22 Sep 2010 16:50
To: RNS
Date: 22 September 2010
From: IRP Property Investments Limited
·; Portfolio ungeared total return of 23.2 per cent for the year
·; Share price total return of 60.5 per cent for the year
·; Net asset value per share total return of 27.8 per cent for the year
·; Net asset value per share total return since launch of 29.6 per cent
·; Dividend yield of 8.5 per cent based on year-end share price
·; Dividend of 7.2 pence per share for the year
Chairman's Statement
The Chairman, Quentin Spicer, stated:
"The positive returns for UK commercial property witnessed in the second half of 2009 continued into the first half of 2010 although at a more modest pace, with total returns for the year ended 30 June 2010 of 24.1 per cent, as measured by the Investment Property Databank ('IPD') All Quarterly and Monthly Funds Index.
The Company's portfolio recorded a total return of 23.2 per cent for the year, slightly behind IPD. The benefit of gearing assisted in giving a net asset value total return for the year of 27.8 per cent with a net asset value as at 30 June 2010 of 85.4 pence per share. The movement in the interest rate swap valuation had a negative impact on the net asset value, with the liability increasing by £4.3 million during the year, reducing the net asset value per share by 3.9 pence.
The share price continued to perform strongly and the 21.1 per cent discount measured as at 30 June 2009 fell to 1.3 per cent as at 30 June 2010. The narrowing of the discount, combined with the recovery in the UK commercial property market, contributed to a share price total return for the Company for the year of 60.5 per cent. The share price has continued to trade close to net asset value up to the time of writing.
Property Market and Portfolio
There has been increased investment activity in UK commercial property over the last year which has resulted in capital values increasing continuously since August 2009, and prices having risen by 16.3 per cent since 30 June 2009, according to IPD. The level of these increases decelerated as the year progressed as initial yields moved closer to the yield on gilts. At the year-end, the gap between initial property yields and gilt yields was still above the long-term average, although investors remain cautious and a higher risk premium for investing in property is apparent.
The occupier market showed signs of recovery towards the year-end with rental growth being witnessed in Central London and most other segments seeing the pace of rental decline easing. This was further evidenced by the level of voids, as measured by IPD, having fallen to 10.1 per cent at 30 June 2010, compared to 12.1 per cent just six months earlier.
During the year the Company's portfolio increased to £157.6 million, with capital values increasing by 14.9 per cent. The Company purchased a retail warehouse in Nelson for £5.2 million, a sector in which the portfolio was underweight. This purchase was at an initial yield of 7 per cent.
The Manager has entered into a number of asset management initiatives aimed at enhancing the long-term total returns of the Company. A transaction of note was Clifton Moor Gate, York where the existing tenant agreed to extend its lease for a further ten years in return for a twelve month rent free period. This deal enhanced the market value of the property by 45.2 per cent or £2.6 million.
The Manager has been successful in re-letting vacant property, most significantly the premises at Bridge Street Guildford which have been let to two tenants for a combined rent of £102,000, both on 15 year leases without break clauses. This and further new lettings have brought the void rate down to 2.1 per cent as at 30 June 2010 from 5.7 per cent as at 30 June 2009. This is significantly ahead of the IPD average of 10.1 per cent as mentioned above. These initiatives have served to protect the income stream during difficult times with the average lease length only down to 7.7 years as at 30 June 2010 from 7.9 years at the previous year-end. The arrears are also very small with 98 per cent of rent successfully collected at the year-end and a bad debt provision of only £160,000.
Dividends
Three interim dividends of 1.80 pence per share were paid during the year and a fourth interim dividend of 1.80 pence per share will be paid on 24 September 2010. This gives a total dividend for the year ended 30 June 2010 of 7.20 pence per share, consistent with the amount proposed in last year's annual report; reflecting a yield of 8.5 per cent on the year end share price.
In the absence of a material change in circumstances, it is the intention of the Board to maintain the dividend at this rate for the year ending 30 June 2011.
