share	3	6.34p	3.41p	9.75p	5.90p	0.18p	6.08p

The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS.

The supplementary revenue return and capital return columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement are derived from continuing operations.

No operations were acquired or discontinued in the year.

 

Consolidated Statement of Financial Position (audited)

As at 30 September 2017

		As at 30 September 2017	As at 30 September 2016
	Notes	£'000	£'000
Non-current assets
Investment properties	4	171,739	177,534
		171,739	177,534
Current assets
Trade and other receivables		7,317	3,940
Cash and cash equivalents		24,651	9,967
		31,968	13,907
Total assets		203,707	191,441
Non-current liabilities
Loans	6	(56,246)	(51,783)
		(56,246)	(51,783)
Current liabilities
Trade and other payables		(1,645)	(2,327)
Total liabilities		(57,891)	(54,110)
Net assets		145,816	137,331
Equity and reserves
Called up equity share capital	7	1,310	1,283
Share premium		37,858	34,898
Capital reserve - investments held		10,863	9,138
Capital reserve - investments sold		2,685	-
Special distributable reserve		84,668	85,115
Revenue reserve		8,432	6,897
Equity shareholders' funds		145,816	137,331
Net asset value per Ordinary Share	8	111.32p	107.07p

 

Consolidated Statement of Changes in Equity (audited)

For the year ended 30 September 2017                                                                                              

		Share capital account	Share premium	Capital reserve - investments held	Capital reserve - investments sold	Special distributable reserve	Revenue reserve	Total equity
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
As at 30 September 2016		1,283	34,898	9,138	-	85,115	6,897	137,331
Profit and total comprehensive income  for the year		-	-	4,613	(203)	-	8,200	12,610
Transfer of prior years' revaluations to realised reserve		-	-	(2,888)	2,888	-	-	-
Transactions with owners recognised in equity:
Ordinary Shares issued	7	27	2,960	-	-	-	-	2,987
Dividends paid	2	-	-	-	-	-	(7,112)	(7,112)
Transfer from special reserve		-	-	-	-	(447)	447	-
As at 30 September 2017		1,310	37,858	10,863	2,685	84,668	8,432	145,816

For the year ended 30 September 2016

		Share capital account	Share premium	Capital reserve - investments held	Special distributable reserve	Revenue reserve	Total equity
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
As at 30 September 2015		1,283	34,898	8,907	89,035	2,463	136,586
Profit and total comprehensive income  for the year		-	-	231	-	7,568	7,799
Transactions with owners recognised in equity:
Dividends paid	2	-	-	-	(755)	(6,299)	(7,054)
Transfer from special reserve		-	-	-	(3,165)	3,165	-
As at 30 September 2016		1,283	34,898	9,138	85,115	6,897	137,331

 

Consolidated Statement of Cash Flow (audited)

For the year ended 30 September 2017                                  

		Year ended 30 September 2017	Year to 30 September 2016
	Notes	£'000	£'000
Cash flows from operating activities
Profit before tax		12,610	7,799
Adjustments for:
Interest receivable		(8)	(65)
Interest payable		1,708	1,553
Unrealised revaluation gains on property portfolio		(4,410)	(231)
Operating cash flows before working capital changes		9,900	9,056
Increase in trade and other receivables		(3,208)	(356)
(Decrease)/increase in trade and other payables		(460)	539
Net cash inflow from operating activities		6,232	9,239
Cash flows from investing activities
Purchase of investment properties		(26,100)	(41,353)
Capital expenditure		(1,353)	(2,781)
Sale of investment properties		37,255	-
Net cash inflow/(outflow) from investing activities		9,802	(44,134)
Cash flows from financing activities
Loans drawn down, net of costs	6	4,385	12,257
Issue of Ordinary Share capital, net of costs		2,987	-
Dividends paid		(7,114)	(7,011)
Interest received		8	65
Interest paid		(1,616)	(1,434)
Net cash (outflow)/inflow from financing activities		(1,350)	3,877
Net increase/(decrease) in cash and cash equivalents		14,684	(31,018)
Opening cash and cash equivalents		9,967	40,985
Closing cash and cash equivalents		24,651	9,967

 

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, we confirm that to the best of our knowledge:

·     The financial statements contained within the Annual Report for the year ended 30 September 2017, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·     The Chairman's Statement, Investment Manager's Review and Financial Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;

