Half Yearly Report

RNS Number : 9094B

IRP Property Investments Ltd

28 February 2011

 



 To:                   RNS

Date:                28 February 2011

From:                IRP Property Investments Limited

Interim results in respect of the period ended 31 December 2010

·      Net asset value per share total return since launch of 37.3 per cent

·      Net asset value per share total return of 5.9 per cent for the 6 months

·      Portfolio ungeared total return of 4.2 per cent for the 6 months

·      Share price total return of 2.3 per cent for the 6 months

·      Dividend of 3.6 pence per share for the period

·      Dividend yield of 8.7 per cent as at 31 December 2010

The Chairman, Quentin Spicer, stated:

The UK commercial property market continued to see positive performance during the second half of 2010 with capital growth of 2.1 per cent, according to the Investment Property Databank ('IPD') All Quarterly and Monthly Funds Index and a total return over the period of 5.2 per cent. The Company's property portfolio recorded a total return of 4.2 per cent for the six month period to 31 December 2010. This under-performance over the last six months can primarily be attributed to the portfolios lack of exposure to Central London offices or shopping centres.  The portfolio has outperformed IPD over three and five years.  The Company benefited from its use of borrowings which enhanced returns and the net asset value ('NAV') total return per share for the period was 5.9 per cent, with the NAV per share at the period end at 86.8 pence.

The share price has continued to trade close to the net asset value with a discount of 5.0 per cent at the period end. The share price has traded around this level of discount for a number of months now which is perhaps an indication that the market is not predicting much capital growth in UK commercial property in the near term.

Dividends

The Company is currently paying an annualised dividend of 7.2 pence per share in the form of quarterly interim dividends of 1.80 pence per share, a yield of 8.7 per cent on the period end share price. The first interim dividend for the year ending 30 June 2011 was paid in December 2010, with a second interim dividend of 1.80 pence per share to be paid on 25 March 2011 to shareholders on the register on 4 March 2011. The Board remains comfortable with the Company's position relative to its banking covenants and with its level of income collection and is therefore happy to confirm that, in the absence of unforeseen circumstances, it intends to pay a further two dividends at this rate in respect of the current financial year.

Borrowings

The Company is in a relatively strong financial position with a long term facility of £75 million available until 2017. £60 million of this facility has been drawn down to date and, as at 31 December 2010, the loan to value ratio ('LTV') was 32.6 per cent, net of current assets and liabilities of £9.8 million. This remains comfortably within the LTV restriction of 60 per cent.  The other principal covenant is the amount by which rental income covers interest, with a minimum restriction of 150 per cent. As at 31 December the interest rate cover was 218 per cent, providing significant headroom.

The interest rate on the £60 million loan has been fixed with an interest rate swap at 5.60 per cent. The valuation of the swap was a liability on the balance sheet as at 31 December of £8.9 million. This liability will reduce as the swap gets closer to its expiry date in 2017 and would be expected to decrease if interest rates increase from their current low levels.

Property Market

The second half of the year saw a more subdued performance from that witnessed in the first half of 2010. Offices and retail both outperformed the all property average with industrials lagging but performance was uneven within sectors. Central London offices were the strongest part of the property market but capital values turned negative for offices outside London during the period. Performance was generally weaker in the regions than in London and the South East.

Rental values stabilised during the period, with growth in Central London office and shop rents offsetting rental falls in most other parts of the market. Occupational demand is generally muted and driven by lease events rather than expansion but there are patches of rental growth in areas where supply is tight.

Portfolio

The Company sold 88-90 The Parade, Leamington Spa for £3.6 million reflecting a net initial yield of 4.9 per cent. The sale price was significantly ahead of the valuation of £3.3 million, and its book cost of £2.8 million. The property is let to Superdrug Stores plc at £188,250 per annum for a further 9.7 years. The property was sold to reduce the Company's exposure to Leamington Spa where it also owns 30-40, The Parade, which has a current valuation of £10.5 million.

The Company has actively managed its portfolio with a view to maintaining and enhancing income streams and the portfolio enjoys a relatively low void rate. Further new lettings have seen the vacant area (as measured by estimated rental value) fall from 2.1 per cent to 1.5 per cent over the period. This low figure compares very favourably with the IPD void rate average of 8.1 per cent.

The Company re-let the entire property at Chippenham Drive, Milton Keynes with effect from the lease expiry date of 30 September 2010, to the sub-tenant in occupation. The warehouse premises comprising an area 73,600 square feet were let for five years at an annual rent rising to £406,000 per annum. The Company has also re-let Unit 7, Lakeside Road, Colnbrook at a rent of £121,950 per annum for a term of five and a half years.