Borrowings
The net gearing level as at 30 June 2010 was 33.6 per cent, which compares with 34.4 per cent as at 30 June 2009 and 40.0 per cent at launch on 1 June 2004. This is a level of borrowings that the Board is comfortable with at the current time with the property market having stabilised.
The Company has £8.8 million of cash available and, while it is earning a low rate of return, it helps to reduce the risk profile of the Company. This cash balance, combined with the undrawn loan facility of £15 million, provides the Company with the flexibility to make opportunistic purchases.
Outlook
As the Company's financial year drew to a close there were signs that sentiment towards UK commercial property had become more cautious. There were indications of property yields stabilising and even increasing slightly in some areas.
A period of adjustment would appear to be in store for both property and the economy as a whole as the new government's economic policy tightens. There may be a wide divergence in performance at individual property level with more affluent areas with tight supply and quality stock outperforming.
The Managers are predicting a slight fall in capital values in the second half of 2010 and this is expected to continue into 2011. In this environment, and with minimal economic growth, protection of the income stream and keeping voids to a minimum is critical.
The Company remains focussed on maintaining the high occupancy levels which exist in the portfolio and enhancing the rental income stream where possible. The Manager continues to look at both buying and selling opportunities to increase total returns and has sufficient liquidity to ensure that it can take advantage of these when they arise."
All enquiries to:
Ian McBryde
Scott Macrae
F&C Investment Business Limited
Tel: 0207 628 8000
The Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Tel: 01481 745001
IRP Property Investments Limited
Consolidated Statement of Comprehensive Income
|
|
Year ended 30 June 2010 |
Year ended 30 June 2009 |
|
| £'000 | £'000 |
|
|
|
|
| Revenue |
|
|
| Rental income | 11,651 | 12,059 |
|
|
|
|
| Gains/(losses) on investment properties | 20,218 | (42,969) |
|
|
|
|
| Total income | 31,869 | (30,910) |
|
|
|
|
| Expenditure |
|
|
| Investment management fee | (1,064) | (1,337) |
| Other expenses | (1,164) | (1,142) |
|
|
|
|
| Total expenditure | (2,228) | (2,479) |
|
|
|
|
| Net operating profit/(loss) before finance costs | 29,641 | (33,389) |
|
|
|
|
| Net finance costs |
|
|
| Interest revenue receivable | 120 | 84 |
| Finance costs | (3,436) | (3,483) |
|
|
|
|
|
| (3,316) | (3,399) |
|
|
|
|
| Net profit/ (loss) from ordinary activities before taxation | 26,325 | (36,788) |
|
|
|
|
| Taxation on profit on ordinary activities | (241) | (92) |
|
|
|
|
| Profit/(loss) for the year | 26,084 | (36,880) |
|
|
|
|
| Other comprehensive income |
|
|
| Net loss on cash flow hedges, net of tax | (4,335) | (8,286) |
|
|
|
|
| Net comprehensive profit/ (loss) for the year, net of tax | 21,749 | (45,166) |
|
|
|
|
| Basic and diluted earnings/(losses) per share | 23.6p | (33.4)p |
|
|
|
|
|
|
|
|
IRP Property Investments Limited
Consolidated Balance Sheet
|
| 30 June 2010 £'000 | 30 June 2009 £'000 |
| Non-current assets |
|
|
| Investment properties | 157,609 | 131,886 |
|
|
|
|
Current assets |
|
|
| Trade and other receivables | 2,478 | 2,238 |
| Cash and cash equivalents | 8,761 | 16,474 |
|
| 11,239 | 18,712 |
| |
|
|
Total assets | 168,848 | 150,598 |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
| Interest-bearing bank loan | (60,335) | (60,292) |
| Interest rate swap | (7,432) | (4,337) |
|
| (67,767) | (64,629) |
|
|
|
|
Current liabilities |
|
|
| Trade and other payables | (3,833) | (3,754) |
| Interest rate swap | (2,920) | (1,680) |
|
| (6,753) | (5,434) |
| |
|
|
Total liabilities | (74,520) | (70,063) |
|
|
|
|
Net assets | 94,328 | 80,535 |
|
|
|
|
|
|
|
|
Represented by: |
|
|
| Share capital | 1,105 | 1,105 |
