Annual Financial Report

Value and Indexed Prop Inc Tst PLC

26 June 2023

 

VALUE AND INDEXED PROPERTY INCOME TRUST PLC

ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED 31 MARCH 2023

Chairman's Statement

This is my first communication with you since I became Chairman in July 2022. We all owe a debt of gratitude to my predecessor, James Ferguson, for his expert stewardship of the Trust over his 28 years as Chairman. During the year, we welcomed Lucy Winterburn, with her wide experience of the property market, to the Board.

The property sector was particularly affected by the economic and geopolitical turmoil over the year - the rise in inflation and interest rates, the political chaos of the short-lived Truss administration, and the multiple consequences of the war in Ukraine. While the Trust's portfolio, which is not exposed to offices or high street shops, outperformed the MSCI UK Quarterly Property Index, it was certainly not immune to the general malaise. In the year under review, the total net asset value return per share, measuring debt at carrying value, was -17.9%; the share price total return was -9.2%, the difference reflecting the substantial narrowing of the discount to asset value, which is now below the average for the property sector.

This narrowing reflects the completion of the major reconstruction of the Trust, which has been in progress for the last three years. The last remaining equity holdings have been sold. Debt has been refinanced and now has an average maturity of over seven years and an average, almost entirely fixed, interest rate below 4%. Our holdings now comprise industrial premises, supermarkets, and leisure facilities and almost all have rents linked to inflation. Tenant covenants are strong - all rent due in the last year has been collected, with 60% of rents coming from our top 6 tenants. The dividend is now covered by contracted income and since the average yield exceeds the cost of the Company's debt, the Board is confident of the Trust's ability to continue the progressive dividend policy, which the Company has maintained for 36 years. At 31 March 2023, VIP's Ordinary Shares yielded 6.3%.

The majority of the indexed rents in the Company's portfolio have caps - which limit the rate of increase - and collars - which specify a minimum increase. The effect of these arrangements is illustrated in the Annual Report. If the Consumer Price Index (CPI) increases by 4% annually, the growth of the Company's income will more or less match the inflation rate. If inflation is less than this - and the Bank of England's target is 2%, although it has recently been far from achieving this target - income will increase by more than inflation. However, if inflation is faster than 4%, the caps on rent increases imply that these increases will fall short of full indexation.

The costs of the Company's major debt reconstruction provide part of the explanation of the Trust's asset value decline in the year under review - the remaining debenture was repaid at a premium and there are costs associated with both acquisitions and disposals. The result is a robust portfolio, which should prove resilient in the face of continued political and economic uncertainties. The market has recognised these achievements and the discount to net asset value has narrowed and is below the property sector average.

As Shareholders were advised in 2020, when the process of reconstruction began, the Board intends to offer Shareholders an exit at net asset value less costs. Proposals will be put to Shareholders at the 2026 AGM of the Company.

Many uncertainties certainly remain. The fiasco of 'liability driven investment' - in which long term investors purporting to minimise risk were forced to scramble for short term cash - is now largely resolved. Some of the banking institutions most exposed to mismatched assets and liabilities in a period of rising interest rates have been rescued. However, there is still much illusory wealth in tech stocks and crypto related assets, which will evaporate as reality dawns. While VIP has restructured its debt on sustainable terms, there are many capital providers who have yet to do so. Problems in this 'shadow banking' sector are likely to continue to have implications for both the financial system as a whole and the property sector, in particular, for several years yet.

The Board is recommending a final dividend of 3.6 pence per share, making total dividends of 12.9 pence per share for the year to 31 March 2023, compared to 12.6 pence in the previous year, an increase of 2.4%. Subject to Shareholder approval at the 2023 Annual General Meeting (AGM), the final dividend will be paid on 4 August 2023 to Shareholders on the register on 7 July 2023. The ex-dividend date is 6 July 2023.

The AGM will be held at the Kingham Room, Broadway House Conference Centre, Tothill Street, London SW1H 9NQ at 12.30pm on Wednesday, 2 August 2023. The Notice of Annual General Meeting can be found in the Annual Report. The Board encourages Shareholders to vote using the proxy form, which can be submitted to the Company's Registrars, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY. Proxy forms should be completed and returned in accordance with instructions thereon and the latest time for the receipt of proxy forms is 12.30pm on 31 July 2023. Proxy votes can also be submitted by Crest or online using the Registrar's Share Portal service at www.investorcentre.co.uk/eproxy.

John Kay

Chairman

26 June 2023

Summary of Portfolio

Portfolio transition	31 March 2023		31 March 2022
	£m	%	£m	%
UK property	150.6	98.5	155.8	83.0
Cash	2.3	1.5	5.2	2.7
UK equities	-	-	26.9	14.3
	152.9	100.0	187.9	100.0

VIP property portfolio - sector weightings since 2012

Sector	March 2023	March 2022	March 2021	March 2020	March 2014	March 2012
Offices	0%	0%	0%	0%	0%	0%
Shops and Retail Warehouses	0%	0%	0%	0%	39%	49%
Supermarkets	29%	27%	16%	2%	5%	0%
Pubs and Restaurants	9%	13%	24%	32%	17%	13%
Leisure	18%	11%	8%	12%	11%	10%
Industrial	29%	33%	35%	32%	8%	8%
Roadside	6%	7%	3%	6%	16%	16%
Other	9%	9%	14%	16%	4%	4%
Total	100%	100%	100%	100%	100%	100%
Number of Properties	39	43	31	26	29	27

Manager's Report

The property market

UK commercial property values peaked in June 2022 after property yields were pushed down to 40 year lows. QE (Quantitative Easing) had been going on too far, for too long, in the United Kingdom as in most Western economies, forcing interest rates unsustainably low and capital values, especially of low yielding assets, unsustainably high. The Bank of England, in particular, had dropped its guard on its official 2% inflation target. So Russia's invasion of Ukraine, raising world energy and commodity prices, meant that UK interest rates and gilt yields had to shoot up to take the strain when the UK's post-pandemic recovery was already the weakest of the G7 nations and our public sector and overseas trade deficits were the worst.

Bond and currency markets have now stabilised after the economic and interest rate chaos of the Truss-Kwarteng administration last autumn, and average values of commercial property are now down about 20% from their mid 2022 peak and 13% over 2022 as a whole. So far in 2023, average property values have been slipping slightly further on the MSCI UK Monthly Property Index, but turnover is very low so this is based more on sentiment than actual completed transactional evidence. Investors are cautious and risk averse. Properties with long, strong, indexed income let at sustainable rents to robust tenants are still in demand, particularly from cash buyers in smaller lot sizes, and should continue to outperform. There should be attractive investment opportunities over the next few months from forced or pressured sellers who will find it increasingly hard to refinance highly geared portfolios as credit conditions tighten.

Comparative investment yields - End December (except 2023 - March)

		2023*	2022	2021	2020	2019	2011	2008	2006
Property (equivalent yield)		6.2	6.1	5.1	5.8	5.6	6.9	8.3	5.4
Long Gilts	Conventional	3.5	3.8	1.0	0.2	1.0	2.5	3.7	4.6
	Index linked	-0.1	0.3	-2.6	-2.6	-2.0	-0.2	0.8	1.1
UK Equities		3.6	3.6	3.1	3.4	4.1	3.5	4.5	2.9
RPI (annual rate)		13.5	13.4	7.5	1.2	2.2	4.8	0.9	4.4
Yield gaps:	Property less Conventional Gilts	2.7	2.3	4.1	5.6	4.6	4.4	4.6	0.8
	Property less Index Linked Gilts	6.3	5.8	7.7	8.4	7.6	7.1	7.5	4.4
	Property less Equities	2.6	2.5	2.0	2.4	1.5	3.4	3.8	2.5

Source: MSCI UK Quarterly Property Index and ONS for the RPI (*to December except March 2023)

Offices, with a total return of -9.8% over 2022, underperformed the market as they have over the past 1, 3, 5 and 10 calendar years on the MSCI UK Quarterly Property Index. Retail property, with a total return of -4.8% was the best performer of the main sectors for the first time since 2010. Industrial/warehouse property, by contrast, gave back much of its previous gains as valuation yields were marked out, with a return of -14.4%. The alternative sectors generally outperformed, like retail, with marginally negative total returns.

Rental values were up on average by 3.8% over 2022, but growth has started to slow in recent months. Industrial rental growth will tail off rapidly in 2023 under pressure from rising business rates and tenant defaults. Sector differences may, therefore, be less important than individual property selection in 2023, with rents under pressure but valuation yields bottoming out. Capital values should be starting to rise again by the year end as inflation falls back and the UK economy and real incomes start growing again.

UK commercial property - Average annual % growth rates to March 2023

		1 year	3 years	5 years	10 years
Capital values	All property	-16.8	-2.6	-2.6	1.5
Rental values	All property	3.5	1.2	0.6	1.6
Total returns	All property	-13.0	1.7	1.9	6.5

Source: MSCI UK Quarterly Property Index March 2023

Property transaction volumes slowed down markedly between June and October 2022, especially for the lowest yielding properties, with many sales only going through after agreed prices had been "chipped" by buyers and more properties having to be withdrawn from the market unsold. But more realistically priced stock is starting to appear. This is mainly "off market", particularly from property unit trusts under redemption pressure, and individual pension funds and pooled pension vehicles caught out by the Liability Driven Investing (LDI) crisis. This led, as the Bank of England Financial Policy Committee put it, to "a vicious spiral of collateral calls and forced gilt sales, and a material risk to UK financial stability". Regulatory stable doors are now being loudly shut, but risks remain in non-bank credit, where the Bank of England estimates that global private credit has trebled in size over the past decade.

Retail and industrial property void rates are now back to their pre-COVID levels, but as the table below shows, office void rates have shot up from 13% pre-COVID to an all time high of over 20% now, well above the previous record high of 15% for office voids in 2013. This has dragged the average void rate for all property back up to its previous peak of 10% in 2009, although retail and industrial void rates are stable between 6% and 7%. Persistently high void rates will continue to undermine office sector returns, for two reasons: first, most office occupiers are downsizing their net space requirements to reflect hybrid working patterns (40% of UK working adults are now working from home for at least one day a week, compared to 12% pre-pandemic), and second, many older office buildings contain a ticking Energy Performance Certificate compliance time bomb, making it ever more costly to retain and replace tenants.

In summary, the main property valuers marked capital values down much further and faster between September and December than in previous property market downturns, despite little or no evidence of transactions completed at the new lower levels. That was still realistic with the relentless rise in gilt yields and base rate, now to 5%.

Rental values and rent collection will, however, come under more recessionary pressures this year, as tenant default rates begin to rise and rental income falls, particularly in the industrial and office sectors. The key to portfolio outperformance on both the income and total return fronts in a difficult market will be reducing risk and sticking to strong tenants, paying affordable, preferably index-linked, rents on long leases for sustainable buildings in prosperous locations.

Property prospects by sector

Warehouse / Industrials - Valuation yields stabilising

Following the industrial market's fall from grace in Q4, investors' gloom is starting to lift a little. Average valuation yields, having risen by over 150bps in Q4 2022, have now stabilised. Any effects of the recent banking crisis have not yet been seen.

The market remains thin in comparison to recent years, with less than £700m of industrial property transactions completed during Q1 2023 (over 80% down on Q1 2022). Some institutional money is back for South East multi-let estates. The key is modern stock in solid locations and buyers are taking a much more conservative approach towards future potential rental growth. Equivalent yields are typically now only 75bps to 100bps above the initial yield, a significant difference to the 200 - 300 bps differential often seen in the first half of 2022. With EPC ratings coming ever more into focus, some sellers are needing to take the cost of improvements off the sale price to get buildings up to scratch and in line with legislative requirements.

The pressure of rising occupational costs, such as the business rate increase and rising energy prices, will be reflected in weaker occupational demand and rental levels. In April, the business rates payable on industrial and warehouse property rose on average by 27% (+33% in London and the South East). These additional costs will cool occupational demand and the record rental growth of the past few years will tail off. Industrial occupiers will then be hit with a further blow in two years' time when business rates will increase again. So by the end of 2023, there will be more evidence of rental values falling, tenants' incentives becoming more generous and void rates increasing.

We are unlikely to see the sharp yields witnessed in the first half of 2022 for many years, but valuation yields should remain stable over the rest of the year. The MSCI UK Quarterly Property Index's net initial yield for industrials was 4.4% for March with a corresponding equivalent yield of 5.7% compared to 3.1% and 4.0% at the peak of the market in summer 2022.

Offices - Still more suffering to come

Completed transactions were few and far between over the last six months and yields continued to soften (significantly in the case of secondary assets). Agents, having marked out typical prime West End and City of London yields by over 75 bps and having cut capital values by around 20% last year, have limited evidence to move these yields out again so are sitting on the fence for the time being, but their reported yields are trending weaker. We expect these yields will move out further over the course of 2023. Many debt- financed office owners will need to cut their office exposure due to external pressures such as higher borrowing costs or even a lack of available financing in addition to the worsening occupational story and ESG compliance issues and costs.

Many large office holdings in the main office markets, London, the South East and the "Big Six" UK cities, are predominantly held by overseas investors, often with high levels of gearing. When refinancing, these investors will be affected by the recent banking crisis and interest rate rises and some will be forced to sell, increasing supply and consequently softening yields and capital values further. The occupational market will continue to suffer through the year as many large office employers continue to consolidate spaces and faces, with permanent working from home arrangements and job cuts on the back of the disrupted economy and the current banking crisis. The average actual office occupancy rate across the UK is 29% in comparison to the 80% recorded pre pandemic. Occupiers will continue to demand more flexible leases and superior amenities in order to attract the workforce to use the office, hitting capital values directly due to high levels of required capital expenditure.

