TAP.L Regulatory News (TAP)

25 Apr 2008 07:00

Teesland Advantage Property Inc Tst25 April 2008 25 April 2008 Teesland Advantage Property Income Trust Limited (the "Company") Preliminary Results for the Year to 31 December 2007 Teesland Advantage Property Income Trust Limited (LSE: TAP), a company focusedon investment in a diversified portfolio of income-producing commercial propertyin the United Kingdom and the Channel Islands, presents its results for the yearended 31 December 2007. Highlights • Final audited NAV per share 97.8p at 31 December 2007, portfolio performance for the year minus 3.4%(1) compared to the IPD universe at minus 4.4%.(2) • Portfolio net initial yield of 6.13% (increase of 52 basis points on 31 December 2006). • Growth in property assets of 0.62% to £260.8 million as at 31 December 2007. • Income return of 5.6% compared to IPD UK All Property Income Return of 4.6%.(3) • Acquisition of £36.9 million of property; values of the new assets remain above purchase price at the end of the financial year. • Sale of £10.2m of investment properties at 7.3% above their preceding valuation. • Completion of 18 leases and lease renewals securing £600,000 per annum and reducing vacancies to 5.62%, compared to IPD Benchmark of 8.0%. • At the end of December, the Company had bank debt of £125.8 million, equivalent to 48.2% of gross property assets. • Proposed change of name to 'The Advantage Property Income Trust Limited' following the change of name of the Company's Property Fund Adviser from Teesland Asset Management Limited to Valad Asset Management (UK) Ltd. (1)Source: Investment Property Databank Quarterly Universe excluding Central London December 2007. (2)Source: Investment Property Databank UK quarterly property index Q4 2007. (3)Source: Investment Property Databank UK Annual Property Index results for the year to 31 December 2007. For further information, please visit www.tapincome.com or contact: Christopher Carter Keall, 020 7659 6666Valad Asset Management (UK) Ltd Graham Swindells,Kaupthing Singer & Friedlander Capital Markets Ltd 020 3205 7500 Jeremy Carey, Gemma BradleyTavistock Communications Ltd 020 7920 3150 Anson Fund Managers Limited,Secretary 01481 722260 Chairman's Statement Following a difficult year for the listed property investment company sector, Iam pleased to report that TAP has been able to complete the year with goodperformance for the property portfolio relative to the IPD index and retainedits high income return for shareholders. Listed property investment companies have suffered a significant set back duringthe last six months, with the market experiencing price falls averaging over30%, largely driven by investor sentiment following the credit crisis in thefinancial markets and anticipation of further falls in property investmentvalues during the second half of the year. The property portfolio is structured to produce higher income returns and incomegrowth. Accordingly the portfolio is overweight in offices and industrialproperty, and underweight in lower yielding retail and Central London offices.This bias meant that the portfolio did not benefit from the yield compression inthe Central London market in the early part of the year, but has experiencedless negative impact on values during the second half of the year and benefitedfrom added value resulting from asset management initiatives. TAP has performed broadly in line with the sector as a whole. The results forthe year demonstrate the benefit of a diversified portfolio and the defensivestrategy adopted over the last year. The portfolio has out-performed the IPDquarterly annual index, its principal benchmark, with a total return of -3.4%compared with IPD at -4.4%. The Board has continued to review the debt facilities of the Company and hasrecently entered into a new revolving facility with the Bank of Scotland,providing long term flexibility to the Company's borrowing arrangements,facilitating the repayment of debt without inhibiting possible reinvestment inthe medium term. Additionally, we have launched a revised website to improve communication withour shareholders. This contains the most recent snapshot report through whichinvestors can receive the latest information on the Company. The Company has replaced its sponsoring broker this year, appointing KaupthingSinger and Friedlander, who we are confident will bring a new energy to themarket presence of the Company. Dividends The Directors propose to maintain the current policy of paying four quarterlydividends and intend to declare such dividends in each of February, May, Augustand November. TAP continues to offer among the highest dividend yields of all UK listedproperty investment companies. The Board is conscious of the importance ofimproving dividend cover and this has improved through the year to 65% inDecember 2007. In addition to the strategy for the property portfolio, which isdesigned to provide income growth, the Board intends to continue employingstrategies designed to increase dividend cover, including reduction in debt andstringent cost reduction. The Board will also consider making market purchasesof the Company's own shares, subject to the Company's authority to make suchpurchases being renewed at the forthcoming annual general meeting. Gearing At the end of December, the Company had bank debt of £125.8 million, equivalentto 48.2% of gross property assets. Of this debt, the interest rate on £81.3million has been fixed at an average of 4.89% (before margin) and the interestrate on the remaining £44.5 million is floating. The total cost of debt during2007 was 6.0%. Further interest rate cuts are likely during the course of 2008but the Monetary Policy Committee will need to balance these cuts against therisk of inflation trending above target in the medium term. The bank debt is made up of two facilities: one from the Bank of Scotland for£98.3 million, of which £88.3 million had been drawn down at the