| Special distributable reserve | 94,314 | 96,404 |
| Capital reserve | 9,261 | (10,957) |
| Other reserve | (10,352) | (6,017) |
|
|
|
|
Equity shareholders' funds | 94,328 | 80,535 |
|
|
|
|
Net asset value per share | 85.4p | 72.9p |
IRP Property Investments Limited
Consolidated Statement of Changes in Equity
For the year ended 30 June 2010
|
|
Share Capital £'000 |
Special Distributable Reserve £'000 |
Capital Reserve £'000 |
Other Reserve £'000 |
Revenue Reserve £'000 |
Total £'000 |
| At 1 July 2009 | 1,105
| 96,404 | (10,957) | (6,017) | - | 80,535 |
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
26,084 |
26,084 |
| Other comprehensive losses | - | - | - | (4,335) | - | (4,335) |
| Total comprehensive income for the year | - | - | - | (4,335) | 26,084 | 21,749 |
|
Dividends paid |
- |
- |
- |
- |
(7,956)
|
(7,956) |
|
Transfer in respect of gains on investment properties |
-
|
- |
20,218 |
- |
(20,218) |
- |
|
Transfer of net deficit for the year |
- |
(2,090) |
- |
-
|
2,090 |
- |
|
|
|
|
|
|
|
|
|
At 30 June 2010 |
1,105 |
94,314 |
9,261 |
(10,921) |
- |
94,328 |
For the year ended 30 June 2009
|
|
Share Capital £'000 |
Special Distributable Reserve £'000 |
Capital Reserve £'000 |
Other Reserve £'000 |
Revenue Reserve £'000 |
Total £'000 |
| At 1 July 2008 | 1,105
| 98,271 | 32,012 | 2,269 | - | 133,657 |
|
Loss for the year |
- |
- |
- |
- |
(36,880) |
(36,880) |
| Other comprehensive losses | - | - | - | (8,286) | - | (8,286) |
| Total comprehensive losses for the year | - | - | - | (8,286) | (36,880) | (45,166) |
|
Dividends paid |
- |
- |
- |
- |
(7,956)
|
(7,956) |
|
Transfer in respect of losses on investment properties |
-
|
- |
(42,969) |
- |
42,969 |
- |
|
Transfer of net deficit for the year |
- |
(1,867) |
- |
-
|
1,867 |
- |
|
|
|
|
|
|
|
|
|
At 30 June 2009 |
1,105 |
96,404 |
(10,957) |
(6,017) |
- |
80,535 |
IRP Property Investments Limited
Consolidated Statement of Cash Flow
|
|
Year ended 30 June 2010 |
Year ended 30 June 2009 |
|
| £'000 | £'000 |
|
|
|
|
| Cash flows from operating activities |
|
|
| Net operating profit/(loss) for the year before taxation | 26,325 | (36,788) |
| Adjustments for: |
|
|
| (Gains)/losses on investment properties | (20,218) | 42,969 |
| (Increase)/decrease in operating trade and other receivables | (240) | 1,097 |
| Decrease in operating trade and other payables | (120) | (878) |
| Net finance costs | 3,316 | 3,399 |
|
| 9,063 | 9,799 |
|
|
|
|
| Taxation | - | (70) |
| Net cash inflow from operating activities | 9,063 | 9,729 |
|
|
|
|
| Cash flows from investing activities |
|
|
| Purchase of investment properties | (5,537) | - |
| Capital expenditure | (180) | (412) |
| Sales of investment properties | 212 | 16,000 |
| Interest received | 120 | 84 |
| Net cash (outflow) / inflow from investing activities | (5,385) | 15,672 |
|
|
|
|
| Cash flows from financing activities |
|
|
| Dividends paid | (7,956) | (7,956) |
| Bank loan interest paid | (706) | (3,645) |
| (Payments)/receipts under interest rate swap arrangement | (2,729) | 206 |
| Net cash outflow from financing activities | (11,391) | (11,395) |
|
|
|
|
| Net (decrease) / increase in cash and cash equivalents | (7,713) | 14,006 |
| Opening cash and cash equivalents | 16,474 | 2,468 |
| Closing cash and cash equivalents | 8,761 | 16,474 |
IRP Property Investments Limited
Principal Risks and Risk Uncertainties
The Company's assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also the particular circumstances of the properties in which it is invested and their tenants. More detailed explanations of these risks and the way in which they are managed are contained under the headings of Credit Risk, Liquidity Risk and Interest Rate Exposure and Market Price Risk. The Managers also seek to mitigate these risks through active asset management initiatives, and carrying out due diligence work on potential tenants before entering into any new lease agreements. All of the properties in the portfolio are insured.
