Value and Indexed Property Income

VALUE AND INDEXED PROPERTY INCOME TRUST PLC

ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED 31 MARCH 2021

 

Chairman's Statement

 

Value and Income Trust PLC (VIT) became Value and Indexed Property Income Trust PLC (VIP) in January 2021 following the approval by Shareholders of the proposals put to the General Meeting. The main change was to the investment policy of the Company: this is now to invest predominantly in commercial property. The appearance of the Annual Report has altered to reflect this and the Property Manager's Report gives details of the implementation of the policy so far.

 

Good progress has been made in buying properties on long leases with index-linked rent reviews and negotiations on several more opportunities are well advanced. The increased property portfolio, together with the prior year refinancing of the 2021 debenture, which was paid off on 31 March 2021, provides a good foundation for rebuilding cover for our dividend and for future growth. The secured term loan of £22 million now runs until 31 March 2031 mainly at a fixed annual rate of 3.2%.

 

Many of the Company's index-linked leases provide for maximum and minimum increases at future rent review, often described as 'caps and collars'. The Financial Statements have been prepared under IFRS (International Financial Reporting Standards). IFRS 16 requires that these minimum increases, which may arise only many years in the future, are averaged over the whole life of the lease. The effect is that the reported revenue return for the year to 31 March 2021 exceeds by £345,000 the rent actually falling due in that year.

 

The Board has decided that, in line with the general practice of property companies, all management expenses should be charged to the revenue account. Until March 2021, the Company had, in common with many investment companies, charged a percentage to capital, in our case 70%. The effect of this change will be to reduce the reported revenue by an estimated £735,000.

 

The Board is recommending a final dividend of 3.6p per share, making total dividends of 12.3p per share for the year to 31 March 2021 compared to 12.1p per share in the previous year, an increase of 1.7%. Subject to Shareholder approval at the Annual General Meeting (AGM), the final dividend will be paid on 30 July 2021 to Shareholders on the register on 2 July 2021. The ex-dividend date is 1 July 2021. It will be the 34th year of dividend increases following the reconstruction of the Company. In the short term, this will require some use of our distributable capital reserves.

 

In the medium term, however, the Board will aim to ensure that the dividend is paid from rents and dividends received (after interest costs and management expenses) and that the indexed leases permit future increases at least in line with inflation.

 

Net Asset Value total return (with debt at par) and Share Price total return are considered by the Board to be Alternative Performance Measures (APMs) as explained further in the Business Review in the Annual Report and defined in the Glossary. Over the year, the Net Asset Value total return (with debt at par) was 12.3% (2020: -21.8%) and the Share Price total return was 39.3% (2020: -30.7%). This compares with the FTSE All-Share Index total return of 26.7% (2020: -18.5%). The total return from the equity portfolio was 26.6% (2020: -23.7%) and from the property portfolio was 2.3% (2020: 6.3%) (the MSCI UK Quarterly Property Index total returns were 0.9% and -0.6%). From 1 April 2021, our performance benchmark has changed from the FTSE All-Share Index to the MSCI UK Quarterly Property Index, to reflect the change in investment policy.

 

As provided for in the Circular issued to Shareholders in December 2020, there will be an opportunity in the future for Shareholders who wish to sell their shares to do so at Net Asset Value less costs. The Board's intention is to table a proposal at the AGM to be held in 2026.

 

The Company bought back its own shares for the first time, starting at a price of 196.2p in January 2021 and ending in late February at a price of 220p, one month before the year-end property revaluation. The discount of the Share Price to Net Asset Value narrowed by 9 percentage points over that period.

 

As noted in previous statements, the difference between the fair value and the nominal value of our debenture stock and our secured loans is reducing over the life of the debenture which will be repaid at its nominal (par) value. The figures are set out in Note 17 to the Financial Statements in the Annual Report. The debenture has covenants attached to it and further information is included in Note 12; there is plenty of headroom in terms of both capital and income.

 

The change in investment policy has caused us to consider the composition of the Board. The reduction in the equity portfolio and greater emphasis on property means that Dominic Neary will retire following the conclusion of the AGM. We are very grateful for his contribution to the development of VIP. I shall also retire during the course of the next year.

 

Due to the uncertainty over the timing of the lifting of all COVID restrictions and the social distancing measures required, this year's AGM will be held once again in the offices of Maven Capital Partners UK LLP, Kintyre House, 205 West George Street, Glasgow G2 2LW on Friday, 23 July 2021 at 12.30pm. Due to social distancing measures, Shareholders will be unable to attend the AGM in person. The Notice of Annual General Meeting can be found in the Annual Report. The Board encourages Shareholders to vote using the Proxy Form, which can be submitted to Computershare, the Company's Registrar. Proxy Forms should be completed and returned in accordance with the instructions thereon and the latest time for the receipt of Proxy Forms is 12.30pm on Wednesday, 21 July 2021. Proxy votes can also be submitted by CREST or online using the Registrar's Share Portal Service at www.investorcentre.co.uk/eproxy. The Board would also encourage Shareholders to submit any questions for the Board and Manager by email or by letter in advance of the AGM. Shareholders wishing to submit a question should write to: The Company Secretary, Value and Indexed Property Income Trust PLC, First Floor, Kintyre House, 205 West George Street, Glasgow G2 2LW or by email to: [email protected].

 

James Ferguson

Chairman

 

22 June 2021

 

 

Summary of Portfolio

 

	31 March 2021		31 March 2020
	£m	%	£m	%
UK Equities	28.6	16.1	90.8	51.5
UK Property	81.1	45.7	74.5	42.3
Cash	67.9	38.2	10.9	6.2
	177.6	100.0	176.2	100.0

 

 

Property Portfolio

 

The Market

 

UK commercial property values fell by 6% on average in 2020 giving a total return of -2%. Overall capital values have now stopped falling and may produce a positive total return of 5% - 7% over 2021. But these averages mask key structural changes in property which the COVID crisis has made faster and deeper. We expect a K-shaped recovery for both property and the UK economy, with some sectors emerging stronger from the crisis and others in serious structural decline. In the upward arm of the "K", warehouse/industrial property, supermarkets, convenience stores and some non-traditional "alternative" property types will outperform offices, (particularly London) and non-food retail, (particularly High Street shops and shopping centres) for the foreseeable future. The five-day office commute is as dead as Debenhams and even the four-day commute is an endangered species. Rising office vacancy rates and a flood of major office occupiers announcing they are downsizing should soon start showing up more clearly in office property valuations. Tenants exercising break clauses and surrendering or subletting surplus space will soon provide stark evidence of falling office rents.

 

The MSCI UK Quarterly Property Index, the most representative measure of the performance of institutional investment property portfolios, showed a total return of -2.3% over 2020 as a whole. Estimated rental values fell by 3% with further declines clearly in the pipeline for offices and non-food retail as vacancies rise and rents fall. Capital values bottomed out overall in the first quarter of 2021 with further gains on industrial/warehouse offsetting retail and office declines. Differential sector movements have been dramatic, as this summary of capital value changes shows:

 

Capital Value % Changes Year to March 2021

 

Supermarkets	+3.6
Non Food Retail	-15.7
Offices	-4.5
Industrial/Warehouse	+9.6
Leisure	-8.9
ALL PROPERTY	-3.2

 

UK Commercial Property - Average Annual % Growth Rates to March 2021

 

	6 Months	1 Year	3 Years	5 Years	10 Years
Capital Values	+0.8	-3.5	-2.9	-0.9	+1.7
Rental Values	1.6	-2.9	-1.2	+0.0	+0.9
Total Returns	+5.4	+0.9	+1.5	+3.8	+6.9

Source: MSCI Quarterly Index - Annualised

 

Until five years ago all the main UK commercial property sectors used to rise and fall in value together, albeit at different speeds. But no longer - retail property values have now plumbed new depths below the bottom of the property crash in 2009 - and are clearly heading lower still as a torrent of Company Voluntary Agreements (CVAs) washes away the traditional institutional lease for non-food retail property. Warehouse/industrial property, by contrast, has more than doubled in capital value over the past decade, and capital and rental values have been rising rapidly in recent months as the COVID explosion of online retail shatters shopping centres and traditional high streets.

 

Total commercial property transaction volumes since March 2020 have been running far below normal levels, with Central London office sales and lettings both below their nadir in 2009, along with shopping centres and High Street retail. Leisure and alternative sector transactions have also been few and far between. But turnover in the strongest sectors, industrials and supermarkets, is running above pre-pandemic averages. Meanwhile property void rates are clearly heading much higher, up from 8.2% to 9.8% over the past year (and 13.1% to 16.6% on offices).

 

Property investors have had to work hard to ensure tenants pay their rent where they can, agree phased payment plans with tenants who are basically sound but temporarily closed, and judge which weaker tenants really cannot pay. Average lease lengths in property are now shortening further, with multiple break clauses. Non-food retailers are typically only prepared to renew or take new leases at turnover-related rents, with most office occupiers now demanding ever shorter and more flexible leases. Open market rent review uplifts will be very rare over the next two or three years, except on industrials.

 

The Government, under tenant pressure, has repeatedly suspended landlords' traditional tools for enforcing rent collection - eviction orders, use of Commercial Rent Arrears Recovery (CRAR) bailiffs and statutory demands for winding up. The latest extension is until end March 2022, with no clarity as to what will follow. Unless the Government extends business rates relief past that date, many weaker retail and hospitality tenants will simply be unable to pay their rent, whether the landlords have the power to collect it or not. The Government's Code of Practice for Commercial Property is utterly unbalanced because it allows well-funded tenants like Boots or JD Sports just to refuse to pay their rent. Well-advised, robust landlords are however now selectively and effectively using County Court Judgements (CCJs) to collect rent from persistent but solvent late payers.

 

Warehouse/Industrial Property - in Growing Demand

 

Warehouse/industrial property has enjoyed an historic re-rating in recent years, so that it is now valued at a significantly keener yield than offices or retail property, reflecting its better rental and capital growth prospects. It is the only sector to have recorded rental growth over the past year, and with vacancy rates low and tenant demand strong, that trend looks set to continue throughout 2021. Driven by the explosion of online retailing, 2020 saw the highest ever take up of logistics "big boxes" at 35.8 million square feet, 64% above 2019. Well-let and well-located industrial and warehouse property in all sizes from logistics "big boxes" on motorway junctions to "last mile" urban sheds and estates of smaller units in prosperous areas should all continue to outperform, however, tenant failures and rising unemployment are starting to raise vacancy rates on some multi-let industrial estates, especially in the North.

 

Offices - Depreciation and Decline

 

The key strategic question now for UK commercial property is the future of office investments in general, and highly valued and rented London offices in particular. Their long-term performance has broadly tracked the market as a whole, as measured by the MSCI UK Quarterly Property Index, but with more volatility. OLIM Property believes they are now suffering serious structural damage, with falling rental values and lower net demand. There is still a future demand for city centre offices, but for more limited space for meeting, training and marketing purposes rather than where most employees travel to work on most days.

 

Great swathes of mid and back-office work are now being done mainly from home or partly at low cost non-city centre locations. Cost reduction will be tenants' top priority with break clauses exercised in most cases and tenants demanding considerable capital expenditure from landlords to induce them to stay, even in less space. More functional obsolescence and depreciation will therefore need to be factored into most office valuations, leading to further rises in most office valuation yields and substantial falls in capital values to reflect lower effective net rents and greater re-letting risk. A host of the largest UK office occupiers from Nationwide, Lloyds and Santander to Aviva, Unilever, BP, Capita and the large accountancy firms have been announcing their decisions to close offices and move large parts of their workforce to a hybrid or even wholly home- based work model. Even though there will still be some prestige occupiers for premium office space, very few will want more space than they have already and most will want less.

 

Non-Food Retail - Further to Fall

 

Many retailers in high streets and shopping centres were already on their last legs before COVID; online retail sales peaked at 36% during lockdown, up from 20% a year ago and only 14% five years ago. Many non-food retail properties must now be valued simply at their site value for alternative use, usually well below the former retail value. Some leasehold shopping centres may now even have negative value because outgoings exceed the rents collected. Retail warehouse rents have also been under downward pressure but their capital values are now edging ahead in more prosperous areas, particularly if they are next to supermarkets or have good alternative use values whether for industrial or distribution purposes, low-rent food stores e.g. for Aldi or Lidl, or even residential development.