financialreporting date and one from Capmark for £37.5 million which has been fully drawndown. Following the year end £8 million of bank debt was repaid from the Bankof Scotland facility and therefore £80.3 million is outstanding as at the dateof this report, reducing the Company's total bank debt to £117.8m. Future Prospects The commercial property market expectations are for a likely stabilisation inthe investment markets in 2008 following recent price falls and volatility andsome measured improvement in the discount to NAV as sentiment recovers and theunderlying fundamentals of the property market are reflected in share prices. The steps taken by the Board to deliver improving dividend cover and incomegrowth will provide shareholders with the benefit of an asset-backed investmentwith relatively high income and the potential to capture gains from any recoveryin the property market over the next few years. The Property Fund Adviser has advised the Board that for the first half of 2008the market shall see a further downward adjustment in value but, in line withmost commentators, it believes that the most marked price correction has nowoccurred and that values are forecast to reach an equilibrium level by the endof the year. At present TAP will continue to maintain a defensive stance, with its portfoliopositioned to generate higher income and capture gains produced by assetmanagement initiatives. During 2008 we anticipate further debt repayment and theCompany's assets will be appraised in detail to identify added value and growthprospects. Where the assets do not meet required returns, they will beconsidered for sale. Finally, I would like to extend my appreciation to our shareholders for theirforbearance during a difficult year for the listed property investment companysector. Christopher N Fish Chairman 24 April 2008 Property Fund Adviser's Report Property Market Background The commercial property market performance for 2007 is reported to be -4.4% (IPDquarterly benchmark annual result). Capital growth has been negative since July,with major falls in November and December. There has been rapid outward yieldshift seen across all sectors. CB Richard Ellis Limited have estimated that theaverage equivalent yield on all property stands at 6.4% which is a full 90 basispoints higher than 12 months previously. The CBRE index showed rental growth of 4.1% for all property for the year toDecember 2007 only marginally down on the previous year. This showed that theoccupier market remained generally positive. It should be noted that themajority of the rental growth was applicable to Central London, and without thisinput, rental growth would have been significantly lower. Portfolio Activity The Property Fund Adviser completed 18 rent reviews and lease renewals and 18new leases during the year, adding over £600,000 in rent to the income of theCompany. The portfolio remains broadly spread across the main commercial sectors and isfocused on the core strategy of income and income growth from a balancedportfolio. Over the year the Company has continued to increase weighting of itsportfolio in the office sector and the higher-yielding industrial sector to thebenefit of the income return. The income return of 5.6% for the year ended 31 December 2007 is significantlyin excess of the IPD Annual Property Index at 4.6%. The income is welldiversified across 237 tenants with an average unexpired lease term of 6.4years. The TAP portfolio was actively managed during 2007, with 7 sales and 7 purchasesduring the year. At the end of the year the portfolio had increased to £260.8m.Sales and acquisitions were undertaken in order to focus on the disposal ofstabilised low yielding assets and the acquisition of properties whereadditional value could be created. The receipts from sales in 2007 amounted to over £11.3m showing a profit abovethe existing valuation of just over £800,000. The acquisitions were at aweighted average initial yield of 7.25%, thereby adding to the level of incomeand the dividend cover. The Company has acquired a 65,000 sq ft office building in central Leeds, amarket that is currently experiencing a significant lack of available qualityoffice space. Brunswick Point offers a mixture of secure income for 15 yearsfrom Clydesdale Bank and short term income to provide the Company with theopportunity of delivering refurbished accommodation into an undersupplied marketat rents significantly below new build rate. The Company also acquired a number of industrial units including 146,000 sq ftat Witham in Essex. This asset is well located adjacent to the A12 and wasbought at a yield of 10%. It has subsequently been revalued at December 2007 atan equivalent yield of 8%. Further sales are planned for 2008 following the implementation of key addedvalue initiatives. This will enable the Company to continue its strategy ofrepaying debt and maximising dividend cover. It is also proposed to increase theaverage lot size per asset from the current £3.5 million to closer to £5 millionto concentrate resources on asset management initiatives that have a real impacton performance. We intend to seek out opportunities across the sectors as differentialperformance between sectors is not predicted and asset-specific out-performanceis possible. We will maintain a balanced portfolio. Asset management has played a key part in income creation throughout the yearand in particular, at Hemel Hempstead where the insurance claim on FujifilmHouse has provided an ungeared total return of 40.9% (IPD). In addition, theCompany's asset in St Peter Port, Guernsey has performed well, providing over12% total return to the Company through a mixture of rental growth and yieldcompression in the expectation of further growth. The conclusion of the rentreview in 2008 will be assisted by the limited supply and continued occupierdemand. Overall, the diverse characteristics of the portfolio offer a number ofopportunities to add