abrdn Property Income Trust Limited - Annual Results - December 2023
(an authorised closed-ended investment company incorporated in
LEI Number: 549300HHFBWZRKC7RW84
(The “Company” or “API”)
FINAL RESULTS FOR THE YEAR ENDED
The Company's Annual Report and Accounts for the year ended
PERFORMANCE SUMMARY
31 December 31 December Earnings, Dividends & Costs 2023 2022 IFRS Earnings per share (p) (2.17) (13.11) EPRA earnings per share (p) (excl 2.83 2.94 capital items & swap movements) * Dividends paid per ordinary share 4.0 4.0 (p) Dividend Cover (%) ** 71 73 Dividend Cover excluding 82 97 non-recurring items (%) Dividend Yield (%) *** 7.5 6.4 FTSE All-Share Real Estate 4.5 4.6 Investment Trusts Index Yield (%) FTSE All-Share Index Yield (%) 4.0 3.6 Ongoing Charges ** As a % of average net assets 2.5 2.2 including direct property costs As a % of average net assets 1.2 1.1 excluding direct property costs 31 December 31 December Change Capital Values & Gearing 2023 2022 % Total assets (£million) 456.1 444.9 2.5 Net asset value per share (p) (note 78.2 84.8 (7.8) 21) Ordinary Share Price (p) 53.0 62.4 (15.1) (Discount)/Premium to NAV (%) (32.2) (26.4) Loan-to-value (%) ** 30.8 22.6 1 year 3 year 5 year 10 year Total Return % return % return % return % return NAV ^ (3.0) 8.8 8.0 101.2 Portfolio 0.7 12.6 15.9 99.4 AIC Property Direct – UK Commercial (0.8) 10.9 18.2 73.6 (weighted average) NAV Total Return Share Price ^ (8.2) 6.6 (11.7) 35.2 AIC Property Direct –UK Commercial (weighted average) Share Price (1.3) 6.8 5.1 22.0 Total Return FTSE All-Share Real Estate 11.6 (1.1) 8.3 35.5 Investment Trusts Index FTSE All-Share Index 7.9 28.1 37.7 68.2 31 December 31 December Property Returns & Statistics (%) 2023 2022 Portfolio income return 5.3 4.4 MSCI Benchmark income return 4.6 4.1 Portfolio total return 0.7 (8.8) MSCI Benchmark total return (1.5) (8.9) Void rate 7.6 9.8
* Calculated as profit for the period before tax (excluding capital items & swaps costs) divided by weighted average number of shares in issue in the period. EPRA stands for
** As defined and calculated under API’s Alternative Performance Measures (as detailed in the full Annual Accounts which can be found via the following link: https://www.abrdnpit.co.uk/en-gb/literature)
*** Based on dividend paid of 4.0p and the share price at
^ Assumes re-investment of dividends excluding transaction costs.
Sources: abrdn, MSCI
CHAIR’S STATEMENT
Background
Despite grappling with global uncertainties, ranging from geopolitical tensions to the persistent shadow of COVID-19, the
Corporate Activity
During the second half of 2023 the Board undertook a strategic review. This review was prompted by the Board’s concerns, as well as those of some shareholders about the Company’s size, the lack of liquidity in its shares, the discount to NAV and uncovered dividend. The outcome of this review, following interest from other listed REITs, was that the Board recommended to shareholders that they vote in favour of a proposed merger with Custodian REIT for the reasons outlined in various announcements to shareholders during the first quarter of 2024.
The Company’s Court Meeting and General Meeting were both held on
After the challenges of the second half of 2022 and the resultant market re-pricing, 2023 saw some stabilisation with a marked improvement in real estate total returns, albeit these remained marginally negative.
Throughout the year there was an expectation of a peak in interest rates followed swiftly by the beginnings of a period of rate cuts. However, this failed to materialise due to inflation levels remaining stubbornly elevated.
The uncertainty around inflation, interest rates and debt costs contributed to weakened investor sentiment which resulted in significantly reduced investment activity.
According to CBRE, investment volumes in the
This was most notable within the office sector, which persists in its underperformance with the main driver being a continuation of outward yield movement negatively impacting capital values.
Whilst there was limited transactional evidence in the sector, the transactions that did occur painted a weakening picture.
There was a stark divergence in value movement across regions with, as an example, London’s
From an occupational perspective, demand continues to focus on prime or “best-in-class” assets, characterised by those with high levels of amenity and a strong emphasis on environmental and sustainable credentials.
Following a review of the Company’s office portfolio a number of years ago, the Board and Investment Manager have progressed initiatives to maximise amenity at all of the office assets within the confines of the specific buildings.
This has positioned the Company’s assets favourably within their respective market and is evidenced by the good letting activity over the year.
It does, however, remain a focus of the Investment Manager to continue to reduce the Company’s exposure to this sector, and this is evidenced by the sale of
In contrast to the performance of the office sector, the industrial sector has recovered from the sharp pricing correction in late 2022 and early 2023 to return to being the top-performing sector according to the MSCI Quarterly Index. With the outward pressure on yields abating, and positive rental growth continuing, the sector posted a total return of 4.1% for the year.
Whilst tenant demand remains robust and development levels low, the overall vacancy rate within the sector is starting to rise. The increase is muted, and the overall vacancy level remains below historic averages, but this is perhaps the beginning of affordability having an impact on demand for some occupiers. Expectations are that there will continue to be positive rental growth within the sector, albeit at more muted levels than we have seen in recent years. Both the Board and the Investment Manager continue to have conviction around the portfolio’s significant exposure to the industrial sector being a source of performance going forwards.
The retail sector outperformed on a total return basis, showing commendable resilience largely led by a higher relative income return.
The sector does, however, continue to demonstrate a wide divergence of returns between the sub-sectors bookended by
Environmental, Social and Governance (ESG) factors are now an ever-present consideration for investors and occupiers alike. The Board’s Sustainability Committee oversees the work that the Company undertakes in this area, demonstrating the importance that the Board places on this area. As an example, the Company has taken great strides over recent years in the installation of on-site renewable energy in the form of roof-mounted photovoltaic panels. Recent elevated energy costs have brought significant focus on the benefits of on-site renewable energy for occupiers, so the Company’s work in this area will be a significant benefit going forward.
Portfolio and Corporate Performance
The NAV total return for the year was -3.0%. The real estate investment portfolio returned 0.7%, which outperformed the MSCI Quarterly Property Index benchmark return of -1.5% over the same period. The Company’s portfolio has outperformed the Index over 1, 3, 5 and 10 years.
The share price total return for the year at -8.2% was a disappointment. Similarly to 2022, the share price traded persistently at a high discount to NAV throughout the year. Whilst the Board had utilised buybacks in previous years, repeating this would have required additional borrowings at unattractive interest rates so was not deemed a suitable option. The discount level was one of the main reasons behind the Board undertaking a review of the Company’s future.
IFRS earnings improved from -13.11p per share to -2.17p for 2023 reflecting the stabilisation in property valuation moves compared to last year. EPRA earnings per share decreased from 2.94p to 2.83p per share, a decrease of 3.7%.
Rent Collection
Following the disruption of COVID, collection rates have returned to where we would expect with the fourth quarter sitting at 99.4% and the year as a whole at 99.7%. This continued recovery in collection rates led to a further reversal in bad debt provisions which contributed £213,048 (or 0.06p per share) to performance. The diversified nature of the tenant mix within the portfolio should mitigate the risk of individual tenant failure.
Financial Resources
The Company continues to be in a strong financial position with unutilised financial resources of £25m available in the form of its revolving credit facilities (“RCF”) net of existing cash and financial commitments.
As at the year end the Company had a Loan-to-Value (“LTV”) ratio of 30.8%, which sits within the Board’s target range.
Dividends
The Board has maintained the annual dividend of 4p per share for 2023. Dividend cover (excluding non-recurring costs) was 82% for 2023, reflecting a decrease from 97% in 2022 (also excluding non-recurring items). Dividend cover for Q4 2023 was 83% demonstrating progress towards full cover.
Annual General Meeting (“AGM”)
The Annual General Meeting (“AGM”) will be held at
Outlook
Looking ahead to 2024, there is cautious optimism around the trajectory for
At a property market level, there is an expectation of continued rental growth in the industrial sector as well as the retail warehouse sector where vacancy rates have been falling. Both these sectors are areas of the market in which the Company has positioned itself with good levels of exposure, indicating continued positive performance for the portfolio.
INVESTMENT MANAGER’S REPORT
Market Review
One of the defining aspects of the
For several years now sector allocation has played an important part in the performance of a
Returns in the direct
Industrial
Following a sharp sector-wide repricing in the 12 months to
Availability rose across the
Offices
The office sector continues to underperform, delivering an annual total return of -10.2% to
As has been the trend post-Covid, concealed within these figures is an occupational story of sustained flight to best-in-class quality, particularly for assets with sustainability credentials and amenities. Outdated and out of fashion stock is experiencing both the highest levels of vacancy and greatest outward yield shifts. A dwindling pipeline due to rising interest rates and elevated construction costs will only reinforce this trend over the medium term as occupiers embrace flexible working strategies and undesirable offices struggle to reduce vacancies.
Retail
The retail sector posted a total annual return of -0.1% to
Much of the relative performance within the retail warehousing sub-sector comes from the continued resilience of discount retailers. Value supermarkets and discount homeware brands have benefited significantly from consumers under sustained cost of living pressures. This is evident within ONS retail sales data through the widening divergence between retail sales values and volumes as consumers increasingly spend more for less. Furthermore, as value operators look to expand further, a limited pipeline of suitable properties should support further rental growth in this sub-sector.
Market Outlook 2024
We expect the
While the macro environment will continue to dominate in 2024, sector allocation will remain crucial. Polarisation in performance from both a sector and asset-quality perspective will remain a key differentiator for performance. Real estate refinancing poses a risk to our outlook in 2024, but we believe that the risk is more heavily skewed towards the office sector, given the amount of outstanding debt and lack of appetite for lending to this sector.
Sectors that benefit from longer-term growth drivers, such as the industrial and logistics sector, will continue to garner the most interest from investors. It is unlikely that there will be a material change in investor sentiment towards the office sector, but more attractively priced re-positioning opportunities will emerge over the course of 2024, with debt re-capitalisation and funds working through redemptions the most likely source of value. However, underwriting assumptions, particularly around capital expenditure, are crucial. Long income assets now look more attractively priced, and we anticipate there will be some good buying opportunities in this area of the market in 2024.
Purchases:
The Company made two purchases during the year, both occurring early in the year. Knowsley,
Development:
The Company completed the development of its speculative logistics unit in Knowsley in late
Although not strictly a development the Company also completed the substantial refurbishment of a logistics unit in
Sales:
Only one sale completed during the year; a logistics property of two units in
Given the various potential corporate transactions, sales were not progressed in 2023, however a number of sales have been undertaken after the reporting period as a strategy of prepaying the RCF was implemented.
▸
▸
▸
Hebburn, Unit
▸
In addition, soft marketing commenced after the period end for the sale of Far Ralia, the Company’s natural capital asset. Timing of the exit is being influenced by changes to the grant funding submission period and strong progress on planting in order to maximise value for the Company. It is realised that at a time of higher interest rates a non-income producing asset sits less comfortably in an income focused fund. Indications suggest the capital value uplift on a sale will make this investment one of the Company’s better investments.
Asset Management:
Although not many investment transactions were completed over the course of 2023, the experienced and dedicated asset management team completed a significant number of deals to enhance or protect the income to the Company.
Rent collection has returned to the levels expected following the disruption of COVID.
Rent Collection Quarter % Received 1 100% 2 100% 2022 3 99% 4 100% 2022 FY 100% 1 100% 2 100% 2023 3 100% 4 99% 2023 FY 100%
The vacancy rate at the year-end was 7.6% (prior year 9.8%) which is above our target level of 5%.
Fourteen lettings were completed during the year securing total rent of £2.7m per annum.
Seven lease renewals or regears were completed over the year securing £1.4m per annum, along with seven rent reviews, resulting in an additional £0.5m per annum being secured.
Portfolio Rent Reviews
% of Current Weighted Average Weighted Average Weighted Average Basis Rent Roll Floor (value if Cap / Range of Unexpired Lease fixed) Caps Term (years) RPI Inflation 15.9% 1.0% 3.9 (ex-uncapped 7.6 linked % income) CPI Inflation 8.1% 0.7% 3.8% 19.6 linked % Fixed / Stepped 9.6% 2.6% n/a 10.0 Open Market 66.4% n/a n/a 2.6 Value Total 100% n/a n/a 6.3 (FUND WAULT)
Income Growth Potential
One of the attractions of the portfolio is the amount of reversion that exists – i.e. potential to grow the rent. At year end that figure was £7m with the Estimated Rental Value (ERV) of the portfolio 26% above the passing rent. This reversion will be received from several parts of the portfolio as the table below demonstrates.
Rent reviews are a mixture of open market (negotiated), fixed or indexed. The graphic below shows the Company mix.