As at 31 December 2010 the average weighted unexpired lease term for the Company's portfolio was 7.8 years.

Outlook

With 2011 set to be another testing year, the focus remains on the maintenance of income streams and keeping vacant property to a minimum. There is expectation in the market that capital values will fall slightly during the year, particularly on properties which are secondary in nature, although total returns are expected to be positive.

Enquiries to:

The Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

Guernsey GY1 3QL

Tel:       [phone]

Fax:      [phone]

I McBryde, S Macrae

F&C Investment Business Limited

Tel:       [phone]

Fax:      [phone]

IRP Property Investments Limited

Consolidated Statement of Comprehensive Income

Notes	Six months to 31 December 2010 (unaudited)	Six months to 31 December 2009 (unaudited)	Year to 30 June 2010 (audited)
	£'000	£'000	£'000
Revenue
Rental income	5,797	5,722	11,651
Gains on investment properties            2	1,357	14,555	20,218
Total income	7,154	20,277	31,869
Expenditure
Investment management fee	(544)	(524)	(1,064)
Direct operating expenses of let rental property	(328)	(222)	(526)
Provision for bad debts	30	(47)	(99)
Administrative fee	(35)	(27)	(61)
Valuation and other professional fees	(69)	(65)	(136)
Directors' fees	(52)	(52)	(105)
Other expenses	(124)	(115)	(237)
Total expenditure	(1,122)	(1,052)	(2,228)
Net operating profit before finance costs	6,032	19,225	29,641
Net finance costs
Interest receivable	33	94	120
Finance costs	(1,717)	(1,735)	(3,436)
	(1,684)	(1,641)	(3,316)
Net profit from ordinary activities before taxation	4,348	17,584	26,325
Taxation on profit on ordinary activities	(246)	-	(241)
Net profit for the period	4,102	17,584	26,084
Other comprehensive income:
Net profit/(loss) on cash flow hedges net of tax	1,451	(846)	(4,335)
Net comprehensive gain for the period, net of tax	5,553	16,738	21,749
Basic and diluted earnings per share   3	3.7p	15.9p	23.6p

 IRP Property Investments Limited

Consolidated Balance Sheet

Notes	31 December 2010 (unaudited) £'000	31 December 2009 (unaudited) £'000	30 June  2010 (audited) £'000
Non-current assets
Investment properties	155,388	151,791	157,609
Current assets
Trade and other receivables	3,142	1,945	2,478
Cash and cash equivalents	10,679	10,386	8,761
	13,821	12,331	11,239
Total assets	169,209	164,122	168,848
Non-current liabilities
Interest-bearing bank loan	(60,365)	(60,322)	(60,335)
Interest rate swap	(8,902)	(6,863)	(10,352)
	(69,267)	(67,185)	(70,687)
Current liabilities
Trade and other payables	(4,039)	(3,641)	(3,833)
Total liabilities	(73,306)	(70,826)	(74,520)
Net assets	95,903	93,296	94,328
Represented by:
Share capital	1,105	1,105	1,105
Special distributable reserve	93,082	95,456	94,314
Capital reserve	10,618	3,598	9,261
Other reserve	(8,902)	(6,863)	(10,352)
Equity shareholders' funds	95,903	93,296	94,328
Net asset value per share                 4	86.8p	84.4p	85.4p

IRP Property Investments Limited

Consolidated Statement of Changes in Equity

Notes	Six months to 31 December 2010 (unaudited) £'000	Six months to 31 December 2009 (unaudited) £'000	Year to 30 June 2010 (audited) £'000
Opening net assets	94,328	80,535	80,535
Net profit for the period	4,102	17,584	26,084
Dividends paid                                5	(3,978)	(3,977)	(7,956)
Movement in other reserve	1,451	(846)	(4,335)
Closing net assets	95,903	93,296	94,328