This lack of occupier demand is now being borne out in vacancy rates, which have edged up to 20.5% in the MSCI UK Monthly Property Index. These rates will increase even further over 2023 to levels never seen in the market before. ESG compliance issues and costs may be the final nail in the coffin for many secondary "zombie" offices - three-quarters of office stock in the UK does not comply with the minimum energy efficiency standards for 2027. With high costs to improve these buildings, upgrading to comply is no longer viable.

The downward pressure on capital and rental values will continue throughout the rest of the year and beyond until the economy recovers and the market starts to fully understand and get on the right side of the structural change. Many poor secondary assets may not withstand these changes. We believe the value of office buildings could fall by at least a further 20% in the next two to three years. The MSCI UK Quarterly Property Index recorded a capital value fall of -12.5% over the 12 months to December 2022 and it has already fallen a further -2.6% in the first quarter of 2023. Industrial and office yields are now equal, the market has shifted, and investors are more likely to purchase occupied industrial property with land than vacant, costly, depreciating and unused office space.

Retail - Fighting back as business rates fall

Consumer confidence is low with real retail sales falling in 2023 and real living standards under unprecedented pressure. But since the pandemic, online sales penetration has declined faster than expected, with consumers still valuing physical retail. Occupier profit margins will be under increasing strain as inflation continues to bite, and with logistics costs soaring, many occupiers will seek to direct consumers back into stores to increase efficiencies. Some major retailers are now charging shoppers who return items bought online, with the cost taken from their refund but items purchased online can still be returned for free in stores. Going into 2023 with a lack of transactional activity, retail yields are higher than in other sectors so should be better protected against current debt costs and retail may outperform the property sector as a whole again in 2023.

In 2022, Aldi overtook Morrisons to become the UK's fourth biggest supermarket, increasing its market share to around 9.2%, with Lidl hot on their trail at 7.1%. Tesco's market share stands at 27.5% with Sainsbury's 15.4% followed by Asda at 14.2%. Behind Morrisons, Aldi and Lidl is the Co-op with 5.5% and Waitrose at 4.7%. The discount supermarkets grew so fast because consumers, who had moved online during the pandemic, returned to the value-led stores in person due to their demand for competitive pricing due to the current economic climate. The discounters continued their store expansion last year competing directly for the best sites, increasing store coverage but potentially taking on property risk to secure representation in key target locations by doubling up. Lidl opened 54 stores last year but have now announced a reduced acquisition programme. Tesco, Asda, Morrisons and M&S are also looking to secure sites in the 15,000 sq ft to 25,000 sq ft bracket competing head on, with Aldi stating they are still focussed on 40 new stores per year across the UK, targeting London and the South East. Profits are under pressure across the whole food retail sector, with supermarket margins squeezed between rising costs and falling customer incomes, with traditionally loyal customers trading down to value products or going to cheaper competitors as food inflation continues to rise to the highest on record of over 16%. Many retailers such as Tesco, Asda and Lidl are giving further pay rises this year due to the rising cost of living and labour shortages, with the National Minimum wage just up by 9.7% to £10.42 per hour.

Capital values of supermarkets fell sharply in the second half of 2022 after valuation yields were forced down too low last summer, with an Aldi trading at a 3% yield. There are glimmers of a recovery in Q1 2023 as the sector offers secure income in volatile markets (food is a necessity). Well-let, particularly smaller, properties are now again offering low risk, rental growth and potential for capital recovery. Despite a substantially reduced volume of investment transactions (volumes below £700m in 2022 - down from £1.85bn in 2021) supermarket investment activity should stabilise with a wider differential between supermarket covenants. The gap in pricing between supermarkets let on index-linked leases and those with open market reviews may continue to grow. Morrisons are still struggling with their sale and leasebacks of larger stores with buyers hard to find in the investment market where sellers are unrealistic with pricing.

Demand for retail warehousing cooled towards the end of 2022 as the reality of consumer pressures started to bite but could improve in 2023. Transaction volumes were low in Q1 2023 due to the lack of product, despite the sector benefiting from a stronger than forecast Christmas period and rental growth in 2022. Previous downturns suggest bigger ticket items such as household goods / appliances and non-essential goods such as clothing and footwear could experience a more pronounced squeeze than areas such as DIY and trade counters but this sector should prove its resilience.

High street retail and shopping centres suffered a miserable few years of underperformance since well before COVID, with steep falls in capital value as institutional investors turned their backs on these sectors, which have structurally changed as institutions sold to private investors. Values may have now stabilised and possibly bottomed out (shopping centres had the least negative returns in 2022). They may prove more resilient than lower-yielding investments in other sectors but an over supply of shops will continue to hamper performance. Despite the squeeze on real incomes, rebased rents are now more affordable, with most retailers now enjoying short, flexible leases. Retailers with the right offer, right product and who have not over expanded in recent years are now taking advantage of lower rents and higher vacancy rates to secure favourable high street positions, particularly in prosperous suburbs and smaller towns.

The long awaited business rates reform came into effect on 1 April 2023 (the revaluation is based on April 2021 values), giving a 20% average reduction in retail rateable values across England and Wales with no downwards phasing of liabilities, meaning a property will have its entire reduction in rates payable from day one, providing a much needed boost for bricks and mortar retailing.

Alternatives - Strong operators thriving

Property in the "Alternatives" sector - i.e. everything except offices, retail and industrial/warehouse property - accounts for about one fifth of the MSCI UK Quarterly Property Index. Volatile, often disappointing returns in the traditional office, retail and industrial sectors have led investors to search for higher returns and lower risk to diversify their portfolios over the past decade. Properties in this sector usually offer strong defensive characteristics such as long, index- linked leases and a wide range of property types and tenants. 2022 saw the RPI and CPI soar to levels not seen for 40 years, fuelled by ever increasing energy and food costs. So properties in the alternatives sector have become increasingly sought after and hold the key to sustained portfolio performance.

December saw valuers moving yields out further and faster than in previous downturns to address market volatility and waning investor confidence. No sector was immune but valuation decline in the alternatives sector was less acute, with the attraction of inflation- linked rental uplifts really paying off. Valuations have started to stabilise. There is a thinner market for the larger lot sizes but private property companies and high net worth investors continue to see value in the sector. In some cases, rents will have risen too high so only robust tenants with strong balance sheets will be able to weather the storm. The trend of "flight to quality" has gained momentum. Values will recover faster for properties let at affordable rents on long index-linked leases in good locations and to strong tenants, but it is likely there will be a widening of the gap between prime and secondary assets as investors get increasingly selective.

Rising costs and staff shortages are hurting the hospitality industry more than most and at a time when they were relying on consumers to dig deep into their pockets. The leading pubcos, like Greene King, as well as traditional regional brewers like Shepherd Neame and Youngs, have strong balance sheets and will survive relatively unscathed but independent pub and restaurant operators will struggle, particularly if rents become unaffordable. High inflation has meant that sales in real terms continue to lag pre- pandemic levels in this industry. The start of the year has seen a noticeable recovery of confidence in London pubs and restaurants as office workers and visitors returned to the Capital. Consumers remain eager to eat and drink out despite the mounting pressure on disposable incomes but operators must ensure that they do not push all their rising costs onto the consumer, and when possible, return to investing in their premises, or the goodwill that they have built up post pandemic will quickly wane causing longer term trading problems.

Modern discount hotels are well placed to benefit from the more cost- conscious consumer. Premier Inn, in particular, have been strategic, opening more hotels in prosperous smaller towns, rural areas and tourist hot spots to capture British staycationers and workers rather than focusing on city centres or airports. Constant flight disruption from 'unexpected' weather, striking workers at key holiday times and expensive international flights are still encouraging people to reconsider holidays abroad amid a cost-of-living crisis with UK caravan parks also benefitting. Capital values of Premier Inn investments slipped in the general market weakness, but they are recovering this quarter and remain a much more secure investment than Travelodge or other weaker operators.

Health and Fitness clubs in affluent suburban areas have seen some benefit from the move to hybrid working, but capital values are under pressure right across the sector as they use so much energy, and expensive membership renewals are usually the first to go when customers cut back on non-essential spending. There have been no gym transactions this quarter and a number that came on to the market last year remain unsold. When investment does pick up, only the strongest operators in the sector are likely to attract attention.

The two main ten pin bowling companies, who dominate the market, are trading strongly and investing in their properties. They offer a sensibly priced family outing which cannot be replicated online. Tenpin owner Ten Entertainment Group enjoyed a record performance last year with sales up 87.6% on 2021 and 50.6% up on the pre-pandemic year of 2019.

Like-for-like sales were 40% higher than pre-pandemic. Hollywood Bowl also reported that annual profits and revenues had grown against pre- pandemic levels. Both companies look well placed for the years ahead. But bingo halls and cinemas have suffered structural change with online gaming and streaming the new norm. Cinemas in multiplexes and retail parks have no movie magic. Taking the family to the cinema is now an expensive treat so only cinemas with genuinely affordable rents will survive. Cineworld's equity has been wiped out by a deal with its lenders and its rents in the UK will still need to fall.

Student numbers are rising and investments on long leases to well- established universities have been in great demand. But valuation yields on student housing, as on other residential investment types, now look too low as investment competition had driven pricing to very hot levels. However, many universities are facing a critical shortage of student housing with new local supply limited and likely to remain so with construction costs rising so fast.

Care homes are struggling with staff shortages and insufficient public sector funding. Bed vacancy rates are rising rapidly because of more deaths and admissions are slower. Values will continue to remain under pressure.

The economy

The UK economy is still flatlining, lagging global GDP growth, now expected by the IMF to be around 3% over the next year. Average earnings and productivity have shown little growth since the Global Financial Crisis hit us especially hard in 2008-9. More recently, business investment has stagnated since 2016, in the words of the Office for Budget Responsibility, due to uncertainty about the UK's future trading relationship with the EU among other concerns. Different governments have tried different policies and remedies, often pulling in opposite directions from their predecessors, to increase investment and productivity growth, but to little net effect. The UK is running the highest public sector and overseas trade deficits in the G7 group of developed nations and is the only one with GDP still lower than pre-COVID.

Our labour market is particularly tight, due partly to Brexit, partly to a deep seated skills and training deficit and partly to older people leaving work post-COVID. Consumer price inflation remains above Western Europe and the USA, with rapidly rising food prices keeping the Consumer Price Index rising at an annual rate of 10.1% for March and 13.5% for the Retail Price Index.

The UK's sclerotic housing market, with prices and rents both significantly higher than in our main Western competitor

countries, remains a drag on our economic performance, as a source of financial instability and a barrier to geographic and social mobility. The Government's Help To Buy scheme increased demand for house purchase but not supply, pushing up home prices and housebuilders' profits. Only 205,000 homes were completed in the year to April 2022, against 330,000 in 1972 and about 400,000 in 1962, and this year will be worse. Private sector completions have shown little change, but social housebuilding by local authorities and housing associations has collapsed, and existing social housing has been transferred to the private rental sector at much higher cost. Changes to stamp duty and interest deductibility for private landlords in recent years have led to an exodus of small landlords and upward pressure on rents. With over 80% of mortgages at fixed rates and employment still high, house prices are less vulnerable to rising interest rates than in previous downturns, but they are already now about 5% off their late 2022 peak. Housing, whether to buy or to rent, would still be exceptionally unaffordable in most areas of the UK by long-term standards, with the only obvious sustainable solution being for much more genuinely affordable social housing to be built again.

The UK economy is in a deeper structural hole than many similar countries post-COVID, with pay rises running well behind the rate of price increases, especially for essentials like food and heating which leave little spare spending power for the lower paid. But poverty is quite polarised, with many people still holding high savings post-pandemic and keen to spend, but not in predictable patterns.

Business and consumer confidence are starting to improve, partly out of relief at calmer Government and partly as gas and electricity prices fall back. The warm winter in Europe, and major reductions in gas usage, in particular, due both to high prices and smarter usage, are leading to sharp falls in some energy and commodity prices, so international inflation rates should fall this year, but not to anywhere near 2% in the foreseeable future.

Bank of England Monetary Policy Committee has had a difficult year. Bank Rate collapsed from a peak of 5.75% in July 2007 to 0.5% in March 2009, and it stayed around that level for 13 years before its 9 rises to 3.5% last year. Now it has been raised to 5.0% and it needs to stay at or above that level at least into 2024 so that higher inflationary expectations do not become embedded, especially in the labour market after the current wave of public sector strikes. The UK cannot afford to run risks on inflation when it will have to borrow so much for so long from abroad.

There is no particular magic about 2% as the number for the inflation target for most Central Banks in the developed world. Underlying inflation in the USA, UK and Eurozone did average around 2% with relatively minor fluctuations between the early 2000's and COVID in 2020. As the table below shows, the Bank of England has been slow since the pandemic to raise their forecasts for inflation for one year ahead - but at least they have raised them. Their forecasts for two years ahead have, however, stuck firmly in cloud cuckoo land around 2% p.a., falling to 1% from 2023. So 2% annual inflation now looks an unrealistic long term target.

The end of ultra-low interest rates is inevitably a stressful and uneven process but it is ultimately helpful for the economy. Too much cheap money has inflated asset bubbles, encouraged speculative frenzies ranging from over-hyped technology stocks to crypto currencies, diverted too much capital into financial engineering by private equity, pushed up UK house prices unaffordably and unsustainably and kept too many zombie companies alive for too long when their skilled workforces, in particular, should have been more productively reallocated elsewhere. It is ending with strains in the international credit markets, which are being contained so far as mainstream regulated banks are concerned in the USA and Switzerland.

The real danger for world economies and property markets will come if the plethora of private equity and hedge fund property-owning and lending vehicles, which have sprung up mainly in the shadows over the past 5-10 years, run into serious redemption or refinancing difficulties. In the words of the Chief Executive of Brookfield (one of the largest such vehicles and owner of Canary Wharf) "What we do is behind the scenes. Nobody knows we are there". What we do know, however, is that loan default risks, especially on large offices, are rising and that most conventional UK property trusts are also now gated, although the authorities have still not stopped them pretending to offer daily dealings on assets which take months to sell.

