Final Results

RNS Number : 6485P

UK Commercial Property Trust Ltd

27 March 2009

 

UK Commercial Property Trust Limited

 

Final Results Announcement for the year ended 31 December 2008

 

Financial Highlights

 

• No borrowing/gearing to date.

• Annual dividend yield of 9.86 per cent based on the year end share price. (2007: 7.55 per cent).

• Total dividend paid for year per Ordinary Share of 5.25p for the year to 31 December 2008. (5.25p for the year to 31 December 2007).

• Cash balance of £64.6 million at the year end (2007: £33.6 million).

• The average unexpired lease term of the property portfolio is 11 years. (2007: 10 years and 8 months).

• Voids now at 3.25 per cent. (2007: 2.99 per cent).

• Property portfolio ranked in top quartile for covenant strength in the independent IPD Rental Information     Service.

• 20 percentile rank in IPD Balanced Monthly and Quarterly Benchmark.

 

Chairman’s Statement

 

I am pleased to present the annual report of the Company for the year to 31 December 2008.

 

Commercial Property Markets

 

Commercial property markets in the UK had an extremely disappointing 2008, continuing the poor returns that blighted the final months of 2007. The issues impacting the UK economy in 2008 are well documented: the implosion of the market in securitized credit instruments pushed the heavily indebted global banking system to the edge of collapse and froze credit markets. As a consequence, recession has taken hold in the UK and around the world. Despite the banking sector being bailed out by unprecedented levels of government support and interest rates being cut to all time lows, consumer confidence is at rock bottom with unemployment rising dramatically.

 

The decline in property capital values over the year according to the IPD Monthly Index was 29% almost matching the fall in the FTSE All Share index which fell 33% over the same period. Investor sentiment deteriorated over the year as the flood of negative market news and comment forced open ended property vehicles to raise cash in markets with no willing buyers further suppressing valuations and keeping potential investors on the sidelines looking for any sign that the “bottom” had been reached. The final quarter of 2008 saw the full force of the economic slowdown impact all aspects of the UK economy, undermining the availability of credit, pressuring retailers into heavy discounting in the run up to Christmas and bringing down heavily indebted high street names such as Woolworths and Zavvi.

 

Property valuations struggled to find a level of support during the year as the retail fallout and the spectre of increasing voids and bad debts weighed heavily across the sector.

 

Share Buy Backs

 

No share buy back transactions were carried out during 2008.

 

On 17 March 2009, the Company bought back 28,571,429 of its own Ordinary Shares of 25p at a price of 52.5p per share. This represents a discount of 24.8 per cent to the year end NAV per share. These shares will be held in treasury. Following this purchase the Company’s issued share capital consists of 880,000,000 Ordinary Shares of 25p of which 41,445,142 are held in treasury. The total number of shares with voting rights in the Company is 838,554,858.

 

Your Board will continue to use share buy backs in future where it believes that that it will enhance shareholder value while giving careful consideration to the Company’s cashflows and development and asset management opportunities as they arise.

 

 

 

NAV/Share Price Performance

 

The unaudited Net Asset Value per Ordinary Share (calculated under International Financial Reporting Standards and adjusted for the provision of dividend declarations) for the year to 31 December 2008 was as follows:

 

Date	NAV (p)	Share Price (p)	Premium/ (Discount) %
31 December 2007	90.79	69.50	(23.45)
31 March 2008	87.65	78.00	(11.01)
30 June 2008	84.53	67.00	(20.74)
30 September 2008	79.65	73.25	(8.04)
31 December 2008	69.89	53.25	(23.81)

 

The negative sentiment towards property manifested itself as the Company’s shares traded at a consistently large discount to NAV over the year.

 

Borrowing

 

On 20 June 2008 the Company announced that it had put in place a seven year term loan facility with Lloyds Banking Group to enable it to borrow up to £80m (or 10% of Net Assets if less) for general corporate purposes. As noted in the announcement the addition of this facility to the existing cash balances ensures that the Company is positioned to take advantage of any opportunities that market conditions and investment opportunities present.