 

On the high street, the steepest and most significant falls now in property values are happening in Central London and other large city centres dependent on intensive commuting and overseas tourists. Unfair business rates had already crippled urban high streets in less prosperous parts of the UK and the Government keeps kicking the rates reform can down the road. Suburbs and market towns with more affordable rents and an attractive mix of convenience and independent traders will prove more resilient.

 

Food Retail - Winning Through and After the Crisis

 

Supermarkets and convenience stores (including petrol filling stations), have had a good crisis, often with increases of 20%-30% in their turnover, much of which they should still retain even after COVID-related lockdowns are past, with more working from home. The market leaders are better at combining physical and online retailing than most non-food retailers; and M&S Foods' alliance with Ocado now looks especially well timed. But on-line penetration remains far lower than in non- food retail, and many consumers still prefer the choice and convenience of their local food shop, where the Co-op is uniquely well placed. More money will be spent nearer home.

 

Non-Traditional Alternatives - Stick to Well-Funded Strong Survivors

 

Property in the "Alternatives" sectors - i.e. everything except office, industrial or retail - has been growing rapidly in importance for institutional investors in recent years and now accounts for over 16% of the MSCI UK Quarterly Property Index. It covers a very wide range of property types and tenants, with some being hit much harder than others by COVID.

 

Most alternative sector investments have long, often indexed, leases, so the tenant's ability to pay is crucial for valuation purposes. Some shakier operators may never reopen after the early 2021 lockdown, but the strong and well- capitalised, trading off affordable rents, should benefit from weaker competitors being squeezed out. Alternative investments should therefore resume their outperformance of non-food retail and offices after the pandemic but with strong survivor bias and wide variations between different sub-sectors, as outlined below.

 

Alternatives - Leisure and Hotels - Small Towns and Countryside Gain from Working from Home

 

Well-let pubs are safer investments than restaurants, where many private-equity backed multiple chains were already drowning in debt pre-COVID. The leading pub companies, like Greene King and Wetherspoons, as well as most traditional regional brewers, have strong balance sheets with plenty of freehold assets and borrowing capacity. Profitable, spacious pubs, with plenty of outside space let to strong tenants, traded well when they were open last summer and autumn, with many reporting record trading even after the Eat Out to Help Out subsidy ended in August. Pubs of this type in suburban, small town and rural locations rather than city centres have traded exceptionally well again outside since 12 April 2021, whatever the weather. With far fewer of their customers holidaying abroad this summer they should be both short and long-term winners from changing work patterns.

 

Unlike most retail spending, a visit to a pub, especially a food-led pub like many institutionally-owned managed houses, cannot really be replicated on-line. Many pubs are also underpinned by alternative, usually residential use value, because they were built to serve customers living nearby. Meanwhile the well-established trend of smaller pubs closing and larger and better-run pubs gaining market share will speed up fast.

 

Health and Fitness clubs have also reported generally encouraging results since they have been able to re-open, especially on large out of town sites with good car parking near where customers are often able to work from home.

 

The two main ten pin bowling companies both also traded well when allowed, but bingo halls and cinemas face a difficult future as repeated lockdowns drive more of their older customers online to the likes of Netflix and Amazon Prime. Rents will need to fall and niche local cinemas in smaller towns may do better than mass market over-indebted operators like Cineworld in town centres and leisure parks.

 

Hotel values may also diverge sharply. City centre and airport hotels serving overseas visitors and big corporate customers will continue to underperform hotels in smaller towns and rural areas serving British holidaymakers and businesses. Covenant strength will also be key, with Premier Inn (the £6.2 billion market capitalised Whitbread plc) preferred to over-indebted operations like Travelodge.

 

Alternatives - Student Accommodation and Care Homes - Covenant Strength is Key

 

Student accommodation still faces challenges, but students are now gradually returning to more normal learning, with most universities reopening fully in May. Investments let directly to the best universities on long leases should benefit from a general flight to safety but some weaker universities and colleges may struggle. Individually let student flats may suffer from general weakness in the residential letting market in 2021, especially in city centres like London where the population has clearly fallen over the past year.

 

COVID has hit care homes hard. Costs and vacancy rates have risen because of more deaths, slower admissions and Brexit-related staff shortages, while private-equity backed care home providers need more equity and lower rents. High quality homes with self-funded residents will continue to outperform those dependent on public funding. Medical centres and private hospitals will stay in demand.

 

The Economy

 

2020 showed the sharpest full year drop in UK GDP since 1921, at nearly 10%. Government expenditure as a share of GDP is the highest since 1945 and Government debt has risen to over 100% of GDP with the ONS estimating the furlough scheme will cost the Exchequer over £60 billion. With many businesses now deep in debt and struggling to survive the latest lockdown, many "Bounce Back" loans will also have to be written off and unemployment may rise to over 5% when the furlough scheme comes to an end, as it must, to protect the public finances. Britain's excellent progress on mass vaccination should provide a welcome insurance policy against further nationwide lockdowns; but overseas travel, for business or holidays will be well below pre-pandemic levels so long as high infection rates and new variants continue in so much of the world.

 

The UK was the hardest hit country in the G7 last year, with higher rates of COVID infections and deaths and deeper losses of output and jobs. After GDP fell by 20% in the second quarter, it recovered very strongly in the third quarter and again in March 2021. There should be a strong recovery in 2021, maybe by as much as 7% helped by pent-up, although potentially unbalanced, consumer spending by lockdown beneficiaries, and reassuring leadership and massive economic stimulus in the United States.

 

The UK economy underperformed in the crisis for two main reasons - initial Government delays in crisis management and an exceptionally large service sector. There had been hopeful signs as retailing, hospitality and domestic tourism re-opened over the summer, along with construction and parts of manufacturing. But mechanistic economic models may underestimate the unequal impact of the pandemic with poorer people typically hardest hit, and the long-term scarring left by so many people losing their jobs and small businesses going under. Post-Brexit trade friction remains a problem. In 2020, 180,000 people lost their jobs in retail and 2021 will see widespread job losses in many sectors as short-term subsidies run down. Consumer confidence is high but the recovery will inevitably be unbalanced, with some less skilled workers unable to work from home and able to afford essentials only, especially in post-industrial parts of Britain. Meanwhile savings have shot up for many consumers, mainly the better-off, who have done well in the pandemic and have potential spending power which could push prices of some goods and services up quite sharply. Inflation rates are clearly now rising as economies recover, with a sharp jump in the UK annual rates to 2.1% for the CPI and 3.3% for the RPI in May 2021.

 

The Treasury will soon have to start withdrawing some of their exceptional crisis spending splurge. The Bank of England's vast asset purchases since 2019 mean that one third of all gilts are owned by the Bank, reducing their effective maturity from 11 to only 4 years. This highlights the risks of letting the public sector deficit rise further if it has to be financed by borrowing at significantly higher interest rates in the years ahead.

 

Conclusion - Stay Safe with Indexed Income as Economic Risks Grow

 

UK commercial property capital values should make modest gains overall this year. Offices and non-food retail will keep falling with industrials, supermarkets and convenience stores gaining in capital value, as well as some well-let alternative sector investments. The key valuation question this year will be when valuers properly reflect the weak tenant demand for offices.

 

The COVID crisis is teaching investors a stark lesson: stick to properties let at affordable rents to strong tenants on long, preferably index-linked, leases. Secure, long-term income will be valued ever more highly after the crisis is over in a yield-hungry world of slashed equity dividends and microscopic interest rates and bond yields. In a K-shaped future for the UK economy and property market, that means stay on the right side of structural change. Avoid offices and non-food retail and stay safe elsewhere. In this uncharted economic and investment territory, inflation and interest rates may not stay so low much longer.

 

Performance

 

VIP's property portfolio produced a total return of 2.3% over the year to March, against 0.9% for the MSCI UK Quarterly Property (formerly IPD) Index, the main benchmark for commercial property performance. The capital value of properties held throughout the year fell by 3.3% over the year as a whole but recovered by 1.0% over the last six months. Industrials, Supermarkets and the Caravan Park performed best, but Pubs and Leisure properties were down. Contracted rental income rose by 1.5%.

 

VIP's property record is shown in the Annual Report.

 

We specialise in UK commercial properties with long, strong, index-related income streams to deliver above average long-term real returns. The total returns on our property portfolio have been between 8% and 12% a year over the past 5, 10, 20 years and 34 years and are above the MSCI averages over all these periods. The real returns above the Retail Price Index from VIP's property portfolio were 1% last year and between 3% and 9% a year over all cumulative periods from 3 to 34 years since the inception of our management.

 

Properties

 

All 31 properties are let on full repairing and insuring leases (tenants are responsible for repair, maintenance and outgoings), with upward only rent reviews and an average unexpired lease length now of over 15 years (17 years if the break options are not exercised). All the properties valued at 31 March 2021 are freehold with the exception of two which are long leasehold with 110 and 84 years to run (Doncaster and Fareham).

 

Purchases to 31 March 2021

 

Seven new properties were purchased over the year, all with indexed-linked rent reviews: six supermarkets let to the Co-operative Group Food Limited and a driving test centre let to H.M. Government for £17.6 million in total, at an average net initial yield on purchase of 5.3%; their average unexpired lease length was 12 years (if the break options are exercised). These purchases with index-linked leases to the undoubted covenants of the Co-operative Group Limited and the Government should produce attractive long term real returns at very low risk from an initial yield over 7 points above index-linked gilts with favourable capped and collared RPI and CPI indexation on three properties, uncapped RPI indexation on three properties and fixed increases on one.

 

Purchases Since 31 March 2021

 

The following five freehold purchases totalling £14.1m completed since the year end at a net initial yield of 5.4% after all costs.

 

Screwfix, Faraday Street, Dryburgh Industrial Estate, Dundee: The (heritable) freehold detached industrial unit on a busy estate is let to Screwfix Direct Limited on a full repairing and insuring lease expiring 20 November 2032 with five yearly fixed rent increases in November 2022 and 2027. They have over 640 stores in the UK which have performed exceptionally well during the pandemic and should have no difficulty in meeting the rental payments with fixed increases.

 

Marks & Spencer Simply Foods, Langton Road, Blandford Forum, Dorset: The freehold detached supermarket in the town centre is let to Marks & Spencer plc until July 2030 with five yearly RPI indexed-linked rent reviews collared at 1% p.a. and capped at 3% p.a. with the next review due in July 2025.

 

Halfords Autocentres t/a Universal Tyres, Laleham Road, Staines, Surrey and 680 London Road, Thurrock, Essex: These two freehold detached industrial units in busy roadside locations have just been let in a sale and leaseback transaction to Halfords Autocentres Limited on full repairing and insuring leases expiring May 2036 with five yearly CPIH index-linked rent reviews collared at 1% p.a. and capped at 3% p.a. There is a tenant's option to break in 2031 on both properties. These are well established vehicle servicing, mechanical repair and MOT testing centres.

 

Premier Inn, Princes Gate, Richmond Road, Catterick, North Yorkshire: The freehold detached 62 bedroom hotel, plus 300 cover restaurant t/a Brewers Fayre, is located in Princes Gate Shopping Park at Catterick Garrison. It is let to Premier Inn Hotels limited on a full repairing and insuring lease expiring in September 2040 with five yearly CPI index- linked rent reviews capped at 5% p.a. There is a tenant's option to break in 2035. This hotel traded at over 90% occupancy throughout the past year.

 

Purchase Pipeline

 

Two further properties are now in solicitors' hands and we are actively seeking more index linked strong income.

 

Sales to 31 March 2021

 

In the last quarter the sales of two properties completed: a short leasehold petrol filling station with a McDonald's in Horsham and a bingo hall in Manchester let to Buzz Bingo for a combined £4.7 million in total (18.8% above valuation) at a net sale yield of 7.0%.

 

Due to our strategic sales programme over the last 10 years the Company is now no longer invested in high street shops.

 

Portfolio Management Assignment Milton Keynes

 

Adelie Foods went into administration in May 2020. The lease was assigned to Winterbotham Darby Ltd at the same rent with the unexpired lease term increased to just under 15 years with a tenant's option to break in 2030.

 

Rent Reviews

 

There have been thirteen rent reviews (one open market and twelve index-linked) over the course of the year: 7 pubs, 2 bowling centres, 1 petrol filling station, an industrial, the caravan park and a new supermarket purchase at Kirriemuir which give a combined 3% uplift on passing rents.