The international economic outlook and business confidence are now improving slightly, but two big question marks remain over economic forecasts into 2024. On the upside, if the war in Ukraine ended either in stalemate or an effective Russian defeat, inflation and interest rates would move lower. But that can only be a hope, not a forecast.

On the downside, tightening credit conditions and higher interest rates are not good for growth of commercial or residential property values, although plenty of pain is now properly priced into commercial property yields and prices, at least in the United Kingdom.

Conclusion - Safe property repriced to attractive yields

The rapid valuers' mark down of commercial property prices by about 20% from their mid-2022 peak is now starting to offer good buying opportunities at safe, high yields for long-term investors. At average yields now of over 6%, UK property offers an attractive yield premium over UK equities and is fundamentally undervalued against UK conventional and index-linked gilts, which only offer volatility, doubtful liquidity and negligible real returns. The key to both relative outperformance and strong real total returns for property over the next few years will be capturing these high yields in practice by a relentless focus on strong tenants with long, preferably index-linked leases with sustainable rents and buildings.

Annual portfolio summary

VIP specialises in direct investment in UK commercial properties with long, strong, index-related income streams to deliver above average long term real returns.

The portfolio comprises 39 properties across 7 well diversified sub-sectors, all let on 42 full repairing and insuring leases (WAULT 12.6 years to the tenants' option to break) to 21 different tenant covenants across England, Scotland and Wales, with 60% of rents coming from the top 6 tenants. All are freehold except two, which are long leasehold with 108 and 82 years to run (Doncaster and Fareham).

Indexed Rent Reviews

The contracted income on the whole portfolio stands at £9.3 million per annum where 96.2% (41 out of 42 tenancies) have index-linked or fixed increases. Only one property, the industrial at Fareham, has three yearly open market upwards only reviews.

Over the financial year, 15 rent reviews completed representing 40% of the rent roll, with an average increase of 6.4% on their rents passing, which added £0.23 million (2.9%) to all held properties. Nine were annual reviews; eight were RPI-linked and one with a fixed increase. Four had five yearly RPI- linked reviews, one with a fixed increase and one with a sweep up clause after a three yearly upwards only open market rent review.

There are 41 leases, which are reviewed either; RPI-linked (69%), CPI-linked (11%) or with fixed increases (16%) and there is just one industrial with an open market review (4%).

Nine tenancies representing 27% (year ending 31 March 2023) of the indexed rental income have annual rent reviews and thirty two (69%) have five yearly reviews with one (4%) having a three yearly review pattern. Over the following five year period VIP expects the following percentage of rental income to be reviewed in each financial year:

Year ending 31 March	Annual	5 yearly	3 yearly	Total
2024	27%	10%	4%	41%
2025	27%	3%	-	30%
2026	27%	30%	-	57%
2027	27%	10%	4%	41%
2028	27%	15%	-	42%

Over the next 12 months, 14 tenancies representing 41% of the total rent roll, will undergo a rent review.

Of the indexed rents within the portfolio; 66% of the RPI-linked and CPI- linked rents are subject to collared uplifts, which average 1.7% per annum and 73% are subject to capped uplifts, which average 3.9% per annum. 12% of the total indexed income has uncapped RPI increases. Fixed rent review uplifts average 2.4% per annum.

Purchases and sales

Three long let index-linked purchases for £25.5 million and six sales for £9.8 million completed over the year.

Purchases completed

Supermarket - Eastwood Road, Rayleigh

The purchase of a dominant town centre freehold M&S Simply Food supermarket in Rayleigh, Essex completed in July 2022 for a total of £11.3 million let to Marks & Spencer plc until 20 July 2035 (WAULT just under thirteen years) with five yearly RPI-linked rent reviews with a minimum of 1% pa and maximum 4% pa. The net initial purchase yield was 4.8% which has risen to an RPI-linked 5.3%.

Hotel - Willowburn Trading Estate, Alnwick (Development)

The forward funding of an 80 bedroom Premier Inn hotel and inhouse Brewers Fayre pub/ restaurant at Willowburn Trading Estate, Alnwick, completed in October 2022 for a total of £7.2 million at a net initial yield of 5.0%. The freehold property is open and trading and is let to Premier Inn for twenty five years until 2047 with a tenant's option to break in 2042, and has five yearly CPI-linked rent reviews to a maximum of 4% per annum.

Bowling - Crosspoint, Olivier Way, Coventry

The purchase of a freehold purpose built prominently located leisure investment on a 3.2 acre site with over 140 car parking spaces in Coventry completed in March 2023 for a total of £8.3 million at a net initial yield of 7.4%. The rental income totals £0.6 million; 77% to Tenpin Limited (bowling) on a lease without a break until 2050, with RPI-linked rent increases capped at 4% and collared at 2% p.a. The two purpose built restaurants are let to Starbucks on a RPI-linked lease and Pizza Hut on an annual fixed increase lease with 11 and 9 years to run respectively (WAULT just over 23 years).

Sales

Completed

The sale of six overrented properties completed during the year for £9.8 million: two convenience stores, three pubs and a bingo hall, in line with their March 2022 valuations at an average net sale yield of 6.1%.

Completed Since 31 March 2023

The sale of a city centre pub in Newcastle upon Tyne let to Stonegate completed in April 2023 above valuation at a net sale yield of 7.5%.

Exchanged

The sale of a petrol filling station in Melton Mowbray let to BP Oil UK Limited with a lease expiring in September 2033 exchanged in April 2023, above valuation at a net sale yield of 6.2% with completion due in July 2023.

Reinvestment of sale proceeds is in hand and other properties are under investigation to upgrade the portfolio quality further.

Rent Collection

100% of all contracted rents due were collected during the year to 31 March 2023. The top 6 tenants have 20 leases: Marks & Spencer, HM Government/ Local Authorities, Ten Entertainment Group, Premier Inn, Sainsbury's and the Co-operative Group representing 60% of the contracted income.

Fully let

The portfolio is fully let, with no voids (MSCI void rate: 8.2%).

Responsible impact based ESG management

OLIM Property has always taken a cautious and responsible approach to managing VIP's property portfolio, with environmental impact, social responsibility and governance (ESG) taken fully into account in selecting high quality properties and suitable tenants for acquisition, long term management and disposal. Occupier relationships are crucial. We engage with our tenants to understand and establish sustainable rental levels and grow future income streams, working closely with them to address value add energy performance targets. All VIP's properties are regularly reviewed, ESG improvements implemented at appropriate asset management stages and properties sold where performance may be negatively impacted by ESG factors.

Top 10 properties by capital value

Property	Tenant	Sector	% of portfolio by capital value
Dover	Park Resorts	Caravan Park	8%
Newport Isle of Wight	Marks and Spencer	Supermarket	7%
Rayleigh	Marks and Spencer	Supermarket	7%
Garstang	Sainsbury's	Supermarket	6%
Coventry (Crosspoint)	Tenpin, Pizza Hut & Starbucks	Bowling	5%
Aylesford	Kier	Industrial	5%
Catterick	Premier Inn	Hotel	4%
Alnwick	Premier Inn	Hotel	4%
Milton Keynes	Winterbotham Darby	Industrial	4%
Gloucester	H.M. Government	Industrial	3%
Total			53%

Energy Performance Certificates (EPCs)

96% of the properties now have an EPC rating A-C (up from 64% over the past twelve months). We continue to work with our tenants to upgrade properties and improve EPC ratings.

Performance and independent revaluation

Savills' independent valuation at 31 March 2023 on all 39 properties totalled £150,500,000 reflecting a net initial yield of 5.8% after deducting notional purchase costs (31 March 2022: 5.1%, 30 September 2022: 5.1%), with a running yield of 6.0%. The half-yearly valuation totals at 30 September 2022 were £157,550,000 and at 31 March 2022 £155,478,000. On a like for like basis, excluding purchases and sales, the portfolio's capital value declined by 0.1% in the first half of the year and by 12.7% in the second, reflecting the impact of rising interest rates across the investment property market and economic and political turbulence. Investment turnover has been very low with values marked down more on sentiment than completed evidence. Investors are cautious and risk averse.

Capital values of the 37 properties held throughout the financial year had a like for like total decline in value of 12.8%, being significantly better than the MSCI benchmark of -16.8%. The only sector to gain in value was bowling up by 3.4% with the biggest fall in values in the roadside and supermarket sectors of -19.4% and -14.9% respectively, as a consequence of sector repricing. The valuation reflects an outward yield shift of 70 basis points over the six months to 31 March 2023 (six months to September 2022: no yield shift). Contracted income is now £9.3 million (up 12.0%) against £8.3 million at end of March 2022, due to three new purchases and fifteen rent increases over the year providing rental growth in this highly inflationary environment.

The property portfolio has been upgraded with the sale of six smaller, mainly overrented properties, which completed for £9.8 million (three pubs, a bingo hall and two convenience stores) with the net sale proceeds reinvested in three long-let property purchases for £25.5 million, a Marks and Spencer Simply Food supermarket in Rayleigh, Essex, a new Premier Inn at Alnwick, Northumberland and a leisure investment in Coventry; all let on index linked leases.

The property portfolio produced a total return on all 39 properties of -7.8% over the past year to March, against -13.0% for the MSCI UK Quarterly Property Index, the main benchmark for commercial property performance. Properties held throughout had a total return of -7.5%.

The returns on VIP's property portfolio have been between 5% and 12% a year over 3, 5, 10, 20 and 36 years and are above the MSCI averages over all these periods. The real returns have been behind the Retail Price Index over 1 and 3 years but above it over longer periods, with a real return of 8% a year over 36 years since the inception of OLIM Property's Management.

Matthew Oakeshott & Louise Cleary

OLIM Property Limited

26 June 2023

Business Review

This Business Review is intended to provide an overview of the strategy and business model of the Company as well as the key measures used by the Directors in overseeing its management. The Company is an investment trust company that invests in accordance with the investment objective and investment policy outlined in the Business Review.

Value and Income Trust PLC changed its name on 22 January 2021 to Value and Indexed Property Income Trust PLC (VIP or the Company). VIP's Ordinary Shares are listed on the Premium segment of the Official List and traded on the main market of the London Stock Exchange. The Company is registered as a public limited company in Scotland under company number SC050366. VIP is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company has one class of share. VIP is a member of the Association of Investment Companies (AIC).

The Group

Value and Indexed Property Income Services Limited (VIS), a wholly owned subsidiary of the Company, is authorised by the Financial Conduct Authority to act as the Company's Alternative Investment Fund Manager (AIFM).

Capital structure

As at 31 March 2023, and as at the date of this Annual Report, VIP's share capital consisted of 43,012,464 Ordinary Shares of 10p nominal value in issue and 2,537,511 Ordinary Shares of 10p each held in Treasury. Each Ordinary Share in issue entitles the holder to one vote on a show of hands and, on a poll, to one vote for every share held.

Share dealing

Shares in VIP can be purchased and sold in the market through a stockbroker, or indirectly through a lawyer, accountant or other professional adviser. Further information on how to invest in VIP is detailed in the Annual Report.

Recommendation of non-mainstream investment products

VIP currently conducts its affairs so that the shares issued by it can be recommended by independent financial advisers to ordinary retail investors in accordance with the rules of the Financial Conduct Authority (FCA) in relation to non-mainstream investment products and intends to do so for the foreseeable future. VIP's shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in an investment trust company and the returns to investors are based on investments in directly held property.

Highlights of the year

•     Net Asset Value total return (with debt at carrying value)* of -17.9% (2022: 21.3%) over one year and 11.7% (2022: 7.5%) over three years.

•     Share Price total return* of -9.2% (2022: 15.8%) over one year and 48.3% (2022: 13.3%) over three years.

•     MSCI UK Quarterly Property Index total return of -13.0% over one year (2022: 19.6%) and 5.1% (2022: 6.4%) over three years.

•     FTSE All-Share Index total return of 2.9% (2022: 13.0%) over one year and 47.4% (2022: 16.8%) over three years.

•     Dividends for year up 2.4% - the 36th consecutive year of dividend increases.

•     Dividend yield at 31 March 2023 - 6.3% (2022: 5.3%).

Financial record

	30 Sep 1986	31 Mar 1987	31 Mar 2014	31 Mar 2015	31 Mar 2016	31 Mar 2017	31 Mar 2018	31 Mar 2019	31 Mar 2020	31 Mar 2021	31 Mar 2022	31 Mar 2023
NAV (valuing debt at carrying value)* (p)	44.0	55.1	325.5	326.9	319.0	345.5	330.5	332.5	253.1	271.1	314.3	246.9
Share price (p)	42.0	52.0	265.0	254.3	221.8	255.0	262.0	251.0	165.0	218.0	239.0	204.5
Discount of share price to NAV (valuing debt at carrying value)* (%)	4.6	5.6	18.6	22.2	30.5	26.2	20.7	24.5	34.8	19.6	24.0	17.2
Dividend per share (p)	N/A	1.25	8.5	9.0	10.5	11.0	11.4	11.8	12.1	12.3	12.6	12.9
Total assets less current liabilities (£m)	17.4	24.8	183.6	189.0	185.5	207.3	200.4	205.6	176.2	177.6	196.5	158.0

* This is an Alternative Performance Measure (APM) which has been explained in the Glossary in the Annual Report.

Investment objective and investment policy

Investment objective

The Company invests mainly in directly held UK commercial property to deliver secure, long-term, index-linked income. The Company aims to achieve long-term, real growth in dividends and capital value without undue risk.

Investment policy

The Company's policy is to invest in directly held UK commercial property and cash or near cash securities. The Company will not invest in overseas property or securities or in unquoted companies. UK directly held commercial property will usually account for at least 80 per cent. of the total portfolio but it may fall below that level if relative market levels and investment value, or a desired increase in cash or near cash securities, make it appropriate. The Company will not use derivatives. The Company is permitted to invest cash held for working capital purposes and awaiting investment in cash deposits, gilts and money market funds.