 

In the period to 27 March 2009 the Company had no borrowings.

 

Dividends

 

The Company declared and paid the following dividends during the year:

 

	Ex Dividend Date	Pay Date	Dividend Rate (p)
6th interim for the prior period	13 Feb 2008	29 Feb 2008	1.3125
1st Interim	14 May 2008	30 May 2008	1.3125
2nd Interim	13 Aug 2008	29 Aug 2008	1.3125
3rd Interim	12 Nov 2008	28 Nov 2008	1.3125
		Total	5.2500

 

On 5 February 2009 the Company declared a 4th Interim Dividend of 1.3125p per Ordinary Share with an ex-dividend date of 11 February 2009, which was paid on 27 February 2009.

 

Outlook

 

Forecasting when the current problems afflicting both the property and wider investment markets will come to an end is almost impossible, as the Government struggles to maintain order in the banking system and instil some degree of confidence and stability in the wider economy. The depth of the current recession will be determined by the ability of the banks to restart the credit markets through lending at competitive and not restrictive rates, by improved investor confidence in both domestic and international investment markets and by consumer confidence recovering to a level that halts the current flow of negative news emanating from the retail sector

 

In the current downturn protecting current revenue streams, maintaining and creating value through active asset management and remaining alive to any opportunities that may arise in the current markets are your Company’s priorities.

 

Consolidated Income Statement

For the year ended 31 December 2008

 

		Year ended 31 December 2008		24 August 2006 to 31 December 2007
	Notes	£’000		£’000
Revenue
Rental income		45,867		50,898
Losses on investment properties	8	(176,090)		(70,351)
Interest revenue receivable		2,458		2,358
Total income		(127,765)		(17,095)
Expenditure
Investment management fee	2	(5,326)		(7,240)
Other expenses	3	(2,792)		(3,664)
Total Expenditure		(8,118)		(10,904)
Net operating loss before finance costs		(135,883)		(27,999)
Net finance costs
Finance costs	4	-		(107)
Net loss from ordinary activities before taxation		(135,883)		(28,106)
Taxation on loss on ordinary activities	5	-		-
Net loss for the period		(135,883)		(28,106)
(Earnings) per share	7	(15.67)p		(3.71)p

 

The accompanying notes are an integral part of this statement.

 

Consolidated Balance Sheet

As at 31 December 2008

 

		2008		2007
	Notes	£’000		£’000
Non-current assets
Investment properties	8	560,120		773,095
Current assets
Trade and other receivables	10	5,125		6,465
Cash and cash equivalents		64,610		33,593
		69,735		40,058
Total assets		629,855		813,153
Current Liabilities
Trade and other payables	11	(12,510)		(14,401)
Total liabilities		(12,510)		(14,401)
Net assets		617,345		798,752
Represented by:
Share capital	12	220,000		220,000
Share premium		267,952		267,952
Treasury Shares		(10,249)		(10,249)
Special distributable reserve		386,073		388,306
Capital reserve		(246,441)		(70,351)
Revenue reserve		-		3,084
Equity Shareholders’ funds		617,335		798,742
Minority interest		10		10
		617,345		798,752
Net asset value per share	13	71.2p		92.1p

The accompanying notes are an integral part of this statement.

 

Consolidated Statement of Changes in Equity

 

For the year ended 31 December 2008

 

	Share Capital £’000	Share Premium Account £’000	Treasury Shares £’000	Special Distributable Reserve £’000	Capital Reserve £’000	Revenue Reserve £’000	Minority Interest £’000	Total £’000
As at 1 January 2008	220,000	267,952	(10,249)	388,306	(70,351)	3,084	10	798,752
Net loss for the year	-	-	-	-	-	(135,883)	-	(135,883)
Dividends paid	-	-	-	-	-	(45,524)	-	(45,524)
Transfer in respect of losses on investment properties	-	-	-	-	(176,090)	176,090	-	-
Transfer from special distributable reserve	-	-	-	(2,233)	-	2,233	-	-
At 31 December 2008	220,000	267,952	(10,249)	386,073	(246,441)	-	10	617,345