Passing Rent (OMV) £17.8m RPI Linked Income £4.8m CPI Linked Income £2.3m Fixed/Stepped Income £2.7m Reversion in Let Portfolio £3.6mDevelopment Properties £0.8mVoid Properties £2.6m Estimated Rental Value £34.2m
Debt
As reported in the last Annual Report and Accounts, the Company’s previous debt facilities with RBSI expired in
▸ A 3-year Term Loan of £85m which is fully drawn. The Company entered into an interest rate cap for the full £85m at 3.96% which when coupled with the margin of 150 bps (one of the lowest in the sector) results in an all-in cost capped at 5.46%.
▸
Revolving Credit Facility (RCF) of £80m.
As at the year-end, the Company had drawn £56.9m of the RCF which is also at a margin of 150 bps over SONIA.
Following subsequent sales and development costs, the drawn amount was £44.4m as at
The two facilities from RBSI are due to expire in
Performance
There are a number of different measures of performance used by the Board, from individual assets to shareholder return. These are detailed below:
MSCI UK Quarterly Portfolio total return NAV total return (annualised) Property Index return (annualised) (annualised) 1 Year (0.7%) (1.5%) (3.0%) 3 Year 4.0% 1.5% 2.8% 5 Year 3.0% 0.8% 1.6% 10 Year 7.1% 5.4% 7.2%
Portfolio Return:
As the Company invests in direct real estate one of the best measures of investment decisions and quality of the portfolio is its performance compared to the general
NAV Return:
NAV total return encompasses the costs of the fund, including running the REIT and debt costs. As the MSCI index does not include these, we instead use the AIC Property Direct
NAV Total Returns to
1 year 3 years 5 years 10 years Source AIC, abrdn % % % % abrdn Property Income Trust Limited (3.0) 8.8 8.0 101.2 AIC Property UK Commercial (weighted average) (0.8) 10.9 18.2 73.6 Investment Association Open Ended Commercial 2.6 2.8 6.0 43.2 Property Funds sector
Share Price:
The final measure is one that the Investment Manager has limited influence on but is of most interest to Shareholders – that is the Share Price Total Return.
The table below compares the API share price return to that of the
Share Price Total Returns to
1 year 3 years 5 years 10 years Source AIC, abrdn % % % % abrdn Property Income Trust Limited (8.2) 6.6 (11.7) 35.2 FTSE All-Share Index 7.9 28.1 37.7 68.1 FTSE All-Share REIT Index 11.6 (1.1) 8.3 35.5 AIC Property Direct – UK Sector (weighted (1.3) 6.8 5.1 22.0 Average)
Valuation
The portfolio is valued quarterly by
Investment Strategy
The Company has always had a focus on income with its objective stated as “To provide shareholders with an attractive income return, with the prospect of income and capital growth, through investing in a diversified portfolio of commercial real estate assets in the UK”.
With the growing importance of Environmental, Social and Governance (ESG) matters on investors and occupiers alike a slight pivot in strategy over the last few years has been to ensure that the income from the portfolio is sustainable. We do that by ensuring the portfolio will continue to appeal to tenants through the quality of accommodation offered at an affordable price. The scale of new lettings and lease renewals suggests this has been achieved, with further growth in income to be expected from the portfolio.
Environmental Social and Governance (ESG)
ESG is central to API’s investment philosophy and is fully incorporated into our decision making and actions. We believe that ESG should form a central part of decision making, and that in order to make the best decisions, we must build our own expertise and knowledge through working with best-in-class consultants to optimise the timing and impact of our investments in ESG improvements. We do not aim to solve every problem overnight, rather we seek to find the optimum point of intervention for each asset to maximise return for shareholders and avoid waste (and with-it embedded carbon).
To reflect the importance of ESG, the Annual Report now includes a dedicated section and we were also early adopters of the
Outlook and Future Strategy
Although the economic outlook and the Company’s future remains uncertain the portfolio consists of good quality assets that appeal to occupiers and investors. The Investment Manager will continue to focus on growing income through active asset management of the assets, and, subject to shareholder approval (please see Note 2.1 of the Financial Statements) will commence a Managed Wind-Down of the Company through the sale of assets. The sales process is expected to take approximately 24 months within a range of 18-30 months from the date of implementation, although this is very dependent on a reasonable market existing for all the Company’s properties. There is a clear objective to maximise returns to shareholders in a reasonable timescale.
PROPERTY INVETMENTS
Property Value (range) Sector % of total portfolio Halesowen, B&Q £22m - £24m Retail 5.4% Rotherham, Ickles Way £20m - £22m Industrial 4.8% Birmingham, 54 Hagley Road £18m - £20m Office 4.5% Welwyn Garden City, Morrison’s £18m - £20m Retail 4.2% Swadlincote, Tetron 141 £16m - £18m Industrial 3.6% Shellingford, White Horse Business £14m - £16m Industrial 3.5% Park London, Hollywood Green £12m - £14m Other 3.2% Washington, Rainhill Road £12m - £14m Industrial 3.1% Corby, 3 Earlstrees Road £12m - £14m Industrial 3.1% St Helens, Stadium Way £12m - £14m Industrial 2.9%
Top Ten Tenants
Tenant Passing Rent % of total contracted rent B&Q Plc £1,560,000 5.7% Public Sector £1,365,203 5.0% WM Morrisons Supermarkets Ltd £1,252,162 4.6% The Symphony Group Plc £1,225,000 4.5% Schlumberger Oilfield UK Plc £1,138,402 4.2% Timbmet Limited £904,768 3.3% Atos IT Services Limited £872,466 3.2% CEVA Logistics Limited £840,000 3.1% Thyssenkrupp Materials (UK) Ltd £643,565 2.4% Hermes Parcelnet Ltd £591,500 2.2%
Portfolio Allocation by region
Region Weighting South East 23.0%West Midlands 18.7% North West 15.4%East Midlands 13.5% North East 12.0% Scotland 10.1% South West 3.3%City of London 2.2% LondonWest End 1.8%
ENVIRONMENTAL, SOCIAL and GOVERNANCE (ESG)
ESG
It is now commonplace for investment managers to say that ESG is embedded in their processes. It is not always clear what that really means. As a Company investing in real assets we can have a direct impact on ESG outputs – and the reason we have fully integrated ESG into our investment process and behaviour is that we believe it is fundamental to achieving the Company’s investment objective. We do not consider ESG in isolation or as just a cost. We see it as an opportunity for driving performance. It is for that reason it forms an integral part of our decision-making processes. We seek to implement ESG initiatives in a planned, sensible, and measured way so as to maximise the return on investment.
ESG Policy
Please note that the text below relates to the approach and activities undertaken in 2023. If the proposal to move to a managed wind-down is approved by shareholders then the focus will change to an optimum disposal strategy rather than longer term performance initiatives, and this will impact the approach to ESG.
ESG Strategy
The Board has a separate Sustainability Committee that sets Key Performance Indicators (KPIs) in order to measure the ESG performance of the real estate portfolio and Investment Manager in delivering ESG improvements. The Committee is relatively new, and demonstrates the increased importance of ESG in managing risk and return for the Company.
The Investment Manager has an advanced and comprehensive framework of process, oversight, and knowledge to incorporate and enhance ESG into the business and to ensure practical implementation, which is evolving to keep pace with current ESG trends and legislation.
Priorities
The Company, in addition to its focus on ESG transparency and reporting, has identified two main areas of focus that have the most relevance for the activities it undertakes – People and Planet.
People involves our tenants, the users of our properties and the local community. It is a wide-ranging theme, covering supplier management, community engagement, social values, tenant engagement and wellness.
Under Planet, the Company has a primary focus on (1) carbon and energy; (2) climate resilience; and (3) biodiversity.
Extreme weather events are becoming more common place bringing the need for climate action into focus. The Company has a clear strategy for managing carbon emissions across the portfolio and has been implementing energy efficiency improvements and renewable energy projects for several years.
In 2021, we undertook work to establish the operational carbon footprint baseline of the portfolio and model our pathway to net-zero.
The Company’s commitments are as follows:
▸ 2030: achieve Net Zero Carbon across all portfolio landlord emissions (Scope 1 & 2)
▸ 2050: achieve Net Zero Carbon across all portfolio emissions (Scope 1, 2 & 3).
The following provides an overview of definitions of the different emissions scopes:
▸ Scope 1 and 2: Cover emissions that directly result from the landlord’s activities where there is operational control, either through the purchase or consumption of energy or refrigerant losses.
▸ Scope 3: Emissions are those that occur in our supply chains and downstream leased assets (tenant spaces) over which we have a degree of influence but limited control.
While there are no standard industry definitions of net-zero carbon for real estate, the Company has been working to build-out its own definitions, which are detailed in the full Annual Accounts which can be found via the following link: https://www.abrdnpit.co.uk/en-gb/literature.
This involved benchmarking the performance of each asset, modelling our future footprint including embodied and operational carbon and identifying the types of measures necessary to fully decarbonise the portfolio by 2050. From that baseline we can measure progress annually – although it won’t be a straight line to net-zero. Since then, we have been actioning our net-zero strategy to improve on the baseline performance.
Transparency and Reporting
EPRA Sustainability Best Practice Recommendations Guidelines.
We have adopted the 2017 EPRA Sustainability Best Practice Recommendations Guidelines (sBPR) to inform the scope of indicators we report against. We have reported against all EPRA sBPR indicators that are material to the Company. We also report additional data not required by the EPRA sBPR where we believe it to be relevant (e.g. like-for-like greenhouse gas emissions).
A full outline of the scope of reporting and materiality review in relation to EPRA sBPR indicators as explained above, is included in the full Annual Accounts which can be found via the following link: https://www.abrdnpit.co.uk/en-gb/literature.
Our ESG Priorities
Planet - Climate Change
The Company considers the risks and opportunities of climate change on the portfolio. This is one of the most material ESG components to investment performance.
▸ Transition risks: those that relate to an asset, portfolio or company’s ability to decarbonise. An entity can be exposed to risks as a result of carbon pricing, regulation, technological change and shifts in demand related to the transition.
▸ Physical risks: those that relate to an asset’s vulnerability to factors such as increasing temperatures and extreme weather events as a result of climate change. Exposure to physical risks may result in, for example, direct damage to assets, rising insurance costs, health and safety or supply chain disruption.
There is still significant uncertainty and methodological immaturity in assessing climate risks and opportunities and there is not yet a widely recognised net zero carbon standard. Nonetheless, we have progressed already with work to model the implications of decarbonising the portfolio in line with a 1.5°C scenario (using the ‘Carbon Risk Real Estate Monitor’ (CRREM) as a real-estate specific framework to measure against) and undertaken analysis to understand potential future physical climate risks.
The full Annual Accounts (which can be found via the following link: https://www.abrdnpit.co.uk/en-gb/literature) provides a brief overview of our Company approach to all 11 TCFD recommendations. Whilst the company does not fall in scope of the 'Companies (Strategic Report) ( Climate-related Financial Disclosure) Regulations 2022', the company still voluntarily follows this framework, as best practice. The disclosure outlines how the Company complies with all 11 recommendations. We expect that our reporting against TCFD recommendations will continue to evolve over time as industry methodologies improve and our own work develops further. In addition to the qualitative disclosure below, the next section provides further analysis into the work the Company has been undertaking with regards to transition risks and its net-zero carbon target.
Transition Risks: Targeting Net-Zero
Net-Zero Strategy
The Company has set a target to be net-zero for emissions associated with landlord-procured energy by 2030 and has determined that it will work with tenants to establish a reasonable and realistic target for total carbon emissions over the medium term.
The net-zero target was informed from the findings of a carbon modelling exercise undertaken in 2021 to understand its current carbon footprint, and what would be required to be net-zero by 2050. The key finding was that landlord-controlled energy (i.e. responsible for scope 1 and 2 carbon emissions) accounts for roughly 11% of the Company’s carbon footprint and we have limited control over 89% of the output determined by tenants.
Our Net-Zero Principles
Although the goal of net-zero may seem clear, definitions and standards and the policy mix to support it remains immature. Accordingly, the Company has established several key principles to ensure its strategy, is robust and delivers value:
Practical:
▸ Asset-level action – focusing on energy efficiency and renewables is our priority to ensure compliance with energy performance regulations. Our analysis shows that meeting proposed future Energy Performance Certificate standards is a sensible stepping stone towards net-zero. This improves the quality of assets for occupiers and reduces the exposure to regulatory and market risk. Our investment in nature-based carbon removal at Far Ralia is in addition to asset-level decarbonisation.
▸ Timing – we aim to align improvements at our properties with existing plant replacement cycles and planned refurbishment activities wherever possible. This ensures we are not unnecessarily replacing functional plant ahead of its useful life unless necessary, which in turn reduces cost and embodied carbon.
Realistic:
▸ Target – long-term objectives must be stretching but deliverable and complemented by near-term targets and actions.