value through asset management and in an environment offorecast lower returns, the prospects for the total return from the portfolio inthe short and medium term are good. Portfolio Distribution % Retail 18.5Retail Warehousing 20.1Offices 34.2Industrial 23.6Leisure 3.6 Lease Expiry Profile 0-3 yrs 24.53-5 yrs 12.75-10 yrs 42.110-15 yrs 15.915 yrs + 4.8 Regional Distribution % South East 41.9Scotland 10.7East Midlands 10.1West Midlands 9.2Yorkshire & Humberside 7.7North West 7.1South West 4.7Channel Islands 3.9Eastern 2.8Wales 1.4North East 0.5 Valad Property Group 24 April 2008 Management Report A description of important events that have occurred during the financial year,their impact on the performance of the Company as shown in the financialstatements and a description of the principal risks and uncertainties facing theCompany is given in the Property Fund Adviser's Report above and is incorporatedhere by reference. There were no material related party transactions which took place in thefinancial year. Responsibility Statement The Board of directors jointly and severally confirm that, to the best of theirknowledge: (a) The financial statements, prepared in accordance with InternationalFinancial Reporting Standards as adopted by the European Union, give a true andfair view of the assets, liabilities, financial position and profit or loss ofthe Company; and (b) This Management Report includes or incorporates by reference a fairreview of the development and performance of the business and the position ofthe Company and the undertakings included in the consolidation taken as a whole,together with a description of the principal risks and uncertainties that theyface. Christopher N FishChairman Nicholas C M RennyDirector Group income statementFor the year ended 31 December 2007 Year to 31 December 2007 Restated Year to 31 December 2006 Notes £ £RevenueRental income from investment properties 16,566,782 15,065,627Lease incentive charge (475,785) (486,784)Net rental income 16,090,997 14,578,843 ExpenditureProperty outgoings 3 (1,100,468) (1,170,275)Property fund adviser's fee 14 (2,279,743) (2,105,646)Other expenses 3 (745,191) (468,956) (4,125,402) (3,744,877) Net operating profit for the year before 11,965,595 10,833,966finance costs Gain/(Loss) from investmentsRealised gain on sale of investment properties 802,214 406,360Movement on unrealised gain on 9 (24,279,124) 15,556,112revaluation of investment properties (23,476,910) 15,962,472Finance income/(costs)Interest receivable 5 365,875 741,207Interest payable and similar charges 6 (6,771,549) (5,851,906)Amortised debt issue costs 4 (256,910) (243,560)Fair value (loss)/gain on interest rate (288,286) 2,371,107swaps (6,950,870) (2,983,152) Net profit on ordinary activities before (18,462,185) 23,813,286taxation Taxation on net profit on ordinary activities 7 (121,809) (265,536) Net (loss)/profit for the year (18,583,994) 23,547,750 Dividend per share 6.50 p 5.66 p (Loss)/Earnings per share 8 (13.02 p) 17.48 p (diluted & basic) Group balance sheet as at 31 December 2007 As at 31 December As at 31 December 2007 2006 Notes £ £Non-current assetsInvestment properties 257,232,687 255,124,902Reverse lease premium 3,565,313 4,041,098 9 260,798,000 259,166,000Current assetsCash and cash equivalents 4,922,431 5,083,342Debtors 11 5,770,956 4,394,653 10,693,387 9,477,995Total assets 271,491,387 268,643,995 Current liabilitiesFinancial liabilities 12 (7,017,870) (6,050,201)Income tax payable (169,625) (466,890) (7,187,495) (6,517,091) Non-current liabilitiesBank loan 16 (125,754,332) (96,538,600)Debt issue costs 1,582,711 1,735,824Fair value of swap instrument 16 (183,432) 104,854Deferred tax 7 (348,488) - (124,703,541) (94,697,922)Net Assets 139,600,351 167,428,982 Represented by:Share capital 13 1,427,473 1,427,473Share premium 13 68,878,048 68,844,113Reserves 13 69,294,830 97,157,395 Shareholders' funds 139,600,351 167,428,982 Net asset value per share 97.80 p 117.29 p Group statement of changes in equity For the year ended 31 December 2007 Issued Revenue Total Share Reserve Capital Share Premium Other Reserve Notes £ £ £ £ £Opening at 1 January 2007 1,427,473 68,844,113 72,588,604 24,568,792 167,428,982Share issue expenses - 33,935 - - 33,935Net loss for the year - - 5,695,130 (24,279,124) (18,583,994)Current year crystallisation - - 304,510 (304,510) -of unrealised property gainsPrior year crystallisation of 397,322 (397,322) -unrealised property gainsDividends paid 17 - - (9,278,572) - (9,278,572) At 31 December 2007 1,427,473 68,878,048 69,706,994 (412,164) 139,600,351 Restated group statement of changes in equity (Interest rate swaps note 1)For the year ended 31 December 2006 Issued Share Share Revenue Other Total Capital Premium Reserve Reserve Notes £ £ £ £ £Opening at 1 January 2006 760,002 - 72,630,577 8,606,320 81,996,899Shares issued in the year 667,471 70,332,529 - - 71,000,000Share issue expenses - (1,488,416) - - (1,488,416)Net profit for the year - - 7,585,278 15,962,472 23,547,750Dividends paid 17 - - (7,627,251) - (7,627,251) At 31 December 2006 1,427,473 68,844,113 72,588,604 24,568,792 167,428,982 Group cash flow statement For the year ended 31 December 2007 Year to 31 Year to 31 December 2007 December 2006 £ £Operating activities Net operating profit for the period before finance costs 11,965,595 10,833,966Adjustment for: Increase in operating debtors (1,376,031) (50,429) Increase/(decrease) in operating creditors 667,684 (2,423,263) Reverse premium amortisation 475,785 486,785 11,733,033 8,847,059 Interest received 365,875 741,207 Interest paid (6,388,889) (6,627,542) Taxation paid (111,961) (96,205) Net cash inflow from operating activities 5,598,058 2,864,519 Investing activitiesPurchase of investment properties (36,826,941) (24,163,950)Purchase of subsidiary undertaking - (100)Cash acquired with subsidiary undertaking - 2,076,052Proceeds from sale of investment properties 11,288,674 3,113,816 Net cash