The UK commercial property portfolio

The Company will target secure income and capital returns linked to inflation, mainly through its diversified portfolio of UK property assets, let or pre-let to a broad range of strong tenants on long leases with rental growth subject to index-linked or fixed increases. The Company has not set any geographical limits, except that it may invest in all four nations of the United Kingdom. It has also set no structural limits and expects the portfolio to be focused on (but not limited to), the industrial/ warehouse, supermarket, roadside and leisure sectors (including for example, caravan parks, pubs, hotels, garden and bowling centres) income strips and ground rents. Offices and high street retail properties would not be priority sectors for investment. In order to manage risk in the portfolio, at the time of purchase, no single property asset will exceed in value 25 per cent. of the Company's gross asset value and no single tenant (except UK Government and public sector) will account for more than 30 per cent. of the Company's total rental income.

Borrowing policy

The Company has a longstanding policy of funding most of the increases in its property portfolio through the judicious use of borrowings. Gearing will normally be within a range of 25 per cent. and 50 per cent. of the total portfolio. The Company will not raise new borrowings if total net borrowings would then represent more than 50 per cent. of the total assets.

Detail of the Company's current borrowings, comprising two fixed term secured loan facilities can be found in Note 12.

Performance, results and dividend

As at 31 March 2023, the Net Asset Value (NAV) total return (with debt at carrying value) over one year was -17.9% and the Share Price total return over one year was -9.2%. This compares to the MSCI UK Quarterly Property Index total return of -13.0%. Total assets less current liabilities were £158.0 million. A review of the performance of the property portfolio is detailed in the Chairman's Statement and in the Manager's Report.

For the year to 31 March 2023, quarterly dividends of 3.0p per share, 3.1p per share, and 3.2p per share were paid on 28 October 2022, 27 January 2023 and 28 April 2023, respectively. The Directors have declared a final dividend of 3.6p per Ordinary Share (2022: 3.6p) which, if approved by Shareholders at the 2023 AGM, will be paid on 4 August 2023 to Shareholders on the register on 7 July 2023. The ex-dividend date is 6 July 2023. This represents an annual increase in dividends of 2.4% as compared with the 13.5% and 10.1% annual increases in the Retail Price and Consumer Price Indices, respectively, as at the end of March 2023.

Principal and emerging risks and uncertainties

The Board has an ongoing process for identifying, evaluating and monitoring the principal and emerging risks and uncertainties facing the Group and the Parent Company. The risk register forms a key part of the Group and the Parent Company's risk management framework used to carry out a robust assessment of the risks, including a significant focus on the controls in place to mitigate them. The principal and emerging risks and uncertainties which affect the Group's and the Company's business are:

Market risk

The fair value of, or future cash flows from, a financial instrument held by the Group may fluctuate because of changes in market prices. This market risk comprises two elements - price risk and interest rate risk.

Price risk

Changes in market prices (other than those arising from interest rate or currency risk) may affect the value of the Group's investments.

VIS delegates its portfolio management responsibilities to OLIM Property Limited (OLIM Property), the Investment Manager responsible for managing the property portfolio, which reports to VIS and to the Board, which meet regularly in order to review the investment strategy. All investment properties held by the Group are commercial properties located in the UK, mainly with long-term, index-linked income streams.

Interest rate risk

Interest rate movements may affect:

•      the fair value of the investments in property;

•      the level of income receivable on cash deposits; and

•      the fair value of borrowings.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

The Board imposes borrowing limits to ensure that gearing levels are appropriate to market conditions and reviews these on a regular basis. Current borrowings comprise two secured term loans, with three and ten year terms remaining, providing secure long-term funding. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of between 25% and 50%.

Liquidity risk

This is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities.

The Group's assets comprise investment properties which, by their nature, are not readily realisable. The maturity of the Company's existing borrowings is set out in the interest rate risk profile section of Note 21 to the Financial Statements.

Property risk

The Group's commercial property portfolio is subject to both market and specific property risk. Since the UK commercial property market has been markedly cyclical for many years, it is prudent to expect that to continue.

The price and availability of credit, real economic growth and the constraints on the development of new property are the main influences on the property investment market.

Against that background, the specific risks to the income from the portfolio are tenants being unable to pay their rents and other charges or leaving their properties at the end of their leases. All leases are on full repairing and insuring terms, with upward only rent reviews and the weighted average unexpired lease length to the break option is 12.6 years. Details of the tenant and geographical spread of the portfolio are set out in the Annual Report. The long-term record of performance through the varying property cycles since 1987 is set out in the Annual Report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.

Political risk

Political changes that result in parties with extreme political or social agendas having power or influence over policies could lead to instability and uncertainty in the markets, legislation and the economy.

The Board reviews regularly the political situation, together with any associated changes to the economic, regulatory and legislative environment, to ensure that any risks arising are mitigated as effectively as possible.

An explanation of certain economic and financial risks and how they are managed is contained in Note 21 to the Financial Statements.

Climate change and social responsibility risk

The Board recognises that climate change is an important emerging risk that all companies should take into consideration within their strategic planning. As referred to elsewhere in the Strategic Report and in the Governance Report in the Annual Report, the Company has little direct impact on environmental issues. All of the Company's properties are let on full repairing and insuring leases, with the tenants responsible for complying with statutory obligations. The Board is aware that the Manager continues to take into account environmental, social and governance matters, and, in particular, Energy Performance Certificates and flood risks, in managing the portfolio.

Economic risk

The valuation of the Company's investments may be affected by underlying economic conditions, such as fluctuating interest rates, rising inflation, increased fuel and energy costs, and the availability of bank finance, all of which can be impacted during times of geopolitical uncertainty and volatile markets, including the recent coronavirus pandemic and the ongoing war in Ukraine. The Board monitors the economic and market environment closely, including the situation in Ukraine, and believes that the diverse, well-spread, long let indexed portfolio should prove resilient.

Other key risks

Additional risks and uncertainties include:

•      Discount volatility: The Company's shares may trade at a price which represents a discount to its underlying net asset value.

•      Regulatory risk: The Directors strive to maintain a good understanding of the changing regulatory agenda and consider emerging issues so that appropriate changes can be implemented and developed in good time. The Group operates in a complex regulatory environment and, therefore, faces a number of regulatory risks. A breach of Section 1158 of the Corporation Tax Act 2010 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations, including but not limited to, the Companies Act 2006, the FCA Listing Rules, the FCA Disclosure, Guidance and Transparency Rules, the Market Abuse Regulation, the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, the Second Markets in Financial Instruments Directive (MiFID II) and the General Data Protection Regulation (GDPR), could lead to a number of detrimental outcomes and reputational damage.

       The Company is also required to comply with tax legislation under the Foreign Account Tax Compliance Act and the Common Reporting Standard. The Company has appointed its registrar, Computershare, to act on its behalf to report annually to HM Revenue & Customs (HMRC).

The Company's privacy policy is available to view on the Company's web pages hosted by the Investment Manager at www.olimproperty.co.uk/value-and-indexed-property-income-trust.html.   

Breaches of controls by service providers to the Company could also lead to reputational damage or loss. The Audit and Management Engagement Committee monitors compliance with regulations by reviewing internal control reports from the Administrator and from the Investment Manager.

Alternative investment fund managers directive

The Alternative Investment Fund Managers Directive (AIFMD) introduced an authorisation and supervisory regime for all managers of authorised investment funds in the EU.

In accordance with the requirements of the AIFMD, the Company appointed VIS as its Alternative Investment Fund Manager (AIFM) and BNP Paribas Trust Corporation UK Limited as its Depositary. VIS's status as AIFM remains unchanged following the UK's departure from the EU. The Board has controls in place in the form of regular reporting from the AIFM and the Depositary to ensure that both are meeting their regulatory responsibilities in relation to the Company.

Key performance indicators

At each Board Meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives and which also enable Shareholders and prospective investors to gain an understanding of its business.

A historical record of these performance measures, with comparatives, together with the Alternative Performance Measures (APMs) are shown in the Highlights of the year and Financial record section of the Business Review. Definitions of the APMs can be found in the Glossary in the Annual Report.

Following the change in investment policy to invest predominantly in property, the Directors have carried out a review of the key performance indicators to determine the performance of the Company. The Directors have identified the following as key performance indicators:

•      Net asset value and share price total returns relative to the MSCI UK Quarterly Property Index (total returns); and

•      Dividend growth relative to Consumer Price Inflation.

The net asset value (NAV) total return is considered to be an appropriate measure of Shareholder value as it includes the current NAV per share and the sum of dividends paid to date.

The medium term dividend policy is for increases at least in line with inflation.

The Board reviews the Company's rental income and operational expenses on a quarterly basis, as the Directors consider that both of these elements are important components in the generation of Shareholder returns. Further information can be found in Notes 2 and 4 to the Financial Statements.

In addition, the Directors will consider economic, regulatory and political trends and factors that may impact on the Company's future development and performance.

Share buy-backs

545,000 Ordinary Shares were bought back in the year to 31 March 2023 (2022: nil Ordinary Shares bought back). As at 31 March 2023, and as at the date of this Annual Report, 2,537,511 Ordinary Shares of 10p each are held in Treasury. Further information can be found in Note 14 to the Financial Statements.

At the forthcoming AGM, the Board will seek the necessary Shareholder authority to continue to conduct share buy-backs.

Statement of compliance with investment policy

The Company is adhering to its stated investment policy and managing the risks arising from it. This can be seen in various tables and charts throughout the Annual Report, and from the information provided in the Chairman's Statement and in the Manager's Report.

The Board's section 172 duty and stakeholder engagement

The Directors recognise the importance of an effective Board and its ability to discuss, review and make decisions to promote the long-term success of the Company and protect the interests of its key stakeholders. As required by Provision 5 of The AIC Code of Corporate Governance (the AIC Code) (and in line with The UK Corporate Governance Code (the Code)), the Board has discussed the Directors' duty under Section 172 of the Companies Act and how the interests of key stakeholders have been considered in the Board discussions and decision making during the year. This has been summarised in the table below:

Stakeholder	Form of Engagement	Influence on Board decision making
Shareholders	AGM - Shareholders are encouraged to attend the AGM and are provided with the opportunity to ask questions and engage with the Directors and the Manager. Shareholders are also encouraged to exercise their right to vote on the resolutions proposed at the AGM (please refer to the further information on the AGM in the Directors' Report in the Annual Report). Shareholder documents - The Company reports formally to Shareholders by publishing Annual and Interim Reports, normally in June and November each year. Significant matters or reporting obligations are disseminated to Shareholders by way of announcement to the London Stock Exchange. The Company Secretary acts as a key point of contact for the Board and all communications received from Shareholders are circulated to the Board. Other Shareholder events include investor and wealth manager lunches and roadshows organised by the Company's Broker at which the Manager is invited to present.	Dividend declarations - The Board recognises the importance of dividends to Shareholders and takes this into consideration when making decisions to pay quarterly and propose final dividends for each year. Further details regarding dividends for the year under review can be found in the Chairman's Statement. Share buy-back policy - the Directors recognise the importance to Shareholders of the Company maintaining a buy-back policy and considered this when establishing the current programme. Further details can be found in the Business Review and in the Directors' Report in the Annual Report. Shareholder communication and feedback from the Broker feeds directly into the Board's annual strategy review, the asset allocation considerations and the Manager's guidance on desirable investment characteristics. The Directors recognise the importance to Shareholders of having a diverse Board with a range of skilled and experienced individuals represented, and took this into account when the decision was made during the year to appoint Lucy Winterburn as a Director.
Manager	Quarterly Board Meetings - The Manager attends every Board Meeting and presents a detailed portfolio analysis and reports on key issues such as performance of the property portfolio. The Manager reports to the Board on the Company's property portfolio and the Directors challenge the Manager where they feel it is appropriate.	The Directors and the Manager are cognisant of the Company's investment policy and the strategy agreed by the Board, which the Manager has been tasked with implementing. The Directors and Manager worked together during the year on the restructuring of the Company's debt, on competitive terms, and completed the transition to a direct property investment trust. The Board engages constructively with the Manager to ensure investments are consistent with the agreed strategy and investment policy. The Manager works closely with all tenants and, as a result, 100% of all contracted rents due were collected in the year to 31 March 2023.
Registrar	Review meetings and control reports.	The Directors review the performance of all third party service providers; this includes ensuring compliance with GDPR.
Depositary and Custodian	Regular statements and control reports received, with all holdings and balances reconciled.	The Directors review the performance of all third party providers, including oversight of securing the Company's assets.
Advisers	The Company relies on the expert audit, accounting and legal advice received from its Auditor, Administrator and Legal Advisers.	The Directors review the performance of all third party service providers.

As referred to in the Chairman's Statement, during the year the Company carried out a major debt reconstruction, which included the early repayment of the 9.375% Debenture Stock 2026; secured an additional £13 million of borrowings under an existing loan; increased the term of one of the loans to 2033; and completed its transition to a direct property investment trust. There were no other key decisions made in the year to 31 March 2023 that require to be disclosed.

Employee, environmental and human rights policy

As an investment trust company, the Company has no direct employee or environmental responsibilities, nor is it responsible for the emission of greenhouse gases. Its principal responsibility to Shareholders is to ensure that the investment portfolio is properly managed and invested. The Company has no employees and, accordingly, has no requirement to report separately on employment matters.

Management of the investment portfolio is undertaken by the Investment Manager through members of its portfolio management team. In light of the nature of the Company's business, there are no relevant human rights issues and, therefore, the Company does not have a human rights policy.

Independent auditor

The Company's Independent Auditor is required to report if there are any material inconsistencies between the content of the Strategic Report and the Financial Statements. The Independent Auditor's Report can be found in the Annual Report.

Future strategy

The Board and the Investment Manager intend to maintain the strategic policies set out above for the year ending 31 March 2024 as it is believed that these are in the best interests of Shareholders.

The Company's Viability Statement is included in the Directors' Report in the Annual Report.