 

VIP's Assistance to Occupiers During the COVID-19 Pandemic

 

We have been working closely with our tenants during this unprecedented period, agreeing phased payment plans for temporary rental concessions, changing quarterly to monthly payments or rent deferments and extending lease lengths in return for rent free periods. During the full year, 90.0% of contracted rent was collected, with only 1.6% of rent written off due to the Adelie Foods Administration. The leases on eight pub properties were extended by a further five years in return for rent free periods totalling 7.8% of contracted income over the year which have lengthened and strengthened the future income streams of the assets. Less than 2% of rent is on a rent deferment plan to be fully paid off by the end of 2021.

 

Independent Revaluation

 

The property portfolio is independently valued by Savills at the end of March and September each year. The VIP property portfolio was subject to an independent professional revaluation at 31 March 2021 by Savills. The revaluation showed a value of £80,550,000 (before taking into account the right of use asset classified as investment property related to properties held under leasehold). As at 31 March 2021, the portfolio of 31 properties (2020: 26) was 100% let with contracted rental income of £5.2m (2020: £4.5m) on an income yield of 6.4%. Savills valuations on the same basis totalled £72,825,000 (29 properties) at 30 September 2020 and £70,200,000 (26 properties) on 31 March 2020.

 

Safe, long let indexed property like the VIP Property Portfolio has weathered previous downturns well (as the Property Record Table shows in the Annual Report) and should prove resilient again as all our tenants reopen.

 

Louise Cleary & Matthew Oakeshott

OLIM Property Limited

 

22 June 2021

 

 

UK Equities

 

Market Background

 

The coronavirus pandemic has dominated financial markets and economies over VIP's reporting year to the end of March 2021. At the beginning of the period financial markets had just begun their long recovery after the severe falls seen during the first quarter of 2020 as the virus took hold. The harsh lockdown measures imposed by many countries to control the initial spread of the virus meant that economic activity worldwide suffered one of its largest ever contractions. Sadly, despite the lockdowns and their economic consequences, millions have now died from the virus and many countries are still imposing stringent lockdown measures. However, coronavirus vaccines are now offering the hope of a return to normality and that the worst of the economic effects may be behind us.

 

Over the last twelve months the tone for financial markets has been set by the success or otherwise of measures to control the virus. Global equities recovered strongly in the early months of VIP's financial year as infection numbers declined markedly over the late spring and summer months. Share prices then took a turn for the worse in the early autumn as it became apparent that a second wave of infections was occurring. Stock markets have recovered steadily since then, having received a figurative shot in the arm in the final weeks of 2020 after the announcement that several promising vaccine candidates had been shown to be effective against the virus and equities have recorded impressive gains since then.

 

Despite the economic challenges, equity markets have been strong over the year. The FTSE All Share Index rose by 23.3% in the twelve-month reporting period and, including income, the total return was 26.7%. Although this represents a substantial recovery from the spring 2020 low point, the UK stock market has underperformed other world markets in the recovery phase. By comparison, the US, German and Japanese markets have all risen by over 50% (in local currency) over the last twelve months, with these markets more than recovering all of their pandemic inspired falls.

 

The UK stock market underperformed other world markets in part due to the considerably weaker performance of the UK economy, whilst investors were also concerned about the impact of the UK finally leaving the European Union at the end of 2020. Consequently, the share prices of many of the UK's largest companies have not regained their pre-pandemic levels, leaving the performance of the FTSE 100 Index of largest companies well behind its international counterparts. Having underperformed during the market fall, higher yielding stocks have also underperformed in the recovery phase; the FTSE 350 Higher Yield Index rose by 18.4% and delivered a total return of 23.2% over the year, some way behind the wider market. The high yielding sector of the market has been particularly affected by the large number of dividend cuts and suspensions seen across the market, with many stalwart income stocks either cutting their dividends substantially or passing them altogether. Consequently, total dividends from UK listed companies fell by 37% in 2021.

 

In the bond market, ten-year gilt yields ended the period at 0.9%, up from 0.2% a year earlier, whilst twenty-year gilt yields rose to 1.4%, as the economic recovery took hold and inflationary pressures began to surface. This meant that gilts produced a negative total return over the year, in stark contrast to the strong positive returns seen from UK equities. Commodity prices reflected the general background in financial markets and recovered steadily over the year. Having fallen to below $20 per barrel in March 2020, the price of oil had recovered to $63 per barrel by the period end, similar to its pre-pandemic level. The recovery has been driven by OPEC production cuts and a gradual recovery in demand as economies have opened up. Other industrial commodities such as copper and iron ore have also seen strong price rises over the year.

 

Performance

 

VIP's equity portfolio performed in line with its benchmark, the FTSE All Share Index, until 31 March 2021. Adjusted for the sizeable disposals made during the latter stages of the year, the portfolio recorded a total return of 26.6% compared to the 26.7% achieved by the FTSE All Share Index. Although high yielding shares had generally struggled during the recovery of the market, this was not reflected in the performance of VIP's equity portfolio, which benefitted from some strong individual share price performances and by being underweight in several sectors that have underperformed during the year. In particular, the oil and tobacco sectors, which make up a significant part of the high yield index, remained well below their pre-pandemic levels. VIP had no tobacco exposure and was underweight in the oil sector for much of the year.

 

Strong individual performances came in areas geared to the economic recovery or where the market had underestimated the company's resilience to the difficult economic conditions. M&G (+84%), Rio Tinto (+68% to sale) and Croda International (+49%) all outperformed the index as a result. Companies that have continued to pay their dividends have tended to be in more defensive sectors, such as utilities and telecommunications, and these areas have underperformed in the recovery phase, also holding back the high yield index. Several of VIP's larger remaining holdings, such as Unilever (-1% over the year) and Wm Morrison (+5%), fell into this camp and struggled to keep up with the market as a whole, which meant that, overall, the equity portfolio performed in line with its benchmark.

 

Portfolio

 

The last twelve months saw sales of equities of £79.6m and purchases of just £4.5m (excluding the 2.0m VIP shares bought in as part of the share buy-back programme) giving total transactions of £84.1m, with net sales of £75.1m. The large sales programme reflects Shareholders' approval of VIP's new investment policy to focus on directly held property and property backed securities. The direct equity portfolio has been reduced to just under £30m in value and the cash raised will be used to fund future direct property purchases. Sales were made across the portfolio and, in particular, after the vaccine inspired rises seen over the final months of VIP's year.

 

At the end of the reporting year the equity portfolio had 11 remaining investments valued at £28.6m. As part of the restructuring of the portfolio we are starting to switch these holdings into property-backed securities, reflecting the new investment policy.

 

Patrick Harrington

OLIM Property Limited

 

22 June 2021

 

 

Business Review

 

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

 

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

 

The Group

 

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

 

Capital Structure

 

As at 31 March 2021, and as at the date of this Annual Report, VIP's share capital consisted of 43,557,464 Ordinary Shares of 10p nominal value in issue and 1,992,511 Ordinary Shares of 10p each held in Treasury. Each Ordinary Share in issue entitles the holder to one vote on a show of hands and, on a poll, to one vote for every share held.

 

Share Dealing

 

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

 

Recommendation of Non-Mainstream Investment Products

 

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

 

Highlights of the Year

 

·       Net Asset Value total return (with debt at par)* of 12.3% (2020: -21.8%) over one year and -8.5% (2020: -19.8%) over three years.

 

·       Share Price total return* of 39.3% (2020: -30.7%) over one year and -3.3% (2020: -25.7%) over three years.

 

·       FTSE All-Share Index total return of 26.7% (2020: -18.5%) over one year and 9.9% (2020: -12.2%) over three years.

 

·       Dividends for year up 1.7% - increased for the 34th consecutive year.

 

Financial Record

 

	31 Mar 2021	31 Mar 2020
NAV (valuing debt at par) (p)	271.1	253.1
NAV (valuing debt at market) (p)*	256.6	232.7
Ordinary share price (p)	218.0	165.0
Discount of share price to NAV (valuing debt at market) (%)	15.0	29.1
Dividend per share (p)	12.3	12.1
Total assets less current liabilities (£m)	177.6	176.2

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

 

NEW INVESTMENT OBJECTIVE AND POLICY

 

In the year to 31 March 2021, at a General Meeting of the Company held on 7 January 2021, Shareholders approved the adoption of a new Investment Objective and Investment Policy as detailed below.

 

Investment Objective

 

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

 

Investment Policy

 

The Company's policy is to invest in directly held UK commercial property, property-backed securities listed on the London Stock Exchange and cash or near cash securities. The Company will not invest in overseas property or securities or in unquoted companies. UK directly held commercial property will usually account for at least 80 per cent. of the total portfolio but it may fall below that level if relative market levels and investment value, or a desired increase in cash or near cash securities, make it appropriate.

 

The UK commercial property portfolio

 

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

 

The UK quoted securities portfolio

 

In order to limit the risk to the Company's overall portfolio total of assets that are derived from any particular securities investment, no individual shareholding will account for more than 10 per cent. of the gross assets of the Company at the time of purchase. The Company will not use derivatives. The Company is permitted to invest cash held for working capital purposes and awaiting investment in cash deposits, gilts and money market funds.

 

Borrowing policy

 

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

 

Until 2015, all borrowings had been long-term debentures to provide secure long-term funding, and avoiding the risks associated with short-term funding of having to sell illiquid assets at a low point in markets if loans had to be repaid. On 26 February 2015, a five year secured term loan facility of £5 million was arranged at a five year fixed interest rate of 4% p.a. including all costs. This loan was refinanced on 12 May 2016 and a new ten year secured term loan facility of £15 million was arranged at a ten year interest rate of 4.4% p.a. including all costs to replace the original £5 million loan arranged in February 2015.

 

On 28 November 2019, the Company entered into a seven year secured term loan of £22 million at a fixed interest rate of 3.1% per annum (3.3% per annum after all expenses) on £20.9 million and at a floating rate of Libor plus 2.35% on the balance of £1.1 million. The net proceeds were held on accessible deposit until 31 March 2021 when they were used to refinance the Company's £15 million 11% First Mortgage Debenture Stock 2021 which expired on that date and the balance will be used to support the acquisition of further UK properties and equities in accordance with the Company's investment policy. On 3 March 2021, the term of this agreement was extended to 31 March 2031 at a new fixed interest rate of 3.28% on the £20.9 million.

 

No material changes may be made to the Company's investment policy described above without the prior approval of Shareholders by the passing of an Ordinary Resolution.

 

Performance, Results and Dividend

 

As at 31 March 2021, the Net Asset Value (NAV) total return (with debt at par) over one year was 12.3% and the Share Price total return over one year was 39.3%. This compares to the FTSE All-Share Index total return over one year of 26.7%. Total assets less current liabilities was £177.6 million. A review of the performance of the property and equity portfolios is detailed in the Chairman's Statement and in the Property and Equity Manager's Reports in the Annual Report.

 

For the year to 31 March 2021, quarterly dividends of 2.9p per share were each paid on 30 October 2020, 29 January 2021 and 30 April 2021. The Directors have declared that a final dividend of 3.6p per Ordinary Share (2020 fourth interim: 3.4p), if approved by Shareholders at the 2021 AGM, is paid on 30 July 2021 to Shareholders on the register on 2 July 2021. The ex-dividend date is 1 July 2021. This represents an annual increase in dividends of 1.7% as compared with the 1.5% and 0.7% annual increases in the Retail Price and Consumer Price Indices as at the end of March 2021. This continues the Company's strong long-term record of real growth in dividends.

 

Principal and Emerging Risks and Uncertainties

 

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

 

Market Risk

 

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

 

Price Risk

 

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

 

For equities, asset allocation and stock selection, as set out in the Investment Policy in the Annual Report, both act to reduce market risk.

 

As announced on 4 November 2020, OLIM Limited (OLIM), the Investment Manager responsible for the management of the Company's equity portfolio, informed the Company of its intention to resign as equities manager due to the closure of its business, and resigned with effect from 28 February 2021. OLIM Property Limited (OLIM Property), the Investment Manager responsible for the management of the Company's property portfolio, on 1 March 2021 assumed responsibility for the management of the equity portfolio and continues to manage the property portfolio.

 

VIS delegates its portfolio management responsibilities to OLIM Property, which actively monitors market prices throughout the year and reports to VIS and to the Board, which meet regularly in order to review investment strategy. The equity investments held by the Group are listed on the London Stock Exchange. All investment properties held by the Group are commercial properties located in the UK with long-term index-linked income streams.

 

Interest Rate Risk

 

Interest rate movements may affect:

 

·       the fair value of the investments in property;

 

·       the level of income receivable on cash deposits; and

 

·       the fair value of borrowings.