▸ Policy support – to fully decarbonise before 2050 the real estate sector requires a supportive policy mix to incentivise action and level the playing field.
Measurable:
▸ Clear key performance indicators at the asset and portfolio level.
Collaborative:
▸ Occupiers – we cannot achieve net-zero for the portfolio in isolation. We will work closely with occupiers, many of whom have their own decarbonisation strategies covering their leased space.
▸ Suppliers – we will work collaboratively with our suppliers including property managers and consultants in order to achieve net-zero.
Performance to Date
Baseline versus current performance:
In order to report progress against our net-zero carbon target, please see table below which splits out the carbon performance for scope 1 and 2 carbon emissions with regards to the 2030 target and Scope 3 carbon emissions for the 2050 target.
Our carbon performance for our 2019 baseline versus 2022 is shown below. We used 2019 as a baseline as it was unaffected by changes in occupancy due to COVID-19. The 2019 baseline was updated from that reported in the previous annual report due to improved data coverage and the inclusion of F-gases. Between 2019 and 2022, absolute carbon emissions for the portfolio have decreased by 32%.
This can in part be explained by sale of assets. The most useful figure to observe is the carbon intensity figure which normalises the carbon performance by floor area and shows relative performance improvements between 2019 and 2022 removing the influence of any portfolio churn. The carbon intensity for Scope 1 and 2 assets where we have data for the whole building has reduced by 34% between 2019 and 2022. For scope 3 emissions, the carbon intensity has reduced by 12%.
The reason 2023 data is not shown here, is due to later data collection periods for scope 3 which required data requests going out to all tenants during Q1 2024 to collect data for the previous year to allow time for energy invoicing to be completed.
Net Zero target KPI Metric Baseline 2022 % Change Absolute carbon tCO2e 2,102 1,426 -32% (scope 1 & 2) % of portfolio % 11% 10% -1% (Scope 1 & 2) 2030 Carbon intensity (Scope 1 & 2 whole tCO2e/m2 50.57 33.30 -34% Scope 1 & 2 building) Carbon performance against current % of portfolio by year CRREM target value that meets 72% 94% n/a (Scope 1 & 2 whole CRREM Current building) Absolute carbon tCO2e 19,375 13,935 -32% (Scope 1, 2 & 3 whole building) Absolute carbon tCO2e 17,273 12,509 -28% 2050 Scope 1, 2 (Scope 3) and 3 % of portfolio % 89% 90% +1% (Scope 3) Carbon intensity (scope 3 whole tCO2e/m2 42.32 37.21 -12% building)
For more information around our commitment and approach to ESG, please see our full Annual Accounts https://www.abrdnpit.co.uk/en-gb/literature.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board ensures that proper consideration of risk is undertaken in all aspects of the Company’s business on a regular basis. During the year, the Board carried out an assessment of the risk profile of the Company, including consideration of risk appetite, risk tolerance and risk strategy. The Board regularly reviews the principal and emerging risks of the Company, seeking assurance that these risks are appropriately rated and ensuring that appropriate risk mitigation is in place.
The group and its objectives become unattractive to investors, leading to widening of the discount.
This risk has been a major concern of the Board and has been highlighted in conversations with shareholders. The discount has traded consistently at a larger discount than most of the peer group. This was one of the factors that led to a review of the Company’s future.
Net revenue falls such that the Company cannot sustain its level of dividend, for example due to tenant failure, voids or increased costs.
This risk is mitigated through regular review of forecast dividend cover and of tenant mix, risk and profile. Due diligence work on potential tenants is undertaken before entering into new lease arrangements and tenants are kept under review through regular contact and various reports both from the managing agents and the Investment Manager’s own reporting process.
Contingency plans are put in place at units that have tenants that are believed to be in financial trouble. The Company subscribes to the MSCI Iris Report which updates the credit and risk ranking of the tenants and income stream and compares it to the rest of the
The increase in financing costs has meant the dividend has been uncovered during the year despite the strongly reversionary nature of the portfolio and forecasts of the dividend being covered in 2025 – it was felt that this was a factor contributing to the high level of the discount.
Uncertainty or change in the macroeconomic environment results in property becoming an undesirable asset class, causing a decline in property values.
This risk is managed through regular reporting from, and discussion with, the Investment Manager and other advisers, and by having a diversified property portfolio (diversified by sector and geography).
Macroeconomic conditions form part of the decision-making process for purchases and sales of properties and for sector allocation decisions.
The impact of geopolitical uncertainty and the cost-of-living crisis have resulted in inflationary pressures which have impacted both property values and the ability of tenants to pay rent.
Real estate holdings of good quality and rental growth prospects can appear more attractive at such times to offer a partial hedge against inflationary pressures.
Environmental.
Environmental risk is considered as part of each purchase and monitored on an ongoing basis by the Investment Manager. However, with extreme weather events both in the
Please see the Environmental, Social and Governance Policy section, our
Other risks faced by the Group include the following:
-- Tax efficiency – the structure of the Group or changes to legislation could result in the Group no longer being a tax efficient investment vehicle for shareholders. -- Regulatory – breach of regulatory rules could lead to the suspension of the Group’s Stock Exchange Listing, financial penalties or a qualified audit report. -- Financial – inadequate controls by the Investment Manager or third-party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations. -- Operational – failure of the Investment Manager’s accounting systems or disruption to the Investment Manager’s business, or that of third-party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to loss of shareholder confidence. -- Business continuity – risks to any of the Company’s service providers or properties, following a catastrophic event e.g. terrorist attack, cyber-attack, power disruptions or civil unrest, leading to disruption of service, loss of data etc. -- Refinancing – risk that the Company is unable to renew its existing facilities, or does so on significantly adverse terms, which does not support the current business strategy. -- Cyber– the risk of large-scale network disruption through various forms such as hacking, malware, phishing, DDOS, data breach or loss. In addition, Artificial Intelligence and it's potential use in cyber attacks.
The Board seeks to mitigate and manage all risks through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Group’s property portfolio, levels of gearing and the overall structure of the Group.
Details of the Group’s internal controls are described in more detail in the Corporate Governance Report in the full Annual Accounts which can be found via the following link: https://www.abrdnpit.co.uk/en-gb/literature.
Emerging Risks
Emerging risks have been identified by the Board through a process of evaluating relatively new risks that have emerged and increased materially in the year, and subsequently, or through market intelligence are expected to grow significantly and impact the Company. Any such emerging risks are likely to cause disruption to the business model. If ignored, they could impact the Company’s financial performance and prospects. Alternatively, if recognised, they could provide opportunities for transformation and improved performance.
▸ Future of the Company
Following the Company’s Court Meeting and General Meeting held on the
If shareholders vote in favour of a managed wind-down, there are several risks associated with the size, speed and method of capital distributions back to shareholders, and the maintenance of REIT status for tax purposes. Several options are being considered and will be detailed in an upcoming circular to shareholders.
Finally, there is a risk that as the Managed Wind-Down progresses, some assets prove difficult to sell and become stranded.
▸ Economic and Geopolitical
2024 is a year in which more than half the global population will experience local elections and there will be greater focus on the democratic process in some 70 countries. The outcome of some elections, particularly
Conflict between countries is rising. Following Hamas’ attack on
Rapid inflationary pressures caused by supply side shortages generated initially by the Russian invasion of
Tensions are also increasing in the relationship between
The current economic and geopolitical environment is unpredictable, and changing rapidly, and this may affect real estate valuations in the Company’s portfolio.
▸ Climate
Climate change is happening now and its rate of change and impact on the environment will depend on the planet’s success in controlling global emissions. The average surface temperature in the
▸ Changing Behavioural Patterns
The pandemic introduced or accelerated some structural changes to the ways that we live, work and consume and reformed our expectations of our environment and society. In particular, the trend towards flexible and home working is affecting the use of offices, with sustainability, health, wellbeing and the social impact of office use increasing in importance.
The continuing attraction of online shopping and decline in physical retailing have created challenging conditions for traditional retailers and their landlords. It is still uncertain how the role of offices and retail will develop, and they both continue to be assessed in order to protect the portfolio but also to identify new investment opportunities.
▸ Technology & Artificial Intelligence
Technology is rapidly changing the habits of businesses and consumers which in turn is impacting occupiers’ future requirements for property and leading to greater disparity in the performance of different property sectors and also within each sector itself. Advances in technology have enabled many of the behavioural changes in the use of real estate: for example, the increased use of video conferencing by businesses has facilitated a more permanent shift to home working and could also redefine the need for office space in the future.
Robotics and automation are also altering the specifications for industrial buildings and greater use of data and advanced analytics is driving the need the data storage and data centres. Technology is also increasingly contributing to improvements in the sustainability of properties. If landlords fail to embrace technology, they may face the risk of “stranded” assets in the future.
Artificial intelligence is being adopted rapidly by businesses and jobs may change significantly as AI replaces the need for particular human activities. This will impact business models and may reduce workforce numbers, but also could generate new roles. This potentially transforming aspect of AI, in turn, will affect business' requirements for space.
Cyber-attacks are increasing in occurrence and target businesses’ data, IT systems and even their physical infrastructure as buildings have become more reliant on smart technology for their daily operation. In addition, the rapid evolution of AI is potentially introducing risks that have not yet been identified or quantified.
Viability Statement
The Board has assessed the Group’s viability over three years and assessed financial projections over that timeframe on the assumption that shareholders do not vote in favour of the Managed Wind-Down as further explained in Note 2.1 of the Financial Statements.
The Board has also carried out a robust assessment of the principal and emerging risks faced by the Group, as detailed above. The main risks which the Board considers will affect the business model are: future performance, solvency, liquidity, tenant failure leading to a fall in dividend cover and macroeconomic uncertainty.
The Board takes any potential risks to the ongoing success of the Group, and its ability to perform, very seriously and works hard to ensure that risks are consistent with the Group’s risk appetite at all times. In assessing the Group’s viability, the Board has carried out thorough reviews of the following:
-- Detailed NAV, cash resources and income forecasts, prepared by the Company’s Investment Manager, for a three-year period under both normal and stressed conditions; -- The Group’s ability to pay its operational expenses, bank interest, tax and dividends over a three-year period; -- Future debt repayment dates and debt covenants, in particular those in relation to LTV and interest cover; -- The ability of the Company to refinance its debt facilities inApril 2026 ; -- Demand for the Company’s shares and levels of premium or discount at which the shares trade to NAV; -- Views of shareholders; and -- The valuation and liquidity of the Group’s property portfolio, the Investment Manager’s portfolio strategy for the future and the market outlook.
The assessment for stressed conditions used a foreseeable severe but plausible scenario which was modelled using the following assumptions:
-- 25 per cent capital fall in the next 3 years -- Tenant defaults of 15 per cent for the next 3 years -- Sterling Overnight Index Average (SONIA) tracks 1.0 per cent above the anticipated forward curve
Despite the uncertainty in the
The Board have also assessed the Group’s ability to meet its liabilities as they fall due under a Managed Wind-Down scenario. In that case, the Group may no longer be considered to be viable as it will be liquidated once the net proceeds of the wind-down have been returned to shareholders. However, the Board is satisfied that the Group will be able to meet its liabilities as they fall due over the wind-down period.
GOING CONCERN
The Group’s strategy and business model, together with the factors likely to affect its future development, performance and position, including principal risks and uncertainties, are set out in the Strategic Report.
The Directors have reviewed detailed cash flow, income and expense projections in order to assess the Group’s ability to pay its operational expenses, bank interest and dividends. The Directors have examined significant areas of possible financial risk including cash and cash requirements and the debt covenants, in particular those relating to LTV and interest cover.
As set out in more detail in the Chair’s Statement and in Note 2.1 of the Financial Statements, following the results of the Company’s Court Meeting and General Meeting held on the
Notwithstanding this material uncertainty, the Board has concluded that it remains appropriate to continue to prepare the financial statements on a going concern basis. In reaching this conclusion, the Board has come to the view that, as the proposed change in Investment Policy is contingent on shareholder approval and the Company is considered solvent in all other regards, there is no irrevocable path to liquidation and thus going concern remains the most appropriate basis for preparation. Note 2.1 of the Financial Statements includes further details on the Board’s assessment of going concern and the proposed EGM.
STATEMENT OF DIRECTOR’S RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Group Consolidated Financial Statements for each year which give a true and fair view, in accordance with the applicable
In preparing those Consolidated Financial Statements, the Directors are required to:
-- Select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; -- Make judgement and estimates that are reasonable and prudent; -- Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; -- Provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by theEuropean Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance; -- State that the Group has complied with IFRSs as adopted by theEuropean Union , subject to any material departures disclosed and explained in the Group Consolidated Financial Statements; and -- Prepare the Group Consolidated Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the Group Consolidated Financial Statements.