outflow from investing activities (25,538,267) (18,974,184) Financing activitiesProceeds from issue of ordinary share capital - 71,000,000Share issue costs (4,065) (1,488,416)Loans from shareholders - (5,334,436)Drawdown of bank loans 30,164,482 -Repayment of bank loans (948,750) (38,340,000)Dividends paid (9,278,572) (7,627,251)Debt issue costs (153,797) - Net cash inflow from financing activities 19,779,298 18,209,897 Net increase in cash and cash equivalents (160,911) 2,100,232Opening cash and cash equivalents 5,083,342 2,983,110 Closing cash and cash equivalents 4,922,431 5,083,342 Notes 1 Principal accounting policies The principal accounting policies are summarised below. They have all beenapplied consistently throughout the year. Statement of compliance The consolidated financial statements have been prepared in accordance with theInternational Financial Reporting Standards issued by the InternationalAccounting Standards Board (the "IASB"), applicable legal and regulatoryrequirements of Guernsey Law and the Listing Rules of the UK Listing Authorityand the Channel Islands Stock Exchange. The company has not early adopted IFRS8 "Operating segments", which will enhancecertain disclosure requirements for periods commencing on or after 1 January2009. This will be implemented in 2009 and no significant impact on thefinancial statements is anticipated. Basis of preparation The financial statements have been prepared under the historical costconvention, except for the measurement at fair value of investment propertiesand interest rate swap agreements. Changes in accounting policy The accounting policies adopted are consistent with those of the previousfinancial year except as follows: The Group has adopted the following new and amended IFRS interpretations duringthe year. Adoption of these revised standards and interpretations did not haveany effect on the financial performance or position of the Group in the currentor prior periods. In certain cases, they did however give rise to additionaldisclosures. IFRS 7 Financial Instruments: Disclosures This standard requires disclosures that enable users of the financial statementsto evaluate the significance of the Group's financial instruments and the natureand extent of risks arising from those financial instruments. The newdisclosures are included throughout the financial statements. While there hasbeen no effect on the financial position or results, comparative information hasbeen revised where necessary. IAS 1 Amendment - Presentation of Financial Statements: Capital Disclosures This amendment requires the Group to make new disclosures to enable users of thefinancial statements to evaluate the Group's objectives, policies and processesfor managing capital. Significant accounting judgements, estimates and assumptions The preparation of the Group's financial statements requires management to makejudgements, estimates and assumptions that affect the reported amounts ofrevenues, expenses, assets and liabilities, and the disclosure of contingentliabilities, at the reporting date. However, uncertainty about these assumptionsand estimates could result in outcomes that could require a material adjustmentto the carrying amount of the asset or liability affected in the future. Judgements In the process of applying the group's accounting policies, management has madethe following judgements, apart from those involving estimations, which have themost significant effect on the amounts recognised in the financial statements: Operating lease commitments The Group has entered into commercial property leases as lessor of itsinvestment property portfolio. The Group has determined, based on an evaluationof the terms and conditions of the arrangements, that it retains all thesignificant risks and rewards of ownership of these properties and so accountsfor the contracts as operating leases. Estimates and assumptions The key assumptions concerning the future and other key sources of estimationuncertainty at the balance sheet date that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year are discussed below. Impairment of non-financial assets The Group assesses whether there are any indicators of impairment for allnon-financial assets at each reporting date. Impairment of trade and other debtors The Group tests for impairment of trade and other debtors when there areindicators that the carrying amounts may not be recoverable. The provision forimpairment of debtors comprises credit note provisions and allowances fordoubtful debts. In determining the recoverability of trade and other debtors theGroup considers any change in the credit quality and the recoverable amount ofthe debtor at the reporting date. Basis of consolidation The Group's financial statements consolidate the accounts of the Company and itssubsidiary undertakings drawn up to 31 December 2007. The results ofsubsidiaries acquired or sold are consolidated for the periods from or to thedate on which control passed. Acquisitions are accounted for under theacquisition method. Rental income Rental income is accounted for on a straight line basis over the lease term ofongoing leases and is shown net of any sales tax. Any premiums or rent-freeperiods are spread evenly over the terms of the lease. The presentation ofrental income has been restated in accordance with SIC 15 "Operating Leases -Incentives" and is shown net of the lease incentive charge of £475,785 (2006:£486,784) in the year. Expenses All expenses are accounted for on an accruals basis. The Group's assetmanagement and administration fees, finance costs (including interest on thebank facility) and all other expenses are charged through the Group incomestatement, with the exception of share issue expenses, which are charged to theshare premium account. Segmental reporting The directors are of the opinion that the Group is engaged in a single segmentof business, being that of a property investment business and substantially