 

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

 

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

 

Currency Risk

 

A small proportion of the Group's investment portfolio is invested in securities whose fair value and dividend stream are affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk.

 

Liquidity Risk

 

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

 

The Group's assets comprise readily realisable securities which can be sold to meet commitments, if required, and investment properties which, by their nature, are less readily realisable. The maturity of the Company's existing borrowings is set out in the interest rate risk profile section of Note 21 to the Financial Statements.

 

Credit Risk

 

This is the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Group suffering a loss.

 

The risk is not significant and is managed as follows:

 

·       investment transactions are carried out on behalf of VIP by an outsourced dealing agent. Settlement of these transactions is executed by a large investment bank whose credit standing is reviewed periodically by OLIM Property (which reports to VIS).

 

·       the risk of counterparty exposure due to failed trades causing a loss to the Group is mitigated by the review of failed trade reports on a daily basis. In addition, a stock reconciliation to third party administrators' records is performed on a daily basis to ensure that discrepancies are picked up on a timely basis. VIS carries out periodic reviews of the Depositary's operations and reports its findings to the Company. This review also includes checks on the maintenance and security of investments held.

 

·       cash is held only with reputable banks with high quality external credit ratings which are monitored on a regular basis.

 

Property Risk

 

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

 

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

 

Against that background, the specific risks to the income from the portfolio are tenants being unable to pay their rents and other charges or leaving their properties at the end of their leases. All leases are on full repairing and insuring terms, with upward only rent reviews and the average unexpired lease length is 17 years (2020: 17 years) and over 15 years if break options are exercised. Details of the tenant and geographical spread of the portfolio are set out in the Annual Report. The long-term record of performance through the varying property cycles since 1987 is set out in the Annual Report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.

 

Political Risk

 

Although the EU (Future Relationship) Act 2020 came into effect on 1 January 2021, the full political, economic and legal consequences of the UK leaving the European Union (EU) are not yet known.

 

It is possible that investments in the UK may be more difficult to value and assess for suitability of risk, harder to buy or sell and may be subject to greater or more frequent rises and falls in value. In the longer term, there is likely to be a period of uncertainty as the UK seeks to negotiate its ongoing relationship with the EU and other global trade partners. The UK's laws and regulations, including those relating to investment companies, may in future, diverge from those of the EU. This may lead to changes in the operation of the Company or the rights of investors in the territories in which the shares of the Company may be promoted and sold.

 

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

 

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

 

Climate Change and Social Responsibility Risk

 

The Board recognises that climate change is an important emerging risk that all companies should take into consideration within their strategic planning.

 

As referred to elsewhere in this Strategic Report and in the Statement of Corporate Governance in this Annual Report, the Company has little direct impact on environmental issues. As an investment trust company, the Company has no direct employee or environmental responsibilities. The Board is aware that the Manager continues to take into account

environmental, social and governance matters when considering investment proposals.

 

Other Emerging Risks

 

The Directors are cognisant of the impact of the coronavirus (COVID-19) pandemic and its implications for the activities of the Manager and on the performance of investee companies and assets. This is covered in more detail in the Property and Equity Manager's Reports in the Annual Report.

 

While VIP's property portfolio is sufficiently robust to withstand the current market impacts of the pandemic, there is a risk that, as discussed in the Property Manager's Report, property values may fall and tenants may struggle to pay rent. If this happens, there is a risk that loan to value and interest cover covenants could be breached. If this were to occur, VIP has sufficient cash and liquid equity investments to cover any loan repayments triggered by covenant breaches. However, as noted in the Property Manager's Report in the Annual Report, safe, long let property like VIP's property portfolio should prove resilient again once all tenants are allowed to fully reopen and trade.

 

Additional risks and uncertainties include:

 

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

 

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

 

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

 

The Company must also comply with the UK General Data Protection Regulation (UK GDPR), which came into force in January 2021, post Brexit, and also the Data Protection Act 2018. This legislation enforces the principle of 'privacy by design and by default' and enshrines new rights for individuals, including the right to be forgotten and to data portability. The Directors have worked with the third parties that process Shareholders' personal data to ensure that their rights under the new regulation are protected.

 

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

 

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

 

Alternative Investment Fund Managers Directive

 

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

 

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

 

Key Performance Indicators

 

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

 

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

 

In addition, in the year under review, the Board identified the three key performance indicators below to determine the performance of the Company:

 

·       Net asset value total return relative to the FTSE All-Share Index (total return);

 

·       Share price total return relative to the FTSE All-Share Index (total return); and

 

·       Dividend growth relative to the Retail Prices Index.

 

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

 

The share price total return relative to the FTSE All-Share Index (total return) is the theoretical return including reinvesting each dividend in additional shares in the Company at the current mid-market price on the day that the shares go ex-dividend.

 

Dividend growth relative to the Retail Prices Index is included to track performance against inflation.

 

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

 

Prior to the change to the investment policy in January 2021, the Board considered that the MSCI UK Quarterly Property Index was the main benchmark for commercial property performance and that the FTSE All-Share Index was the most appropriate index to use as a comparison to the performance of the equity portfolio. The Property and Equity Manager's Reports report on how the Company performed during the year under review against the MSCI UK Quarterly Property Index and the FTSE All-Share Index. In addition, the Directors will consider economic, regulatory and political trends and factors that may impact on the Company's future development and performance.

 

Following the change in investment policy to invest predominantly in property, the Directors will carry out a review of the key performance indicators for the year to 31 March 2022 and will report accordingly in the 2022 Annual Report.

 

From 1 April 2021, the Board considers that the MSCI UK Quarterly Property Index is the benchmark for the performance of the Company's portfolio.

 

Share Buy-backs

 

As referred to in the Chairman's Statement and in the Directors' Report, during the year to 31 March 2021, the Company bought back its own shares for the first time. As at 31 March 2021, and as at the date of this Annual Report, 1,992,511 Ordinary Shares of 10p each have been bought back and are held in Treasury. Further information can found in the Annual Report.

 

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

 

Statement of Compliance with Investment Policy

 

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

 

The Board's Section 172 Duty and Stakeholder Engagement

 

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

 

This has been summarised in the table below:

 

Stakeholder	Form of Engagement	Influence on Board decision making
Shareholders	AGM - Under normal circumstances, Shareholders are encouraged to attend the AGM and are provided with the opportunity to ask questions and engage with the Directors and the Manager. Shareholders are also encouraged to exercise their right to vote on the resolutions proposed at the AGM (please refer to the Chairman's Statement).   Shareholder documents - The Company reports formally to Shareholders by publishing Annual and Interim Reports, normally in June and November each year. In addition, the Company produces a Quarterly Factsheet which is published on the Company's web pages hosted by the Manager at www.olimproperty.co.uk/value-and-indexed-property-income-trust.html.   Significant matters or reporting obligations are disseminated to Shareholders by way of announcement to the London Stock Exchange.   The Company Secretary acts as a key point of contact for the Board and all communications received from Shareholders are circulated to the Board.   Other Shareholder events include investor and wealth manager lunches and roadshows organised by the Company's Broker at which the Manager is invited to present.	Dividend declarations - The Board recognises the importance of dividends to Shareholders and takes this into consideration when making decisions to pay quarterly and propose final dividends for each year. Further details regarding dividends for the year under review can be found in the Chairman's Statement.   Share buy-back policy - the Directors recognise the importance to Shareholders of the Company maintaining an active buy-back policy and considered this when establishing the current programme. Further details can be found in the Chairman's Statement, in this Business Review and in the Directors' Report.   Shareholder communication and feedback from the Broker feeds directly into the Board's annual strategy review, the asset allocation considerations and the Manager's guidance on desirable investment characteristics.
Investee companies and assets	Quarterly Board Meetings - The Manager reports to the Board on the Company's investment portfolio and the Directors challenge the Manager where they feel it is appropriate.	As referred to in the Property Manager's Report in the Annual Report, the Property Manager has been working closely with all tenants during the COVID-19 pandemic, including agreeing phased payment plans for temporary rental concessions, changing quarterly to monthly payments or rent deferments and extending lease lengths in return for rent free periods.   The Directors are aware that the exercise of voting rights is key to promoting good corporate governance and, through the Manager, ensures that the listed companies are encouraged to adopt best practice corporate governance. The Board has delegated the responsibility for monitoring the listed companies to the Manager and has given it discretion to vote in respect of the Company's holdings in the equity portfolio, in a way that reflects the concerns and key governance matters discussed by the Board.
Manager	Quarterly Board Meetings - The Manager attends every Board Meeting and presents a detailed portfolio analysis and reports on key issues such as performance of the equity and property portfolios.	During the year under review, the Board undertook a review of the Company's objective and investment policy and decided that in order to achieve the Company's objectives and maintain its dividend record, the Company's investment policy should be changed so that the Company could in future invest predominantly in property. At a General Meeting held in January 2021, Shareholders approved the adoption of a new investment objective and policy to allow the Company to invest predominantly in property.   The Directors and the Manager are cognisant of the Company's new investment policy and the strategy agreed by the Board, which the Manager has been tasked with implementing, which has resulted in a reduction in the number of equity investments and an increase in the number of properties held in the portfolio.   The Board engages constructively with the Manager to ensure investments are consistent with the agreed strategy and investment policy.
Registrar	Review meetings and control reports.	The Directors review the performance of all third party service providers; this includes ensuring compliance with GDPR.
Depositary and Custodian	Regular statements and control reports received, with all holdings and balances reconciled.	The Directors review the performance of all third party providers,  including oversight of securing the Company's assets.
Advisers	The Company relies on the expert audit, accounting and legal advice received from its Auditor, Administrator and Legal Advisers.	The Directors review the performance of all third party service providers.

 

Employee, Environmental and Human Rights Policy

 

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

 

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

 

Independent Auditor

 

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

 

Future Strategy

 

The Board and the Investment Manager intend to maintain the strategic policies set out above for the year ending 31 March 2022 as it is believed that these are in the best interests of Shareholders.

 

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

 

Approval

 

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

 

James Ferguson

Chairman

 

22 June 2021

 

 

Going Concern

 

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

 

Following a detailed review, and taking into account the impact of the COVID-19 pandemic referred to in the Property and Equity Manager's Reports in the Annual Report, the Directors have a reasonable expectation that the Group and the Parent Company have adequate financial resources to enable them to continue in operational existence for the foreseeable future, being at least 12 months from approval of the Financial Statements, and accordingly, they have continued to adopt the going concern basis (as set out in Note 1(b) to the Financial Statements in the Annual Report) when preparing the Annual Report and Financial Statements.

 

Statement of Directors' Responsibilities

 

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and applicable law and regulations.

 

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors are required to prepare the Group Financial Statements, and have elected to prepare the Company Financial Statements, in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.  Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group and Company for that period. The Directors are also required to prepare Financial Statements in accordance with international financial reporting standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

 

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

 

•      select suitable accounting policies and then apply them consistently;

 

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

 

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

 

•      state whether they have been prepared in accordance with IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, subject to any material departures disclosed and explained in the Financial Statements;

 

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

 

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

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and, hence, for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

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

 

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

 

Directors' Responsibility Statement

 

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

 

•      the Financial Statements have been prepared in accordance with the applicable set of accounting standards and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company; and that

 

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

 

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

 

For and on behalf of the Board of

Value and Indexed Property Income Trust PLC

James Ferguson

Chairman

22 June 2021

 

 

Group Statement of Comprehensive Income

For the year ended 31 March

 

			Year ended				Year ended
			31 March 2021				31 March 2020
			Revenue	Capital	Total		Revenue	Capital	Total
			£'000	£'000	£'000		£'000	£'000	£'000
Income		Note
Rental income		2	5,359	-	5,359		4,716	-	4,716
Investment income		2	3,414	-	3,414		5,931	-	5,931
Other income		2	159	-	159		97	-	97
			8,932	-	8,932		10,744	-	10,744
Gains and losses on investments
Realised gains/(losses) on held-at-fair-value investments and investment properties		9	-	8,588	8,588		-	(3,482)	(3,482)
Unrealised gains/(losses) on held-at-fair-value investments and investment properties		9	-	1,185	1,185		-	(31,381)	(31,381)
Total income			8,932	9,773	18,705		10,744	(34,863)	(24,119)
Expenses
Investment management fees		3	(301)	(702)	(1,003)		(345)	(805)	(1,150)
Other operating expenses		4	(771)	-	(771)		(878)	-	(878)
Finance costs		5	(5,084)	-	(5,084)		(4,609)	-	(4,609)
Total expenses			(6,156)	(702)	(6,858)		(5,832)	(805)	(6,637)
Profit/(loss) before taxation			2,776	9,071	11,847		4,912	(35,668)	(30,756)
Taxation		6	(359)	1,132	773		(263)	359	96
Profit/(loss) attributable to equity shareholders of parent company			2,417	10,203	12,620		4,649	(35,309)	(30,660)
Earnings per ordinary share (pence)		7	5.35	22.56	27.91		10.21	(77.52)	(67.31)

 

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

 

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

 

The Notes form part of these Financial Statements.