IRP Property Investments Limited

Consolidated Statement of Cash Flow

	Six months to 31 December  2010 (unaudited)	Six months to 31 December  2009 (unaudited)	Year to 30 June 2010 (audited)
	£'000	£'000	£'000
Cash flows from operating activities
Net operating profit for the period before taxation	4,348	17,584	26,325
Adjustments for:
Gains on investment properties	(1,357)	(14,555)	(20,218)
(Increase)/decrease in operating trade and other          receivables	(664)	294	(240)
Increase/(decrease) in operating trade and other       payables	28	(104)	(120)
Net finance costs	1,684	1,641	3,316
	4,039	4,860	9,063
Taxation	(45)	-	-
Net cash inflow from operating activities	3,994	4,860	9,063
Cash flows from investing activities
Purchase of investment properties	-	(5,538)	(5,537)
Capital expenditure	(47)	(29)	(180)
Sale of investment properties	3,625	217	212
Interest received	33	94	120
Net cash inflow/(outflow) from investing activities	3,611	(5,256)	(5,385)
Cash flows from financing activities
Dividends paid	(3,978)	(3,978)	(7,956)
Bank loan interest paid	(288)	(342)	(706)
Payments under interest swap arrangement	(1,421)	(1,372)	(2,729)
Net cash outflow from financing activities	(5,687)	(5,692)	(11,391)
Net increase/(decrease) in cash and cash equivalents	1,918	(6,088)	(7,713)
Opening cash and cash equivalents	8,761	16,474	16,474
Closing cash and cash equivalents	10,679	10,386	8,761

IRP Property Investments Limited

Notes to the Consolidated Financial Statements

for the six months to 31 December 2010

1.   The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), IAS34 'Interim Financial Reporting' and the accounting policies set out in the statutory accounts of the Group for the year ended 30 June 2010. The condensed consolidated financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the Group for the year ended 30 June 2010 which were prepared under full IFRS requirements.

2.   Investment properties

	Six month period to 31 December 2010 £'000
Opening valuation	157,609
Capital Expenditure	47
Sales proceeds	(3,625)
Gains on investment properties	1,357
Closing valuation	155,388

3.   Earnings per Ordinary Share are based on 110,500,000 shares, being the weighted average number of shares in issue during the period (31 December 2009 - 110,500,000 and 30 June 2010 - 110,500,000).  Earnings for the six months to 31 December 2010 should not be taken as a guide to the results for the year to 30 June 2011.

4.   The net asset value per Ordinary Share is based on net assets of £95,903,000 (31 December 2009 - £93,296,000 and 30 June 2010 - £94,328,000) and 110,500,000 ordinary shares (31 December 2009 - 110,500,000 and 30 June 2010 - 110,500,000) being the number of shares in issue at the period end.

5.   Dividends paid

	Six months to 31 December 2010		Six months to 31 December 2009		Year ended 30 June 2010
Fourth interim dividend	1,989	1.80	1,989	1.80	1,899	1.80
First interim dividend	1,989	1.80	1,988	1.80	1,989	1.80
Second interim dividend					1,989	1.80
Third interim dividend					1,989	1.80
	3,978	3.60	3,977	3.60	7,956	7.20

A second interim dividend for the year to 30 June 2011, of 1.8 pence per share, will be paid on 25 March 2011 to shareholders on the register at close of business on 4 March 2011.

6.   The Board has considered the requirements of IFRS 8 'Operating Segments'.  The Board is of the view that the Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Company has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Company. The key measure of performance used by the Board to assess the Company's performance is the total return of the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the condensed consolidated financial statements.

7.   No Director has any interest in any transactions which are or were unusual in their nature or significant to the Group.  F&C REIT Asset Management received fees for its services as Investment Managers.  The total charge to the Income Statement during the period was £543,900 of which £305,000 remained payable at the period end.

The Directors of the Company received fees for their services totalling £52,500, of which £nil remained payable at the period end.

8.   The accounts have not been audited nor reviewed under the requirements of ISRE 2410 'Review of interim financial information performed by the independent auditor of the Company'.

9.   The Group results consolidate those of IRP Holdings Limited ('IRPH'), a wholly owned-subsidiary. IRPH is incorporated in Guernsey and its principal business is that of an investment and property company.

10.    Report and accounts

The report and accounts for the half-year ended 31 December 2010 will be posted to shareholders and made available on the website www.irppropertyinvestments.com shortly.

Statement of Principal Risks and Uncertainties

The Company's assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the UK commercial property market in general but also the particular circumstances of the properties in which it is invested and their tenants. Other risks faced by the Company include economic, strategic, regulatory, management and control, financial and operational. These risks, and the way in which they are mitigated and managed, are described in more detail under the heading Principal Risks and Uncertainties within the Report of the Directors in the Company's Annual Report for the year ended 30 June 2010. The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Company's financial year.

Directors' Responsibility Statement in Respect of the Half-yearly Financial Report

We confirm that to the best of our knowledge:

·     The condensed set of financial statements has been prepared in accordance with IAS34 'Interim Financial Reporting';

·     the Chairman's Statement constituting the Interim Management Report together with the Statement of Principal Risks and Uncertainties include a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements; and

·     the Chairman's Statement together with the financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

Quentin Spicer

Chairman

28 February 2011

 

END

 

 

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