 

For the period 24 August 2006 to 31 December 2007

 

	Share Capital £’000	Share Premium Account £’000	Treasury Shares £’000	Special Distributable Reserve £’000	Capital Reserve £’000	Revenue Reserve £’000	Minority Interest £’000	Total £’000
Issue of Ordinary Shares	220,000	670,500	-	-	-	-	-	890,500
Issue Costs	-	(12,733)	-	(1,509)	-	-	-	(14,242)
Conversion of Share Premium Account	-	(389,815)	-	389,815	-	-	-	-
Shares bought back and held in Treasury	-	-	(10,249)	-	-	-	-	(10,249)
Minority Interest	-	-	-	-	-	-	10	10
Net loss for the period	-	-	-	-	-	(28,106)	-	(28,106)
Dividends paid	-	-	-	-	-	(39,161)	-	(39,161)
Transfer in respect of losses on investment properties	-	-	-	-	(70,351)	70,351	-	-
At 31 December 2007	220,000	267,952	(10,249)	388,306	(70,351)	3,084	10	798,752

 

The accompanying notes are an integral part of this statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Cash Flow Statement

For the year ended 31 December 2008

 

 

	Year ended 31 December 2008	24 August 2006 to 31 December 2007
	£’000	£’000
Cash flows from operating activities
Net operating loss for the period before finance costs	(135,883)	(27,999)
Adjustments for:
Losses on investment properties	176,090	70,351
Decrease/(Increase) in operating trade and other receivables	1,340	(6,465)
(Decrease)/Increase in operating trade and other payables	(1,891)	14,401
	39,656	50,288
Loan interest paid	-	(107)
Net cash inflow from operating activities	39,656	50,181
Cash flows from investing
Purchase of investment properties	-	(859,657)
Sale of investment properties	42,587	17,124
Capital expenditure	(5,702)	(913)
Net cash inflow/(outflow) from investing activities	36,885	(843,446)
Cash flows from financing activities
Proceeds from issue of Ordinary Shares	-	890,500
Issue costs of ordinary share capital	-	(14,242)
Share buyback	-	(10,249)
Minority interest	-	10
Dividends paid	(45,524)	(39,161)
Net cash (outflow)/inflow from financing activities	(45,524)	826,858
Opening cash and cash equivalents	33,593	-
Closing cash and cash equivalents	64,610	33,593

 

The accompanying notes are an integral part of this statement.

 

Notes to the Accounts

 

1. Accounting Policies

 

A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.

 

(a) Basis of Accounting

The consolidated accounts have been prepared in accordance with International Financial Reporting Standards issued by, or adopted by, the International Accounting Standards Board (the

IASB), interpretations issued by the International Financial Reporting Standards Committee, applicable legal and regulatory requirements of Guernsey law and the Listing Rules of the UK Listing Authority.

 

(b) Basis of Consolidation

The consolidated accounts comprise the accounts of the Company and its subsidiaries drawn up to 31 December each year. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.

 

(c) Functional and Presentation currency

Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The financial statements are presented in pounds sterling, which is the Group's functional and presentational currency. All figures in the financial statements are rounded to the nearest thousand.

 

(d) Revenue Recognition

Rental income, excluding VAT, arising on investment properties is accounted for in the Income Statement on a straight line basis over the lease term of ongoing leases. Surrender lease premiums paid are required to be recorded as a current asset and amortised over the period from the date of the lease commencement to the earliest termination date. Interest income is accounted on an accruals basis.

 

(e) Expenses

Expenses are accounted for on an accruals basis. The Group's investment management and administration fees, finance costs and all other expenses are charged through the Income Statement.

 

(f) Taxation

With effect from 1 January 2008 exempt status for category D companies has been abolished and the standard rate of income tax for Guernsey companies reduced to zero per cent. However, the Company will still be able to continue to apply for tax exemption under the Income Tax (Exempt Bodies) (Guernsey) ordinance, 1989 as a category B collective investment vehicle, as will its subsidiary. A fixed annual fee of £600 is payable to the States of Guernsey in respect of this exemption. Capital gains are not taxable in Guernsey.