 

The Board is proposing a final dividend of 3.60p per share, making a total dividend of 12.30p per share for the year ended 31 March 2021 (2020: 12.10p per share) which, if approved by Shareholders, will be payable on 30 July 2021 (see Note 8).

 

 

Company Statement of Comprehensive Income

for the year ended 31 March 2021

 

			Year ended				Year ended
			31 March 2021				31 March 2020
			Revenue	Capital	Total		Revenue	Capital	Total
			£'000	£'000	£'000		£'000	£'000	£'000
Income		Note
Rental income		2	5,359	-	5,359		4,716	-	4,716
Investment income		2	3,414	-	3,414		5,931	-	5,931
Other income		2	159	-	159		97	-	97
			8,932	-	8,932		10,744	-	10,744
Gains and losses on investments
Realised gains/(losses) on held-at-fair-value investments and investment properties		9	-	8,588	8,588		-	(3,482)	(3,482)
Unrealised gains/(losses) on held-at-fair-value investments and investment properties		9	-	1,781	1,781		-	(30,781)	(30,781)
Total income			8,932	10,369	19,301		10,744	(34,263)	(23,519)
Expenses
Investment management fees		3	(301)	(702)	(1,003)		(345)	(805)	(1,150)
Other operating expenses		4	(771)	-	(771)		(878)	-	(878)
Finance costs		5	(5,050)	-	(5,050)		(4,576)	-	(4,576)
Total expenses			(6,122)	(702)	(6,824)		(5,799)	(805)	(6,604)
Profit/(loss) before taxation			2,810	9,667	12,477		4,945	(35,068)	(30,123)
Taxation		6	(359)	1,132	773		(263)	359	96
Profit/(loss) attributable to equity shareholders of parent company			2,451	10,799	13,250		4,682	(34,709)	(30,027)
Earnings per ordinary share (pence)		7	5.42	23.88	29.30		10.28	(76.20)	(65.92)

 

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

 

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

 

The Notes form part of these Financial Statements.

 

Statement of Changes in Equity

For the year ended 31 March

 

GROUP		Year ended 31 March 2021
		Share	Share	Retained	Total
		capital	premium	earnings
	Note	£'000	£'000	£'000	£'000
Net assets at 31 March 2020		4,555	18,446	92,306	115,307
Profit for the year		-	-	12,620	12,620
Dividends paid	8	-	-	(5,512)	(5,512)
Buyback of Ordinary Shares for Treasury	14	-	-	(4,332)	(4,332)
Net assets at 31 March 2021		4,555	18,446	95,082	118,083
COMPANY		Year ended 31 March 2021
		Share	Share	Retained	Total
		capital	premium	earnings
		£'000	£'000	£'000	£'000
Net assets at 31 March 2020		4,555	18,446	91,676	114,677
Profit for the year		-	-	13,250	13,250
Dividends paid	8	-	-	(5,512)	(5,512)
Buyback of Ordinary Shares for Treasury	14	-	-	(4,332)	(4,332)
Net assets at 31 March 2021		4,555	18,446	95,082	118,083
GROUP		Year ended 31 March 2020
		Share	Share	Retained	Total
		capital	premium	earnings
	Note	£'000	£'000	£'000	£'000
Net assets at 31 March 2019		4,555	18,446	128,432	151,433
Loss for the year		-	-	(30,660)	(30,660)
Dividends paid	8	-	-	(5,466)	(5,466)
Net assets at 31 March 2020		4,555	18,446	92,306	115,307
COMPANY		Year ended 31 March 2020
		Share	Share	Retained	Total
		capital	premium	earnings
		£'000	£'000	£'000	£'000
Net assets at 31 March 2019		4,555	18,446	127,169	150,170
Loss for the year		-	-	(30,027)	(30,027)
Dividends paid	8	-	-	(5,466)	(5,466)
Net assets at 31 March 2020		4,555	18,446	91,676	114,677

 

The Notes form part of these Financial Statements.

 

 

 

Group Statement of Financial Position

As at 31 March

 

				Group
				As at			As at
				31 March 2021			31 March 2020
			Note	£'000	£'000		£'000	£'000
ASSETS
Non current assets
Investment properties			9		81,132			74,459
Investments held at fair value through profit or loss			9		28,581			90,757
					109,713			165,216
Deferred tax asset			6		1,258			485
Receivables			10		2,017			-
					112,988			165,701
Current assets
Cash and cash equivalents				65,965			26,428
Receivables			10	972			668
					66,937			27,096
TOTAL ASSETS					179,925			192,797
Current liabilities
Debenture stock			11	-			(15,000)
Payables			11	(2,318)			(1,624)
					(2,318)			(16,624)
TOTAL ASSETS LESS CURRENT LIABILITIES					177,607			176,173
Non-current liabilities
Payables			12	(2,862)			(4,243)
Borrowings			12	(56,662)			(56,623)
					(59,524)			(60,866)
NET ASSETS					118,083			115,307
EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS
Called up share capital			14		4,555			4,555
Share premium			15		18,446			18,446
Retained earnings			16		95,082			92,306
TOTAL EQUITY					118,083			115,307
Net Asset Value per ordinary share (pence)			17		271.10			253.14

 

These Financial Statements were approved by the Board on 22 June 2021 and were signed on its behalf by:-

 

JAMES FERGUSON, CHAIRMAN

 

The Notes form part of these Financial Statements.

 

 

Company Statement of Financial Position

As at 31 March

 

				Company
				As at			As at
				31 March 2021			31 March 2020
			Note	£'000	£'000		£'000	£'000
ASSETS
Non current assets
Investment properties			9		81,132			75,687
Investments held at fair value through profit or loss			9		28,781			90,957
					109,913			166,644
Deferred tax asset			6		1,258			485
Receivables			10		2,017			-
					113,188			167,129
Current assets
Cash and cash equivalents				65,765			26,228
Receivables			10	972			669
					66,737			26,897
TOTAL ASSETS					179,925			194,026
Current liabilities
Debenture stock			11	-			(15,630)
Payables			11	(2,318)			(1,659)
					(2,318)			(17,289)
TOTAL ASSETS LESS CURRENT LIABILITIES					177,607			176,737
Non-current liabilities
Payables			12	(2,862)			(5,437)
Borrowings			12	(56,662)			(56,623)
					(59,524)			(62,060)
NET ASSETS					118,083			114,677
EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS
Called up share capital			14		4,555			4,555
Share premium			15		18,446			18,446
Retained earnings			16		95,082			91,676
TOTAL EQUITY					118,083			114,677
Net Asset Value per ordinary share (pence)			17		271.10			251.76

 

These Financial Statements were approved by the Board on 22 June 2021 and were signed on its behalf by:-

 

JAMES FERGUSON, CHAIRMAN

 

The Notes form part of these Financial Statements.

 

 

Group Statement of Cashflows

For the year ended 31 March

			2021			2020
		Note	£'000	£'000		£'000	£'000
Cash flows from operating activities
Rental income received				5,218			4,162
Dividend income received				3,486			6,466
Interest received				244			10
Operating expenses paid				(1,673)			(2,101)
NET CASH INFLOW FROM OPERATING ACTIVITIES		18		7,275			8,537
Cash flows from investing activities
Purchase of investments held at fair value through     profit or loss			(4,500)			(13,900)
Purchase of investment properties			(17,553)			(10,758)
Sale of investments held at fair value through profit or     loss			79,584			17,160
Sale of investment properties			4,725			9,199
NET CASH INFLOW FROM INVESTING ACTIVITIES				62,256			1,701
Cash flow from financing activities
Repayment of debenture stock			(15,000)			-
Loans drawn down			-			22,000
Fees paid on new loan			(4)			(320)
Interest paid on loans			(4,938)			(4,156)
Finance cost of leases			(191)			(191)
Payments of lease liabilities			(17)			(15)
Dividends paid		8	(5,512)			(5,466)
Buyback of Ordinary Shares for Treasury		14	(4,332)			-
NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES				(29,994)			11,852
NET INCREASE IN CASH AND CASH EQUIVALENTS				39,537			22,090
Cash and cash equivalents at 1 April 2020				26,428			4,338
CASH AND CASH EQUIVALENTS AT 31 MARCH 2021				65,965			26,428

 

The Notes form part of these Financial Statements.

 

 

Company Statement of Cashflows

For the year ended 31 March

 

			2021			2020
		Note	£'000	£'000		£'000	£'000
Cash flows from operating activities
Rental income received				5,218			4,162
	Dividend income received			3,486			6,466
	Interest received			244			10
	Operating expenses paid			(1,673)			(2,101)
NET CASH INFLOW FROM OPERATING ACTIVITIES		18		7,275			8,537
Cash flows from investing activities
	Purchase of investments held at fair value through profit or loss		(4,500)			(13,900)
	Purchase of investment properties		(17,553)			(10,758)
	Sale of investments held at fair value through profit or loss		79,584			17,160
	Sale of investment properties		4,725			9,199
NET CASH INFLOW FROM INVESTING ACTIVITIES				62,256			1,701
Cash flow from financing activities
	Repayment of debenture stock		(15,000)			-
	Loans drawn down		-			22,000
	Fees paid on new loan		(4)			(320)
	Interest paid on loans		(4,938)			(4,156)
	Finance cost of leases		(157)			(157)
	Payments of lease liabilities		(51)			(49)
	Dividends paid	8	(5,512)			(5,466)
	Buyback of Ordinary Shares for Treasury	14	(4,332)			-
NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES				(29,994)			11,852
NET INCREASE IN CASH AND CASH EQUIVALENTS				39,537			22,090
Cash and cash equivalents at 1 April 2020				26,228			4,138
CASH AND CASH EQUIVALENTS AT 31 MARCH 2021				65,765			26,228

 

The Notes form part of these Financial Statements.

 

 

Notes to the Financial Statements

 

1     Accounting policies

 

The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606 / 2002 as it applies in the European Union and in conformity with the requirements of the Companies Act 2006.

 

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

 

(a)   Basis of preparation

 

The Financial Statements have been prepared on a going concern basis as disclosed in the Annual Report and on the historical cost basis, except for the revaluation of equities, investment properties and investment in subsidiaries, all of which are valued at fair value through profit and loss. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts (the SORP) issued by the Association of Investment Companies (AIC) in October 2019 is consistent with the requirements of IFRSs, the Directors have sought to prepare the Financial Statements on a basis compliant with the recommendations of the SORP, except for the allocation of finance costs to revenue as explained in Note 1(f).

 

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

 

(b)   Going concern

 

The Group's business activities, together with the factors likely to affect its future development and performance, are set out in the Strategic Report in the Annual Report. The financial position of the Group as at 31 March 2021 is shown in the Statement of Financial Position in the Annual Report. The cash flows of the Group for the year ended 31 March 2021 are set out in the Annual Report. The Group had fixed debt totalling £56,662,000 as at 31 March 2021, as set out in Notes 11 and 12; none of the borrowings is repayable before March 2026. Note 21 sets out the Group's risk management policies and procedures, including those covering market price risk, liquidity risk and credit risk. As at 31 March 2021, the Group's total assets less current liabilities exceeded its total non current liabilities by a factor of over two. The assets of the Group consist mainly of securities and investment properties that are held in accordance with the Group's investment policy, as set out in the Annual Report. Most of these securities are readily realisable, even in volatile markets. The Group, in conjunction with OLIM Property, has been working closely with tenants during this unprecedented period, agreeing phased payment plans for temporary rental concessions, changing quarterly to monthly payments or rent deferments and extending lease lengths in return for rent free periods. The Directors, who have reviewed carefully the Group's forecasts for the coming year and having taken into account the liquidity of the Group's investment portfolio and the Group's financial position in respect of cash flows, borrowing facilities and investment commitments (of which there is none of significance), are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.