Other risks faced by the Company include the following:
·; Economic - inflation or deflation, economic recessions and movements in interest rates could affect property valuations.
·; Strategic - incorrect strategy, including sector and property allocation and use of gearing, could all lead to poor returns for shareholders.
·; Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
·; Management and control - changes that cause the management and control of the Company to be exercised in the United Kingdom could lead to the Company becoming liable to United Kingdom taxation on income and capital gains.
·; Financial - inadequate controls by the Managers 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 Manager's accounting systems or disruption to the Manager's business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.
The Board seek to mitigate and manage these risks through continual review, policy-setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Company's property portfolio, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.
The Board and the Managers recognise the importance of the share price relative to net asset value in maintaining shareholder value. The Managers meet with current and potential new shareholders, and with stockbroking analysts who cover the investment trust sector, on a regular basis. In addition, communication of quarterly portfolio information is provided through the Company's website.
Financial Instruments
The Group's investment objective is to provide Ordinary shareholders with an attractive level of income together with the potential for income and capital growth from investing in a diversified UK commercial property portfolio.
Consistent with that objective, the Group holds UK commercial property investments. In addition, the Group's financial instruments comprise cash, receivables, a bank loan, an interest rate swap and payables.
The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk and market risk (those relating to interest rate changes and pricing movements).
There was no foreign currency risk as at 30 June 2010 or 30 June 2009 as assets and liabilities are maintained in Sterling.
The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Group are detailed below.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.
Included within rent receivable is the prepayment for rent free periods recognised over the life of the lease. As at 30 June 2010 this amounted to £847,000 (2009: £189,000)
Included within other debtors and prepayments at 30 June 2010 is £901,000 (2009: £959,000) relating to the reverse lease surrender premium paid to the tenants of Echo Park, Banbury.
In the event of default by an occupational tenant, the Group will suffer a rental shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property until it is re-let. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Managers monitor such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants.
The Group has a diversified tenant portfolio. The maximum credit risk from the rent receivables of the Group at 30 June 2010 is £1,208,000 (2009: £640,000). Rental deposits from tenants at 30 June 2010 were £242,000 (2009: £189,000). As at 30 June 2010 £160,000 of rent receivable was greater than one month overdue. It is the practice of the Group to provide for rental debtors greater than three months overdue. As at 30 June 2010 the provision was £160,000 (2009: £269,000). Since the year-end, £26,000 has been recovered.
All of the cash is placed with financial institutions with a long term credit rating of AA or above. Bankruptcy or insolvency may cause the Group's ability to access cash placed on deposit to be delayed or limited. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, the Manager would move the cash holdings to another financial institution.
At the year end, counterparty risk has been spread by placing cash balances with more than one financial institution.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise UK commercial property.
Property in which the Group invests is not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate quickly its investments in these properties at an amount close to their fair value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the Managers and monitored on a quarterly basis by the Board.
In certain circumstances, the terms of the Group's bank loan entitles the lender to require early repayment, and in such circumstances the Group's ability to maintain dividend levels and the net asset value attributable to the Ordinary shares could be adversely affected. As at 30 June 2010 the cash balance was £8,761,000 (2009: £16,474,000).