The Directors are responsible for keeping adequate accounting records, that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time, the financial position of the Group and to enable them to ensure that the Financial Statements comply with The Companies (
The maintenance and integrity of the Company’s website is the responsibility of the Directors through its Investment Manager; the work carried out by the auditors does not involve considerations of these matters and, accordingly, the auditors accept no responsibility for any change that may have occurred to the Consolidated Financial Statements since they were initially presented on the website. Legislation in
Responsibility Statement of the Directors in respect of the Consolidated Annual Report under the Disclosure and Transparency Rules
The Directors each confirm to the best of their knowledge that:
-- The Consolidated Financial Statements, prepared in accordance with IFRSs as adopted by theEuropean Union , give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and -- The management report, which is incorporated into the Strategic Report, Directors’ Report and Investment Manager’s Review, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that they face.
Statement under the
The Directors each confirm to the best of their knowledge and belief that the Annual Report and Consolidated Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Group’s position and performance, business model and strategy.
Approved by the Board on
Chair
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended31 December 2023
12 Months to 12 Months to 31 Dec 2023 31 Dec 2022 Notes £ £ Rental income 27,552,279 26,697,931 Service charge income 4,884,357 4,411,821 Service charge expenditure (6,354,598) (5,576,812) Net Rental Income 26,082,038 25,532,940 Administrative and other expenses Investment management fee 4 (2,632,225) (3,480,963) Other direct property operating expenses 4 (2,408,461) (3,010,845) Net Impairment gain on trade receivables 4 213,048 772,947 Fees associated with strategic review and 4 (1,729,925) - aborted merger Other administration expenses 4 (1,136,742) (1,134,919) Total administrative and other expenses (7,694,305) (6,853,780) Operating profit before changes in fair value 18,387,733 18,679,160 of investment properties Valuation loss from investment properties 7 (17,989,531) (62,257,782) Valuation loss from land 8 (783,683) (60,322) Loss on disposal of investment properties 7 (279,090) (207,153) Operating profit/(loss) (664,571) (43,846,097) Finance income 5 92,178 27,543 Finance costs 5 (7,695,508) (3,672,685) Loss on termination of interest rate swaps 15b - (3,562,248) Loss for the year before taxation (8,267,901) (51,053,487) Taxation Tax charge 6 - - Loss for the year, net of tax (8,267,901) (51,053,487) Other comprehensive (loss) / income Movement in fair value on swap 15a (902,534) 1,470,570 Movement in fair value on interest rate cap 15c (789,918) 43,292 Total other comprehensive (loss)/gain (1,692,452) 1,513,862 Total comprehensive loss for the year, net of (9,960,353) (49,539,625) tax Loss per share 2023 (p) 2022 (p) Basic and diluted loss per share 20 (2.17) (13.11)
All items in the above Consolidated Statement of Comprehensive Income derive from continuing operations.
The notes below are an integral part of these Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET As at31 December 2023 31 Dec 23 31 Dec 22 Assets Notes £ £ Non-current assets Investment properties 7 388,338,754 401,217,536 Lease incentives 7 9,306,403 8,357,036 Land 8 8,250,000 7,500,000 Interest rate cap 15c 559,671 2,211,007 Rental deposits held on behalf of tenants 895,003 751,782 407,349,831 420,037,361 Current Assets Investment property held for sale 9 35,100,000 - Trade and other receivables 11 6,101,152 7,457,083 Cash and cash equivalents 12 6,653,838 15,871,053 Interest rate swap 15a - 1,238,197 Interest rate cap 15c 849,110 339,462 48,704,100 24,905,795 Total assets 456,053,931 444,943,156 Liabilities Current liabilities Trade and other payables 13 14,018,455 10,880,310 14,018,455 10,880,310 Non-current liabilities Bank borrowings 14 141,251,910 109,123,937 Obligations under finance leases 16 1,810,120 899,572 Rental deposits due to tenants 895,003 751,782 143,957,033 110,775,291 Total liabilities 157,975,488 121,655,601 Net assets 298,078,443 323,287,555 Equity Capital and reserves attributable to Company’s equity holders Share capital 18 228,383,857 228,383,857 Treasury share reserve 18 (18,400,876) (18,400,876) Retained Earnings 19 - 4,382,024 Capital reserves 19 (9,660,578) 11,084,178 Other distributable reserves 19 97,756,040 97,838,372 Total equity 298,078,443 323,287,555 2023 (p) 2022 (p) NAV per share 22 78.2 84.8
Approved and authorised for issue by the Board of Directors on
The accompanying notes below are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2023
Share Treasury Retained Capital Other Total Equity Notes Capital £ Shares £ Earnings £ Reserves £ Distributable £ Reserves £ Opening balance 1 228,383,857 (18,400,876) 4,382,024 11,084,178 97,838,372 323,287,555 January 2023 Loss for the - - (8,267,901) - - (8,267,901) year Other comprehensive - - - (1,692,452) - (1,692,452) loss Total comprehensive - - (8,267,901) (1,692,452) - (9,960,353) loss for the year Dividends 21 - - (15,248,759) - - (15,248,759) paid Valuation loss from 7 - - 17,989,531 (17,989,531) - - investment properties Valuation loss from 8 - - 783,683 (783,683) - - land Reclassified from Other - - 82,332 - (82,332) - distributable reserves Loss on disposal of 7 - - 279,090 (279,090) - - investment properties Balance at 31 228,383,857 (18,400,876) 4,382,024 11,084,178 97,838,372 323,287,555 December 2023
For the year ended 31 December 2022
Share Treasury Retained Capital Other Total Equity Notes Capital £ Shares £ Earnings £ Reserves £ Distributable £ Reserves £ Opening balance 1 228,383,857 (5,991,417) 8,521,081 72,095,573 97,838,372 300,847,466 January 2022 Loss for the - - (51,053,487) - - (51,053,487) year Other comprehensive - - - 1,513,862 - 1,513,862 income Total comprehensive - - (51,053,487) 1,513,862 - (49,539,625) income for the period Ordinary shares paced into treasury - (12,409,459) - - - (12,409,459) net of issue costs Dividends 21 - - (15,610,827) - - (15,610,827) paid Valuation loss from 7 - - 62,257,782 (62,257,782) - - investment properties Valuation loss from 8 - - 60,322 (60,322) - - land Loss on disposal of 7 - - 207,153 (207,153) - - investment properties Balance at 31 228,383,857 (18,400,876) 4,382,024 11,084,178 97,838,372 323,287,555 December 2022
CONSOLIDATED CASH FLOW STATEMENT For the year ended31 December 2023 12 months to 12 months to 31 Dec 2023 2022 Cash flows from operating activities Notes £ £ Loss for the year before taxation (8,267,901) (51,053,487) Movement in lease incentives (984,446) (841,398) Movement in trade and other receivables 1,212,710 3,719,424 Movement in trade and other payables 2,353,098 (3,237,151) Loss on termination of interest rate swaps 15b - 3,562,248 Finance costs 5 7,695,508 3,672,685 Finance income 5 (92,178) (27,543) Valuation loss from investment properties 7 17,989,531 62,257,782 Valuation loss from land 8 783,683 60,322 Loss on disposal of investment properties 7 279,090 207,153 Net cash inflow from operating activities 20,969,095 18,320,035 Cash flows from investing activities Finance income 5 92,178 27,543 Purchase of investment properties 7 (23,986,401) (5,501,321) Purchase of land 8 (1,533,683) (60,322) Capital expenditure on investment properties 7 (21,678,721) (13,524,813) Net proceeds from disposal of investment 7 6,120,910 41,142,847 properties Net cash (outflow)/inflow from investing (40,985,717) 22,083,934 activities Cash flows from financing activities Shares bought back during the year 18 - (12,409,459) Borrowing on RCF 14 63,000,000 17,000,000 Repayment of RCF 14 (6,125,621) (17,000,000) Repayment of expired facility 14 (110,000,000) - New term facility 14 85,000,000 - Bank borrowing arrangement costs 14 - (804,297) Interest paid on bank borrowing 5 (7,396,815) (2,959,023) Receipts on Interest rate SWAP 1,254,217 (473,425) Receipts on Interest rate Cap 15c 365,674 - Swap breakage costs 15b - (3,562,248) Cap arrangement fees 15c - (2,507,177) Finance lease interest 5 (49,289) (24,468) Dividends paid to the Company’s shareholders 21 (15,248,759) (15,610,827) Net cash inflow/(outflow) from financing 10,799,407 (38,350,924) activities Net (decrease)/increase in cash and cash (9,217,215) 2,053,045 equivalents in the year Cash and cash equivalents at beginning of year 12 15,871,053 13,818,008 Cash and cash equivalents at end of year 12 6,653,838 15,871,053
Notes TO the consolidated financial statements
1. General information
The address of the registered office is
PO Box 255,
Trafalgar Court,
Les Banques,
These audited Consolidated Financial Statements were approved for issue by the Board of Directors on
1. Accounting policies
2.1 Basis of preparation
The audited Consolidated Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the
Assessment of Going Concern
During the second half of 2023 the Board undertook a strategic review. This review was prompted by the Board’s concerns, as well as those of some shareholders about the Group’s size, the lack of liquidity in its shares, the persistent discount to NAV and an uncovered dividend. The outcome of this review, following interest from other listed REITs, was that the Board recommended to shareholders that they vote in favour of a proposed merger with
At an EGM on 27 March approximately 60% of shareholders voted in favour of the proposed merger. However, the threshold for approval of the merger was 75% so the merger did not proceed. The Board explained to shareholders that if the proposed merger was rejected, it would take the necessary actions to put the Group into a managed and orderly wind-down, selling assets and returning funds to shareholders as such funds become available. The Board is now, therefore, taking steps to initiate this process and a circular to shareholders is expected to be issued on
The Board has sought the advice of the Investment Manager about the likely timing and outcome for a managed wind-down. The Investment Manager has estimated a period of approximately 24 months within a range of 18-30 months. The Board is satisfied that the Group will have no material difficulty in meeting its liabilities as they fall due during the wind-down process. In particular, the Board is satisfied that the requirements of the Group’s lenders can be met.
The Company is listed on the
At the EGM in March approximately 40% of shareholders voted against the proposed merger with Custodian (comprising 16% of all shareholders). The Board is aware that a proportion of these shareholders are actively seeking a wind-down of the Company and are therefore likely to vote in favour of the Wind-Down Resolution. In addition, the Board notes that many shareholders (particularly tracker funds and some retail shareholders) are likely to vote in accordance with the Board’s recommendations and will therefore also vote in favour of a managed wind-down. On this basis the Board considers that it is highly probable that the Wind-Down Resolution will be passed. However, there can be no certainty because of the large proportion of shareholders on the register whose voting intentions cannot be ascertained and the large proportion of shareholders who did not vote at the EGM on 27 March. If the vote is not successful, then the Group would continue in its current form and would follow its current Investment Policy.
The Directors have considered the requirements in the IASB Conceptual Framework para 3.9 and in International Accounting Standards 1 (“IAS1”) para 25 in relation to going concern. Given the considerations above, there is, therefore a material uncertainty related to events or conditions that may cast significant doubt upon the Group’s ability to continue as a going concern. The Directors note that if shareholders vote in favour of a managed wind down the Group will have an intention to enter liquidation and will have no realistic alternative but to do so even if it is likely that the liquidation itself may not arise for over a year. In those circumstances the Group will not be able to use the going concern basis even though it will be able to meet its liabilities as they fall due over the wind-down period.
The Group is currently a going concern, able to meet its liabilities as they fall due over the going concern horizon of 12 months from the date of this report. It is also able to meet its liabilities as they fall due in the event that it enters into a managed wind-down process. The Board therefore considers that it is appropriate to prepare financial statement on the going concern basis disclosing the material uncertainty in relation to going concern arising from the shareholder vote at the wind-down EGM.
Changes in accounting policy and disclosure.
The following amendments to existing standards and interpretations were effective for the year, but were deemed not applicable to the Group:
▸ Amendments to IFRS 17 Insurance Contracts, Amendments to IAS 12 Income Taxes – Deferred Tax related to Assets and Liabilities arising from a Single Transaction, and Amendments to IAS 12 Income Taxes – International tax Reform.
The following amendments to existing standards and interpretations were effective for the year and have been adopted by the Company:
▸ Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting Policies.
The amendments require the disclosure of ‘material’, rather than ‘significant’, accounting policies. The amendments also provide guidance on the application of materiality to disclosure of accounting policies, assisting entities to provide useful, entity-specific accounting policy information that users need to understand other information in the financial statements.
▸ Amendments to IAS 8 – Definition of Accounting Estimates.
The amendments replace the definition of a change in accounting estimates with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”.
New and revised IFRS Standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Accounting Standards that have been issued but are not yet effective. The Group will consider these amendments in due course to see if they will have any impact on the Group.
▸ Amendments to IAS 1 Presentation of Financial Statements — Classification of Liabilities as Current or Non-current
▸ Amendments to IAS 1 Presentation of Financial Statements — Non-current Liabilities with Covenants
The amendments change the requirements in IAS 1.
▸ Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures — Supplier Finance Arrangements
The amendments add a disclosure objective stating that an entity is required to disclose information about its supplier finance arrangements as part of its exposure to concentration of liquidity risk.