 

The Directors intend to conduct the Group's affairs such that the management and control is not exercised in the United Kingdom and so neither the Company nor any of its subsidiaries carries on any trade in the United Kingdom. Accordingly, the Company and its subsidiaries will not be liable for United Kingdom taxation on their income or gains other than certain income deriving from a United Kingdom source.

 

The Company and its subsidiaries are subject to United Kingdom income tax on income arising on the property portfolio after deduction of its allowable debt financing costs and other allowable expenses.

 

(g) Investment Properties at fair value through profit or loss

Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period during which the expenditure is incurred and included within the book cost of the property. After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in the Income Statement and transferred to the Capital Reserve. Fair value is based on the open market valuation provided by CB Richard Ellis Limited, chartered surveyors, at the Balance Sheet date. On derecognition, realised gains and losses on disposals of investment properties are recognised in the Income Statement and transferred to the Capital Reserve.

Recognition and derecognition occurs on the exchange of signed contracts between a willing buyer and a willing seller.

(h) Share Issue Expenses

Incremental external costs directly attributable to the issue of shares that would otherwise have been avoided are written off against the Share Premium Account and the Special Distributable Reserve.

 

(i) Segmental Reporting

The Directors are of the opinion that the Group is engaged in a single segment of business being property investment business and in one geographical area, the United Kingdom.

 

(j) Cash and Cash Equivalents

Cash in banks and short term deposits that are held to maturity are carried at cost. Cash and cash equivalents consist of cash in hand and short term deposits in banks with an original maturity of three months or less.

 

 (k) Trade and Other Receivables

Trade receivables, which are generally due for settlement at the relevant quarter end are recognised and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

 

(l) Reserves

 

Special Reserve

The special reserve is a distributable reserve to be used for all purposes permitted under Guernsey law, including the buyback of shares and the payment of dividends.

 

Capital Reserve

The following are accounted for in this reserve:

- gains and losses on the disposal of investment properties

- increases and decreases in the fair value of investment properties held at the year end

 

Revenue Reserve

Any surplus arising from the net profit on ordinary activities after taxation and payment of dividends is taken to this reserve, with any deficit charged to the special reserve.

 

Share Premium

Any premium arising from the issue of Ordinary Shares of 25 pence each is credited to this account.

 

Treasury Share Reserve

This represents the cost of shares bought back by the Company and held in treasury.

 

(m) New standards not applied

The following new standards have been issued but they are not effective for this accounting period and have not been early adopted:

 

In November 2006, the IASB issued IFRS 8 Operating Segments which becomes effective for periods commencing on or after 1 January 2009. This standard requires disclosure on the financial performance of the Company’s operating segments.

 

In September 2007, the IASB issued IAS 1 Presentation of Financial Statements (amendment), which becomes effective for accounting periods commencing on or after 1 January 2009. This standard prescribes the basis of presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities.

 

In January 2008, the IASB issued IAS 27 Consolidated and Separate Financial Statements, which becomes effective for accounting periods commencing on or after 1 July 2009. the objective of this standard is to enhance relevance, reliability and comparability of the information that a parent entity provides in its separate financial statements and in its consolidated financial statements for a group of entities under its control.

 

The Group does not consider that the future adoption of International Financial Reporting Standards, in the form currently available, will have any material impact on the financial statements presented.

 

2. Fees

	Year ended 31 December 2008	24 August 2006 to 31 December 2007
	£’000	£’000
Investment management fee	5,326	7,240

 

Investment management fee

 

The Company's Investment Managers, Ignis Investment Services Limited, receive a fee from the Group at an annual rate of 0.75 per cent of the Total Assets, plus an administration fee of £105,000 per annum (which will increase annually in line with inflation) (see note 3), payable quarterly in arrears. The fees of any managing agents appointed by the Investment Managers will be payable out of the investment management fee. The investment management agreement was for a fixed initial period of two years from 22 September 2006 and, with effect from the first anniversary of that date, is terminable by any of the parties to it on 12 months' notice.