Approval

This Business Review, and the Strategic Report as a whole, was approved by the Board of Directors and signed on its behalf by:

John Kay

Chairman

26 June 2023

Going concern

The Group and the Parent Company's business activities, together with the factors likely to affect their future development and performance, are set out in the Directors' Report, and the financial position of the Group and of the Parent Company is described in the Chairman's Statement within the Strategic Report. In addition, Note 21 to the Financial Statements includes: the policies and processes for managing the financial risks; details of the financial instruments; and the exposures to market risk (price risk and interest rate risk), liquidity risk, credit risk and property risk. The Directors believe that the Group and the Parent Company are well placed to manage their business risks.

Following a detailed review, the Directors have a reasonable expectation that the Group and the Parent Company have adequate financial resources to enable them to continue in operational existence for the foreseeable future, being at least 12 months from approval of the Financial Statements, and accordingly, they have continued to adopt the going concern basis (as set out in Note 1(b) to the Financial Statements) when preparing the Annual Report and Financial Statements.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with UK adopted international accounting standards and applicable laws and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors are required to prepare the Group Financial Statements, and have elected to prepare the Company Financial Statements, in accordance with UK adopted international accounting standards. Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group and Company for that period.

In preparing these Financial Statements, the Directors are required to:

•      select suitable accounting policies and then apply them consistently;

•      make judgements and accounting estimates that are reasonable and prudent;

•      state whether they have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, subject to any material departures disclosed and explained in the Financial Statements;

•      state whether they have been prepared in accordance with UK adopted international accounting standards, subject to any material departures disclosed and explained in the Financial Statements;

•      prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and

•      prepare a Directors' Report, a Strategic Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and, hence, for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for ensuring that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's position and performance, business model and strategy.

The Directors are responsible for ensuring the Annual Report and Financial Statements are made available on a website. Financial Statements are published on the Company's web pages hosted by the Investment Manager in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's web pages is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

Directors' responsibility statement

Each Director confirms, to the best of his or her knowledge, that:

•      the Financial Statements have been prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company; and that

•      the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and Company, together with a description of the principal risks and uncertainties that they face.

The Directors confirm that the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's position and performance, business model and strategy.

For and on behalf of the Board of

Value and Indexed Property Income Trust PLC

John Kay

Chairman

26 June 2023

Group Statement of Comprehensive Income

Note		Year ended 31 March 2023			Year ended 31 March 2022
		Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Income
Rental income	2	8,358	-	8,358	5,647	-	5,647
Investment income	2	168	-	168	1,682	-	1,682
Other income	2	314	-	314	-	-	-
Gains and losses on investments		8,840	-	8,840	7,329	-	7,329
Realised gains on held-at- fair-value investments and investment properties	9	-	1,446	1,446	-	10,440	10,440
Unrealised (losses)/ gains on held-at-fair-value investments and investment properties	9	-	(24,695)	(24,695)	-	8,797	8,797
Total income		8,840	(23,249)	(14,409)	7,329	19,237	26,566
Expenses
Investment management fees	3	(990)	-	(990)	(1,088)	(2)	(1,090)
Other operating expenses	4	(895)	-	(895)	(870)	-	(870)
Finance costs	5	(1,779)	(6,269)	(8,048)	(3,177)	-	(3,177)
Total expenses		(3,664)	(6,269)	(9,933)	(5,135)	(2)	(5,137)
Profit/(loss) before taxation		5,176	(29,518)	(24,342)	2,194	19,235	21,429
Taxation	6	(979)	1,425	446	(321)	3,154	2,833
Profit/(loss) attributable to equity shareholders of parent company		4,197	(28,093)	(23,896)	1,873	22,389	24,262
Earnings per Ordinary Share (pence)	7	9.70	(64.92)	(55.22)	4.30	51.40	55.70

The total column of this statement represents the Statement of Comprehensive Income of the Group, prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

The Group does not have any other comprehensive income and so the total profit/(loss), as disclosed above, is the same as the Group's total comprehensive income. All income is attributable to the equity holders of Value and Indexed Property Income Trust PLC, the parent company. There are no minority interests.

The Board is proposing a final dividend of 3.6p per share, making a total dividend of 12.9p per share for the year ended 31 March 2023 (2022: 12.6p per share) which, if approved by Shareholders, will be payable on 4 August 2023 (see Note 8).

The Notes form part of these Financial Statements.

Company Statement of Comprehensive Income

Note		Year ended 31 March 2023			Year ended 31 March 2022
		Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Income
Rental income	2	8,358	-	8,358	5,647	-	5,647
Investment income	2	168	-	168	1,682	-	1,682
Other income	2	314	-	314	-	-	-
Gains and losses on investments		8,840	-	8,840	7,329	-	7,329
Realised gains on held-at- fair-value investments and investment properties	9	-	1,446	1,446	-	10,440	10,440
Unrealised (losses)/ gains on held-at-fair-value investments and investment properties	9	-	(24,695)	(24,695)	-	8,797	8,797
Total income		8,840	(23,249)	(14,409)	7,329	19,237	26,566
Expenses
Investment management fees	3	(990)	-	(990)	(1,088)	(2)	(1,090)
Other operating expenses	4	(895)	-	(895)	(870)	-	(870)
Finance costs	5	(1,779)	(6,269)	(8,048)	(3,177)	-	(3,177)
Total expenses		(3,664)	(6,269)	(9,933)	(5,135)	(2)	(5,137)
Profit/(loss) before taxation		5,176	(29,518)	(24,342)	2,194	19,235	21,429
Taxation	6	(979)	1,425	446	(321)	3,154	2,833
Profit/(loss) attributable to equity shareholders of parent company		4,197	(28,093)	(23,896)	1,873	22,389	24,262
Earnings per Ordinary Share (pence)	7	9.70	(64.92)	(55.22)	4.30	51.40	55.70

The total column of this statement represents the Statement of Comprehensive Income of the Company prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

The Company does not have any other comprehensive income and so the total profit/(loss), as disclosed above, is the same as the Company's total comprehensive income.

The Notes form part of these Financial Statements.

Group Statement of Financial Position

Note		As at 31 March 2023		As at 31 March 2022
		£'000	£'000	£'000	£'000
Assets
Non current assets
Investment properties	9		150,636		155,838
Investments held at fair value through profit or loss	9		-		26,871
			150,636		182,709
Deferred tax asset	6		4,537		4,091
Receivables	10		2,366		2,238
			157,539		189,038
Current assets Cash and cash equivalents		2,273		5,153
Receivables	10	599		4,709
			2,872		9,862
Total assets			160,411		198,900
Current liabilities
Payables	11	(2,376)		(2,423)
			(2,376)		(2,423)
Total assets less current liabilities			158,035		196,477
Non-current liabilities
Payables	12	(2,845)		(2,854)
Borrowings	12	(49,000)		(56,723)
			(51,845)		(59,577)
Net assets		106,190		136,900
Equity attributable to equity shareholders
Called up share capital	14		4,555		4,555
Share premium	15		18,446		18,446
Retained earnings	16		83,189		113,899
Total equity		106,190		136,900
Net asset value per Ordinary Share (pence)	17	246.88		314.30

These Financial Statements were approved by the Board on 26 June 2023 and were signed on its behalf by:

John Kay

Chairman

The Notes form part of these Financial Statements.

Company Statement of Financial Position

Note		As at 31 March 2023		As at 31 March 2022
		£'000	£'000	£'000	£'000
Assets
Non current assets
Investment properties	9		150,636		155,838
Investments held at fair value through profit or loss	9		200		27,071
			150,836		182,909
Deferred tax asset	6		4,537		4,091
Receivables	10		2,366		2,238
			157,739		189,238
Current assets Cash and cash equivalents		2,073		4,953
Receivables	10	599		4,709
			2,672		9,662
Total assets			160,411		198,900
Current liabilities
Payables	11	(2,376)		(2,423)
			(2,376)		(2,423)
Total assets less current liabilities			158,035		196,477
Non-current liabilities
Payables	12	(2,845)		(2,854)
Borrowings	12	(49,000)		(56,723)
			(51,845)		(59,577)
Net assets		106,190		136,900
Equity attributable to equity shareholders
Called up share capital	14		4,555		4,555
Share premium	15		18,446		18,446
Retained earnings	16		83,189		113,899
Total equity		106,190		136,900
Net asset value per Ordinary Share (pence)	17	246.88		314.30

These Financial Statements were approved by the Board on 26 June 2023 and were signed on its behalf by:

John Kay

Chairman

The Notes form part of these Financial Statements.

Group Statement of Cashflows

Note		Year ended 31 March 2023		Year ended 31 March 2022
		£'000	£'000	£'000	£'000
Cash flows from operating activities
Rental income received			8,936		5,970
Dividend income received			266		1,835
Interest and other income received/(paid)			295		(1)
Operating expenses paid			(1,974)		(1,914)
Taxation paid			(29)		-
Net cash inflow from operating activities	18		7,494		5,890
Cash flows from investing activities
Purchase of investments held at fair value through profit or loss		(7,215)		(30,132)
Purchase of investment properties		(25,353)		(63,412)
Sale of investments held at fair value through profit or loss		35,720		32,042
Sale of investment properties		9,746		3,445
Net cash inflow/(outflow) from investing activities			12,898		(58,057)
Cash flow from financing activities
Repayment of debenture stock		(26,380)		-
Drawdown of loan		13,000		-
Fees paid on new loan		(176)		-
Interest paid on loans		(2,815)		(3,113)
Finance cost of leases		(78)		(78)
Payments of lease liabilities		(9)		(9)
Dividends paid	8	(5,507)		(5,445)
Buyback of Ordinary Shares for Treasury	14	(1,307)		-
Net cash outflow from financing activities		(23,272)		(8,645)
Net decrease in cash and cash equivalents			(2,880)		(60,812)
Cash and cash equivalents at 1 April			5,153		65,965
Cash and cash equivalents at 31 March		2,273		5,153

The Notes form part of these Financial Statements.

Company Statement of Cashflows

Note		Year ended 31 March 2023		Year ended 31 March 2022
		£'000	£'000	£'000	£'000
Cash flows from operating activities
Rental income received			8,936		5,970
Dividend income received			266		1,835
Interest and other income received/(paid)			295		(1)
Operating expenses paid			(1,974)		(1,914)
Taxation paid			(29)		-
Net cash inflow from operating activities	18		7,494		5,890
Cash flows from investing activities
Purchase of investments held at fair value through profit or loss		(7,215)		(30,132)
Purchase of investment properties		(25,353)		(63,412)
Sale of investments held at fair value through profit or loss		35,720		32,042
Sale of investment properties		9,746		3,445
Net cash inflow/(outflow) from investing activities			12,898		(58,057)
Cash flow from financing activities
Repayment of debenture stock		(26,380)		-
Drawdown of loan		13,000		-
Fees paid on new loan		(176)		-
Interest paid on loans		(2,815)		(3,113)
Finance cost of leases		(78)		(78)
Payments of lease liabilities		(9)		(9)
Dividends paid	8	(5,507)		(5,445)
Buyback of Ordinary Shares for Treasury	14	(1,307)		-
Net cash outflow from financing activities		(23,372)		(8,645)
Net decrease in cash and cash equivalents			(2,880)		(60,812)
Cash and cash equivalents at 1 April			4,953		65,765
Cash and cash equivalents at 31 March		2,073		4,953

The Notes form part of these Financial Statements.

Statement of Changes in Equity

Year ended 31 March 2023
	Note	Share capital £'000	Share premium £'000	Retained earnings £'000	Total £'000
Group
Net assets at 31 March 2022		4,555	18,446	113,899	136,900
Loss for the year		-	-	(23,896)	(23,896)
Dividends paid	8	-	-	(5,507)	(5,507)
Buyback of Ordinary Shares for Treasury	14	-	-	(1,307)	(1,307)
Net assets at 31 March 2023		4,555	18,446	83,189	106,190
Company
Net assets at 31 March 2022		4,555	18,446	113,899	136,900
Loss for the year		-	-	(23,896)	(23,896)
Dividends paid	8	-	-	(5,507)	(5,507)
Buyback of Ordinary Shares for Treasury	14	-	-	(1,307)	(1,307)
Net assets at 31 March 2023		4,555	18,446	83,189	106,190

Year ended 31 March 2022
	Note		Share capital £'000		Share premium £'000		Retained earnings £'000		Total £'000
Group
Net assets at 31 March 2021			4,555		18,446		95,082		118,083
Profit for the year			-		-		24,262		24,262
Dividends paid	8		-		-		(5,445)		(5,445)
Net assets at 31 March 2022			4,555		18,446		113,899		136,900
Company
Net assets at 31 March 2021			4,555		18,446		95,082		118,083
Profit for the year			-		-		24,262		24,262
Dividends paid	8		-		-		(5,445)		(5,445)
Net assets at 31 March 2022				4,555		18,446		113,899		136,900

The Notes form part of these Financial Statements.

Notes to the Financial Statements

1.     Accounting policies

The Financial Statements have been prepared in accordance with UK adopted international accounting standards.

The functional and presentational currency of the Group and Company is pounds sterling because that is the currency of the primary economic environment in which the Group and Company operate. The Financial Statements and the accompanying Notes are presented in pounds sterling and rounded to the nearest thousand pounds except where otherwise indicated.

(a)   Basis of preparation

The Financial Statements have been prepared on a going concern basis as disclosed in the Directors' Report in the Annual Report and on the historical cost basis, except for the revaluation of equities, investment properties and investment in subsidiaries, all of which are valued at fair value through profit and loss. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts (the SORP) issued by the Association of Investment Companies (AIC) in July 2022 is consistent with the requirements of IFRSs, the Directors have sought to prepare the Financial Statements on a basis compliant with the recommendations of the SORP, except for the allocation of finance costs to revenue as explained in Note 1(f).