▸ Amendments to IFRS 16 — Lease Liability in a Sale and Leaseback
The amendments add subsequent measurement requirements for sale and leaseback transactions that satisfy the requirements in IFRS 15 to be accounted for as a sale.
2.2 Significant accounting judgements, estimates and assumptions
The preparation of the Group’s Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainties about these assumptions and estimates particularly if a manged wind-down is voted for by shareholders, could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future periods. The most significant estimates and judgements are set out below. There were no critical accounting judgements.
Fair value of investment properties
Investment properties are stated at fair value as at the Balance Sheet date. Gains or losses arising from changes in fair values are included in the Consolidated Statement of Comprehensive Income in the year in which they arise. The fair value of investment properties is determined by external real estate valuation experts using recognised valuation techniques. The fair values are determined having regard to any recent real estate transactions where available, with similar characteristics and locations to those of the Group’s assets.
In most cases however, the determination of the fair value of investment properties requires the use of valuation models which use a number of judgements and assumptions. The only model used was the income capitalisation method. Under the income capitalisation method, a property’s fair value is judged based on the normalised net operating income generated by the property, which is divided by the capitalisation rate (discounted by the investor’s rate of return). Under the income capitalisation method, over (above market rent) and under-rent situations are separately capitalised (discounted).
The sensitivity analysis in note 7 details the decrease in the valuation of investment properties if equivalent yield increases by 50 basis points or rental rates (ERV) decreases by 5%.
Fair value of financial instruments
When the fair value of financial assets and financial liabilities recorded in the Consolidated Balance Sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair value. The judgements include considerations of liquidity and model inputs such as credit risk (both own and counterparty’s), correlation and volatility.
Changes in assumptions about these factors could affect the reported fair value of financial instruments. The models are calibrated regularly and tested for validity using prices from any observable current market transactions in the same instrument (without modification or repackaging) or based on any available observable market data.
The valuation of interest rate swaps and caps used in the Balance Sheet is provided by The
2.3 Summary of material accounting policies
As described in note 2.1, the Group adopted Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practical Statement 2) from
Accounting policy information may be material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material. The Directors have reviewed the accounting policies and are satisfied that the information previously disclosed as part of their ‘significant’ accounting policies fulfils the definitions of ‘material’ under the amended standards – as such there has been no change to the summary of accounting policies below in the current year.
A Basis of consolidation
The audited Consolidated Financial Statements comprise the financial statements of
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with subsidiaries and has the ability to affect those returns through its power over the subsidiary. Specifically, the Group controls a subsidiary if, and only if, it has:
-- Power over the subsidiary (i.e. existing rights that give it the current ability to direct the relevant activities of the subsidiary) -- Exposure, or rights, to variable returns from its involvement with the subsidiary -- The ability to use its power over the subsidiary to affect its returns
The Group assesses whether or not it controls a subsidiary if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
B Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The Consolidated Financial Statements are presented in pound sterling, which is also the Company’s functional currency.
C Revenue recognition
Revenue is recognised as follows;
i) Bank interest
Bank interest income is recognised on an accruals basis.
ii) Rental income
Rental income from operating leases is net of sales taxes and value added tax (“VAT”) recognised on a straight-line basis over the lease term including lease agreements with stepped rent increases. The initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income. The cost of any lease incentives provided are recognised over the lease term, on a straight-line basis as a reduction of rental income. The resulting asset is reflected as a receivable in the Consolidated Balance Sheet.
Contingent rents, being those payments that are not fixed at the inception of the lease, for example increases arising on rent reviews, are recorded as income in periods when they are earned. Rent reviews which remain outstanding at the year-end are recognised as income, based on estimates, when it is reasonable to assume that they will be received.
iii) Other income
The Group is classified as the principal in its contract with the managing agent. Service charges billed to tenants by the managing agent are therefore recognised gross.
iv) Grant Income
Government grants that relate to the Group’s assets are accounted for as a reduction in the cost of the asset to which they relate. They are only recognised when there is both reasonable assurance that the Group will comply with all material conditions attached to the grant and that the grant will be received.
v) Property disposals
Where revenue is obtained by the sale of properties, it is recognised once the sale transaction has been completed, regardless of when contracts have been exchanged.
D Expenditure
All expenses are accounted for on an accruals basis. The investment management and administration fees, finance and all other revenue expenses are charged through the Consolidated Statement of Comprehensive Income as and when incurred. The Group also incurs capital expenditure which can result in movements in the capital value of the investment properties.
E Taxation
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Current income tax relating to items recognised directly in other comprehensive income or in equity is recognised in other comprehensive income and in equity respectively, and not in the income statement. Positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation, if any, are reviewed periodically and provisions are established where appropriate.
The Group recognises liabilities for current taxes based on estimates of whether additional taxes will be due. When the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax provisions in the period in which the determination is made.
Deferred income tax is provided using the liability method on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. In determining the expected manner of realisation of an asset the Directors consider that the Group will recover the value of investment property through sale. Deferred income tax relating to items recognised directly in equity is recognised in equity and not in profit or loss.
Investment properties comprise completed property and property under construction or re-development that is held to earn rentals or for capital appreciation or both. Property held under a lease is classified as investment property when the definition of an investment property is met.
Investment properties are measured initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment properties are stated at fair value. Fair value is based upon the market valuation of the properties as provided by the external valuers as described in note 2.2. Gains or losses arising from changes in the fair values are included in the Consolidated Statement of Comprehensive Income in the year in which they arise.
For the purposes of these financial statements, in order to avoid double counting, the assessed fair value is:
i) Reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives and/or minimum lease payments.
ii) Increased by the carrying amount of any liability to the superior leaseholder or freeholder (for properties held by the Group under operating leases) that has been recognised in the Balance Sheet as a finance lease obligation.
Acquisitions of investment properties are considered to have taken place on exchange of contracts unless there are significant conditions attached. For conditional exchanges acquisitions are recognised when these conditions are satisfied. Investment properties are derecognised when they have been disposed of and no future economic benefit is expected from their disposal. Any gains or losses on the disposal of investment properties are recognised in the Consolidated Statement of Comprehensive Income in the year of retirement or disposal.
Gains or losses on the disposal of investment properties are determined as the difference between net disposal proceeds and the carrying value of the asset in the previous full period financial statements.
G Investment properties held for sale
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value (except for investment property measured using fair value model).
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
H Land
The Group’s land is capable of woodland creation and peatland restoration projects which would materially assist the Group’s transition to Net Zero.
Land is initially measured at cost including transaction costs. Transaction costs include transfer taxes and professional fees for legal services. Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group. Land is not depreciated but instead, subsequent to initial recognition, recognised at fair value based upon periodic valuations provided by the external valuers. Gains or losses arising from changes in the fair values are included in the Consolidated Statement of Comprehensive Income in the year in which they arise.
I Trade and other receivables
Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried at amortised cost. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through use of an allowance account, and the amount of the expected credit loss is recognised in the Consolidated Statement of Comprehensive Income. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the Consolidated Statement of Comprehensive Income.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets.
A provision for impairment of trade receivables is established where the Property Manager has indicated concerns over the recoverability of arrears based upon their individual assessment of all outstanding balances which incorporates forward looking information. Given this detailed approach, a collective assessment methodology applying a provision matrix to determine expected credit losses is not used.
The amount of the provision is recognised in the Consolidated Balance Sheet and any changes in provision recognised in the Statement of Comprehensive Income.
J Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits, and other short-term highly liquid investments readily convertible within three months or less to known amounts of cash and subject to insignificant risk of changes in value.
K Borrowings and interest expense
All loans and borrowings are initially recognised at the fair value of the consideration received, less issue costs where applicable. After initial recognition, 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. Borrowing costs are recognised within finance costs in the Consolidated Statement of Comprehensive Income as incurred.
L Accounting for derivative financial instruments and hedging activities
Interest rate hedges are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging transactions. The Group also documents its assessment both at hedge inception and on an ongoing basis of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income in the Consolidated Statement of Comprehensive Income. The gains or losses relating to the ineffective portion are recognised in operating profit in the Consolidated Statement of Comprehensive Income.
Amounts taken to equity are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expenses are recognised.
When a derivative is held as an economic hedge for a period beyond 12 months after the end of the reporting period, the derivative is classified as non-current consistent with the classification of the underlying item. A derivative instrument that is a designated and effective hedging instrument is classified consistent with the classification of the underlying hedged item.
M Service charge
IFRS15 requires the Group to determine whether it is a principal or an agent when goods or services are transferred to a customer. An entity is a principal if the entity controls the promised good or service before the entity transfers the goods or services to a customer. An entity is an agent if the entity’s performance obligation is to arrange for the provision of goods and services by another party.
Any leases entered into between the Group and a tenant require the Group to provide ancillary services to the tenant such as maintenance works etc, therefore these service charge obligations belong to the Group. However, to meet this obligation the Group appoints a managing agent, Jones Lang Lasalle Inc “JLL” and directs it to fulfil the obligation on its behalf. The contract between the Group and the managing agent creates both a right to services and the ability to direct those services. This is a clear indication that the Group operates as a principal and the managing agent operates as an agent. Therefore, it is necessary to recognise the gross service charge revenue and expenditure billed to tenants as opposed to recognising the net amount.
N Other financial liabilities
Trade and other payables are recognised and carried at invoiced value as they are considered to have payment terms of 30 days or less and are not interest bearing. The balance of trade and other payables are considered to meet the definition of an accrual and have been expensed through the Income Statement or Balance Sheet depending on classification. VAT payable at the Balance Sheet date will be settled within 31 days of the Balance Sheet date with Her Majesty’s Revenue and Customs (“HMRC”) and deferred rental income is rent that has been billed to tenants but relates to the period after the Balance Sheet date. Rent deposits recognised in note 13 as current are those that are due within one year as a result of upcoming tenant expiries.
3. Financial Risk Management
The Group’s principal financial liabilities are loans and borrowings. The main purpose of the Group’s loans and borrowings is to finance the acquisition and development of the Group’s property portfolio. The Group has rent and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations.
The Group is exposed to market risk (including interest rate risk and real estate risk), credit risk, liquidity risk and capital risk. The Group is not exposed to currency risk or price risk. The Group is engaged in a single segment of business, being property investment in one geographical area, the
The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.
Market risk
Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices. The financial instruments held by the Group that are affected by market risk are principally the interest rate swap (which ended
i) Interest Rate risk
As described below the Group invests cash balances with RBS, Citibank and Barclays. These balances expose the Group to cash flow interest rate risk as the Group’s income and operating cash flows will be affected by movements in the market rate of interest. There is considered to be no fair value interest rate risk in regard to these balances.
The bank borrowings as described in note 14 also expose the Group to cash flow interest rate risk. The Group’s policy has historically been to manage its cash flow interest rate risk using interest rate derivatives (see note 15). The Group has floating rate borrowings of £141,874,379; £85,000,000 of these borrowings has been fixed via an interest rate cap.
The fair value of the interest rate swap is exposed to changes in the market interest rate as their fair value is calculated as the present value of the estimated future cash flows under the agreements. The accounting policy for recognising the fair value movements in the interest rate swaps is described in note 2.3 L.
The Group completed an extension of its debt facilities that were due to expire in
Trade and other receivables and trade and other payables are interest free and have settlement dates within one year and therefore are not considered to present a fair value interest rate risk.
The tables below set out the carrying amount of the Company’s financial instruments excluding the amortisation of borrowing costs as outlined in note 14.
As at 31 December 2023 Fixed rate Variable rate Interest rate £ £ £ Cash and cash equivalents - 6,653,838 0.000% Bank borrowings 85,000,000 56,874,379 5.459%
As at 31 December 2022 Fixed rate Variable rate Interest rate £ £ £ Cash and cash equivalents - 15,871,053 0.000% Bank borrowings 110,000,000 - 2.725%
At
At
ii) Real estate risk
The Group has identified the following risk associated with the real estate portfolio. The risks following, in particular b and c and also credit risk have remained high given the ongoing cost of living crisis and the resultant effect on tenants’ ability to pay rent:
a) The cost of any development schemes may increase if there are delays in the planning process given the inflationary environment. The Group uses advisers who are experts in the specific planning requirements in the scheme’s location in order to reduce the risks that may arise in the planning process.
b) major tenants may become insolvent causing a significant loss of rental income and a reduction in the value of the associated property (see also credit risk below). To reduce this risk, the Group reviews the financial status of all prospective tenants and decides on the appropriate level of security required via rental deposits or guarantees.
c) The exposure of the fair values of the portfolio to market and occupier fundamentals. The Group aims to manage such risks by taking an active approach to asset management (working with tenants to extend leases and minimise voids), capturing profit (selling when the property has delivered a return to the Group that the Group believes has been maximised and the proceeds can be reinvested into more attractive opportunities) and identifying new investments (generally at yields that are accretive to the revenue account and where the Group believes there will be greater investment demand in the medium term).