inone geographical area, the United Kingdom. Investment properties In accordance with IAS 40 (Revised), both long leasehold and freehold propertieshave been accounted for as investment properties. Investment properties are initially recognised at cost, being the fair value ofthe consideration given, including acquisition costs associated with theinvestment property. Subsequent costs, including reverse lease premiums, arecapitalised to the extent that such costs have an ongoing benefit to theproperty. After initial recognition, investment properties are measured at fair value,with unrealised gains and losses recognised in the Group income statement. Fairvalue is based on the open market value, at the balance sheet date, of theproperties as provided by Cushman & Wakefield, Healey & Baker, a firm ofindependent chartered surveyors, in accordance with the Practice Statements byCushman contained in the RICS Appraisal and Valuation Standards published by theRoyal Institution of Chartered Surveyors ('Red Book') in May 2003. The valuationhas been prepared by an appropriate valuer who conforms to the requirements asset out in the Red Book, acting in the capacity of external valuer. Cash and cash equivalents For the purposes of the Group cash flow statement, cash and cash equivalentsconsist of cash at bank. Taxation The Company is exempt from Guernsey taxation on income derived outside Guernseyunder the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annualfee of £600 is payable to the States of Guernsey in respect of this exemption.No Guernsey taxation will arise on capital gains. The directors intend to conduct the Group's affairs such that the management andcontrol of the Group is not exercised in the United Kingdom. Accordingly, theCompany and its subsidiaries will not be liable for United Kingdom taxation ontheir income or gains other than certain income deriving from a United Kingdomsource. The Company and its subsidiaries are subject to United Kingdom income tax onincome arising on the Property Portfolio after deduction of its allowable debtfinancing costs and its allowable expenses. Deferred income tax is provided, using the liability method, on all temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts for financial reporting purposes.Deferred income tax liabilities are measured at the tax rates that are expectedto apply to the period when the liability is settled, based on tax rates (andtax laws) that have been enacted or substantively enacted at the balance sheetdate. Deferred income tax assets are recognised to the extent it is probable thattaxable profit will be available against which those assets can be utilised. Bank loans, borrowings and debt issue costs All bank loans and borrowings are initially recognised at cost, being principalamounts received less debt issue costs paid. After initial recognition, allinterest bearing loans and borrowings are subsequently measured at amortisedcost. Amortised cost is calculated by taking into account any loan arrangementcosts and any discount or premium on settlement. Debt issue costs incurred in obtaining loan finance are recognised over theestimated life of the loan using the effective interest rate method and chargedto the income statement as part of interest expense. Interest rate swaps Interest rate swaps are used to reduce the Group's exposure to changes ininterest rates. Swaps are initially recorded at cost (being their fair value onacquisition), and are subsequently measured at fair value. Fair value iscalculated and provided by the HBOS Treasury plc. Changes in the fair value of interest rate swaps are recognised in the IncomeStatement as they arise. This represents a change in accounting policy -previously changes in fair value were recognised in equity within otherreserves. The policy has been changed due to the directors revoking the hedgeaccounting designation. Earnings per share Earnings per share have been calculated with reference to the weighted averagenumber of shares in issue during the year. Net asset value per share Net asset value per share has been calculated using the net assets of the Groupat the year end, and the number of shares in issue at the year end. Trade debtors Trade debtors, which are due on demand, are recognised and carried at the lowerof their original invoiced value and recoverable amount. Provision is made whenthere is objective evidence that balances will not be recovered in full. Baddebts are written off when identified. 2 Staff and directors' fees The Group did not employ staff during the year. For the year ending 31 December2007 directors' fees of £102,500 (2006 £81,581) accrued to Ms Burton and MessrsFish, Bould, Renny and Parkinson. On 10 January 2008 the Board resolved toreduce the directors' fees payable to each director to £24,000 per annum witheffect from 1 April 2008. 3 Property outgoings and other expenses During the year the Group incurred £1,100,468 (2006: £1,170,275) propertyoutgoing costs and £745,191 (2006: £468,956) of other expenses that did notgenerate rental income. Included within these costs is the provision ofimpairment of trade receivables of £198,656 (2006: £252,203). During the year,the Group incurred £44,498 (2006: £63,708) of audit fees and £86,389 (2006:£79,977) of non-audit fees. 4 Debt issue costs During the year £103,018 (2006 £1,193,404) of costs were incurred arrangingexternal debt facilities. Debt issue costs are amortised over the loan periods.During the year £256,910 (2006 £243,560) was amortised to the group incomestatement. 