Interest rate exposure
Some of the Group's financial instruments are interest-bearing. These are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Group is exposed to interest rate risk due to fluctuations in the prevailing market rate.
Interest is receivable on cash at a variable rate. At the year-end, rates receivable ranged from 0.375 per cent on current account balances to 0.53 per cent for deposit account balances. Interest is payable on the bank loan at a variable rate of LIBOR plus a margin of 0.45 per cent. The effect of the interest rate swap is to fix interest payable at 5.65 per cent per annum for the first three years and 5.6 per cent per annum thereafter. The effective rate of interest on the loan is 0.96 per cent. Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year.
Exposure varies throughout the year as a consequence of changes in the composition of the net assets of the Group arising out of the investment and risk management policies.
In addition, tenant deposits are held in interest-bearing bank accounts. These accounts earn interest at base rate less 0.75 per cent and receive no interest at this time as the base rate is below 0.75 per cent. Interest accrued on these accounts is paid to the tenant.
The Group's exposure to interest rate risk relates primarily to the Group's long-term debt obligations. The Group's policy is to manage its interest rate risk using an interest rate swap, in which the Group has agreed to exchange the difference between fixed and variable interest amounts, calculated by reference to an agreed upon notional principal amount. The swap is designed to fix the interest payable on the loan. The interest rate swap covers the exact amount of the loan and has the same duration. Interest fixing periods are identical and on this basis the swap contract complies with IAS 39's criteria for hedge accounting.
Market price risk
As at 30 June 2010, all of the Company's financial instruments were included in the balance sheet at fair value, which in the opinion of the Directors is not materially different from their book value.
Fair values of financial assets and liabilities
The assets and liabilities of the Group are, in the opinion of the Directors, reflected in the Balance Sheet at fair value. Borrowings under loan facilities do not have a value materially different from their capital repayment amount. The fair value of the interest rate swap is based on the marked to market value. In the Directors' opinion, the fair value of the Group's assets and liabilities are not materially different from their book value.
The Directors and Managers regularly review the principles applied by the property valuers to ensure that they comply with the Group's accounting policies and with fair value principles.
Fair value hierarchy
The interest rate swap, valued at a liability of £10,921,000 (2009: £6,017,000) is considered to be Level 2 in the hierarchy.
Explanation of fair value hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 - The use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data.
Level 3 - The use of a model with inputs that are not based on observable market data.
Statement of Directors' Responsibilities in Respect of the Annual Financial Report
In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge:
·; The financial statements contained within the Annual Report for the year ended 30 June 2010, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;
·; The Chairman's Statement includes a fair review of the important events that have occurred during the financial year and their impact on the financial statements;
·; 'Principal Risks and Risk Management' includes a description of the Company's principal risks and uncertainties; and
·; The Chairman's Statement includes details of related party transactions that have taken place during the financial year.
On behalf of the Board
Q Spicer
Director
22 September 2010
IRP Property Investments Limited
Notes to the Consolidated Financial Statements
for the year ended 30 June 2010
1. The audited results of the Group which were approved by the Board on xx September 2010 have been prepared on the basis of International Financial Reporting Standards and the accounting policies set out in the statutory accounts of the Group for the year ended 30 June 2010.
2. The fourth interim dividend of 1.80p was declared on 1 September 2010 and will be paid on 24 September 2010 to shareholders on the register on 10 September 2010. The ex-dividend date was 8 September 2009.
3. There were 110,500,000 Ordinary Shares in issue at 30 June 2010. The earnings per Ordinary Share are based on the net profit for the year of £26,084,000 and on 110,500,000 Ordinary Shares, being the weighted average number of shares in issue during the year.
4. One property was purchased during the year for £5.2 million.
5. The Group results consolidate those of IRP Holdings Limited, a wholly owned subsidiary which invests in properties.
6. These are not full statutory accounts. The full audited accounts for the year ended 30 June 2010 will be sent to shareholders in September 2010, and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey, the registered office of the Company. The full annual report and accounts will be available on the Company's website: www.irppropertyinvestments.com
7. The Annual General Meeting will be held on 16 November 2010.