Credit risk
Credit risk is the risk that a counterparty will be unable to meet a commitment that it has entered into with the Group. In the event of default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional related costs. The Investment Manager regularly reviews reports produced by Dun and Bradstreet and other sources, including the MSCI IRIS report, to be able to assess the credit worthiness of the Group’s tenants and aims to ensure that there are no excessive concentrations of credit risk and that the impact of default by a tenant is minimised. In addition to this, the terms of the Group’s bank borrowings require that the largest tenant accounts for less than 20% of the Group’s total rental income, that the five largest tenants account for less than 50% of the Group’s total rental income and that the ten largest tenants account for less than 75% of the Group’s total rental income. The maximum credit risk from the tenant arrears of the Group at the financial year end was £3,741,772 (2022: £4,713,145) as detailed in note 11. The Investment Manager also has a detailed process to identify the expected credit loss from tenants who are behind with rental payments.
This involves a review of every tenant who owes money with the Investment Manager using their own knowledge and communications with the tenant to assess whether a provision should be made. This resulted in the provision for bad debts decreasing to £832,240 at the year-end (2022: £2,137,972) after write-offs.
With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counterparty bank with a maximum exposure equal to the carrying value of these instruments. As at
The credit risk associated with the cash deposits placed with RBS is mitigated by virtue of the Group having a right to off-set the balance deposited against the amount borrowed from RBS should RBS be unable to return the deposits for any reason. Citibank is rated A-2 Stable by Standard & Poor’s and P-2 Stable by Moody’s. RBS is rated A-1 Stable by Standard & Poor’s and P-1 Stable by Moody’s.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The investment properties in which the Group invests are not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate its investments in these properties quickly at an amount close to their fair value in order to meet its liquidity requirements.
The following table summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.
The disclosed amounts for interest-bearing loans and interest rate swaps in the below table are the estimated net undiscounted cash flows.
The Group’s liquidity position is regularly monitored by management and is reviewed quarterly by the Board of Directors
Year ended 31 December On demand 12 months 1 to 5 years >5 years Total 2023 £ £ £ £ £ Interest-bearing loans - 8,442,998 152,428,127 - 160,871,125 Trade and other payables 7,514,629 52,450 209,800 5,140,100 12,916,979 Rental deposits due to - 299,124 713,058 181,945 1,194,127 tenants 7,514,629 8,794,572 153,350,985 5,322,045 174,982,231
Year ended 31 December On demand 12 months 1 to 5 years >5 years Total 2022 £ £ £ £ £ Interest-bearing loans - 29,462,608 94,425,183 - 123,887,791 Trade and other payables 5,284,559 26,068 104,271 2,580,717 7,995,615 Rental deposits due to - 257,899 508,736 243,046 1,009,681 tenants 5,284,559 29,746,575 95,038,190 2,823,763 132,893,087
Capital Risk
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, buy back existing shares, increase or decrease borrowings or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings divided by gross assets and has a limit of 65% set by the Articles of
The gearing ratios at
2023 2022 £ £ Total borrowings (excluding unamortised arrangement 141,874,379 110,000,000 fees) Gross assets 456,053,931 444,943,156 Gearing ratio (must not exceed 65%) 31.11% 24.72%
The Group also monitors the Loan-to-value ratio which is calculated as gross borrowings less cash divided by portfolio valuation. As at
Fair values
Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried in the financial statements at amortised cost.
Carrying amount Fair Value 2023 2022 2023 2022 Financial Assets £ £ £ £ Cash and cash equivalents 6,653,838 15,871,053 6,653,838 15,871,053 Trade and other receivables 6,101,152 7,457,083 6,101,152 7,457,083 Financial liabilities Bank borrowings 141,251,910 109,123,937 144,957,576 109,580,566 Trade and other payables 8,217,588 6,564,852 8,217,588 6,564,852
In addition to the above, the Group's financial instruments also include an Interest rate swap and Interest rate cap. These have not been included in the disclosure above as these are already held at fair value. The fair value of trade receivables and payables are materially equivalent to their amortised cost.
The fair value of the financial assets and liabilities are included at an estimate of the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair value:
-- Cash and cash equivalents, trade and other receivables and trade and other payables are the same as fair value due to the short-term maturities of these instruments. Trade and other receivables/payables are measured in reference to contractual amounts due to/from the Group. These contractual amounts are directly observable. -- The fair value of the Right of use asset/Obligation under finance lease represents the ground rent liability associated with Leasehold properties. Their fair value is assessed with direct reference to the regular payments made under the ground rent and interest rates associated with the Group’s debt financing. -- The fair value of bank borrowings is estimated by discounting future cash flows using rates currently available for debt on similar terms and remaining maturities. The fair value approximates their carrying values gross of unamortised transaction costs. This is considered as being valued at level 2 of the fair value hierarchy and has not changed level since31 December 2022 . -- The fair value of rental deposit liabilities is the same as the current value as the monies owed are held in separate bank accounts. -- The fair values of the interest rate swap and cap contracts are estimated by discounting expected future cash flows using current market interest rates and yield curve over the remaining term of the instrument. This is considered as being valued at level 2 of the fair value hierarchy and has not changed level since31 December 2022 . The definition of the valuation techniques are explained in the significant accounting judgements, estimates and assumptions above.
The table below shows an analysis of the fair values of financial assets and liabilities recognised in the Balance Sheet by the level of the fair value hierarchy:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
Year ended 31 December 2023 Level 1 Level 2 Level 3 Total fair value Financial assets Trade and other receivables - 6,101,152 - 6,101,152 Cash and cash equivalents 6,653,838 - - 6,653,838 Interest rate cap - 1,408,781 - 1,408,781 Rental deposits held on behalf of 895,003 - - 895,003 tenants Right of use asset - 1,810,120 - 1,810,120 7,548,841 9,320,053 - 16,868,894 Financial liabilities Trade and other payables - 8,217,588 - 8,217,588 Bank borrowings - 144,957,576 - 144,957,576 Obligation under finance leases - 1,810,120 - 1,810,120 Rental deposits held on behalf of 895,003 - - 895,003 tenants 895,003 154,985,284 - 155,880,287
Year ended 31 December 2022 Level 1 Level 2 Level 3 Total fair value Financial assets Trade and other receivables - 7,457,083 - 7,457,083 Cash and cash equivalents 15,871,053 - - 15,871,053 Interest rate swap - 1,238,197 - 1,238,197 Interest rate cap - 2,550,469 - 2,550,469 Rental deposits held on behalf 751,782 - - 751,782 of tenants Right of use asset - 899,572 - 899,572 16,622,835 12,145,321 - 28,768,156 Financial liabilities Trade and other payables - 6,564,852 - 6,564,852 Bank borrowings - 109,580,566 - 109,580,566 Obligation under finance leases - 899,572 - 899,572 Rental deposits held on behalf 751,782 - - 751,782 of tenants 751,782 117,044,990 - 117,796,772
4. Administrative and Other Expenses
2023 2022 Notes £ £ Investment management fees 2,632,225 3,480,963 Other direct property expenses Vacant Costs (excluding void service charge) * 1,217,722 600,561 Repairs and maintenance 418,360 1,740,937 Letting fees 405,684 431,534 Other costs 366,695 237,813 Total Other direct property expenses 2,408,461 3,010,845 Net Impairment gain on trade receivables ** (213,048) (772,947) Fees associated with strategic review and aborted 1,729,925 - merger Other administration expenses Directors’ fees and subsistence 23 239,436 247,603 Valuer’s fees 75,524 94,256 Auditor’s fees 192,700 131,280 Marketing 222,893 226,782 Other administration costs 406,189 434,998 Total Other administration expenses 1,136,742 1,134,919 Total Administrative and other expenses 7,694,305 6,853,780
* Void Service charge costs for the year amounted to £1,470,241 (2022: £1,164,991). These have been reclassified as Service charge expenditure as noted below.
** In the prior year, impairment gains/(losses) on trade receivables (2022: gain of £852,062) were disclosed separately to amounts written-off in the period (2022: £79,115). The disclosure has been simplified in the current year – see Note 11 for further information on amounts written-off in the period.
2023 2022 £ £ Total service charge billed to tenants 4,731,793 4,492,780 Service charge due from/(to) tenants 152,564 (80,959) Service charge income 4,884,357 4,411,821 Total service charge expenditure incurred 4,884,357 4,411,821 Service charge incurred in respect of void units 1,470,241 1,164,991 Service charge expenditure 6,354,598 5,576,812
Investment management fees
From
Administration, secretarial and registrar fees
On
Valuers fee
The annual fee is equal to 0.017 percent of the aggregate value of property portfolio paid quarterly.
Auditor’s fee
At the year-end date
Fees associated with strategic review and aborted merger
As described in more detail in note 2.1, the Board undertook a strategic review during the second half of 2023 after concerns over the Company’s size, liquidity, persistent discount to NAV and dividend cover.
The outcome of this review, following interest from other listed REITs, was that the Board recommended to shareholders that they vote in favour of a proposed merger with Custodian REIT.
The costs associated with the initial Rule 2.7 announcement (including advisor, due diligence and valuation fees) were £2,041,248 of which £1,729,925 was accrued and unpaid at
5. Finance income and costs
2023 2022 £ £ Interest income on cash and cash equivalents 92,178 27,543 Finance income 92,178 27,543 Interest expense on bank borrowings 8,119,398 3,251,500 Non-utilisation charges on facilites 198,314 308,582 Receipt on interest rate swap (911,184) (116,700) Receipt on interest rate caps (578,933) - Amortisation of premium paid for interest rate cap 565,030 - Amortisation of arrangement costs (see note 14) 253,594 204,835 Finance lease interest 49,289 24,468 Finance costs 7,695,508 3,672,685
Of the finance costs above, £1,959,463 of the interest expense on bank borrowings were accruals at
6. Taxation
The Group migrated tax residence to the
As the principal company of the REIT, the Company is required to distribute at least 90% of the income profits of the Group’s
Accordingly, deferred tax is not recognised on temporary differences relating to the property rental business.
The Company and its
A reconciliation between the tax charge and the product of accounting profit multiplied by the applicable tax rate for the year ended
2023 2022 £ £ Loss before tax (8,267,901) (51,053,487) Tax calculated at blendedUK statutory corporation tax (1,942,957) (9,700,163) rate of 23.5% (2022: 19%) UK REIT exemption on net income (2,534,334) (2,179,636) Valuation loss in respect of Investment properties not 4,477,291 11,879,799 subject to tax Current income tax charge - -
* Calculated as a blended average of 23.5% being 3 months at the prevailing 19%, and 9 months at 25%.
7. Investment Properties
UK UK UK UK Industrial Office Retail Other Total 2023 2023 2023 2023 2023 £ £ £ £ £ Market value at 1 227,525,000 88,450,000 53,550,000 39,150,000 408,675,000 January Purchase of investment 4,367,140 - 19,619,261 - 23,986,401 properties Capital expenditure on 17,394,611 3,658,739 624,029 1,342 21,678,721 investment properties Opening market value of disposed (6,400,000) - - - (6,400,000) investment properties Valuation loss from investment 6,062,225 (19,490,769) (1,360,741) (3,200,246) (17,989,531) properties Movement in lease 1,121,061 (42,970) (42,549) (51,096) 984,446 incentives Market value at 250,070,037 72,575,000 72,390,000 35,900,000 430,935,037 31 December Investment property (19,750,000) (15,350,000) - - (35,100,000) recognised as held for sale Market value net of held for sale 230,320,037 57,225,000 72,390,000 35,900,000 395,835,037 at 31 December Right of use asset recognised - 1,810,120 - - 1,810,120 on leasehold properties Adjustment for (5,957,199) (1,943,609) (846,233) (559,362) (9,306,403) lease incentives Carrying value at 224,362,838 57,091,511 71,543,767 35,340,638 388,338,754 31 December
The valuations were performed by
UK UK UK UK Industrial Office Retail Other Total 2022 2022 2022 2022 2022 £ £ £ £ £ Market value at 1 273,565,250 126,275,000 56,525,000 36,050,000 492,415,250 January Purchase of investment 91,859 - - 5,409,462 5,501,321 properties Capital expenditure on 9,375,227 4,117,846 31,740 - 13,524,813 investment properties Opening market value of disposed (20,450,000) (20,900,000) - - (41,350,000) investment properties Valuation loss from investment (35,924,164) (20,993,533) (3,087,334) (2,252,751) (62,257,782) properties Movement in lease 866,828 (49,313) 80,594 (56,711) 841,398 incentives Market value at 227,525,000 88,450,000 53,550,000 39,150,000 408,675,000 31 December Right of use asset recognised - 899,572 - - 899,572 on leasehold properties Adjustment for (4,871,218) (1,986,578) (888,782) (610,458) (8,357,036) lease incentives Carrying value at 222,653,782 87,362,994 52,661,218 38,539,542 401,217,536 31 December
In the Cash Flow Statement, proceeds from disposal of investment properties comprise:
2023 2022 £ £ Opening market value of disposed investment properties 6,400,000 41,350,000 Loss on disposal of investment properties (279,090) (207,153) Net proceeds from disposal of investment properties 6,120,910 41,142,847
Valuation Methodology
The fair value of completed investment properties are determined using the income capitalisation method.