5 Interest receivable Year ended 31 Year ended 31 December 2007 December 2006 Group Group £ £Bank interest receivable 361,313 741,207Other interest receivable 4,562 - 365,875 741,207 6 Interest payable and similar charges Year ended 31 Year ended 31 December 2007 December 2006 Group Group £ £Bank loan interest and charges 6,771,549 5,851,906Interest payable before debt issue cost amortisation 6,771,549 5,851,906 7 Taxation(a) Tax on profit on ordinary activities Year ended 31 Year ended 31 December 2007 December 2006Current income tax: £ £UK Income Tax (137,280) 265,536Adjustments in respect of prior years (89,399) - (226,679) 265,536 Deferred Tax:Origination and reversal of timing differences 348,488 -Total deferred tax 348,488 - Tax charge in the income statement 121,809 265,536 (b) Reconciliation of the total tax charge A reconciliation of the tax charge applicable to the net (loss)/profit on ordinary activitiesbefore income tax at the UK statutory income tax rate (as most income derives from UK trading) forthe year ended 31 December 2007 is as follows: Year ended 31 Year ended 31 December 2007 December 2006 Group Group £ £Net (loss)/profit before income tax (18,462,185) 23,813,286At UK statutory income tax rate of 22% (4,061,681) 5,238,923Income not taxable (80,493) (61,156)Guernsey income taxable rate at 20% (4,706) (5,826)Permanent differences - disallowed items 109,259 60,721Intercompany loan interest (979,515) (933,739)Capital gains and losses not taxable 5,228,344 (4,033,387)Current income tax adjustment in respect of prior years (89,399) - Total tax expense reported in the income statement 121,809 265,536 (c) Factors affecting future tax charge The deferred tax provision arises due to accelerated capital allowances.However, it is the Group's experience that such timing differences do notreverse since, when investment properties are sold an election is made totransfer the plant and machinery at its tax written down value. Accordingly,the deferred tax provision is not an indication of the actual tax that the Groupmay have to pay. 8 Earnings Per Share The calculations of earnings per share are based on the following profits and numbers of shares. 31 December 2007 31 December 2006 £ £(Loss)/Profit for the period attributable to members of (18,583,994) 23,547,750parent company used to calculate basic earnings per share 2007 2006 Number NumberWeighted average number of shares for basic and diluted 142,747,300 134,701,073earnings per share 9 Investment propertiesGroup Freehold Long Leasehold TotalCost £ £ £At 1 January 2007 217,902,850 10,793,366 228,696,216Additions during the year at cost 30,731,677 6,141,692 36,873,369Disposals during the year at cost (10,181,951) - (10,181,951)Cost at 31 December 2007 238,452,576 16,935,058 255,387,634RevaluationAt 1 January 2007 246,711,000 12,455,000 259,166,000Additions during the year at cost 30,731,677 6,141,692 36,873,369Disposals during the year at valuation (10,486,460) - (10,486,460)Reverse lease premium (450,691) (25,094) (475,785)Revaluation movement in the year (23,202,526) (1,076,598) (24,279,124)Valuation at 31 December 2007 243,303,000 17,495,000 260,798,000 Valuation at 31 December 2007 243,303,000 17,495,000 260,798,000Adjustment for lease incentive 72,000 - 72,000Market valuation per external valuation 243,375,000 17,495,000 260,870,000 Group Freehold Long Leasehold TotalCost £ £ £At 1 January 2006 118,987,539 7,227,005 126,214,544Additions during the year at cost 101,583,457 3,566,361 105,149,818Disposals during the year at cost (2,668,146) - (2,668,146)Cost at 31 December 2006 217,902,850 10,793,366 228,696,216RevaluationAt 1 January 2006 132,110,000 9,505,000 141,615,000Additions during the year at cost 101,583,457 3,566,361 105,149,818 Disposals during the year at cost (2,668,146) - (2,668,146)Reverse lease premium (461,111) (25,673) (486,784)Revaluation movement in the year 16,146,800 (590,688) 15,556,112Market valuation at 31 December 2006 246,711,000 12,455,000 259,166,000 Cushman & Wakefield Healey & Baker, a firm of independent chartered surveyors,completed a valuation of the properties at the year end on an open market basisin accordance with the Practice Statements contained in the RICS Appraisal andValuation Standards published by the Royal Institution of Chartered Surveyors('Red Book') in May 2003. The valuation has been prepared by an appropriatevaluer who conforms to the requirements as set out in the Red Book, acting inthe capacity of external valuer. In addition to the Cost of the investment properties, the Group paid £4,687,846in 2005 in respect of a reverse lease premium and associated costs for a numberof properties. This allowed the Group to renegotiate the terms of the leases,thereby improving the ongoing value of the properties. These costs have beencapitalised as shown in the Balance Sheet. The reverse lease premium is to beamortised over 10 years. For the year ended 31 December 2007 £475,785 (2006: £486,784) has been amortisedto the Income Statement. The remaining capitalised amount is £3,565,313 (2006:£4,041,098). 10 Business Combinations Acquisitions in prior year On 17 February 2006 the Group acquired the entire issued share capital of TOPPHoldings Limited ("TOPP"). TOPP is a property investment business based inGuernsey, with the same investment objectives as the Group. The investment inTOPP has been included in the Group's balance sheet at its fair value at thedate of acquisition. The year end results of the Group include the results ofTOPP since the acquisition date. The fair values of the identifiable assets and liabilities at the date of acquisition were: Book Fair value Value adjustment TOTAL £ £ £Investment properties 79,215,000 1,809,924 81,024,924Receivables 1,972,501 - 1,972,501Cash at bank 2,076,052 - 2,076,052Bank loans (75,623,197) - (75,623,197)Loan notes (5,334,436) - (5,334,436)Current liabilities (4,115,844) - (4,115,844)Net assets on acquisition (1,809,924) 1,809,924 - The fair value adjustment is to restate the investment properties at their fair value. During the year ended 31 December 2007 TOPP has contributed £2,464,877 (17February 2006 - 31 December 2006: £1,334,723) to the profit after tax of theGroup. 