·     'Principal Risks and Risk Management' includes a description of the Company's principal risks and uncertainties; and

·     The Annual Report includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

William Hill

Chairman

23 January 2018

 

Notes to the Audited Consolidated Financial Statements

1. Investment Management Fee

	Year ended 30 September 2017	Year ended 30 September 2016
	£'000	£'000
Investment Manager's fee	1,352	1,309
Total	1,352	1,309

Ediston Investment Services Limited has been appointed as the Company's Alternative Investment Fund Manager (AIFM) and Investment Manager, with the property management arrangements of the Company being delegated to Ediston Properties Limited. The Investment Manager was entitled to a fee calculated as 0.95% per annum of the net assets of the Group up to £250 million and 0.75% per annum of the net assets of the Group over £250 million.

As detailed in Note 12, subsequent to the year end, the AIFM and the Investment Manager agreed to reduce future management fees payable on any cash available for investment by 50 per cent while such cash remains uninvested.

The Investment Management Agreement may be terminated by either party by giving not less than 12 months' notice. The agreement may be terminated earlier by the Group provided that a payment in lieu of notice, equivalent to the amount the Investment Manager would otherwise have received during the notice period, is made. The Investment Management Agreement may be terminated immediately without compensation if the Investment Manager: is in material breach of the agreement; is guilty of negligence, wilful default or fraud; is the subject of insolvency proceedings; or there occurs a change of Key Managers to which the Board has not given its prior consent.

2. Dividends

Dividends paid as distributions to equity shareholders during the year were:

	Year ended 30 September 2017		Year ended 30 September 2016
	Pence per share	£'000	Pence per share	£'000
In respect of the prior year:
Twelfth interim dividend	0.4587	588	0.4583	588
In respect of the current year:
First interim dividend	0.4583	588	0.4583	588
Second interim dividend	0.4583	590	0.4583	588
Third interim dividend	0.4583	590	0.4583	588
Fourth interim dividend	0.4583	590	0.4583	588
Fifth interim dividend	0.4583	590	0.4583	588
Sixth interim dividend	0.4583	590	0.4583	588
Seventh interim dividend	0.4583	590	0.4583	588
Eighth interim dividend	0.4583	594	0.4583	588
Ninth interim dividend	0.4583	600	0.4583	588
Tenth interim dividend	0.4583	601	0.4583	587
Eleventh interim dividend	0.4583	601	0.4583	587
Total	5.5000	7,112	5.4996	7,054

 

Dividends paid/ announced subsequent to the year end were:

	Record date	Payment date	Pence per share
Twelfth interim dividend	20 October 2017	31 October 2017	0.4587
In respect of the year ending 30 September 2018:
First interim dividend	10 November 2017	30 November 2017	0.4583
Second interim dividend	15 December 2017	29 December 2017	0.4583
Third interim dividend	19 January 2018	31 January 2018	0.4583

It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not therefore recommend a final dividend for the year ended 30 September 2017.

3. Earnings per Share

	Year ended 30 September 2017		Year ended 30 September 2016
	£'000	Pence per share	£'000	Pence per share
Revenue earnings	8,200	6.34	7,568	5.90
Capital earnings	4,410	3.41	231	0.18
Total earnings	12,610	9.75	7,799	6.08
Average number of shares in issue	129,342,917		128,263,931

4. Investment Properties

	As at 30 September 2017	As at 30 September 2016
Freehold and leasehold properties	£'000	£'000
Opening book cost	168,396	124,126
Opening unrealised appreciation	9,138	8,907
Opening fair value	177,534	133,033
Purchases	26,100	41,353
Sales - proceeds	(37,255)	-
- gain on sales	2,685	-
Capital expenditure	950	2,917
Unrealised gains realised during the year	(2,888)	-
Unrealised gains on investment properties	4,656	3,749
Unrealised losses on investment properties	(43)	(3,518)
Closing book cost	157,988	168,396
Closing unrealised appreciation	13,751	9,138
Closing fair value	171,739	177,534

The fair value of the investment properties reconciled to the appraised value as follows:

	As at 30 September 2017 £'000	As at 30 September 2016 £'000
Closing fair value	171,739	177,534
Lease incentives held as debtors	(1,671)	(3,876)
Appraised market value per Knight Frank	173,410	181,410

Changes in the valuation of investment properties:

	Year ended 30 September 2017 £'000	Year ended 30 September 2016 £'000
Gain on sale of investment properties	2,685	-
Unrealised gains realised during the year	(2,888)	-
Losses on sale of investment properties realised*	(203)	-
Unrealised gains on investment properties	4,656	3,749
Unrealised losses on investment properties	(43)	(3,518)
Total gain on revaluation of investment properties	4,410	231

*Represents the difference between the sales proceeds, net of costs, and the property valuation at the end of the prior year.