The income capitalisation method is based on capitalising the net income stream at an appropriate yield. In establishing the net income stream the valuers have reflected the current rent (the gross rent) payable to lease expiry, at which point the valuer has assumed that each unit will be re-let at their opinion of ERV. The valuers have made allowances for voids where appropriate, as well as deducting non recoverable costs where applicable. The appropriate yield is selected on the basis of the location of the building, its quality, tenant credit quality and lease terms amongst other factors.
No properties have changed valuation technique during the year. At the Balance Sheet date the income capitalisation method is appropriate for valuing all assets.
The Company appoints suitable valuers (such appointment is reviewed on a periodic basis) to undertake a valuation of all the direct real estate investments on a quarterly basis. The valuation is undertaken in accordance with the then current RICS guidelines and requirements as mentioned earlier.
The Investment Manager meets with the valuers on a quarterly basis to ensure the valuers are aware of all relevant information for the valuation and any change in the investment over the quarter. The Investment Manager then reviews and discusses the draft valuations with the valuers to ensure correct factual assumptions are made.
The management group that determines the Company’s valuation policies and procedures for property valuations is the Property Valuation Committee. The Committee reviews the quarterly property valuation reports produced by the valuers (or such other person as may from time to time provide such property valuation services to the Company) before its submission to the Board, focusing in particular on:
-- significant adjustments from the previous property valuation report; -- reviewing the individual valuations of each property; -- compliance with applicable standards and guidelines including those issued by RICS and the FCA Listing Rules; -- reviewing the findings and any recommendations or statements made by the valuer; -- considering any further matters relating to the valuation of the properties.
The Chair of the Committee makes a brief report of the findings and recommendations of the Committee to the Board after each Committee meeting. The minutes of the Committee meetings are circulated to the Board. The Chair submits an annual report to the Board summarising the Committee’s activities during the year and the related significant results and findings.
The table below outlines the valuation techniques and inputs used to derive Level 3 fair values for each class of investment properties. The table includes:
-- The fair value measurements at the end of the reporting period. -- The level of the fair value hierarchy (e.g. Level 3) within which the fair value measurements are categorised in their entirety. -- A description of the valuation techniques applied. -- Fair value measurements, quantitative information about the significant unobservable inputs used in the fair value measurement. -- The inputs used in the fair value measurement, including the ranges of rent charged to different units within the same building.
As noted above, all investment properties listed in the table below are categorised Level 3 and all are valued using the Income Capitalisation method.
Country & Class UK Industrial UK Office UK Retail UK Other 2023 Level 3 Level 3 Level 3 Level 3 Fair Value 2023 250,070,037 72,575,000 72,390,000 35,900,000 £ Initial Yield Initial Yield Initial Yield Initial Yield Reversionary Reversionary Reversionary Reversionary yield yield yield yield Key Unobservable Equivalent Equivalent Equivalent Equivalent Yield Input 2023 Yield Yield Yield Estimated Estimated Estimated Estimated rental rental value rental value rental value value per sq ft per sq ft per sq ft per sq ft 0.00% to 8.97% 4.56% to 10.51% 6.03% to 9.12% 5.40% to 9.30% (4.80%) (7.57%) (6.91%) (6.53%) 4.74% to 8.79% 7.34% to 12.20% 5.52% to 7.99% 5.81% to 9.40% Range (weighted (6.55%) (10.33%) (6.22%) (6.52%) average) 2023 5.28% to 8.30% 7.04% to 9.98% 5.76% to 9.91% 5.58% to 9.21% (6.46%) (8.89%) (7.02%) (6.67%) £4.75 to £10.25 £15.79 to £0.00 to £30.61 £6.50 to £20.00 (£7.04) £45.94 (£27.08) (£11.35) (£14.49)
Country & Class UK Industrial UK Office UK Retail UK Other 2022 Level 3 Level 3 Level 3 Level 3 Fair Value 2022 227,525,000 88,450,000 53,550,000 39,150,000 £ Initial Yield Initial Yield Initial Yield Initial Yield Reversionary Reversionary Reversionary Reversionary yield yield yield yield Key Unobservable Equivalent Equivalent Equivalent Yield Equivalent Yield Input 2022 Yield Yield Estimated Estimated Estimated rental Estimated rental rental value rental value value per sq ft value per sq ft per sq ft per sq ft 0.00% to 8.78% 5.10% to 7.90% 4.39% to 8.33% 5.01% to 9.13% (5.20%) (6.11%) (6.75%) (5.98%) 5.00% to 8.68% 6.25% to 10.45% 5.49% to 7.99% 4.79% to 9.40% Range (weighted (6.35%) (8.76%) (6.16%) (5.85%) average) 2022 5.00% to 8.23% 6.15% to 9.25% 5.76% to 9.67% 5.01% to 9.07% (6.26%) (8.02%) (6.79%) (5.87%) £4.50 to £9.00 £17.01 to £8.74 to £30.61 £6.00 to £20.00 (£6.38) £45.47 (£26.78) (£15.37) (£14.71)
Descriptions and definitions
The table above includes the following descriptions and definitions relating to valuation techniques and key observable inputs made in determining the fair values.
Estimated rental value (ERV)
The rent at which space could be let in the market conditions prevailing at the date of valuation.
Equivalent yield
The equivalent yield is defined as the internal rate of return of the cash flow from the property, assuming a rise or fall to ERV at the next review or lease termination, but with no further rental change.
Initial yield
Initial yield is the annualised rents of a property expressed as a percentage of the property value.
Reversionary yield
Reversionary yield is the anticipated yield to which the initial yield will rise (or fall) once the rent reaches the ERV.
The table below shows the ERV per annum, area per square foot, average ERV per square foot, initial yield and reversionary yield as at the Balance Sheet date.
2023 2022 ERV p.a. £34,189,042 £31,048,945 Area sq.ft. 3,503,840 3,416,291 Average ERV per sq.ft. £9.76 £9.09 Initial yield 5.8% 5.7% Reversionary yield 7.1% 7.1%
The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of completed investment property.
2023 2022 £ £ Increase in equivalent yield of 50 bps (31,373,168) (31,086,535) Decrease in rental rates of 5% (ERV) (15,910,176) (15,879,151)
Below is a list of how the interrelationships in the sensitivity analysis above can be explained.
In both cases outlined in the sensitivity table the estimated Fair Value would increase (decrease) if:
-- The ERV is higher (lower) -- Void periods were shorter (longer) -- The occupancy rate was higher (lower) -- Rent free periods were shorter (longer) -- The capitalisation rates were lower (higher)
8. Land
2023 2022 £ £ Cost Balance at the beginning of the year 8,061,872 8,001,550 Additions 2,154,160 60,322 Government Grant Income receivable (620,477) - Balance at the end of the year 9,595,555 8,061,872 Accumulated depreciation and amortisation Balance at the beginning of the year (561,872) (501,550) Valuation loss from land (783,683) (60,322) Balance at the end of the year (1,345,555) (561,872) Carrying amount as at 31 December 8,250,000 7,500,000
Valuation methodology
The Land is held at fair value and is categorised Level 3.
The Group appoints suitable valuers (such appointment is reviewed on a periodic basis) to undertake a valuation of the land on a quarterly basis. The valuation is undertaken in accordance with the current RICS guidelines by
Additions represent costs associated with the reforestation and peatland restoration at Far Ralia.
Grants are receivable from the
9. Investment Properties Held for Sale
As at
As at
10. Investments in Limited Partnership and Subsidiaries
The Company owns 100 per cent of the issued ordinary share capital of abrdn
In 2015 the Group acquired 100% of the units in
-- abrdnProperty Holdings Limited (formerly known asStandard Life Investments Property Holdings Limited ), a property investment company with limited liability incorporated inGuernsey ,Channel Islands . -- abrdn (APIT) Limited Partnership (formerly known asStandard Life Investments (SLIPIT) Limited Partnership), a property investment limited partnership established inEngland . -- abrdn APIT (General Partner ) Limited, a company with limited liability incorporated inEngland , whose principal business is property investment. -- abrdn (APIT Nominee) Limited, a company with limited liability incorporated and domiciled inEngland , whose principal business is property investment.
11. Trade and other receivables
2023 2022 £ £ Trade receivables 4,574,012 6,851,117 Less: provision for impairment of trade receivables (832,240) (2,137,972) Trade receivables (net) 3,741,772 4,713,145 Rental deposits held on behalf of tenants 299,124 257,899 Accrued Grant Income (see Note 8) 620,477 - Other receivables 1,439,779 2,486,039 Total trade and other receivables 6,101,152 7,457,083
Reconciliation for changes in the provision for impairment of trade receivables:
2023 2022 £ £ Opening balance (2,137,972) (2,990,034) Credit for the year 213,048 772,947 Reversal for amounts written-off 1,092,684 79,115 Closing balance (832,240) (2,137,972)
The estimated fair values of receivables are the discounted amount of the estimated future cash flows expected to be received and approximate their carrying amounts.
The trade receivables above relate to rental income receivable from tenants of the investment properties. When a new lease is agreed with a tenant the Investment Manager performs various money laundering checks and makes a financial assessment to determine the tenant’s ability to fulfil its obligations under the lease agreement for the foreseeable future. The majority of tenants are invoiced for rental income quarterly in advance and are issued with invoices at least 21 days before the relevant quarter starts. Invoices become due on the first day of the quarter and are considered past due if payment is not received by this date. Other receivables are considered past due when the given terms of credit expire.
Amounts are considered impaired when it becomes unlikely that the full value of a receivable will be recovered. Movement in the balance considered to be impaired has been included in other direct property costs in the Consolidated Statement of Comprehensive Income. As at
The ageing of these receivables is as follows:
2023 2022 £ £ 0 to 3 months (37,274) (8,203) 3 to 6 months (81,350) (251,682) Over 6 months (713,616) (1,878,087) (832,240) (2,137,972)
If the provision for impairment of trade receivables increased by £1 million then the Company’s earnings and net asset value would decrease by £1 million. If it decreased by £1 million then the Company’s earnings and net asset value would increase by £1 million.
As of
12. Cash and cash equivalents
2023 2022 £ £ Cash held at bank 6,337,101 9,389,992 Cash held on deposit with RBS 316,737 6,481,061 6,653,838 15,871,053
Cash held at banks earns interest at floating rates based on daily bank deposit rates. Deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the applicable short-term deposit rates.
13. Trade and other payables
2023 2022 £ £ Trade and other payables 7,023,461 4,655,599 VAT payable 656,894 628,960 Deferred rental income 6,038,976 5,337,852 Rental deposits due to tenants 299,124 257,899 14,018,455 10,880,310
Trade and other payables are recognised at amortised cost. Trade payables are non-interest bearing and normally settled on 30-day terms.
14. Bank borrowings
2023 2022 £ £ Loan facility (including Rolling Credit Facility) 165,000,000 165,000,000 Drawn down outstanding balance 141,874,379 110,000,000
On
2023 2022 £ £ Opening carrying value of expired facility as at 1 109,928,234 109,723,399 January Borrowings during the period on expired RCF 25,000,000 17,000,000 Repayment of expired RCF (25,000,000 (17,000,000) Repayment of expired facility (110,000,000) - Amortisation arrangement costs 71,766 204,835 Closing carrying value of expired facility - 109,928,234
Opening carrying value of new facility as at 1 January (804,297) - Borrowings during the period on new RCF 63,000,000 - Repayment of new RCF (6,125,621) - New term loan facility 85,000,000 - Arrangement costs of new facility - (804,297) Amortisation arrangement costs 181,828 - Closing carrying value 141,251,910 (804,297)
Opening carrying value of facilities combined as at 1 109,123,937 109,723,399 January Closing carrying value of facilities combined 141,251,910 109,123,937
2023 2022 £ £ Amortisation of arrangement costs (expired facility) 71,766 204,835 Amortisation of arrangement costs (new facility) 181,828 - See Note 5 253,594 204,835
Under the terms of the loan facilities there are certain events which would entitle RBSI to terminate the loan facility and demand repayment of all sums due. Included in these events of default is the financial undertaking relating to the LTV percentage. The loan agreement notes that the LTV percentage is calculated as the loan amount less the amount of any sterling cash deposited within the security of RBSI divided by the gross secured property value, and that this percentage should not exceed 60% for the period to and including
Cash and Interest-bearing 2023 Cash and Interest-bearing 2022 Analysis of cash loans cash loans movement in equivalents Net debt equivalents Net debt net debt £ £ £ £ £ £ Opening 15,871,053 (109,123,937) (93,252,884) 13,818,008 (109,723,399) (95,905,391) balance Cash (9,217,215) (31,874,379) (41,091,594) 2,053,045 804,297 2,857,342 movement Amortisation of - (253,594) (253,594) - (204,835) (204,835) arrangement costs Closing 6,653,838 (141,251,910) (134,598,072) 15,871,053 (109,123,937) (93,252,884) balance
All loan covenants were met during the year ended
2023 2022 £ £ Loan amount 141,874,379 110,000,000 Cash (6,653,838) (15,871,053) 135,220,541 94,128,947 Investment property valuation 439,185,037 416,175,000 LTV percentage 30.8% 22.6%
Other loan covenants that the Group is obliged to meet include the following:
-- that the net rental income is not less than 150% of the finance costs for any three month period -- that the largest single asset accounts for less than 15% of the Gross Secured Asset Value -- that the largest ten assets accounts for less than 75% of the Gross Secured Asset Value -- that sector weightings are restricted to 55%, 45% and 75% for the Office, Retail and Industrial sectors respectively.. -- that the largest tenant accounts for less than 20% of the Company’s annual net rental income -- that the five largest tenants account for less than 50% of the Company’s annual net rental income -- that the ten largest tenants account for less than 75% of the Company’s annual net rental income
During the year, the Group complied with its obligations and loan covenants under its loan agreement.