 

3. Other expenses

 

	Year ended 31 December 2008	24 August 2006 to 31 December 2007
	£’000	£ 000
Direct operating expenses of let property	1,103	1,259
Valuation and other professional fees	883	1,556
Bad debt provision	115	182
Directors’ fees	105	142
Administration fee	105	128
Facility Fees	104	-
Administrator/ Company Secretary fees	60	70
Regulatory fees	48	70
Auditors’ remuneration for:
Statutory audit	39	50
Tax services	29	20
Other	201	187
	2,792	3,664

 

4. Finance costs

 

	Year ended 31 December 2008	24 August 2006 to 31 December 2007
	£’000	£ 000
Loan Interest	-	107

 

 

 

 

5. Taxation

 

UK Commercial Property Trust Limited owns two Guernsey tax exempt subsidiaries, UK Commercial Property GP Limited and UK Commercial Property Holdings Limited. The two subsidiaries are partners in a Guernsey Limited Partnership and own a Jersey Property Unit Trust. Both the Partnership and UK Commercial Property Holdings Limited own a portfolio of UK properties and derived rental income from those properties. As both the Partnership and Trust property holding entities are considered tax transparent in the UK, their taxable results are taxed in the two subsidiaries. Both are liable to UK income tax at the rate of 20.5 per cent on their respective net rental income.

 

A reconciliation of the income tax charge applicable to the results from ordinary activities at the statutory income tax rate to the charge for the year is as follows:

 

 

	Year ended 31 December 2008	24 August 2006 to 31 December 2007
	£’000	£ 000
Net loss before tax	(135,883)	(28,106)
UK income tax at a rate of 20.5 per cent (2007: 22 per cent)	(27,856)	(6,183)
Effect of:
Capital losses on revaluation of investment properties not taxable	33,760	15,175
Capital losses realised not taxable	2,339	303
Income not taxable	(504)	(519)
Inter company loan interest	(9,281)	(11,065)
Expenditure not allowed for income tax purposes (including set up costs)	1,169	203
Deferred tax asset not provided for	373	2,086
Total tax charge	-	-

 

6. Dividends

 

	Year ended 31 December 2008	24 August 2006 to 31 December 2007
	£’000	£ 000
Dividends on Ordinary Shares:
Sixth interim of 1.3125p per share paid on 29 February 2008	11,381	-
First interim of 1.3125p per share paid on 30 May 2008 (2007:1.45p)	11,381	7,685
Second interim of 1.3125p per share paid on 29 August 2008 (2007: 0.8604p)	11,381	4,560
Third interim of 1.3125p per share paid on 28 November 2008 (2007: 0.4521p)	11,381	3,978
Fourth interim of 1.3125p per share paid on 31 August 2007	-	11,550
Fifth interim of 1.3125p per share paid on 30 November 2007	-	11,388
	45,524	39,161

 

 

A fourth interim dividend of 1.3125p was paid on 27 February 2009 to shareholders on the register on 13 February 2009. Although this payment relates to the year ended 31 December 2008, under International Financial Reporting Standards it will be accounted for in the year ending 31 December 2009.

 

7. Earnings per Share

 

The earnings per share are based on the net loss for the year of £135,883,000 (2007: £28,106,000) and on 867,126,287 (2007: 757,825,984) Ordinary Shares, being the weighted average number of shares in issue during the year.