At 30 September 2017, the investment properties were valued at £173,410,000 (2016: £181,410,000) by Knight Frank LLP (Knight Frank), in their capacity as external valuers. The valuation was undertaken in accordance with the RICS Valuation - Professional Standards VPS4 (1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements, which adopt the definition of Fair Value adopted by the International Accounting Standards Board. Fair value is based on an open market valuation (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), provided by Knight Frank on a quarterly basis, using recognised valuation techniques as set out in the Group's accounting policies.

5. Investment in subsidiaries

EPIC (No.1) Limited is a wholly owned subsidiary of Ediston Property Investment Company plc and is incorporated in England and Wales (Company Number: 09106328). EPIC (No.1) Limited was incorporated on 27 June 2014 and began trading on 5 May 2015. On 5 May 2015, the ownership of the property portfolio held by the Company at that date was transferred to EPIC (No.1) Limited. The net asset value of EPIC (No.1) Limited as at 30 September 2017 was £141.0 million (2016: £135.1 million) and the book cost was £123.7 million (2016: £123.7 million). The profit of EPIC (No.1) Limited for the year to 30 September 2017 was £13.1 million (2016: £8.2 million).

6. Loans

	As at 30 September 2017	As at 30 September 2016
	£'000	£'000
Principal amount outstanding	56,920	52,420
Set-up costs	(838)	(723)
Amortisation of loan set-up costs	164	86
Total	56,246	51,783

In May 2015, the Group entered into a £40 million secured 10-year term loan arrangement with Aviva Commercial Finance Limited. In February 2016 and June 2017, the Group borrowed an additional £12.42 million and £4.50 million respectively, also from Aviva Commercial Finance Limited. The final maturity date of all three loans is May 2025. The annual interest rate is fixed at 3.09% on the original £40 million loan, at 2.95% on the loan of £12.42 million and 2.22% on the third loan of £4.5 million. Each of these rates is fixed for the period of the loan as long as the loan-to-value is maintained below 40%, with each increasing by 10 basis points if the loan-to-value is 40% or higher. The Group's weighted average cost of borrowings was therefore 2.99% at 30 September 2017 (2016: 3.06%). The loans are secured over EPIC (No.1) Limited's current property portfolio.

Under the financial covenants relating to the loans the Group has to ensure that for EPIC (No.1) Limited:

·      the Historic Interest Cover and Projected Interest Cover, each being the passing rental income as a percentage of finance costs and generally calculated over a period of 12 months to/from the calculation date, is at least 300%; and

·      the Loan-to-Value Ratio, being the adjusted value of the loan as a percentage of the aggregate market value of the relevant properties, must not exceed 50%.

Breach of the financial covenants, subject to various cure rights, may lead to the loans falling due for repayment earlier than the final maturity date stated above. The Group has complied with all the loan covenants during the year. Under the terms of early repayment relating to the loans, the cost of repaying the loans on 30 September 2017, based on the yield on the Treasury 5% 2025 plus a margin of 0.5 per cent, would have been approximately £62,418,000, including repayment of the principal (2016: £60,839,000).

The fair value of the loans based on a marked-to-market basis, being the yield on the Treasury 5% 2025 plus the appropriate margin, was £59,297,000 as at 30 September 2017 (2016: £57,500,000). This includes the principal amount borrowed of £56,920,000 (2016: £52,420,000).

7. Called-up Equity Share Capital

Allotted, called-up and fully paid Ordinary Shares of 1 pence par value	Number of shares	£'000
Opening balance as at 30 September 2016	128,263,931	1,283
Issue of Ordinary Shares	2,730,000	27
Closing balance as at 30 September 2017	130,993,931	1,310

During the year ended 30 September 2017, the Company issued 2,730,000 Ordinary Shares, raising gross proceeds of £3,046,000 (2016: £nil). The Company did not buyback or resell from treasury any Ordinary Shares during the year (2016: nil). The Company did not hold any shares in treasury. Under the Company's Articles of Association, the Company may issue an unlimited number of Ordinary Shares.