The Board has considered the requirements of IFRS 8, 'Operating Segments'. The Board is charged with setting the Group's investment strategy. The Board has delegated the day to day implementation of this strategy to the Investment Manager but the Board retains responsibility to ensure that adequate resources of the Group are directed in accordance with its decisions. The Board is of the view that the Group is engaged in a single segment of business, being investments in UK commercial properties. The view that the Group is engaged in a single segment of business is based on the fact that one of the key financial indicators received and reviewed by the Board is the total return from the investment portfolio taken as a whole. A review of the investment portfolio is included in the report from the Investment Manager.

(b)   Going concern

The Group's business activities, together with the factors likely to affect its future development and performance, are set out in the Strategic Report in the Annual Report. The financial position of the Group as at 31 March 2023 is shown in the Statement of Financial Position. The cash flows of the Group for the year ended 31 March 2023 are shown in the Group and Company Statement of Cashflows. The Group had fixed debt totalling £49,000,000 as at 31 March 2023, as set out in Notes 11 and 12; none of the borrowings is repayable before March 2026. Note 21 sets out the Group's risk management policies and procedures, including those covering market price risk, liquidity risk and credit risk. As at 31 March 2023, the Group's total assets less current liabilities exceeded its total non current liabilities by a factor of over three. The assets of the Group consist mainly of investment properties that are held in accordance with the Group's investment policy. The Directors, who have reviewed carefully the Group's forecasts for the coming year and having taken into account the liquidity of the Group's investment portfolio and the Group's financial position in respect of cash flows, borrowing facilities and investment commitments (of which there is none of significance), are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.

(c)   Basis of consolidation

The consolidated Financial Statements incorporate the Financial Statements of the Company and the entity controlled by the Company (its subsidiary). An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has ability to affect those returns through its power over the investee. The Company consolidates the investee that it controls. All intra-group transactions, balances, income and expenses are eliminated on consolidation. The investment in the subsidiary is recognised at fair value in the Financial Statements of the Company. This is considered to be the net asset value of the Shareholders' funds, as shown in its Statement of Financial Position.

Value and Indexed Property Income Services Limited is a private limited company incorporated in Scotland under company number SC467598. It is a wholly owned subsidiary of the Company and has been appointed to act as Alternative Investment Fund Manager of the Company.

(d)   Presentation of Statement of Comprehensive Income

In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company's Articles, net realised capital returns may be distributed by way of dividend.

Additionally, the net revenue is the measure that the Directors believe to be appropriate in assessing the Company's compliance with certain requirements set out in sections 1158-1160 of the Corporation Tax Act 2010.

(e)   Income

Dividend income from investments is recognised as revenue for the period on an ex-dividend basis. Where no ex- dividend date is available, dividends receivable on or before the period end are treated as revenue for the period.

Where the Group has elected to receive dividend income in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income.

Any excess in the value of shares received over the amount of cash dividend foregone is recognised as a gain in the income statement.

Interest receivable from cash and short term deposits and interest payable is accrued to the end of the period.

Rental receivable and lease incentives, where material, from investment properties under operating leases are recognised in the Statement of Comprehensive Income over the term of the lease on a straight line basis. Other income is recognised on an accruals basis.

(f)    Expenses and Finance Costs

All expenses and finance costs are accounted for on an accruals basis. Expenses are presented as capital where a connection with the maintenance or enhancement of the value of investments can be demonstrated. In this respect and in accordance with the SORP, the investment management fees have been allocated, 100% to revenue to reflect the Board's expectations of long term investment returns.

It is normal practice and in accordance with the SORP for investment trust companies to allocate finance costs to capital on the same basis as the investment management fee allocation. However as the Company has a significant exposure to property, and property companies allocate finance costs to revenue to match rental income, the Directors consider that, contrary to the SORP, it is inappropriate to allocate finance costs to capital.

(g)   Other Receivables

Financial assets classified as loans and receivables are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. As such they are measured at

amortised cost. Other receivables do not carry any interest, they have been assessed for any expected credit losses over their lifetime due to their short-term nature.

(h)   Other payables

Payables are non-interest bearing and are stated at their discounted cash flow.

(i)    Taxation

The Company's liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the date of the Statement of Financial Position.

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the date of the Statement of Financial Position, where transactions or events that result in an obligation to pay more tax in the future or the right to pay less tax in the future have occurred at the date of the Statement of Financial Position.

This is subject to deferred tax assets only being recognised if it is considered more probable than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted.

Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to maintain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

(j)    Dividends payable

Interim dividends are recognised as a liability in the period in which they are paid as no further approval is required in respect of such dividends. Final dividends are recognised as a liability only after they have been approved by Shareholders in general meeting.

(k)   Investments

Equity investments

All equity investments were classified on the basis of their contractual cashflow characteristics and the Group's business model for managing its assets. The business model, which is the determining feature, was such that the portfolio of equity investments was managed, and performance was evaluated, on the basis of fair value. Consequently, all equity investments were measured at fair value through profit or loss.

For listed investments, fair value through profit or loss was deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE 100 constituents and most liquid FTSE 250 constituents along with some other securities. Gains and losses arising from changes in fair value were included in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and were ultimately recognised in the retained earnings.

Investment property

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 incurred and is included within the book cost of the property.

After initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the retained earnings.

As disclosed in Note 21, the Group leases out all of its properties on operating leases. A property held under an operating lease is classified and accounted for as an investment property where the Group holds it to earn rental, capital appreciation or both. Any such property leased under an operating lease is carried at fair value. Fair value is established by half-yearly professional valuation on an open market basis by Savills (UK) Limited, Chartered Surveyors and Valuers, and in accordance with the RICS Valuation - Global Standards (January 2022) (the 'RICS Red Book'). The determination of fair value by Savills is supported by market evidence, excluding prepaid or accrued operating lease income arising from the spreading of lease incentives or minimum lease payments because it has been recognised as a separate liability or asset. The fair value of investment property held by a lessee as a right-of-use asset reflects expected cash flows (including variable lease payments that are expected to become payable). Accordingly, if a valuation obtained for a property is net of all payments expected to be made, it will be necessary to add back any recognised lease liability, to arrive at the carrying amount of the investment property using the fair value model. These valuations are disclosed in Note 9.

The Company accounts for its investment in its subsidiary at fair value. All fair value adjustments in relation to the subsidiary are eliminated on consolidation.

(l)    Cash and cash equivalents

Cash and cash equivalents comprises deposits held with banks.

(m)  Non-current liabilities

All new loans and borrowings are initially measured at cost, being the fair value of the consideration received, less issue costs where applicable. Thereafter, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement. The costs of arranging any interest-bearing loans are capitalised and amortised over the life of the loan. When the term of a loan is modified, the amortisation of costs is adjusted in line and the loan measured at fair value on the balance sheet.

(n)   Leases

The Group leases properties that meet the definition of investment property. These right-of-use assets are presented as part of Investment Properties in the Statement of Financial Position and held at fair-value. All properties are leased out under operating leases and rental income is recognised on a straight line basis over the expected term of the relevant lease. Many leases have fixed or minimum rental uplifts and where lease incentives or temporary rent reductions have been granted as a result of the recent COVID pandemic, rental income is recognised on a straight line basis over the expected term of the lease. The capital element of lease obligations is recorded as a finance lease payable liability in the Statement of Financial Position on inception of the arrangement. Lease payments are apportioned between capital repayment and finance charge, using the effective interest rate method, to produce a constant rate of charge on the balance of the capital repayments outstanding. The lease liability relates to the head rent on the property in Fareham. The current lease is for a period of 99 years with an option for a further 26 years. The liability is based on the option being taken up and extinguishing in December 2105.

(o)   Critical accounting judgements and key estimates

The preparation of the Financial Statements requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The critical accounting area involving a higher degree of judgement or complexity comprises the determination of fair value of the investment properties. The Group engages independent professional qualified valuers to perform the valuation. Information about the valuation techniques and inputs used in determining fair value as at 31 March 2023 is disclosed in Note 9 to the Financial Statements.

(p)   Adoption of new and revised Accounting Standards

New and revised standards and interpretations that became effective during the year had no significant impact on the amounts reported in these Financial Statements but may impact accounting for future transactions and arrangements. At the date of authorisation of these Financial Statements, the following Standards and interpretations, which have not been applied to these Financial Statements, were in issue but were not yet effective.

Standards

IAS 1 Amendments - Presentation of Financial Statements (effective 1 January 2023)

IAS 8 Amendments - Accounting Policies, Changes in Accounting Estimates and Errors (effective 1 January 2023)

IAS 12 Amendments - Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective 1 January 2023)

IFRS 17 (Initial Application of IFRS 17 and IFRS 9 - Comparative Information) (effective 1 January 2023)

IFRS 16 Amendments (Lease Liability in a Sale and Leaseback) (effective 1 January 2024)

IAS 1 Amendments - Presentation of Financial Statements (effective 1 January 2024)

The Directors do not expect the adoption of these Standards and interpretations (or any other Standards and interpretations which are in issue but not effective) will have a material impact on the Financial Statements of the Group in future periods.

2.    Income

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Investment income
Dividends from listed investments in UK	168	168	1,682	1,682
Other operating income
Rental income	8,358	8,358	5,647	5,647
Interest receivable on short term deposits	155	155	-	-
Other income	159	159	-	-
Total income	8,840	8,840	7,329	7,329

3.    Investment management fee

	Year ended 31 March 2023			Year ended 31 March 2022
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Group and Company
Investment management fee	990	-	990	1,088	2	1,090

A summary of the terms of the management agreement is given in the Directors' Report in the Annual Report.

OLIM Property Limited received an investment management fee of £990,000 (2022 - £1,090,000), the basis of calculation of which is detailed in the Directors' Report in the Annual Report.

4.    Other operating expenses

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Fee payable to the Company's auditor for the audit of the Company's accounts	65	65	55	55
- audit of the Subsidiary's accounts	-	-	2	2
Directors' fees	97	97	105	105
NIC on Directors' fees	3	3	3	3
Fees for company secretarial services	237	237	222	222
Direct property costs	(23)	(23)	(2)	(2)
Other expenses	516	516	485	485
	895	895	870	870

Directors' fees comprise the Chairman's fees of £30,000 (2022 - £30,000), the Audit and Management Engagement Committee Chairman's fees of £24,500 (2022 - £24,500) and fees of £22,000 (2022 - £22,000) per annum paid to each other Director.

Additional information on Directors' fees is given in the Directors' Remuneration Report in the Annual Report.

5.    Finance costs

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Interest payable on:
9.375% Debenture Stock 2026	456	456	1,875	1,875
Less amortisation of issue premium	(111)	(111)	(24)	(24)
Bank loan interest payable	1,753	1,753	1,181	1,181
Loan expenses derecognised	385	385	-	-
Gain on loan modification	(908)	(908)	-	-
Borrowing costs expensed on recognition of fair value	80	80	-	-
Effective interest	24	24	-	-
Amortisation of loan expenses	22	22	67	67
Finance costs attributable to lease liabilities	78	78	78	78
	1,779	1,779	3,177	3,177

In June 2022, the 9.375% Debenture Stock 2026 was repaid early at a premium of £6,380,000 and a balance of £111,000 unamortised premium from the issue of the debenture was expensed, resulting in a capital charge of £6,269,000 for the year to 31 March 2023 (see Note 12).

On 28 November 2019, the Company entered into a £22,000,000 fixed term secured loan facility for a period of up to seven years to 30 November 2026. On 3 March 2021, this facility was extended until 31 March 2031. During the year ended 31 March 2023, the loan was increased to £35,000,000 and extended for a further two years until 31 March 2033, costs previously incurred on the loan were extinguished at this point.

6.    Taxation

	Year ended 31 March 2023			Year ended 31 March 2022
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
a) Analysis of the tax credit/(charge) for the year: Group
Current tax	(979)	979	-	(321)	321	-
Deferred tax	-	446	446	-	2,833	2,833
	(979)	1,425	446	(321)	3,154	2,833
Factors affecting the total tax credit/ (charge) for year:	(24,342)			21,429
(Loss)/profit before tax
Tax charge thereon at 19% (2022 - 19%)			(4,625)			4,072
Effects of:
Non taxable dividends			32			(320)
Losses/(gains) on investments not taxable			4,417			(3,655)
Unrelieved finance costs			(270)			(2,930)
	(446)			(2,833)
Company	(979)	979	-	(321)	321	-
Current tax
Deferred tax	-	446	446	-	2,833	2,833
	(979)	1,425	446	(321)	3,154	2,833
Factors affecting the total tax credit/ (charge) for year:	(24,342)			21,429
Profit before tax
Tax charge thereon at 19% (2022 - 19%)			(4,625)			4,072
Effects of:
Non taxable dividends			32			(320)
Losses/(gains) on investments not taxable			4,417			(3,655)
Unrelieved finance costs			(270)			(2,930)
	(446)			(2,833)

	Year ended 31 March 2023			Year ended 31 March 2022
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
b) Factors affecting future tax charges	18,148			23,192
Unutilised tax losses
Potential tax benefit at 19%			-			635
Potential tax benefit at 25%			4,537			4,963
	4,537			5,598
Recognised as a deferred tax non-current asset			4,537			4,091
Not recognised as a deferred tax asset			-			1,507
	4,537			5,598

The Company and Group have deferred tax assets of £4,537,000 (2022 - £5,598,000) at 31 March 2023 relating to total accumulated unrelieved tax losses carried forward of £18,148,000 (2022 - £23,192,000). The Company and Group have recognised deferred tax assets of £4,537,000 (2022 - £4,091,000), based on forecast profits for the next five years but have not recognised deferred tax assets of £nil (2022 - £1,507,000) arising as a result of losses carried forward. These losses do not have an expiry date but it is considered too uncertain that the Group will generate profits against which these losses would be available to offset and, on that basis, the deferred tax asset in respect of these losses has not been recognised.