 

 

8. Investment Properties

	Year ended 31 December 2008	24 August 2006 to 31 December 2007
	£’000	£ 000
Freehold and leasehold properties
Opening valuation	773,095	-
Purchases at cost	-	859,657
Capital expenditure	5,702	913
Loss on revaluation to fair value	(164,682)	(68,975)
Disposals at cost	(53,995)	(18,500)
Closing valuation	560,120	773,095

 

 

Losses on investment properties disposed

	Year ended 31 December 2008	24 August 2006 to 31 December 2007
	£’000	£ 000
Original cost of investment properties sold	(53,995)	(18,500)
Sale proceeds	42,587	17,124
Losses on investment properties sold	(11,408)	(1,376)

 

The net book value at the time of disposal of the respective properties during the year was £44,785,000 (2007: £17,638,000)

 

CB Richard Ellis Limited completed a valuation of Group investment properties at 31 December 2008 on an open market basis in accordance with the requirements of the Appraisal and Valuation Manual published by the Royal Institution of Chartered Surveyors, which is deemed to equate to fair value. Fair value is determined by reference to market based evidence, which is the amounts for which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms length transaction as at the valuation date. The market value of these investment properties amounted to £560,120,000 (2007: £773,095,000) which is also the fair value.

 

The property valuer is external to the Group. The property valuer takes account of deleterious materials included in the construction of the investment properties in arriving at its estimate of open market valuation when the Investment Managers advise of the presence of such materials. The Group has entered into leases on its property portfolio as lessor (See note 17 for further information). No one property accounts for more than 15 per cent of the gross assets of the Group. All leasehold properties have more than 60 years remaining on the lease term. There are no restrictions on the realisability of the Group's investment properties or on the remittance of income or proceeds of disposal. However, the Group’s investments comprise UK commercial property, which may be difficult to realise. Property and property related assets are inherently difficult to value due to the individual nature of such 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 the actual sales occur shortly after the valuation date.

 

The Group is under no contractual obligations to purchase, construct or develop any investment property. The majority of the leases are on a full repairing basis and as such the Group is not liable for costs in respect of repairs, maintenance or enhancements to its investment properties.

 

Included within the total market value of the property portfolio, are units in the Jersey Property Unit Trust which holds the property at Kensington High Street, London. 99.5 per cent of the units in this Unit Trust are held by UKCPT Limited Partnership and 0.5 per cent is held by UK Commercial Property Holdings Limited.

 

 

 

 

 

 

 

9. Investment in Subsidiary Undertakings

 

The Company owns 100 per cent of the issued ordinary share capital of UK Commercial Property Holdings Limited (UKCPH), a Company incorporated in Guernsey whose principal business is that of an investment and property company.

 

In addition to its investment in the shares of UKCPH, the Company had lent £277.8 million on 28 February 2007 to UKCPH, all of which remains outstanding as at 31 December 2008. These loans are repayable in 2016 and are unsecured. Interest is payable quarterly in arrears at a fixed rate of 6.7 per cent per annum, compounded on a quarterly basis. Total interest on these loans for the year amounted to £18.7 million (2007: £15.7 million), of which £3.4 million (2007: £6.6 million) remained payable as at 31 December 2008.

 

The Company owns 100 per cent of the issued share capital of UK Commercial Property GP Limited, (GP), a Company incorporated in Guernsey whose principal business is that of an investment and property company.

 

UKCPT Limited Partnership, (GLP), is a Guernsey limited partnership, and it holds the properties comprised in the initial property portfolio. UKCPH and GP, have a partnership interest of 98.99 and 1 per cent respectively in the GLP. The remaining 0.01 per cent partnership interest is held by The Droit Purpose Trust, which is a Jersey purpose trust. The GP is the general partner and UKCPH is a limited partner of the GLP.

 

The Company had lent £406 million to the GLP on 22 September 2006, all of which remains outstanding as at 31 December 2008. This loan is repayable in 2016 and is unsecured. Interest is payable quarterly in arrears as at fixed rate of 6.5 per cent per annum, compounded on a quarterly basis. Total interest on this loan for the year amounted to £26.5 million (2007: £34.6 million), of which £6.7 million (2007: £10.5 million) remained payable as at 31 December 2008.