11 Debtors 31 December 2007 31 December 2006 £ £Trade debtors 1,228,325 1,705,645Other debtors 4,193,897 2,470,159Prepayments 239,502 218,849Accrued income 109,232 - 5,770,956 4,394,653 Trade debtors are non-interest bearing and are generally payable on demand.These are shown net of a provision for impairment. An estimate for doubtfuldebts is made when collection of the full amount is no longer probable. Baddebts are written off when identified. As at 31 December 2007, trade debtors atnominal value of £198,656 (2006: £252,203) were impaired and fully provided for.Movements in the provision for impairment of trade debtors were as follows: 31 December 2007 31 December 2006 £ £At 1 January 252,203 69,983Charge for the year 126,228 182,220Amounts written off (179,775) -At 31 December 198,656 252,203 As at 31 December, the analysis of trade debtors that were past due but notimpaired is as follows: Past due but not impaired Total 120 days £ £ £ £ £ £2007 1,228,325 119,284 790,331 90,520 32,267 195,9232006 1,705,645 1,207,575 109,210 430 1,469 386,961 12 Financial liabilities 31 December 2007 31 December 2006 £ £Trade creditors 3,630 -Rents received in advance 3,923,646 3,326,685Other creditors 287,713 149,091VAT 526,456 446,271Accrued bank interest payable 1,266,235 883,575Other accruals 1,010,190 1,244,579 7,017,870 6,050,201 13 Called up share capital and reserves 31 December 2007 31 December 2006Authorised £ £Ordinary shares of £0.01 each 1,750,000 1,750,000 1,750,000 1,750,000Allotted, called up and fully paidOrdinary Shares of £0.01 each 1,427,473 1,427,473 1,427,473 1,427,473 Share premium This reserve can only be used for bonus issues and to write off preliminaryexpenses, or expenses of, or commissions paid on, or discounts allowed on, anyissues of shares of the company. Revenue reserve Any surplus arising from the net profit on ordinary activities after taxation,any profit/loss on the sale of investment properties, payment of dividends,realised gains and losses on the disposal of investment properties and gains andlosses in the fair value of hedging instruments are taken to this reserve. Other reserve This reserve is used to record increases or decreases in the fair value ofinvestment properties held at the year end. 14 Related party transactions The Group has undertaken transactions with companies related by virtue of theirshareholding in Teesland Advantage Property Income Trust Limited. Valad Asset Management (UK) Limited, a subsidiary company of Valad Holdings (UK)plc, charged the Group property fund adviser's fees of £2,279,743 (2006:£2,105,646) in the year. As at 31 December 2007, Valad Asset Management (UK)Limited was owed £584,513 (2006: £562,254). 15 Obligations under leases The Group holds retail, office, industrial and leisure buildings as investmentproperties which are let to third parties. These are non-cancellable leases andthe average unexpired lease term across the portfolio is 6.44 years as at 31December 2007. The majority of leases include a provision for five-yearly upwardrent reviews according to prevailing market conditions. The income based on the unexpired lease length at the period end onnon-cancellable operating leases was as follows (based on annual rents). 31 December 2007 31 December 2006 Group Group £ £Less than one year 848,548 724,722Between two and five years 12,315,168 9,587,637Over five years 105,905,356 108,275,789Total 119,069,072 118,588,148 16 Financial Instruments The Group's investment objective is to provide ordinary shareholders with a highlevel of income together with the prospect of income and capital growth frominvesting in commercial property. The Group's financial instrumentsprincipally comprise borrowings and related interest rate swaps and cash, aswell as having debtors and creditors that arise directly from its operations.The Group also holds commercial property investments. The Group has not enteredinto any derivative transactions during the year under review other thaninterest rate swaps as described below. As rental income is relatively stable, changes in interest rates would directlyimpact upon the Group's profit. Therefore fixed interest rate swaps have beenused to reduce the Group's exposure to changes in interest rates. The swapcontracts are designated as a hedge for £43.8 million of the total loan facilityof £98.32 million for cash flows from 5 May 2005 to 17 February 2015. The main risks arising are credit risk, market price risk, liquidity risk andinterest rate risk. The Board reviews and agrees policies for managing its riskexposure. These policies are summarised below and have remained unchanged forthe period under review. Credit Risk Credit risk is the risk that an issuer or counterparty will be unable orunwilling to meet a commitment that it has entered into with the Group. The riskis mitigated by the Company by billing rents in advance of the tenancy period.In the event of default by an occupational tenant, the Group will suffer arental shortfall and incur additional costs including legal expenses, inmaintaining, insuring and re-letting the property until it is re-let. The Boardreceives regular reports on concentrations of risk and any tenants in arrears.The Property Fund Adviser monitors such reports in order to anticipate, andminimise the impact of, defaults by occupational tenants. The maximum credit risk from rent receivables of the Group at 31 December 2007is £1,228,325 (2006 £1,705,645). 