The loan facility is secured by fixed and floating charges over the assets of the Company and its wholly owned subsidiaries, abrdn
15. Interest rate Swap and Cap
In order to mitigate any interest rate risk linked to their debt facilities, the Group's policy has been to manage its cash flow using hedging instruments. The following hedging instruments were effective during the year:
15a Historic Interest Rate Swap
The Group had previously taken out an interest rate swap of a notional amount of £110,000,000 with RBS as part of a refinancing exercise in
2023 2022 £ £ Opening fair value of interest rate swaps at 1 January 1,238,197 (568,036) Reclassification of interest accrual (335,663) (247,093) Valuation (loss)/gain on interest rate swap (902,534) 1,470,570 Reclassified to Profit & Loss - 582,756 Closing fair value of interest rate swap at 31 December - 1,238,197
The spilt of the interest rate swap is listed below:
2023 2022 £ £ Current assets/(liabilities) - 1,238,197 Non-current assets/(liabilities) - - Interest rate swap with a start date of 28 April 2016 maturing on - 1,238,197 27 April 2023
15b Terminated Interest Rate Swap
As disclosed in note 14, on
15c Interest Rate Cap
Simultaneously to the breaking of the £85,000,000 swap, the Group agreed an interest rate cap against a notional amount of £85,000,000 (due to commence
2023 2022 £ £ Opening fair value of interest rate cap at 1 January 2,550,469 - Cost of interest rate cap - 2,507,177 Net Change in fair value (1,141,688) 43,292 Closing fair value of interest rate cap at 31 December 1,408,781 2,550,469
The change in fair value of the interest rate cap comprises fair value changes and interest received, paid and accrued.
2023 Cost of hedging Cash flow hedge Total £ £ £ Opening fair value 1,779,151 771,318 2,550,469 Valuation (loss)/gain (1,153,875) 377,860 (776,015) Interest received - (365,673) (365,673) Net Change in fair value (1,153,875) 12,187 (1,141,688) Closing fair value of interest rate 625,276 783,505 1,408,781 cap at 31 December Less Closing Interest Accrual * - (213,260) (213,260) Adjusted fair value of interest rate 625,276 570,245 1,195,521 cap at 31 December Opening Adjusted fair value of 1,779,151 771,318 2,550,469 interest rate cap at 1 January Valuation (loss)/gain recognised on (1,153,875) (201,073) (1,354,948) Adjusted Valuation Net Change in fair value (as above) (1,153,875) 12,187 (1,141,688) Less Closing Interest Accrual (as - (213,260) (213,260) above) * Valuation (loss)/gain recognised on (1,153,875) (201,073) (1,354,948) Adjusted Valuation
2023 Interest Rate Cap Cost of hedging Reserves reserve Cash flow hedge reserve Total Reconciliation £ £ £ Opening Reserve (728,026) 771,318 43,292 Valuation (loss)/gain recognised on Adjusted (1,153,875) (201,073) (1,354,948) Valuation Amortisation of 565,030 - 565,030 Premium (See Note 5) Valuation loss as recognised in Other (588,945) (201,073) (789,918) Comprehensive Income Closing Reserve (1,316,871) 570,245 (746,626)
* As the valuation of the interest rate cap includes a valuation attributable to the unsettled interest (due to 21st January) a separate accrual has not been recorded in the balance sheet. Instead, this represents a recycling of the change in Other Comprehensive Income for the Cash flow hedge to Finance Cost.
2022 Cost of hedging Cash flow hedge Total £ £ £ Opening Value - - - Cost of Interest rate cap 2,507,177 - 2,507,177 Valuation (loss)/gain (728,026) 771,318 43,292 Net Change in fair value (728,026) 771,318 43,292 Closing fair value of interest rate 1,779,151 771,318 2,550,469 cap at 31 December Less Closing Interest Accrual * - - - Adjusted fair value of interest rate 1,779,151 771,318 2,550,469 cap at 31 December Opening Adjusted fair value of - - - interest rate cap at 1 January Valuation (loss)/gain recognised on (728,026) 771,318 43,292 Adjusted Valuation
2022 Interest Rate Cap Cost of hedging Reserves reserve Cash flow hedge reserve Total Reconciliation £ £ £ Opening Reserve - - - Valuation (loss)/gain recognised on Adjusted (728,026) 771,318 43,292 Valuation Amortisation of - - - Premium (See Note 5) Valuation gain as recognised in Other (728,026) 771,318 43,292 Comprehensive Income Closing Reserve (728,026) 771,318 43,292
The Interest associated with the cap recognised as an offset against Finance Cost is summarised below:
2023 2022 £ £ Interest received 365,673 - Closing Interest Accrual 213,260 - Receipt on interest rate caps (see Note 5) 578,933 -
The spilt of the interest rate cap is listed below:
2023 2022 £ £ Current assets/(liabilities) 849,110 339,462 Non-current assets/(liabilities) 559,671 2,211,007 Interest rate cap with a start date of 27 April 2023 1,408,781 2,550,459 maturing on26 April 2026
16. Obligations under Finance Leases
Present value of Minimum lease Interest minimum lease payments payments 2023 2023 2023 £ £ £ Less than one year 52,450 (49,202) 3,248 Between two and five years 209,800 (195,892) 13,908 More than five years 5,140,100 (3,347,135) 1,792,965 Total 5,402,350 (3,592,229) 1,810,121
Present value of Minimum lease Interest minimum lease payments payments 2022 2022 2022 £ £ £ Less than one year 26,068 (24,468) 1,600 Between two and five years 104,271 (97,426) 6,845 More than five years 2,580,717 (1,689,590) 891,127 Total 2,711,056 (1,811,484) 899,572
The above table shows the present value of future lease payments in relation to the ground lease payable at
17. Lease analysis
The Group has granted leases on its property portfolio. This property portfolio as at
Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:
2023 2022 £ £ Within one year 27,137,392 24,457,032 Between one and two years 22,839,051 21,677,762 Between two and three years 19,036,836 16,236,484 Between three and four years 14,949,198 12,375,936 Between four and five years 12,718,074 8,695,218 More than 5 years 78,172,826 45,075,463 Total 174,853,377 128,517,895
The largest single tenant at the year-end accounts for 5.7% (2022: 6.0%) of the current annual passing rent.
18. Share capital
Under the Company’s Articles of Incorporation, the Company may issue an unlimited number of ordinary shares of
Allotted, called up and fully paid: 2023 2022 £ £ Opening balance 228,383,857 228,383,857 Shares issued - - Closing balance 228,383,857 228,383857
Treasury Shares
In 2022, the Company undertook a share buyback programme at various levels of discount to the prevailing NAV. In the period to
2023 2022 £ £ Opening balance 18,400,876 5,991,417 Bought back during the year - 12,409,459 Closing balance 18,400,876 18,400,876 The number of shares in issue as at 31 December 2023/2022 are as follows 2023 2022 Number of shares Number of shares Opening balance 381,218,977 396,922,386 Bought back during the year and put into - (15,703,409) Treasury Closing balance 381,218,977 381,218,977
19. Reserves
The detailed movement of the below reserves for the years to
Retained earnings
This is a distributable reserve and represents the cumulative revenue earnings of the Group less dividends paid to the Company’s shareholders.
Capital reserves
This reserve represents realised gains and losses on disposed investment properties and unrealised valuation gains and losses on investment properties and cash flow hedges since the Company’s launch.
Other distributable reserves
This reserve represents the share premium raised on launch of the Company which was subsequently converted to a distributable reserve by special resolution dated
20. Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the year net of tax attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year. As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical.
The earnings per share for the year is set out in the table below. In addition one of the key metrics the Board considers is dividend cover.
This is calculated by dividing the net revenue earnings in the year (surplus for the year net of tax excluding all capital items and the swaps breakage costs) divided by the dividends payable in relation to the financial year. For 2023 this equated to a figure of 81% (2022: 97%). See the Alternative Performance Measures in the full Annual Accounts which can be found via the following link: https://www.abrdnpit.co.uk/en-gb/literature.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
2023 2022 £ £ Loss for the year net of tax (8,267,901) (51,053,487) 2023 2022 Weighted average number of ordinary shares outstanding 381,218,977 389,565,276 during the year Loss per ordinary share (pence) (2.17) (13.11) Profit for the year excluding capital items (£) 10,824,203 11,471,770 EPRA earnings per share (pence) 2.83 2.94
21. Dividends and Property Income Distributions Gross of Income Tax
12 months to Dec 23 12 months to Dec 22 PID Non-PID Total PID Non-PID PID Non-PID Total PID Non-PID Dividends pence pence Pence £ £ pence pence Pence £ £ Quarter to 31 December of prior - 1.0000 1.0000 - 3,812,190 0.7910 0.2090 1.0000 3,139,656 829,568 year (paid in February) Quarter to 31 March 1.0000 - 1.0000 3,812,190 - 1.0000 - 1.0000 3,969,224 - (paid in May) Quarter to 30 June 1.0000 - 1.0000 3,812,190 - 1.0000 - 1.0000 3,860,190 - (paid in August) Quarter to 30 September - 1.0000 1.0000 - 3,812,190 0.1806 0.8194 1.0000 688,481 3,123,708 (paid in November) Total dividends 2.0000 2.0000 4.0000 7,624,380 7,624,380 2.9716 1.0284 4.0000 11,657,551 3,953,276 paid Quarter to 31 December of current 0.3980 0.6020 1.0000 1,517,252 2,294,938 - 1.0000 1.0000 - 3,812,190 year (paid after year end) Prior year dividends - (1.0000) (1.0000) - (3,812,190) (0.7910) (0.2090) (1.0000) (3,139,656) (829,568) (per above) Total dividends 2.3980 1.6020 4.0000 9,141,632 6,107,128 2.1806 1.8194 4.0000 8,517,895 6,935,898 paid for the year
On
22. Reconciliation of Audited Consolidated NAV to Unaudited Published NAV
The NAV attributable to ordinary shares is published quarterly and is based on the most recent valuation of the investment properties.
2023 2022 Number of ordinary shares at the reporting date 381,218,977 381,218,977 2023 2023 £ £ Total equity per audited consolidated financial 298,078,443 323,287,555 statements NAV per share (p) 78.2 84.8 Published NAV per share (p) 78.4 84.8
The variance between the unaudited published NAV and audited consolidated NAV of 0.2p per share represents the recognition of fees associated with the strategic review and proposed merger, the identification of a backdated rent review post publication but agreed prior to year-end, and the recognition of accrued grant income not yet received.
23. Related Party Disclosures
Directors’ remuneration
The Directors of the Company are deemed as key management personnel and received fees for their services. Total fees for the year were £239,436 (2022: £247,603) none of which remained payable at the year-end (2022: nil).
abrdn
2023 2022 £ £ Huw Evans - 17,124 Mike Balfour 41,500 41,500 Mike Bane 37,000 34,059 James Clifton-Brown 50,000 50,000 Jill May 37,000 37,000 Sarah Slater 37,000 37,000 Employers’ national insurance contributions 23,735 22,885 226,235 239,568 Directors’ expenses 13,201 8,035 239,436 247,603
24. Segmental Information
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
25. Commitments and Contingent Liabilities
The Group had contracted capital commitments as at
As discussed further in note 4 and note 26 below, following the shareholder vote on the
26. Events after the balance sheet date
Merger with Custodian
On
On 20
On
As discussed further in note 4, fees associated with the initial Rule 2.7 announcement (including advisor, due diligence and valuation fees) were £2,014,248 of which £1,729,925 was accrued as at
Dividends
On
Sales
On
This Annual Financial Report announcement is not the Company's statutory accounts for the year ended
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested.
All enquiries to:
The Company Secretary
Trafalgar Court
Les Banques
GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
Tel: 07801039463 or jason.baggaley@abrdn.com
Tel: 07703695490 or mark.blyth@abrdn.com
Tel: 07789676852 or craig.gregor@abrdn.com