 

(c)   Basis of consolidation

 

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

 

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

 

(d)   Presentation of Statement of Comprehensive Income

 

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

 

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

 

(e)   Income

 

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

 

Where the Group has elected to receive dividend income in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income. Any excess in the value of shares received over the amount of cash dividend foregone is recognised as a gain in the income statement.

 

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

 

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

 

(f)    Expenses and Finance Costs

 

All expenses and finance costs are accounted for on an accruals basis. Expenses are presented as capital where a connection with the maintenance or enhancement of the value of investments can be demonstrated. In this respect and in accordance with the SORP, the investment management fees have been allocated 30% to revenue and 70% to capital for the year ended 31 March 2021 to reflect the Board's expectations of long term investment returns.

 

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

 

(g)   Receivables and Payables

 

Receivables do not carry any interest and are stated at their nominal value, as reduced by any impairment calculated using an expected credit loss model. Payables are not interest bearing and are stated at their nominal value.

 

(h)   Taxation

 

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

 

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

 

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

 

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

 

(i)    Dividends payable

 

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

 

(j)    Investments

 

Equity investments

 

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

 

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

 

Investment property

 

Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period incurred and is included within the book cost of the property.

 

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

 

As disclosed in Note 21, the Group leases out all of its properties on operating leases. A property held under an operating lease is classified and accounted for as an investment property where the Group holds it to earn rental, capital appreciation or both. Any such property leased under an operating lease is carried at fair value. Fair value is established by half-yearly professional valuation on an open market basis by Savills (UK) Limited, Chartered Surveyors and Valuers, and in accordance with the RICS Valuation - Global Standards January 2020 (the 'RICS Red Book'). The determination of fair value by Savills is supported by market evidence, excluding prepaid or accrued operating lease income arising from the spreading of lease incentives or minimum lease payments because it has been recognised as a separate liability or asset. The fair value of investment property held by a lessee as a right-of-use asset reflects expected cash flows (including variable lease payments that are expected to become payable). Accordingly, if a valuation obtained for a property is net of all payments expected to be made, it will be necessary to add back any recognised lease liability, to arrive at the carrying amount of the investment property using the fair value model. These valuations are disclosed in Note 9.

 

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

 

(k)   Cash and cash equivalents

 

Cash and cash equivalents comprises deposits held with banks.

 

(l)    Non - current liabilities

 

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

 

(m)  Leases

 

The Group leases properties that meet the definition of investment property. These right-of-use assets are presented as part of Investments Properties in the Balance Sheet and held at fair-value. All properties are leased out under operating leases and rental income is recognised on a straight line basis over the expected term of the relevant lease. Many leases have fixed or minimum rental uplifts and where lease incentives or temporary rent reductions have been granted as a result of the COVID pandemic, rental income is recognised on a straight line basis over the expected term of the lease.

 

(n)   Critical accounting judgements and key estimates

 

The preparation of the Financial Statements requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The critical accounting area involving a higher degree of judgement or complexity comprises the determination of fair value of the investment properties. The Group engages independent professional qualified valuers to perform the valuation. Information about the valuation techniques and inputs used in determining fair value as at 31 March 2021 is disclosed in Note 9 to the Financial Statements.

 

(o)   Adoption of new and revised Accounting Standards

 

New and revised standards and interpretations that became effective during the year had no significant impact on the amounts reported in these Financial Statements but may impact accounting for future transactions and arrangements.

 

At the date of authorisation of these Financial Statements, the following Standards and interpretations, which have not been applied to these Financial Statements, were in issue but were not yet effective.

 

Standards

 

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

 

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

 

IAS 39, IFRS 4, 7, 9 and 16 Amendments - Interest Rate Benchmark Reform (Phase 2) (effective

1 January 2021)

 

IFRS 3 Amendments - Definition of a Business (effective 1 January 2022)

 

IFRS 16 Amendments - COVID-19-Related Rent Concessions beyond 30 June 2021 (effective 1 April 2021)

 

Conceptual Framework for Financial Reporting - Revisions (effective 1 January 2022)

 

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

 

2	Income	2021				2020
		Group		Company		Group		Company
		£000		£000		£000		£000
Investment income
Dividends from listed investments in UK		3,414		3,414		5,931		5,931
Other operating income
Rental income		5,359		5,359		4,716		4,716
Interest receivable on short term deposits		159		159		97		97
Total income		8,932		8,932		10,744		10,744

 

 

			2021				2020
3	Investment management fee	Revenue	Capital	Total		Revenue	Capital	Total
		£000	£000	£000		£000	£000	£000
Group and Company
Investment management fee		301	702	1,003		345	805	1,150

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

                                                                                               

In November 2020, OLIM Limited gave notice of its intention to wind up its operations in early 2021. As a result, the investment management agreement with OLIM Limited ceased with effect from 28 February 2021 and responsibility for the management of the equity portfolio moved to OLIM Property Limited.                                                                                        

OLIM Limited received an investment management fee of £524,000 (2020 - £738,000), the basis of calculation of which is given in the Annual Report.                                                                                           

                                                                                               

OLIM Property Limited received an investment management fee of £479,000 (2020 - £412,000), the basis of calculation of which is given in the Annual Report.                                                                                          

 

4	Other operating expenses		2021				2020
			Group		Company		Group		Company
			£000		£000		£000		£000
Fee payable to the Company's auditor for the audit of the Company's accounts			63		63		50		50
- audit of the Subsidiary's accounts			2		2		2		2
Fee payable to the Company's former auditor for other services
- other assurance services			-		-		3		3
- other non audit services			-		-		7		7
Directors' fees			107		107		94		94
NIC on Directors' fees			7		7		5		5
Fees for company secretarial services			230		230		211		211
Direct property costs			(80)		(80)		31		31
Other expenses			442		442		475		475
			771		771		878		878

 

Other non-audit services provided by the former auditor comprise consideration of compliance with covenants.

 

Directors' fees comprise the Chairman's fees of £30,000 (2020 - £28,875), the Audit and Management Engagement Committee Chairman's fees of £24,500 (2020 - £23,500) and fees of £22,000 (2020 - £21,000) per annum paid to each other Director.

 

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

 

5	Finance costs	2021				2020
		Group		Company		Group		Company
		£000		£000		£000		£000
Interest payable on:
11% First Mortgage Debenture Stock 2021		1,650		1,650		1,650		1,650
9.375% Debenture Stock 2026		1,875		1,875		1,875		1,875
Less amortisation of issue premium		(24)		(24)		(23)		(23)
Bank loan interest payable		1,307		1,307		863		863
Amortisation of loan expenses		85		85		54		54
Finance costs attributable to lease liabilities		191		157		190		157
		5,084		5,050		4,609		4,576

 

6	Taxation		2021				2020
		Revenue	Capital	Total		Revenue	Capital	Total
		£000	£000	£000		£000	£000	£000
a)	Analysis of the tax credit/(charge) for the year:
	Group
	Current tax	(359)	359	-		(263)	263	-
	Deferred tax	-	773	773		-	96	96
		(359)	1,132	773		(263)	359	96

 

Factors affecting the total tax credit/(charge) for year:
Profit/(loss) before tax			11,847				(30,756)
Tax charge/(credit) thereon at 19% (2020 - 19%)			2,251				(5,844)
Effects of:
Non taxable dividends			(649)				(1,127)
(Gains)/losses on investments not taxable			(1,857)				6,624
Unrelieved finance costs			(518)				251
			(773)				(96)

 

			2021				2020
		Revenue	Capital	Total		Revenue	Capital	Total
		£000	£000	£000		£000	£000	£000
	Company
	Current tax	(359)	359	-		(263)	263	-
	Deferred tax	-	773	773		-	96	96
		(359)	1,132	773		(263)	359	96
	Factors affecting the total tax credit/(charge) for year:
	Profit/(loss) before tax			12,477				(30,123)
	Tax charge/(credit) thereon at 19% (2020 - 19%)			2,371				(5,723)
	Effects of:
	Non taxable dividends			(649)				(1,127)
	(Gains)/losses on investments not taxable			(1,970)				6,510
	Unrelieved finance costs			(525)				244
				(773)				(96)
b)	Factors affecting future tax charges
	Unutilised tax losses			25,617				29,712
	Potential tax benefit at 19% (2020 - 19%)			4,867				5,645
	Recognised as a deferred tax non-current asset			1,258				485
	Not recognised as a deferred tax asset			3,609				5,160
				4,867				5,645

 

 

The Company and Group have deferred tax assets of £4,867,000 (2020 - £5,645,000) at 31 March 2021 relating to total accumulated unrelieved tax losses carried forward of £25,617,000 (2020 - £29,712,000). The Company and Group have recognised deferred tax assets of £1,258,000 (2020 - £485,000), based on forecast profits for the next five years but have not recognised deferred tax assets of £3,609,000 (2020 - £5,160,000) arising as a result of losses carried forward. These losses do not have an expiry date but it is considered too uncertain that the Group will generate profits against which these losses would be available to offset and, on that basis, the deferred tax asset in respect of these losses has not been recognised.

 

7	Return per ordinary share	2021				2020
		Group		Company		Group		Company
		£000		£000		£000		£000
The return per ordinary share is based on the following figures:
Revenue return		2,417		2,451		4,649		4,682
Capital return		10,203		10,799		(35,309)		(34,709)
Weighted average number of Ordinary Shares in issue		45,216,413		45,216,413		45,549,975		45,549,975
Return per share - revenue		5.35p		5.42p		10.21p		10.28p
Return per share - capital		22.56p		23.88p		(77.52p)		(76.20p)
Total return per share		27.91p		29.30p		(67.31p)		(65.92p)

 

8	Dividends	2021		2020
		£000		£000
Dividends on Ordinary Shares:
Third quarterly dividend of 2.90p per share (2020 - 2.80p) paid 24 April 2020 Fourth quarterly dividend of 3.40p per share (2020 final - 3.40p) paid 28 August 2020		1,321		1,275
		1,549		1,549
First quarterly dividend of 2.90p per share (2020 - 2.90p) paid 30 October 2020		1,321		1,321
Second quarterly dividend of 2.90p per share (2020 - 2.90p) paid 29 January 2021		1,321		1,321
Dividends paid in the period		5,512		5,466
The third interim dividend of 2.90p (2020 - 2.90p), paid on 30 April 2021, has not been included as a liability in these Financial Statements.
The final dividend of 3.60p (2020 fourth interim - 3.40p), being paid on 30 July 2021, has not been included as a liability in these Financial Statements.
Set out below is the total dividend paid and proposed in respect of the financial year, which is the basis upon which the requirements of Sections 1158 - 1159 of the Corporation Tax Act 2010 are considered. The current year's revenue available for distribution by way of dividend is £2,451,000 (2020 - £4,682,000).
		2021		2020
		£000		£000
First quarterly dividend of 2.90p per share (2020 - 2.90p) paid 30 October 2020		1,321		1,321
Second quarterly dividend of 2.90p per share (2020 - 2.90p) paid 29 January 2021		1,321		1,321
Third quarterly dividend of 2.90p per share (2020 - 2.90p) payable 30 April 2021		1,263		1,321
Final dividend for the year ended 31 March 2021 - 3.60p (2020 fourth interim - 3.40p) payable 30 July 2021		1,568		1,549
		5,473		5,512
The final dividend is based on the latest share capital of 43,557,464 Ordinary Shares excluding those held in Treasury.