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 riskarises from default of the counterparty with a maximum exposure equal to thecarrying value of these instruments. There are no significant concentrations ofcredit risk within the Group. Market price risk The Group's exposure to market price risk is comprised mainly of movements inthe value of the Group's investments in property. The Group's investmentportfolio is managed within the investment parameters set out in the Company'sprospectus. Liquidity risk Liquidity risk is the risk that the Group will encounter in realising assets orotherwise raising funds to meet financial commitments. The Group's investmentsprincipally comprise UK commercial property. Property and property relatedassets are inherently difficult to value due to the individual nature of eachproperty. As a result, valuations are subject to substantial uncertainty. Thereis no assurance that the estimates resulting from the valuation process willreflect the actual sales price even where such sales occur shortly after thevaluation date. In certain circumstances, the terms of the Group's bank loanentitle the lender to require early repayment and in such circumstances theGroup's ability to maintain dividend levels and the net asset value attributableto the ordinary shares, could be adversely affected. The table below summarises the maturity profile of the Group's financialliabilities at 31 December 2007 based on contractual undiscounted payments. Year ended 31 December 2007 On demand Less than 3 3 to 12 1 to 5 years Over 5 years Total months months £000 £000 £000 £000 £000 £000Bank loan - - - - 125,754 125,754Interest rate swap - - - - 183 183 - - - - 125,937 125,937 Year ended 31 December 2006 On demand Less than 3 3 to 12 1 to 5 years 5 years Total months months £000 £000 £000 £000 £000 £000Bank loan - - - - 96,539 96,539Interest rate swap - - - - - - - - - - 96,539 96,539 Interest rate risk The Group's exposure to interest rate risk relates primarily to the Group'slong-term debt obligations. The Group's policy is to manage its cost ofborrowing using a mix of fixed and variable rate debt. To manage this the Groupenters into interest rate swaps, in which the Group agrees to exchange, atspecified intervals, the difference between fixed and variable interest amountscalculated by reference to an agreed-upon notional principal. At 31 December,after taking into account interest rate swaps, approximately 65% of the Group'sborrowings were at a fixed rate of interest (2006: 85%). The interest rate profile of the Group at 31 December 2007 was as follows: Interest Maturity 31 December 2007 31 December 2006 rate £ £Bank of Scotland - Senior facility 0.79% * More than 5 years 44,493,082 14,328,600LIBOR +Bank of Scotland SWAP 5.94% ** More than 5 years 22,000,000 22,000,000Bank of Scotland SWAP 5.925% ** More than 5 years 21,800,000 21,800,000CapMark Bank Europe plc 5.24% *** More than 5 years 30,051,250 31,000,000CapMark Bank Europe plc 5.425% **** More than 5 years 7,410,000 7,410,000 125,754,332 96,538,600 * The senior bank facility attracts interest at floating rate, and is held for 10 years from 27 January 2005. ** The Company purchased two swaps to fix the interest from 15 March 2005 until 17 February 2015. *** The senior bank facility attracts interest at a fixed rate and is held until 18 January 2013. **** The senior bank facility attracts interest at a fixed rate and is held until 18 January 2013. Interest rate risk table The following table demonstrates the sensitivity to a reasonably possible changein interest rates, with all other variables held constant, of the Group's profitbefore tax (through the impact on floating rate borrowings). There is no impacton the Group's equity. Increase/decrease in Effect on profit basis points before tax2007 +25 £(76,010) -25 £ 76,0102006 +25 £(35,660) -25 £ 35,660 Fair values of financial assets and financial liabilities Set out below is a comparison by category of carrying amounts and fair values ofall the Group's financial instruments that are carried in the financialstatements. Book value Fair value 2007 2006 2007 2006 £ £ £ £Financial assetsCash 4,922,431 5,083,342 4,922,431 5,083,342 Financial liabilitiesInterest bearing loans and borrowings:Floating rate borrowings 44,493,082 14,328,600 44,493,082 14,328,600Fixed rate borrowings 81,261,250 82,210,000 81,261,250 82,210,000Interest rate swap 183,432 (104,854) 183,432 (104,854) Loans and receivables It is the present intention of the Directors that the Group will operate longterm borrowings equal to approximately 40 to 50 per cent of the Group's grossassets and that the aggregate of all borrowings of the Group will be limited to50 per cent of the Group's gross assets. As at 31 December 2007 TAPP Property Limited maintained a facility with the Bankof Scotland of up to £98,320,000 under which an aggregate principal amount of£88,293,083 had been drawn down. This facility is repayable on or before 27January 2015 and is secured by fixed and floating charges over the assets of theGroup (the "HBOS Facility"). Under the terms of the HBOS Facility the percentage of the Term Loan to themarket value of the properties in which the Group has an interest shall not begreater than 55%. As at 31 December 2007 TOPP Property Limited maintained a facility with CapMarkBank Europe plc of £37,461,250 which has been fully drawn down. £30,051,250 ofthis amount is fixed at a rate of 5.24% and £7,410,000 is fixed at 5.425%. Fair values At 31 December 2007, the fair value of the Swaps was valued at a deficit of£183,432 (2006: surplus £104,854). The valuation of the Swaps was provided bythe HBOS Treasury plc, and represents the change in fair value since execution. 17 Dividends and other appropriations 31 31 December 2007 December 2006 £ £ Declared and paid during the year - Equity dividends on ordinary shares: Fourth Interim dividend for 2005: 1.625p 1,235,003 First Interim dividend for 2006: 1.625p 1,752,960 Second Interim dividend for 2006: 1.625p 2,319,644 Third Interim dividend for 2006: 1.625p 2,319,644 Fourth Interim dividend for 2006: 1.625p 2,319,643 First Interim dividend for 2007: 1.625p 2,319,643 Second Interim dividend for 2007: 1.625p 2,319,643 Third Interim dividend for 2007: 1.625p 2,319,643 9,278,572 7,627,251 Declared during the year - Equity dividends on ordinary shares: Fourth Interim dividend for 2007 / 2006: 1.625p 2,319,643 2,319,643 A pdf version of the annual financial report will be available for download fromthe Company's web-site www.tapincome.com on 30 April 2008. 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