7.    Return per Ordinary Share

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
The return per Ordinary Share is based on the following figures:
Revenue return	4,197	4,197	1,873	1,873
Capital return	(28,093)	(28,093)	22,389	22,389
Weighted average number of Ordinary Shares in issue	43,272,601	43,272,601	43,557,464	43,557,464
Return per share - revenue	9.70p	9.70p	4.30p	4.30p
Return per share - capital	(64.92p)	(64.92p)	51.40p	51.40p
Total return per share	(55.22p)	(55.22p)	55.70p	55.70p

8.    Dividends

	Year ended 31 March 2023 £'000	Year ended 31 March 2022 £'000
Dividends on Ordinary Shares:
Third quarterly dividend of 3.00p per share (2022- 2.90p) paid 29 April 2022	1,307	1,263
Final dividend of 3.60p per share (2022 - 3.60p) paid 29 July 2022	1,568	1,568
First quarterly dividend of 3.00p per share (2022- 3.00p) paid 28 October 2022	1,296	1,307
Second quarterly dividend of 3.10p per share (2022- 3.00p) paid 27 January 2023	1,336	1,307
Dividends paid in the period	5,507	5,445

The third interim dividend of 3.20p (2022 - 3.00p), paid on 28 April 2023, has not been included as a liability in these financial statements.

The final dividend of 3.60p (2022 - 3.60p), to be paid on 4 August 2023, has not been included as a liability in these financial statements.

Set out below is the total dividend paid and proposed in respect of the financial year, which is the basis upon which the requirements of Sections 1158 - 1159 of the Corporation Tax Act 2010 are considered. The current year's revenue available for distribution by way of dividend is £4,197,000 (2022 - £1,874,000).

	Year ended 31 March 2023 £'000	Year ended 31 March 2022 £'000
First quarterly dividend of 3.00p per share (2022- 3.00p) paid 28 October 2022	1,296	1,307
Second quarterly dividend of 3.10p per share (2022- 3.00p) paid 27 January 2023	1,336	1,307
Third quarterly dividend of 3.20p per share (2022 - 3.00p) payable 28 April 2023	1,376	1,307
Final quarterly dividend of 3.60p per share (2022 - 3.60p) payable 4 August 2023	1,549	1,568
	5,557	5,489

The final dividend is based on the latest share capital of 43,012,464 Ordinary Shares in issue, excluding those held in Treasury.

9.    Investments

	Investment properties £'000	Equities £'000	Total £'000
Group
Cost at 31 March 2022	129,913	24,395	154,308
Unrealised appreciation	25,925	2,476	28,401
Valuation at 31 March 2022	155,838	26,871	182,709
Purchases	25,353	6,891	32,244
Sales proceeds	(9,746)	(31,527)	(41,273)
Realised gains on sales	1,005	441	1,446
Movement in unrealised appreciation in year	(21,814)	(2,676)	(24,490)
Valuation at 31 March 2023	150,636	-	150,636

	Investment properties £'000	Investment in subsidiary £'000	Equities £'000	Total £'000
Company
Cost at 31 March 2022	129,913	200	24,395	154,508
Unrealised appreciation	25,925	-	2,476	28,401
Valuation at 31 March 2022	155,838	200	26,871	182,909
Purchases	25,353	-	6,891	32,244
Sales proceeds	(9,746)	-	(31,527)	(41,273)
Realised gains on sales	1,005	-	441	1,446
Movement in unrealised appreciation in year	(21,814)	-	(2,676)	(24,490)
Valuation at 31 March 2023	150,636	200	-	150,836

The fair value valuation given by Savills plc excludes prepaid or accrued operating lease income arising from the spreading of lease incentives or minimum lease payments and for adjustments to recognise finance lease liabilities for one leasehold property, both in accordance with IFRS 16. The valuation has, therefore, been increased.

	Year ended 31 March 2023 £'000	Year ended 31 March 2022 £'000
Savills plc valuation	150,500	155,478
Operating lease assets	(2,717)	(2,502)
Finance lease liabilities	2,853	2,862
	150,636	155,838
Increase in fair value	136	360

The fair value valuation given by Savills plc includes £1,600,000 relating to the property at Newcastle where contracts have been exchanged for sale in April 2023.

Transaction costs

During the year, expenses were incurred in acquiring and disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains and losses on investments in the Statement of Comprehensive Income. The total costs were as follows:

	Year ended 31 March 2023 £'000	Year ended 31 March 2022 £'000
Purchases	9	95
Sales	32	32
	41	127

The fair values of the investment properties were independently valued by professional valuers from Savills (UK) Limited, acting in the capacity of External Valuers as defined in the RICS Red Book (but not for the avoidance of doubt as an External Valuers of the portfolio as defined by the Alternative Investment Fund Managers Regulations 2013). The valuations were prepared on the basis of Fair Value as required by the IFRS (International Financial Reporting Standards). In addition, the valuations have also been prepared in accordance with RICS Valuation - Professional Standards VPS 3.5 Fair Value and VPS 4.1 Valuations for Inclusion in Financial Statements. The definition of Fair Value is set out in IFRS 13 and is adopted by the International Accounting Standards Board as follows:

"The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date"

The RICS Red Book directs us to consider that Fair Value is consistent with the concept of Market Value, the definition of which is set out in Valuation Practice Statement 4 1.2 of the Red Book, as follows:

"The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion."

The valuations have been arrived at predominantly by reference to market evidence for comparable property (Level 3 of the Fair Value Hierarchy). As part of Savills' standard process, the valuations were carried out by specialist valuers, which were peer reviewed and reviewed again prior to the valuation date. During the review process, the various characteristics of each property were taken into consideration.

Property portfolio	Passing rent range £	Fair value - Group £'000	Key unobservable input	Inputs range	Blended yield
Industrials	49,500 - 400,000	46,570	Net Equivalent Yield	4.00% - 7.50%	5.50%
Supermarkets	87,000 - 967,590	43,124	Net Equivalent Yield	5.25% - 8.00%	6.00%
Other	61,097 - 559,968	14,297	Net Equivalent Yield	5.00% - 9.50%	7.25%
Bowling	66,788 - 469,586	13,632	Net Equivalent Yield	7.25% - 8.50%	8.00%
Hotels	360,000 -373,549	13,233	Net Equivalent Yield	5.00% - 5.50%	5.25%
Pubs	75,129 - 176,932	11,113	Net Equivalent Yield	5.25% - 9.50%	7.50%
Roadside	181,025 - 213,784	8,667	Net Equivalent Yield	6.75% - 7.50%	7.00%
		150,636

A 25 bps decrease in the equivalent yield applied would have increased the net assets attributable to the Group and Company's Shareholders and the total gain for the year by £6,500,000. A 25 bps increase in the equivalent yield applied would have decreased the net assets attributable to the Group and Company's Shareholders and the total gain for the year by £6,150,000. A 5% decrease in the rental value applied would have decreased the net assets attributable to the Group and Company's Shareholders and the total gain for the year by £3,725,000. A 5% increase in the rental value applied would have increased the net assets attributable to the Group and Company's Shareholders and the total loss for the year by £3,825,000.

Investment in subsidiary

	Country of incorporation	Date of acquisition	% ownership	Principal activity
Name
Value and Indexed Property Income Services Limited	UK	16 January 2014	100	AIFM

10.   Receivables

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Amounts falling due within one year:
Dividends receivable	-	-	98	98
Prepayments and accrued income	599	599	418	418
Amounts due from brokers	-	-	4,193	4,193
	599	599	4,709	4,709
Amounts falling due after more than one year: Rent	2,366	2,366	2,238	2,238
	2,965	2,965	6,947	6,947

Many of the Company's leases provide for minimum and maximum increases of rental at future rent reviews. Minimum increases have been averaged over the life of the lease, generating amounts receivable which require to be recognised as an asset.

11.   Payables

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Amounts due to OLIM Property Limited Accruals and other creditors	53	53	103	103
Value Added Tax payable	1,907	1,907	1,676	1,676
Amounts due to brokers	408	408	312	312
Lease liability	-	-	324	324
	8	8	8	8
	2,376	2,376	2,423	2,423

The amount due to OLIM Property Limited comprises the monthly management fee for March 2023, subsequently paid in April 2023.

12. Non-current liabilities

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Bank loans	50,000	50,000	37,000	37,000
Balance of costs incurred	(388)	(388)	(473)	(473)
Costs written off in the year	385	385	-	-
Gain on fair value valuation of debt	(908)	(908)	-	-
Borrowing costs expensed on recognition of fair value	80	80	-	-
Effective interest	24	24	-	-
Costs incurred in the year	(215)	(215)	-	-
Add: Debit to income for the year	22	22	85	85
	49,000	49,000	36,612	36,612
9.375% Debenture Stock 2026	-	-	20,000	20,000
Add: Balance of premium less issue expenses	111	111	135	135
Less: Credit to income for the year	(111)	(111)	(24)	(24)
	-	-	20,111	20,111
Total borrowings	49,000	49,000	56,723	56,723
Lease liability payable in more than one year
- within 2 - 5 years	28	28	28	28
- over 5 years	2,817	2,817	2,826	2,826
Total payables	2,845	2,845	2,854	2,854
	51,845	51,845	59,577	59,577

The Company has a £15,000,000 fixed term secured loan facility for a period of up to ten years to 31 March 2026 (2022 - £15,000,000). At 31 March 2023, £11,893,750 was drawn down at a rate of 4.344% and £3,106,250 was drawn down at a rate of 3.60%. The terms of the loan facility contain financial covenants that require the Company to ensure that:

•      in respect of each 3 month period ending on 31 March and 30 September (the Half Year dates), net rental income shall be at least 200 per cent of interest costs;

•      in respect of each 12 month period beginning immediately after 31 March and 30 September, net rental income shall be at least 200 per cent of interest costs; and

•      at all times, the loan shall not exceed 60 per cent of the value of the properties that have been charged.

On 28 November 2019, the Company entered into a £22,000,000 fixed term secured loan facility for a period of up to seven years to 30 November 2026. On 3 March 2021, this facility was extended until 31 March 2031. On 27 April 2022, the loan was increased to £30,000,000 and on 22 June 2022, the loan was increased to £35,000,000 and extended for a further two years until 31 March 2033, costs previously incurred on the loan were extinguished at this point. Subsequent to this the loan is recorded on the Statement of Financial Position at it's fair value. 95% of the loan is at a fixed rate and 5% at a floating rate of interest. At 31 March 2023, £35,000,000 was drawn down at a net effective interest rate of 3.65%. The terms of the loan facility contain financial covenants that require the Company to ensure that:

•      the total debt ratio does not at any time exceed 50 per cent;

•      projected interest cover is not less than 200 per cent at all times; and

•      the Loan to Value shall not exceed 68% of the value of the properties that have been charged.

The 9.375% Debenture Stock 2026 issued by VIP was repayable at par on 30 November 2026 and secured by a floating charge over the property and assets of the Company. In June 2022, it was repaid early at a premium of £6,380,000 and a balance of £111,000 unamortised premium from the issue of the debenture was taken to profit and loss.

The fair values of the loan and the Debenture are disclosed in Note 21 and the Net Asset Value per share, calculated with the borrowings at fair value, is disclosed in Note 17.

13. Deferred tax

Under IAS 12, provision must be made for any potential tax liability on revaluation surpluses. As an investment trust, the Company does not incur capital gains tax and no provision for deferred tax is therefore required in this respect.

As disclosed in Note 6, a deferred tax asset has been recognised to reflect the estimated value of tax losses carried forward which are likely to be capable of offset against future profits.

14.   Share capital

	Year ended 31 March 2023 £'000	Year ended 31 March 2022 £'000
Authorised:	5,600	5,600
56,000,000 Ordinary Shares of 10p each (2022 - 56,000,000)
Called up, issued and fully paid:
43,012,464 Ordinary Shares of 10p each (2022 - 43,557,464)	4,301	4,356
Treasury shares:
2,537,511 Ordinary Shares of 10p each (2022 - 1,992,511)	254	199
	4,555	4,555

The ordinary share capital on the Statement of Financial Position relates to the number of Ordinary Shares in issue and in Treasury. Only when shares are cancelled, either from Treasury or directly, is a transfer made to the Capital Redemption Reserve.

During the year, the Company repurchased 545,000 Ordinary Shares at a cost of £1,307,000, including expenses. All of these shares were placed in Treasury.

15.   Share premium

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Opening balance	18,446	18,446	18,446	18,446

16.   Retained earnings

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Opening balance at 31 March	113,899	113,899	95,082	95,082
(Loss)/profit for the year	(23,896)	(23,896)	24,262	24,262
Dividends paid (see Note 8)	(5,507)	(5,507)	(5,445)	(5,445)
Buyback of Ordinary Shares for Treasury (see Note 14)	(1,307)	(1,307)	-	-
Closing balance at 31 March	83,189	83,189	113,899	113,899

The table below shows the movement in retained earnings analysed between revenue and capital items.

	Year ended 31 March 2023			Year ended 31 March 2022
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Group
Opening balance at 31 March	(3,476)	117,375	113,899	96	94,986	95,082
Profit/(loss) for the year	4,197	(28,093)	(23,896)	1,873	22,389	24,262
Dividends paid (see Note 8)	(5,507)	-	(5,507)	(5,445)	-	(5,445)
Buyback of Ordinary Shares for Treasury (see Note 14)	-	(1,307)	(1,307)	-	-	-
Closing balance at 31 March	(4,786)	87,975	83,189	(3,476)	117,375	113,899
Company
Opening balance at 31 March	(4,563)	118,462	113,899	(991)	96,073	95,082
Profit/(loss) for the year	4,197	(28,093)	(23,896)	1,873	22,389	24,262
Dividends paid (see Note 8)	(5,507)	-	(5,507)	(5,445)	-	(5,445)
Buyback of Ordinary Shares for Treasury (see Note 14)	-	(1,307)	(1,307)	-	-	-
Closing balance at 31 March	(5,873)	89,062	83,189	(4,563)	118,462	113,899

Of the Company's Retained Earnings of £83,189,000, £76,433,000 is considered to be distributable.