 

10. Trade and Other Receivables

	2008	2007
	£’000	£ 000
Rents receivable (net of provision for bad debts)	898	3,642
Other debtors and prepayments	4,227	2,823
	5,125	6,465

 

 

Rents receivable, which are generally due for settlement at the relevant quarter end are recognised and carried at the original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

 

11. Trade and Other Payables

	2008	2007
	£’000	£ 000’s
Rental income received in advance	10,120	11,192
Investment Managers’ fees payable	1,160	1,500
VAT payable	1,055	1,253
Other payables	175	456
	12,510	14,401

 

 

The Group’s payment policy is to ensure settlement of supplier invoices in accordance with stated terms.

 

 

 

 

 

 

 

 

12. Share capital and share premium accounts

 

	2008	2007
	£’000	£’000
Authorised share capital
1,400,000,000 Ordinary Shares of 25 pence each	350,000	350,000
Issued share capital
880,000,000 Ordinary Shares of 25 pence each	220,000	220,000
Treasury shares
12,873,713 Ordinary Shares of 25 pence each	(10,249)	(10,249)

 

The number of shares held in treasury at 27 March 2009 was 41,445,142 Ordinary Shares of 25 pence each (see note 18).

 

13. Net Asset Value per Share

 

The net asset value per Ordinary Share is based on net assets of £617,335,000 (2007: £798,742,000) and 867,126,287 (2007: 867,126,287) Ordinary Shares, being the number of Ordinary Shares in issue at the year end.

 

14. Related Party Transactions

 

No Director has an interest in any transactions which are or were unusual in their nature or significant to the nature of the Group.

 

Ignis Investment Services Limited received fees for its services as investment managers. Further details are provided in notes 2 and 3. The total management fee charge to the income statement during the year was £5,326,000 (2007: £7,240,000) of which £1,160,000 (2007: £1,500,000) remained payable at the year end. The investment manager also receives an administration fee of £105,000 (2007:£100,000) per annum, of which £26,500 (2007: £50,000) remained payable at the year end.

 

The Directors of the Company received fees for their services. Total fees for the year were £105,000 (2007: £167,000), none of which remained payable at the year end, (2007: nil).

 

15. Financial Instruments

 

The Group’s investment objective is to provide Ordinary Shareholders with an attractive level of income together with the potential for income and capital growth from investing in a diversified UK commercial property portfolio.

 

Consistent with that objective, the Group holds UK commercial property investments. In addition, the Group’s financial instruments consist of cash, receivables and payables that arise directly from its operations. The Group has no borrowings at the year end.

 

The main risks arising from the Group’s financial instruments are credit risk, liquidity risk and interest rate risk. The Board reviews and agrees policies for managing its risk exposure. These policies are summarised below and remained unchanged during the year.

 

Fair values

The fair value of financial assets and liabilities is not different from the carrying value in the financial statements.

 

The valuation of the property portfolio assumes that the properties had been properly marketed and that an exchange of contracts took place on the 31 December 2008. Given the fact that the current volatility in the global financial system has created a significant degree of turbulence in commercial real estate markets, and the lack of liquidity in the capital markets, means that it may be very difficult to achieve a sale of property assets in the short-term.

 

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.

 

At the reporting date, the maturity of the Group’s financial assets was:

 

Financial Assets 2008	3 months or less	More than 3 months but less than one year	More than one year	Total
	£’000	£’000	£’000	£’000
Cash	64,610	-	-	64,610
Rent receivable	898	-	-	898
Other debtors and prepayments	606	104	3,517	4,227
	66,114	104	3,517	69,735

 

Financial Assets 2007	3 months or less	More than 3 months but less than one year	More than one year	Total
	£’000	£’000	£’000	£’000
Cash	33,593	-	-	33,593
Rent receivable	3,642	-	-	3,642
Other debtors and prepayments	248	46	2,529	2,823
	37,483	46	2,529	40,058

 

In the event of default by an occupational tenant, the Group will suffer a rental shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property until it is re-let. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Managers monitor such reports in order to anticipate and minimise the impact of defaults by occupational tenants.

 

The Company has a diversified tenant portfolio. The maximum credit risk from the rent receivables of the Group at 31 December 2008 is £898,000 (2007:£3,642,000). The Group holds rental deposits of £425,000 (2007: £473,000) held as collateral against tenant arrears/defaults. There is no credit risk associated with the financial liabilities of the Group.