 

9	Investments		Investment
			properties	Equities	Total
			£'000	£'000	£'000
	Group
	Cost at 31 March 2020		49,319	85,356	134,675
	Unrealised appreciation		25,140	5,401	30,541
	Valuation at 31 March 2020		74,459	90,757	165,216
	Purchases		17,553	4,500	22,053
	Sales proceeds		(4,703)	(79,584)	(84,287)
	Realised gains on sales		92	8,496	8,588
	Movement in unrealised appreciation in year		(6,269)	4,412	(1,857)
	Valuation at 31 March 2021		81,132	28,581	109,713
		Investment	Investment in
		properties	Subsidiary	Equities	Total
		£'000	£'000	£'000	£'000
	Company
	Cost at 31 March 2020	57,647	200	85,356	143,203
	Unrealised appreciation	18,040	-	5,401	23,441
	Valuation at 31 March 2020	75,687	200	90,757	166,644
	Purchases	17,553	-	4,500	22,053
	Sales proceeds	(4,703)	-	(79,584)	(84,287)
	Realised gains on sales	92	-	8,496	8,588
	Movement in unrealised appreciation in year	(7,497)	-	4,412	(3,085)
	Valuation at 31 March 2021	81,123	200	28,581	109,913
	The fair value valuation of £80,550,000 given by Savills plc excludes prepaid or accrued operating lease income arising from the spreading of lease incentives or minimum lease payments amounting to £2,289,000 and for adjustments to recognise finance lease liabilities for one leasehold property amounting to £2,871,000, both in accordance with IFRS 16. The valuation has therefore been increased by £582,000.   As noted in Notes 11 and 12, the movement in unrealised appreciation in the year disclosed in the Company's Statement of Comprehensive Income includes amortisation of £630,000 (2020 - £633,000) relating to the transfer of the 11% Debenture Stock 2021 from Audax Properties Limited to the Company in 2014.
	Transaction costs
	During the year expenses were incurred in acquiring and disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains and losses on investments in the Statement of Comprehensive Income. The total costs were as follows:-
			2021		2020
			£'000		£'000
	Purchases		27		83
	Sales		75		17
			102		100
	The fair values of the investment properties were independently valued by professional valuation on an open market basis for existing use by Savills (UK) Limited, Chartered Surveyors, acting in the capacity of External Valuers as defined in the RICS Red Book (but not for the avoidance of doubt as an External Valuer of the portfolio as defined by the Alternative Investment Fund Managers Regulations 2013). The valuations accord with the requirements of IFRS 13 and the RICS Valuation - Global Standards (incorporating the IVSC International Valuation Standards) effective from 31 January 2020 together, where applicable, with the UK National Supplement effective 14 January 2019 (together the 'Red Book') by reference to the Investment Method whereby the net annual income derived from a property is capitalised by an appropriate capitalisation rate or Years' Purchase figure to arrive at the present Capital Value of the property after an allowance for the purchaser's costs. The relevant capitalisation rate is chosen, based on the investment rate of return expected (as derived from comparisons of other similar property investments) for the type of property concerned and taking into consideration such factors as risk, capital appreciation, security of income, ease of sale and management of the property.
	As part of Savills' standard process, the valuations were carried out by specialist valuers, which were peer reviewed and reviewed again prior to the valuation date. During the review process, the various characteristics of each asset were taken into consideration and, where appropriate, an additional level of risk was applied taking into account the effect on market sentiment brought on by COVID-19. Due to the make-up of the portfolio, which predominately comprises industrial, foodstore and long let properties, yield discounts were only applied to a number of Licenced and Leisure assets, where capitalisation rates were moved out by between 25 and 50 basis points.   Property portfolio  Fair value - Group £'000  Key unobservable input  Inputs Range Blended Yield Industrials 30,788 Net Equivalent Yield 3.75% - 6.50% 5.60% Pubs 16,755 Net Equivalent Yield 5.25% - 13.00% 6.93% Supermarkets 13,090 Net Equivalent Yield 4.75% - 6.25% 5.61% Other 12,375 Net Equivalent Yield 5.50% - 8.25% 5.54% Leisure 6,005 Net Equivalent Yield 8.50% - 9.75% 8.98% Roadside 2,119 Net Equivalent Yield 6.75% 6.75%   81,132         A 50 bps increase in the equivalent yield applied would have decreased the net assets attributable to the Group and Company's Shareholders and the total loss for the year by £1,200,000. A 50 bps decrease in the equivalent yield applied would have increased the net assets attributable to the Group and Company's Shareholders and the total loss for the year by £1,350,000. A 5% decrease in the rental value applied would have decreased the net assets attributable to the Group and Company's Shareholders and the total loss for the year by £5,950,000. A 5% increase in the rental value applied would have increased the net assets attributable to the Group and Company's Shareholders and the total loss for the year by £6,900,000.
	Investment in subsidiary
		Country of incorporation	Date of acquisition	% Ownership	Principal activity
	Name
	Value and Indexed Property Income Services Limited (formerly Value and Income Services Limited)	UK	16 January 2014	100	AIFM

 

10	Receivables	2021				2020
		Group		Company		Group		Company
		£000		£000		£000		£000
Amounts falling due within one year:
Dividends receivable		251		251		323		323
Prepayments and accrued income		721		721		345		346
		972		972		668		669
Amounts falling due after more than one year:
Rental		2,017		2,017		-		-
		2,989		2,989		668		669

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

 

11	Current Liabilities
		2021				2020
		Group		Company		Group		Company
		£000		£000		£000		£000
Debenture stock
11% First Mortgage Debenture Stock 2021		-		-		15,000		15,000
Fair value adjustment		-		-		-		630
		-		-		15,000		15,630
The 11% First Mortgage Debenture Stock 2021, previously issued by Audax Properties plc, was, on 28 March 2014, transferred to Value and Indexed Property Income Trust PLC (VIP) following the approval of the substitution of VIP as issuer of the Debentures by the holders on 11 March 2014. Applications were made to the UK Listing Authority and the London Stock Exchange for the Debentures to be admitted in the name of VIP to the Official List and to trading on the main market of the London Stock Exchange from 28 March 2014.   The 11% First Mortgage Debenture Stock 2021 was repaid at par on 31 March 2021. Under IAS 39, now IFRS 9, this debenture required to be recorded initially at fair value of £19,417,000, rather than its nominal value of £15,000,000 in the Company's financial statements. The amortised cost of the debenture as at 31 March 2021 was nil (2020 - £15,630,000). The amortisation of the fair value adjustment was presented as a capital item within gains/losses on investments as it related to the reversal of a previously recognised loss on the Company's investment in its subsidiary. In the Group financial statements, the fair value adjustment was eliminated on consolidation.
The Company complied with the Debenture Stock Trust Deed covenants up to the redemption date.
		2021				2020
		Group		Company		Group		Company
		£000		£000		£000		£000
Payables
Amounts due to OLIM Limited		-		-		4		4
Amounts due to OLIM Property Limited		84		84		34		34
Accruals and other creditors		1,653		1,653		1,371		1,372
Value Added Tax payable		572		572		199		199
Lease liability		9		9		16		50
		2,318		2,318		1,624		1,659
The amount due to OLIM Property Limited comprise the monthly management fee for March 2021, subsequently paid in April 2021.

 

		2021					2020
		Group		Company		Group			Company
		£000		£000		£000			£000
12	Non-current liabilities
Bank loans		37,000		37,000		37,000			37,000
Balance of costs incurred		(536)		(536)		(590)			(590)
Costs incurred in the year		(22)		(22)		-			-
Add: Debit to income for the year		85		85		54			54
		36,527		36,527		36,464			36,464
9.375% Debenture Stock 2026		20,000		20,000		20,000			20,000
Add:- Balance of premium less issue expenses		159		159		182			182
Less: Credit to income for the year		(24)		(24)		(23)			(23)
		20,135		20,135		20,159			20,159
Lease liability payable in more than one year
- within 2 - 5 years		37		37		74			214
- over 5 years		2,825		2,825		4,169			5,223
		2,862		2,862		4,243			5,437
		59,524		59,524		60,866			62,060

 

The Company has a £15,000,000 fixed term secured loan facility for a period of up to ten years to 31 March 2026 (2020 - £15,000,000). At 31 March 2021, £11,893,750 was drawn down at a rate of 4.344% and £3,106,250 was drawn down at a rate of 3.60%. The terms of the loan facility contain financial covenants that require the Company to ensure that:-

 

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

 

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

 

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

 

On 28 November 2019, the Company entered into a £22,000,000 fixed term secured loan facility for a period of up to seven years to 30 November 2026. On 3 March 2021, this facility was extended until 31 March 2031. At 31 March 2021, £20,900,000 was drawn down at a fixed rate of 3.28099% and £1,100,000 was drawn down at a variable rate of 2.38338% (being LIBOR for the period equal in length to the interest period of the loan plus a margin of 2.35%). The terms of the loan facility contain financial covenants that require the Company to ensure that:-

 

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

 

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

 

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

 

The 9.375% Debenture Stock 2026 issued by VIP is repayable at par on 30 November 2026 and is secured by a floating charge over the property and assets of the Company.

 

The Trust Deed of the 9.375% Debenture Stock contains restrictions and events of default. The restrictions require that the aggregate group borrowings, £57 million, must not at any time exceed the total group capital and reserves (equivalent to net assets of £118.1 million as at 31 March 2021).

 

The fair values of the loan and the debentures are disclosed in Note 21 and the net asset value per share, calculated with the borrowings at fair value, is disclosed in Note 17.

 

13	Deferred tax
Under IAS 12, provision must be made for any potential tax liability on revaluation surpluses. As an investment trust, the Company does not incur capital gains tax and no provision for deferred tax is therefore required in this respect.   As disclosed in Note 6, a deferred tax asset has been recognised to reflect the estimated value of tax losses carried forward which are likely to be capable of offset against future profits.
14	Share capital	2021		2020
		£000		£000
Authorised:
56,000,000 Ordinary Shares of 10p each (2020 - 56,000,000)		5,600		5,600
Called up, issued and fully paid:
43,557,464 Ordinary Shares of 10p each (2020 - 45,549,975)		4,356		4,555
Treasury shares:
1,992,511 Ordinary Shares of 10p each (2020 - nil)		199		-
		4,555		4,555
The ordinary share capital on the Statement of Financial Position relates to the number of Ordinary Shares in issue and in Treasury. Only when shares are cancelled, either from Treasury or directly, is a transfer made to the Capital Redemption Reserve.   During the year, the Company repurchased 1,992,511 Ordinary Shares (2020 - nil) at a cost of £4,332,381 including expenses (2020 - nil). All of these shares were placed in Treasury.

 

15	Share premium	2021				2020
		Group		Company		Group		Company
		£000		£000		£000		£000
Opening balance		18,446		18,446		18,446		18,446

 

16	Retained earnings		2021					2020
			Group		Company			Group		Company
			£000		£000			£000		£000
Opening balance at 31 March 2020			92,306		91,676			128,432		127,169
Profit/(loss) for the year			12,620		13,250			(30,660)		(30,027)
Dividends paid (see Note 8)			(5,512)		(5,512)			(5,466)		(5,466)
Buyback of Ordinary Shares for Treasury (see Note 14)			(4,332)		(4,332)			-		-
Closing balance at 31 March 2021			95,082		95,082			92,306		91,676
The table below shows the movement in retained earnings analysed between revenue and capital items.

 

		2021			2020
	Revenue	Capital	Total		Revenue	Capital		Total
	£000	£000	£000		£000	£000		£000
Group
Opening balance at 31 March 2020	3,191	89,115	92,306		4,008	124,424		128,432
Profit/(loss) for the year	2,417	10,203	12,620		4,649	(35,309)		(30,660)
Dividends paid (see Note 8)	(5,512)	-	(5,512)		(5,466)	-		(5,466)
Buyback of Ordinary Shares for Treasury (see Note 14)	-	(4,332)	(4,332)		-	-		-
Closing balance at 31 March 2021	96	94,986	95,082		3,191	89,115		92,306
Company
Opening balance at 31 March 2020	2,070	89,606	91,676		2,854	124,315		127,169
Profit/(loss) for the year	2,451	10,799	13,250		4,682	(34,709)		(30,027)
Dividends paid (see Note 8)	(5,512)	-	(5,512)		(5,466)	-		(5,466)
Buyback of Ordinary Shares for Treasury (see Note 14)	-	(4,332)	(4,332)		-	-		-
Closing balance at 31 March 2021	(991)	96,073	95,082		2,070	89,606		91,676

 

Of the Company's Retained Earnings of £95,082,000, £69,262,000 is considered to be distributable.