The consideration received in excess of the par value of the Ordinary Shares issued, net of the total expenses of issue of £59,000, has been credited to the share premium account.

Ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the Company. All Ordinary Shares carry equal voting rights.

Capital management

The Group's capital is represented by the Ordinary Shares, share premium, capital reserves, revenue reserve and special distributable reserve. The Group is not subject to any externally-imposed capital requirements.

The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objective. Capital management activities may include the allotment of new shares, the buyback or re-issuance of shares from treasury, the management of the Group's discount to net asset value and consideration of the Group's net gearing level.

There have been no changes in the capital management objectives and policies or the nature of the capital managed during the year.

8. Net Asset Value

The Group's net asset value per Ordinary Share of 111.32 pence (2016: 107.07 pence) is based on equity shareholders' funds of £145,816,000 (2016: £137,331,000) and on 130,993,931 (2016: 128,263,931) Ordinary Shares, being the number of shares in issue at the year end.

The net asset value calculated under IFRS above is the same as the EPRA net asset value at 30 September 2017 and 30 September 2016.

9. Related Party Transactions

The Directors are considered to be related parties. No Director has an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Group. There are no other key management personnel, as the entity has no employees except for the Directors.

The Directors of the Group received fees for their services. Total fees for the year were £118,000 (2016: £108,000) of which £nil (2016: £nil) remained payable at the year end.

Ediston Properties Limited, being the AIFM and Investment Manager, received £1,352,000 in relation to the year (2016: £1,309,000) of which £347,000 (2016: £327,000) remained payable at the year end.

10. Contingent Assets and Liabilities

The Group acquired the units in a Jersey Property Unit Trust on 7 November 2014. Prior to the sale of the units to the Group, the seller transferred a property to another group entity by way of a distribution in specie for nil consideration. The Group has indemnified the seller should any Stamp Duty Land Tax (SDLT) arise as a result of that property transfer. Both the Seller's and the Group's tax advice is that there is a low probability of an SDLT liability on the transaction.

11. Financial Instruments

Consistent with its objective, the Group holds UK commercial property investments. In addition, the Group's financial instruments comprise cash and receivables and payables that arise directly from its operations. The Group does not have exposure to any derivative instruments.

The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as all assets and liabilities of the Group are maintained in pounds sterling.

The Board reviews and agrees policies for managing the Group's risk exposure. These policies are summarised below and have remained unchanged for the period under review. These disclosures include, where appropriate, consideration of the Group's investment properties which, whilst not constituting financial instruments as defined by IFRSs, are considered by the Board to be integral to the Group's overall risk exposure.

Apart from the Aviva loans, as disclosed in Note 6, the fair value of financial assets and liabilities is not materially different from their carrying value in the financial statements.

Credit Risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.

In the event of default by a tenant if it is in financial difficulty or otherwise unable to meet its obligations under the lease, the Group will suffer a rental shortfall and incur additional expenses until the property is re-let. These expenses could include legal and surveyor's costs in re-letting, maintenance costs, insurances, rates and marketing costs and may have a material adverse impact on the financial condition and performance of the Group and/or the level of dividend cover. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Investment Manager monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants.

Where there are concerns over the recoverability of rental income, the amounts outstanding will be fully provided for. There was no provision required at 30 September 2017 (2016: £10,000). Of the provision at 30 September 2016, £10,000 was subsequently recovered, no amount remained outstanding and nothing was written off. There were no other financial assets which were either past due or considered impaired at 30 September 2017 or at 30 September 2016.

All of the Group's cash was placed with The Royal Bank of Scotland plc (RBS) as at 30 September 2017 and 30 September 2016. Bankruptcy or insolvency of the bank holding cash balances may cause the Group's ability to access cash placed with them to be delayed, limited or lost. RBS is rated by all the main rating agencies. Due to the increase in the cash balance, subsequent to the year end the Group opened an additional deposit account with Bank of Scotland plc which will permit the Group to diversify its credit risk when significant cash balances are held. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, cash holdings would be moved to another bank. As at 30 September 2017, Standard & Poor's credit rating for RBS was A-2 and Moody's was P-2. The equivalent credit ratings for Bank of Scotland plc were A-1 and P-1 respectively. There has been no change in the fair values of cash or receivables as a result of changes in credit risk in the current or prior periods.