17.   Net asset value per equity share

The net asset values per Ordinary Share are based on the Group's net assets attributable of £106,190,000 (2022 - £136,900,000) and on the Company's net assets attributable of 105,780,000 (2022 - £136,900,000) and on 43,012,464 (2022 - 43,557,464) Ordinary Shares in issue at the year end, excluding shares held in Treasury.

The net asset value per Ordinary Share, based on the net assets of the Group and the Company adjusted for borrowings at fair value (see Note 21) of £108,194,000 (2022 - £132,836,000) is 251.54p (2022 - 304.97p).

	Year ended 31 March 2023		Year ended 31 March 2022
	Group	Company	Group	Company
Net assets at 31 March 2023	106,190	106,190	136,900	136,900
Fair value adjustments	252	252	(4,064)	(4,064)
Net assets with borrowings at fair value	106,442	106,442	132,836	132,836
Number of shares in issue	43,012,464	43,012,464	43,557,464	43,557,464
Net asset value per share	246.88p	246.88p	314.30p	314.30p
Net asset value per share with borrowings at fair value	247.47p	247.47p	304.97p	304.97p

18.   Reconciliation of income from operations before tax to net cash inflow from operating activities

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Income from operations before tax	(14,409)	(14,409)	26,566	26,566
Losses/(gains) on investments	23,249	23,249	(19,237)	(19,237)
Investment management fee	(990)	(990)	(1,090)	(1,090)
Other operating expenses	(895)	(895)	(870)	(870)
Decrease in receivables	521	521	303	303
Increase in other payables	18	18	218	218
Net cash from operating activities	7,494	7,494	5,890	5,890

19.   Reconciliation of current and non-current liabilities arising from financing activities

	Year ended 31 March 2023		Year ended 31 March 2022
	Group £'000	Company £'000	Group £'000	Company £'000
Cash movements
Payment of rental (for leasing)	87	87	88	88
Repayment of debenture	20,000	20,000	-	-
Drawdown of loans (for financing)	(13,000)	(13,000)	-	-
Loan costs	80	80	32	32
Non-cash movements
Finance costs (for leasing)	(78)	(78)	(78)	(78)
Changes in fair value	578	578	(33)	(33)
Issue premium on debenture	111	111	-	-
Effective interest	(24)	(24)	-	-
Amortisation of loan premium and expenses and fair value adjustment	(22)	(22)	(61)	(61)
Change in debt in the year	7,732	7,732	(52)	(52)
Opening debt at 31 March	(59,585)	(59,585)	(59,533)	(59,533)
Closing debt at 31 March	(51,853)	(51,853)	(59,585)	(59,585)

20.   Relationship with the Investment Manager and Related Parties

Value and Indexed Property Income Services Limited is a wholly owned subsidiary of Value and Indexed Property Income Trust PLC and all costs and expenses are borne by Value and Indexed Property Income Trust PLC. Value and Indexed Property Income Services Limited has not traded during the year.

Matthew Oakeshott is a director of OLIM Property Limited which has an agreement with the Group to provide investment management services, the terms of which are outlined in the Directors' Report in the Annual Report and in Note 3.

21.   Financial instruments and investment property risks

Risk management

The Group's and the Company's financial instruments and investment property comprise property and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement or debtors for accrued income.

The Managers have dedicated investment management processes which ensures that the Investment Policy is achieved. The portfolio is reviewed on a periodic basis by a senior investment manager and by OLIM Property's Investment Committee.

Additionally, the Manager's Compliance Officer continually monitors the Group's investment and borrowing powers and reports to the Manager.

The main risks that the Group faces from its financial instruments are:

(i)     market risk (comprising price risk and interest rate risk

(ii)    liquidity risk

(iii)   credit risk

The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year.

(i)    Market risk

The fair value of, or future cash flows from, a financial instrument held by the Group may fluctuate because of changes in market prices. This market risk comprises three elements - price risk, interest rate risk and currency risk.

Price risk

Price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the Group's investments.

All investment properties held by the Group are commercial properties located in the UK with long, strong income streams.

Price risk sensitivity

If market prices at the date of the Statement of Financial Position had been 10% higher or lower, while all other variables remained constant, the return attributable to ordinary shareholders for the year ended 31 March 2023 would have increased/decreased by £15,043,000 (2022 - increase/ decrease of £18,271,000) and equity reserves would have increased/ decreased by the same amount.

Interest rate risk

Interest rate movements may affect:

•      the fair value of the investments in property; and

•      the level of income receivable on cash deposits.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise three and ten year bank loans, providing secure long term funding. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of between 25% and 50%. Details of borrowings at 31 March 2023 are shown in Notes 11 and 12.  

Interest risk profile

The interest rate risk profile of the portfolio of financial assets and liabilities at the statement of financial position date was as follows:

	Weighted average period for which rate is fixed Years	Weighted average interest rate %	Fixed rate £'000	Floating rate £'000
At 31 March 2023
Assets
Sterling	-	3.18	-	2,273
Total assets	-	3.18	-	2,273
At 31 March 2023
Liabilities
Sterling	6.51	3.63	50,000	-
Total liabilities	6.51	3.63	50,000	-
At 31 March 2022
Assets
Sterling	-	-	-	5,153
Total assets	-	-	-	5,153
At 31 March 2022
Liabilities
Sterling	6.17	5.64	57,000	-
Total liabilities	6.17	5.64	57,000	-

The weighted average interest rate on borrowings is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Group's loans are shown in Notes 11 and 12.

The floating rate assets consist of cash deposits on call, earning interest at prevailing market rates. The Group's equity and property portfolios and short term receivables and payables are non interest bearing and have been excluded from the above tables. All financial liabilities are measured at amortised cost.

Interest rate sensitivity

The sensitivity analyses below have been determined based on the exposure to interest rates at the statement of financial position date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Group's:

•      profit for the year ended 31 March 2023 would increase/decrease by £21,000 (2022 - increase / decrease by £31,000). This is mainly attributable the Group's exposure to interest rates on its floating rate cash balances.

•      the Group holds no financial instruments that will have an equity reserve impact.

In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Group's objectives.

Currency sensitivity

There is no sensitivity analysis included as the Group has no outstanding foreign currency denominated monetary items. Where the Group's equity investments (which are non-monetary items) are affected, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.

(ii)   Liquidity risk

This is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities.

The Group's assets of cash or near cash securities and investment properties which, by their nature, are less readily realisable. The maturity of the Group's mainly fixed rate borrowings is set out in the interest risk profile section of this Note.

The table below details the Group's remaining contractual maturity for its financial liabilities, based on the undiscounted cash outflows, including both interest and principal cash flows, and on the earliest date upon which the Group can be required to make payment.

	Carrying value £'000	Expected cashflows £'000	Due within 3 months £'000	Due between 3 months and 1 year £'000	Due after 1 year £'000
At 31 March 2023
Borrowings	50,270	62,378	405	1,245	60,728
Leases	2,853	7,177	22	65	7,090
Other payables	1,500	1,500	1,500	-	-
Total	54,623	71,055	1,927	1,310	67,818
At 31 March 2022
Borrowings	57,850	75,519	1,261	1,955	72,303
Leases	2,895	7,265	22	65	7,178
Other payables	356	356	356	-	-
Total	61,101	83,140	1,639	2,020	79,481

(iii)  Credit risk

This is the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Group suffering a loss. Cash is held only with reputable banks with high quality external credit rating, which are monitored on a regular basis.

Credit risk exposure

In summary, compared to the amounts on the Group Statement of Financial Position, the maximum exposure to credit risk during the year to 31 March was as follows:

	Year ended 31 March 2023		Year ended 31 March 2022
	Statement of Financial Position £'000	Maximum exposure £'000		Statement of Financial Position £'000	Maximum exposure £'000
Current assets
Cash and cash equivalents	2,273	27,725		5,153	58,689
Other receivables	599	8,239		4,709	5,186
	2,872	35,964		9,862	63,875

(iv)  Property risk

The Group's commercial property portfolio is subject to both market and specific property risk. Since the UK commercial property market has been markedly cyclical for many years, it is prudent to expect that to continue. The price and availability of credit, real economic growth and the constraints on the development of new property are the main influences on the property investment market.

Against that background, the specific risks to the income from the portfolio are tenants being unable to pay their rents and other charges, or leaving their properties at the end of their leases. All leases are on full repairing and insuring terms, with upward only rent reviews and the weighted average unexpired lease length to the break option is 12.6 years (2022 - 12.8 years). Details of the tenant and geographical spread of the portfolio are set out in the Annual Report. The long term record of performance through the varying property cycles since 1987 is set out in the Annual Report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.

The Group leases out its investment property to its tenants under operating leases. At 31 March 2023, the future minimum lease receipts under non-cancellable leases are as follows:

	Year ended 31 March 2023	Year ended 31 March 2022
	£'000	£'000
Due within 1 year	9,338	8,159
Due between 2 and 5 years	36,302	32,525
Due after more than 5 years	89,151	78,686
	134,791	119,370

This amount comprises the total contracted rent receivable as at 31 March 2023.

None of the Group's financial assets is past due or impaired.

Fair values of financial assets and financial liabilities

All assets and liabilities of the Group other than receivables and payables and the borrowings are included in the Statement of Financial Position at fair value.

(i)   Fair value hierarchy disclosures

All assets and liabilities of the Group other than receivables and payables and the borrowings are included in the Statement of Financial Position at fair value.

The table below sets out fair value measurements using the IFRS 13 Fair Value hierarchy:

	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
At 31 March 2023
Investment properties	-	-	150,636	150,636
	-	-	150,636	150,636
At 31 March 2022
Equity investments	26,871	-	-	26,871
Investment properties	-	-	155,838	155,838
	26,871	-	155,838	182,709

Company and Group numbers per the above fair value disclosures are the same except for the investment of £200,000 made by the Company in its subsidiary, which was the subject of an inter-group transfer in 2014.

Fair value categorisation within the hierarchy has been determined on the basis of the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety as follows:-

Level 1 - inputs are unadjusted quoted prices in an active market for identical assets

Level 2 - inputs, not being quoted prices, are observable, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

Level 3 - inputs are not observable

There were no transfers between Levels during the year.

(ii)   Borrowings

The fair value of borrowings has been calculated at £48,748,000 as at 31 March 2023 (2022 - £61,064,000) compared to a Statement of Financial Position value in the Financial Statements of £49,000,000 (2022 - £56,723,000) per Notes 11 and 12.

The fair values of the loans are determined by a discounted cash flow calculation based on the appropriate inter-bank rate plus the margin per the loan agreement. These instruments are, therefore, considered to be Level 2 as defined above. There were no transfers between Levels during the year.

All other assets and liabilities of the Group are included in the Statement of Financial Position at fair value.

	Fair value		Statement of financial position value
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
9.375% Debenture Stock 2026	-	23,592	-	20,111
Bank loans	48,748	37,472	49,000	36,612
	48,748	61,064	49,000	56,723

In June 2022, the 9.375% Debenture Stock 2026 was repaid early at a premium of £6,380,000 and a balance of £111,000 unamortised premium from the issue of the Debenture was expensed.

Principal financial instruments

(iii)     Financial instruments by category

Financial assets

	Fair value through profit or loss		Amortised cost
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Cash and cash equivalents	-	-	2,273	5,153
Other receivables	-	-	2,965	6,947
Equity investments	-	26,871	-	-
Total financial assets	-	26,871	5,238	12,100

Financial liabilities

	Fair value through profit or loss		Amortised cost
	2023 £'000	2022 £'000	2023 £'000	2022 £'000
Other payables	-	-	(5,221)	(5,277)
Loans and other borrowings	(34,116)	-	(14,884)	(56,723)
Total financial liabilities	(34,116)	-	(20,105)	(62,000)

22.   Capital management policies and procedures

The Group's capital management objectives are:

•     to ensure that the Group will be able to continue as a going concern; and

•     to maximise the return to its equity shareholders in the form of long term real growth in dividends and capital value without undue risk.

The capital of the Group consists of equity, comprising issued capital, reserves, borrowings and retained earnings.

The Board monitors and reviews the broad structure of the Group's capital. This review includes:

•     the planned level of gearing which takes into account the Manager's view of the market and the extent to which revenue in excess of that which requires to be distributed should be retained.

The Group's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

Details of the Group's gearing and financial covenants are disclosed in Notes 11 and 12.

23.   Commitments

The Board is recommending the payment of a final dividend of 3.6p per Ordinary Share (2022: 3.6p) which, subject to receiving Shareholder approval at the 2023 AGM, will be paid on 4 August 2023 to all Shareholders on the register as at 7 July 2023.

There are no significant subsequent events for the Group or the Company, though purchases and sales of property in the normal course of business which completed after the year end are disclosed in the Annual Report.

Additional Information

In accordance with section 435 of the Companies Act 2006, the Directors advise that the financial information set out in this announcement does not constitute the Group's statutory Financial Statements for the period ended 31 March 2023 but is derived from these Financial Statements. The statutory Financial Statements for the year ended 31 March 2022 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under S498(2) or S498(3) of the Companies Act 2006.

The Financial Statements for the period ended 31 March 2023 have been prepared in accordance with UK adopted international accounting standards. The Financial Statements for the period ended 31 March 2023 will be forwarded to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have reported on these Financial Statements; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

The Group and Company Statement of Financial Position at 31 March 2023 and the Group and Company Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended have been extracted from the Group's Financial Statements. Those Financial Statements have not yet been delivered to the Registrar.

The 2023 Annual Report and Financial Statements will be posted to Shareholders shortly and will contain the Notice of the Annual General Meeting of the Company to be held on Wednesday, 2 August 2023 at 12.30pm at the Kingham Room, Broadway House Conference Centre, Tothill Street, London SW1H 9NQ.

For Value and Indexed Property Income Trust PLC

Maven Capital Partners UK LLP

Company Secretary

26 June 2023

 

END