 

17	Net asset value per equity share
The net asset values per Ordinary Share are based on the Group's net assets attributable of £118,083,000 (2020 - £115,307,000) and on the Company's net assets attributable of £118,083,000 (2020 - £114,677,000) and on 43,557,464 (2020 - 45,549,975) Ordinary Shares in issue at the year end, excluding shares held in Treasury.   The net asset value per Ordinary Share, based on the net assets of the Group and the Company adjusted for borrowings at fair value (see Note 21) of £111,755,000 (2020 - £105,990,000) is 256.57p (2020 - 232.69p).
		2021						2020
		Group			Company			Group			Company
Net assets at 31 March 2021		118,083			118,083			115,307			114,677
Fair value adjustments		(6,328)			(6,328)			(9,317)			(8,687)
Net assets with borrowings at fair value		111,755			111,755			105,990			105,990
Number of shares in issue		43,557,464			43,557,464			45,549,975			45,549,975
Net asset value per share		271.10p			271.10p			253.14p			251.76p
Net asset value per share with borrowings at fair value		256.57p			256.57p			232.69p			232.69p
			2021						2020
18 Reconciliation of income from operations before tax to net cash inflow from operating activities			Group £000		Company £000				Group £000		Company £000
Income from operations before tax (Gains)/losses on investments			18,705		19,301				(24,119)		(23,519)
			(9,773)		(10,369)				34,863		34,263
Investment management fee			(1,003)		(1,003)				(1,150)		(1,150)
Other operating expenses			(771)		(771)				(878)		(878)
(Increase)/decrease in receivables			(274)		(274)				239		239
Increase/(decrease) in other payables			391		391				(418)		(418)
Net cash from operating activities			7,275		7,275				8,537		8,537

 

19	Reconciliation of current and non-current liabilities arising from financing activities	2021				2020
		Group		Company		Group		Company
		£000		£000		£000		£000
Cash movements
Payment of rental (for leasing)		209		209		205		206
Repayment of debenture		15,000		15,000		-		-
Drawdown of loans (for financing)		-		-		(21,680)		(21,680)
Loan costs		22		22		-		-
Non-cash movements
Finance costs (for leasing)		1,179		2,407		(190)		(157)
Changes in fair value		-		630		-		633
Amortisation of loan premium and expenses and fair value adjustment		(61)		(61)		(30)		(30)
Change in debt in the year		16,349		18,207		(21,695)		(21,028)
Opening debt at 31 March 2020		(75,882)		(77,740)		(54,187)		(56,712)
Closing debt at 31 March 2021		(59,533)		(59,533)		(75,882)		(77,740)

 

 

20	Relationship with the Investment Manager and Related Parties
Value and Indexed Property Income Services Limited is a wholly owned subsidiary of Value and Indexed Property Income Trust PLC and all costs and expenses are borne by Value and Indexed Property Income Trust PLC. Value and Indexed Property Income Services Limited has not traded during the year.   Matthew Oakeshott is a director of OLIM Property Limited which has an agreement with the Group to provide investment management services, the terms of which are outlined in the Annual Report and in Note 3.

 

21    Financial instruments and investment property risks

       Risk management

 

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

 

The Managers have dedicated investment management processes which ensures that the Investment Policy set out in the Annual Report is achieved. For equities, stock selection procedures are in place based on active portfolio management and the identification of stocks. The portfolio is reviewed on a periodic basis by a senior investment manager and also, until 28 February 2021, by OLIM's Investment Committee and then by OLIM Property's Investment Committee.     

 

Additionally, the Managers' Compliance Officers continually monitor the Group's investment and borrowing powers and report to their respective Managers.

 

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

 

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

 

(ii)  liquidity risk

 

(iii) credit risk

 

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

 

(i)    Market risk

 

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

 

Price risk

 

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

 

It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. For equities, asset allocation and stock selection, as set out in the Investment Policy in the Annual Report, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on the London Stock Exchange.

 

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

 

Price risk sensitivity

 

If market prices at the date of the Statement of Financial Position had been 10% higher or lower, while all other variables remained constant, the return attributable to ordinary shareholders for the year ended 31 March 2021 would have increased/decreased by £10,971,000 (2020 - increase/decrease of £16,522,000) and equity reserves would have increased/ decreased by the same amount.

                                                           

Interest rate risk

                                                           

Interest rate movements may affect:

 

-      the fair value of the investments in property; and

 

-      the level of income receivable on cash deposits

 

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

 

The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise debenture stock and five and ten year bank loans, providing secure long term funding. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of between 25% and 50%. Details of borrowings at 31 March 2021 are shown in Notes 11 and 12.

 

Interest risk profile
The interest rate risk profile of the portfolio of financial assets and liabilities at the balance sheet date was as follows:
At 31 March 2021	Weighted average period for which rate is fixed Years	Weighted average interest rate         %	Fixed rate £'000	Floating rate    £'000
Assets
Sterling		0.00	-	65,965
Total assets	-	0.00	-	65,965
At 31 March 2021	Weighted average period for which rate is fixed Years	Weighted average interest rate         %	Fixed rate £'000	Floating rate £'000
Liabilities
Sterling	7.17	5.64	57,000	-
Total liabilities	7.17	5.64	57,000	-
At 31 March 2020	Weighted average period for which rate is fixed Years	Weighted average interest rate         %	Fixed rate £'000	Floating rate £'000
Assets
Sterling	1	1.14	21,756	4,672
Total assets	1	1.14	21,756	4,672
At 31 March 2020	Weighted average period for which rate is fixed Years	Weighted average interest rate         %	Fixed rate £'000	Floating rate    £'000
Liabilities
Sterling	5.35	6.715	72,000	-
Total liabilities	5.35	6.715	72,000	-
The weighted average interest rate on borrowings is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Group's loans are shown in Notes 11 and 12.
The floating rate assets consist of cash deposits on call, earning interest at prevailing market rates. The Group's equity and property portfolios and short term receivables and payables are non interest bearing and have been excluded from the above tables. All financial liabilities are measured at amortised cost.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to interest rates at the balance sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Group's: -    profit for the year ended 31 March 2021 would increase/decrease by £47,000 (2020 - increase / decrease by £43,000). This is mainly attributable the Group's exposure to interest rates on its floating rate cash balances. -    the Group holds no financial instruments that will have an equity reserve impact.
In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Group's objectives.
Currency risk
A small proportion of the Group's investment portfolio is invested in securities whose fair value and dividend stream are affected by movements in foreign exchange rates. It is not the Group's policy to hedge this risk.
Currency sensitivity
There is no sensitivity analysis included as the Group has no outstanding foreign currency denominated monetary items. Where the Group's equity investments (which are non-monetary items) are affected, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.

 

(ii)   Liquidity risk

                                                           

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

                                                                       

The Group's assets comprise of readily realisable securities which can be sold to meet commitments if required and investment properties which, by their nature, are less readily realisable. The maturity of the Group's existing borrowings is set out in the interest risk profile section of this note.

                                                                       

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

 

As at 31 March 2021
	Carrying value	Expected cashflows	Due within 3 months	Due between 3 months and 1 year	Due after 1 year
	£'000	£'000	£'000	£'000	£'000
Borrowings	57,853	78,738	1,268	1,951	75,519
Leases	2,871	7,351	22	65	7,264
Other payables	527	527	527	-	-
Total	61,251	86,616	1,817	2,016	82,783
As at 31 March 2020
Borrowings	73,062	95,311	1,380	18,571	75,360
Leases	4,259	11,547	51	154	11,342
Other payables	467	467	467	-	-
Total	77,788	107,325	1,898	18,725	86,702

 

(iii) Credit risk

 

This is the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Group suffering a loss.

 

The risk is not significant and is managed as follows:

 

-      investment transactions are carried out on behalf of VIP by an outsourced dealing agent. Settlement of these transactions is executed by a large investment bank whose credit standing is reviewed periodically by OLIM Property (which reports to VIS).

 

-      the risk of counterparty exposure due to failed trades causing a loss to the Group is mitigated by the review of failed trade reports on a daily basis. In addition, a stock reconciliation to third party administrators' records is performed on a daily basis to ensure that discrepancies are picked up on a timely basis.

 

-      cash is held only with reputable banks with high quality external credit ratings which are monitored on a regular basis.

                                                                       

Credit risk exposure

                                                                       

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

 

	2021			2020
	Balance Sheet £'000	Maximum exposure £'000		Balance Sheet £'000	Maximum exposure £'000
Current assets
Cash and cash equivalents	65,965	83,209		26,428	26,428
Other receivables	597	7,733		668	1,185
	66,562	90,942		27,096	27,613

 

(iv) Property risk

                                                                       

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

 

Against that background, the specific risks to the income from the portfolio are tenants being unable to pay their rents and other charges, or leaving their properties at the end of their leases. All leases are on full repairing and insuring terms, with upward only rent reviews and the average unexpired lease length is 17 years (2020 - 17 years). Details of the tenant and geographical spread of the portfolio are set out In the Annual Report. The long term record of performance through the varying property cycles since 1987 is set out in the Annual Report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.

 

The Group leases out its investment property to its tenants under operating leases. At 31 March 2021, the future minimum lease receipts under non-cancellable leases are as follows:-

 

	2021		2020
	£000		£000
Due within 1 year	5,152		4,482
Due between 2 and 5 years	20,362		17,675
Due after more than 5 years	63,155		49,642
	88,669		71,799

 

This amount comprises the total contracted rent receivable as at 31 March 2021.

 

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

 

Fair values of financial assets and financial liabilities 

 

All assets and liabilities of the Group other than receivables and payables and the borrowings are included in the Balance Sheet at fair value.

 

(i)    Fair value hierarchy disclosures

 

All assets and liabilities of the Group other than receivables and payables and the borrowings are included in the Balance Sheet at fair value.

 

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

 

	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
At 31 March 2021
Equity investments	28,581	-	-	28,581
Investment properties	-	-	81,132	81,132
	28,581	-	81,132	109,713
At 31 March 2020
Equity investments	90,757	-	-	90,757
Investment properties	-	-	74,459	74,459
	90,757	-	74,459	165,216

 

Company and Group numbers per the above fair value disclosures are the same except for the investment of £200,000 made by the Company in its subsidiary and, for 2020 only, the differing fair value of one property, sold during the year, which was the subject of an inter-group transfer in 2014.

                                                                       

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

 

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

 

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

 

Level 3 - inputs are not observable

 

There were no transfers between Levels during the year. 

 

(ii)   Borrowings

 

The fair value of borrowings has been calculated at £62,652,000 as at 31 March 2021 (2020 - £81,317,000) compared to a Balance Sheet value in the Financial Statements of £56,662,000 (2020 - £71,623,000) per Notes 11 and 12.

 

The fair value of the debenture is determined by comparison with the fair value of an equivalent gilt edged security, discounted to reflect the differing levels of credit worthiness of the borrowers. The fair values of the loans are determined by a discounted cash flow calculation based on the appropriate inter-bank rate plus the margin per the loan agreement. These instruments are therefore considered to be Level 2 as defined above. There were no transfers between Levels during the year.

 

All other assets and liabilities of the Group are included in the Balance Sheet at fair value.

 

		Fair value			Balance Sheet Value
		2021	2020		2021	2020
		£000	£000		£000	£000
9.375% Debenture Stock 2026		25,517	26,740		20,135	20,159
11% First Mortgage Debenture Stock 2021		-	16,074		-	15,000
		25,517	42,814		20,135	35,159
Bank loans		37,135	38,503		36,527	36,464
		62,652	81,317		56,662	71,623
There were no transfers between Levels during the year.

22    Capital management policies and procedures      

 

The Group's capital management objectives are:

           

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

 

-      to maximise the return to its equity shareholders in the form of long term real growth in dividends and capital value without undue risk through the optimisation of the debt and equity balance.

                       

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

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

                       

-      the planned level of gearing which takes into account the Managers' views on the market and the extent to which revenue in excess of that which requires to be distributed should be retained.

                       

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

                       

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

 

23    Events after the Statement of Financial Position Date

           

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

 

Additional Information

 

In accordance with section 435 of the Companies Act 2006, the Directors advise that the financial information set out in this announcement does not constitute the Group's statutory Financial Statements for the period ended 31 March 2021 but is derived from these Financial Statements. The statutory Financial Statements for the year ended 31 March 2020 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under S498(2) or S498(3) of the Companies Act 2006.

 

The Financial Statements for the period ended 31 March 2021 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The Financial Statements for the period ended 31 March 2021 will be forwarded to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have reported on these Financial Statements; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

 

The Group and Company Statement of Financial Position at 31 March 2021 and the Group and Company Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended have been extracted from the Group's Financial Statements. Those Financial Statements have not yet been delivered to the Registrar.

 

The 2021 Annual Report and Financial Statements will be posted to Shareholders shortly and will contain the Notice of the Annual General Meeting of the Company to be held on Friday, 23 July 2021 at 12.30pm at the offices of Maven Capital Partners UK LLP, First Floor Kintyre House, 205 West George Street, Glasgow G2 2LW. As referred to in the Chairman's Statement, due to the Government advice against all non-essential travel and the rules on maintaining social distancing, Shareholders will be unable to attend the Annual General Meeting in person.

 

 

For Value and Indexed Property Income Trust PLC

Maven Capital Partners UK LLP

Company Secretary

22 June 2021