 

All of the cash is placed with financial institutions with a credit rating of A or above. Bankruptcy or insolvency may cause the Group’s ability to access cash placed on deposit to be delayed or limited. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, the Manager would move the cash holdings to another financial institution.

 

There are no significant concentrations of credit risk within the Group.

 

Liquidity Risk

Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments.

 

The Group’s investments comprise UK commercial property. 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.

 

At the reporting date, the maturity of the Group’s liabilities was:

 

Financial Liabilities 2008	3 months or less	More than 3 months but less than one year	More than one year	Total
	£’000	£’000	£’000	£’000
Other Creditors	11,015	1,059	436	12,510

 

Financial Liabilities 2007	3 months or less	More than 3 months but less than one year	More than one year	Total
	£’000	£’000	£’000	£’000
Other Creditors	12,161	1,814	426	14,401

 

 

Interest rate risk

The cash balance as shown in the Balance Sheet, is its carrying amount and has a maturity of less than 1 year.

 

Interest is receivable on cash at a variable rate ranging between 1.3 per cent to 2.0 per cent at the year end and deposits are repriced at intervals of less than one year.

 

An increase of 1 per cent in interest rates as at the reporting date would have reduced the reported loss by £646,000 (2007: reduced the reported loss £336,000). A decrease of 1 per cent would have increased the reported loss by £646,000 (2007: increased the reported loss by £336,000).

 

The other financial assets and liabilities of Group are non-interest bearing and are therefore not subject to interest rate risk.

 

Foreign Currency Risk

There was no foreign currency risk as at 31 December 2008 or 31 December 2007 as assets and liabilities of the Group are maintained in pounds Sterling.

 

Capital Management Policies

The Group’s capital is managed in accordance with investment policy which is to hold a diversified property portfolio of freehold and long leasehold UK commercial properties. The Group intends to invest in income producing investments. The Group will principally invest in three commercial property sectors: office, retail and industrial. The Group will be permitted to invest up to 15 per cent. of its Total Assets in indirect property funds but will not invest in other listed investment companies. The Group will be permitted to invest cash, held by it for working capital purposes and awaiting investments, in cash deposits, gilts and money market funds.

 

The Group’s capital balances are set out on page 25.

 

16. Capital Commitments

 

The Group has no capital commitments as at 31 December 2008 (2007: nil)

 

 

17. Lease Length

 

The Group leases out its investment properties under operating leases.

 

The future annual income based on the unexpired lessor lease length at the year end was as follows (based on total rentals):

 

	31 December 2008	31 December 2007
	£’000	£ 000
Less than one year	452	2,236
Between one and five years	10,109	8,759
Over five years	34,139	34,871
Total	44,700	45,866

 

The largest single tenant at the year end accounted for 9.57 per cent (2007: 8.26 per cent) of the current annual rental income.

 

The unoccupied property expressed as a percentage of estimated total rental value was 3.25 per cent (2007: 2.99 per cent) at the year end.

 

The Group has entered into commercial property leases on its investment property portfolio. These properties, held under operating leases, are measured under the fair value model as the properties are held to earn rentals. The majority of these non-cancellable leases have remaining non-cancellable lease terms of between 5 and 15 years.

 

18. Post Balance Sheet Events

 

On 17 March 2009 the Company purchased 28,571,429 of its own Ordinary Shares of 25p, to be held in treasury at a price of 52.5p per share.

 

Following this, the total number of shares held in treasury is 41,445,142.

 

 

 

 

 

 

 

The year end Report and Accounts to 31 December 2008 will be mailed to shareholders by 10 April  2009 

 

 

All enquiries:

 

Nigel Russell/Graeme Caton/Graham Reaves, G&N Collective Funds Services Limited

0131 226 4411

 

The Company Secretary, Northern Trust International Fund Administration Services (Guernsey) Limited

01481 745529

 

 

 

 

Announcement Ends

 

 

END

 

 

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