Liquidity Risk

Liquidity risk is the risk that the Group will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise commercial properties.

Property and property-related assets in which the Group invests are not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate quickly its investments in these properties at an amount close to their fair value in order to meet its liquidity requirements.

The Group's liquidity risk is managed on an ongoing basis by the Investment Manager and monitored on a quarterly basis by the Board. In order to mitigate liquidity risk the Group has a comprehensive 10-year cash flow forecast that aims to have sufficient cash balances, taking into account projected receipts for rental income and property sales, to meet its obligations for a period of at least 12 months.

Interest Rate Risk

Some of the Group's financial instruments will be interest-bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Group is exposed to interest rate risk due to fluctuations in the prevailing market rate. The Group's exposure to floating interest rates gives cash flow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk. 

When the Group retains cash balances, they will ordinarily be held on interest-bearing deposit accounts. The Group's policy is to hold cash in variable rate or short term fixed rate bank accounts. Exposure varies throughout the year as a consequence of changes in the composition of the net assets of the Group arising out of the investment and risk management policies.

Market Price Risk

The management of market price risk is part of the investment management process and is typical of a property investment company. The portfolio is managed with an awareness of the effects of adverse valuation movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in property and property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. Such risk is minimised through the appointment of external property valuers. The basis of valuation of the property portfolio is set out in detail in the accounting policies in the Annual Report.

Any changes in market conditions will directly affect the profit and loss reported through the Statement of Comprehensive Income. Details of the Group's investment property portfolio held at the balance sheet date are disclosed in Note 4.

12. Post-Balance Sheet Events

On 15 November 2017, the Company announced that it had entered into a conditional acquisition agreement with the Stadium Group in relation to the acquisition of a new portfolio of four retail warehouse parks with an aggregated market value of approximately £144 million. This acquisition, funded by an equity issue, an additional debt facility and utilising some of the Group's existing cash, was approved by shareholders. The transaction and fund raising was successfully achieved, with the acquisition subsequently completing on 8 December 2017.

In order to finance this acquisition, the Company allotted 79,339,806 Ordinary Shares at a price of 111.75 pence per share on 7 December 2017. This included 32,662,192 Ordinary Shares which were issued, at the same price, to the vendors. The shares issued to the vendors are covered by a twelve month agreement, subject to customary exceptions, not to dispose of the shares for 12 months from the date of allotment and to only dispose of such shares in the following 12 month period after providing notice to the Company.

As at 23 January 2018, the Company has a total of 210,333,737 Ordinary Shares in issue. The Company has authority from shareholders to issue further shares, without pre-emption rights, under an annual placing program for 60 million shares running to November 2018, and further authority to issue additional shares, again without pre-emption rights, as tap issuance going forward, subject to such authority being renewed at the AGM.

The Company also fully drew down an additional 10-year debt facility of £54 million at a fixed rate (including the margin) of 2.73% per annum. Following this drawdown, the Group had aggregate borrowings of £111 million with a blended fixed interest rate of 2.86% and two distinct repayment dates. The other significant terms of the facility are consistent with those of the existing facility.

The total costs of the transaction, incorporating the entirety of the costs of the share issuance, the acquisition of the property portfolio and the additional debt facility, were £3.1 million which equates to 2.2% of the value of the properties acquired, exceptionally low for a property acquisition. The net initial yield on the portfolio acquired of 6.02%, combined with the expected reduction in the Group's total expense ratio from 1.06% to 0.85% (annualised) by spreading fixed costs over the enlarged Group, improved further the Group's dividend cover.

The Manager has agreed to reduce future management fees payable on any cash available for investment (being all cash held by the Company except cash required for working capital and capital expenditure) by 50 per cent while such cash remains uninvested.

The Group had total assets at 31 December 2017 of £347.3 million, including cash and available debt finance of £25.8 million. This equates to a net asset value per share of 111.02 pence. At the same date, the Group's LTV was 30.4% and its gearing was 32.0%.

13. Financial Statements

These are not full statutory accounts.  The report and financial statements for the year to 30 September 2017 will be posted to shareholders and made available on the website:              www.ediston-reit.com . Copies may also be obtained from the Company's Administrator, Maitland Administration Services (Scotland) Limited, 20 Forth Street, Edinburgh, EH1 3LH.

 

END

 

 

FR EAXFDAESPEFF