Drum Income Plus REIT

Half-year Report
RNS Number : 4032Q
Drum Income Plus REIT PLC
18 June 2020
 

THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014.

 

18 June 2020

Drum Income Plus REIT Plc

(the "Company")

LEI: 213800FG3PJGQ3KQH756

 

HALF-YEAR RESULTS

Drum Income Plus REIT plc (LSE: DRIP) announces its half-year results for the six months ended 31 March 2020.

 

Enquiries:

Drum Real Estate Investment Management (Investment Manager)

Bryan Sherriff

 

 

0131 285 0050

Cantor Fitzgerald Europe (Financial Adviser and Corporate Broker)         

Robert Peel (Corporate Finance)                       

Richard Sloss (Sales)

 

020 7894 7719

0131 257 4626

Dickson Minto W.S. (Sponsor)                                                                            

Douglas Armstrong

 

 

020 7649 6823

Weber Shandwick (Financial PR)

Richard Bright

Nick Oborne

 

0131 556 6649

020 7067 0721

JTC (UK) Limited (Company Secretary)

 

0203 846 9777

 

 

 

Chairman's Statement

 

INTRODUCTION

 

Drum Income Plus REIT was established in May 2015 to provide investors with a regular dividend income, together with the prospect of income and capital growth over the longer term, by investing in regional real estate assets. I am pleased to present this interim report for the six month period ended 31 March 2020.

 

Since my Annual Statement a few short months ago, the world has been struck by the global pandemic virus known as COVID-19.  Hundreds of thousands of people have died around the world, and the UK has not escaped, with tens of thousands of deaths to date recorded.

 

Economies have been hard hit, and recessions are inevitable - globally, nationally and locally. Real estate funds will not escape the challenges which the country's lockdown has brought, and, further, which recession will bring, but our initial focus has been to ensure where possible the health and safety of everyone who enters or works in our properties. I would like to thank especially our investment managers and property managers for their sterling efforts in this regard in what have been the most testing of circumstances.

 

The Net Asset Value has fallen by 6.2% in the 6 months to March 2020, largely due to a fall in the valuation of the retail and shopping centre assets. As announced last month, the quarterly dividend has been suspended for the next two quarters in order to preserve cash, and the position will be reviewed for the September 2020 quarter, which is also the Company's year end.

 

Inevitably, some of our tenants will be experiencing large losses of revenues, especially those within the retail sector, and as landlords in these unprecedented times we will be as flexible as we can be in negotiating terms with those who request to do so, whilst at the same time optimizing income and protecting the value of our shareholders' assets. At the time of writing we have secured more than 75% of rental income which is payable during the lockdown period with further monthly payments expected, but perhaps bigger challenges lie ahead in the next couple of quarters, as it is likely that rent collections will remain under pressure until trading conditions begin to improve for tenants. The real estate portfolio is of course protected to a certain extent by the quality and length of many of the leases in place.

 

Hugh Little

Chairman

18 June 2020

 

 

 

Investment Adviser's Report

 

MARKET VIEW

 

The impact of Covid-19 and the lockdown on the UK Commercial property market is unprecedented and its effects will continue to shape the market even once we exit lockdown. While the UK did not enter lockdown until the 24th March, social distancing was already shaping footfall, occupier appetite and rents across all sectors from mid-March and is apparent in the data from the quarter to March 2020. Going forward, we expect COVID-19 uncertainty will continue to affect the market and corresponding values over the next six to nine months with some market commentators anticipating that there will be a return to more normal conditions by the end of March 2021 (assuming a vaccine is in place).

 

The Board and the Manager are taking every precaution to safeguard the health and wellbeing of staff, occupiers and stakeholders. We are continually monitoring our assets in light of the outbreak of Covid-19 and our primary focus through this exceptionally challenging period is to ensure that the portfolio is well positioned to begin its recovery once the COVID-19 "lockdown" restrictions are lifted and our tenants can begin to generate income again.  We are focused on preserving the long-term value and financial strength of the Company.

 

However, Covid-19 has had and will continue to have a material impact upon the trading performance of the Company. In common with all valuations being carried out at this time, the March 2020 valuation report is subject to a material uncertainty clause and further valuation and NAV reductions are likely as rent collections will continue to remain under pressure until trading conditions for tenants begin to improve.

 

As announced in the March 2020 NAV statement our rental collection statistics were solid and a clearer picture of the impact of Covid-19 will emerge as we monitor rent collections for the 28 May Scottish quarter and the 25 June English quarter in the coming weeks.

 

The political issues last year of Brexit and a General Election have for the minute been forgotten as we deal with the impact of Covid-19. Whilst the General Election is behind us and we now have a Government with a majority the transition facing the UK as we deal with Brexit is yet to be understood. The latest data confirms that investment transaction levels across all sectors in the UK are showing a downward trajectory. With the impact of Covid-19, rents are also under pressure as tenants try to secure Government assistance, however, unemployment is rising and this will undoubtedly have an impact on the affordability of rents in due course.

 

Social distancing is a new phenomenon, however, it is one we all need to adapt to in order for the lockdown restrictions to be removed safely. Occupiers and Landlords will have to alter how buildings and occupied space are operated.

Aside from many potential occupiers now taking a 'wait-and-see' approach to acquiring space, the more physical aspect of not being able to undertake viewings has put the majority of  requirements on hold.

 

We envisage the majority of these requirements being deferred by at least a quarter, if not more. However, the situation is constantly evolving, and encouragingly, we are now starting to see more 'virtual' viewings, enabling occupiers to shortlist buildings ready to make a decision post-lockdown.

While some companies will use technology to enable employees to work from home post-Covid-19, it is our belief that the office is more important to people than ever for face-to-face meetings, collaboration and knowledge sharing. An office with an attractive design and culture is also an important component for the attraction and retention of staff.

 

Homeworking will continue, but we are sociable creatures, so office life will, too. Many employees will look forward to getting back to the sense of community and the increased social interaction. The challenge lies in how to adapt workplaces. There is going to be substantially more awareness and interest on the part of employees, in terms of the quality of the spaces that they are occupying.

 

Landlords and occupiers alike, are likely to invest in new contactless technologies to reduce disease transmission, resulting in employees rarely needing to touch the building with their hands. Office doors will open automatically using motion sensors and facial recognition, while lifts - and even a coffee - can be ordered from a smartphone.

 

Some requirements may start to shrink as businesses realise that a percentage of their staff can now work from home, but the converse is that other requirements may increase as social distancing may require office occupational densities to be reduced. Office desks have shrunk over the years, but we may see a reversal of that, as people may not want to sit so close together.

 

Ultimately, occupiers will demand more flexibility, some occupiers will require shorter leases and maybe we will see core space on a more traditional lease whilst occupiers add extra floor space on more flexible arrangements. Nothing is certain yet, and it is only as we start to come out of lockdown and employees start to return to the office, that we will really know to what extent things have changed.

 

Below are some highlights of the portfolio performance:

 

·      Following the refurbishment of one terrace at Burnside Industrial Estate we have successfully concluded 3 lettings, with one unit out of 6 remaining vacant.

·      Significant work has been undertaken over the last 2 years to secure a new 10 year lease to SDS at Monteith House although the start date has been delayed due to Covid-19

·      We have appealed the planning refusal at Eastern Avenue Retail Park, Gloucester.

·      3 Lochside Way continues to be a strong performing asset and remains fully let

·      Gosforth Shopping Centre continues to produce a strong rental income for the Company but the value has been reduced due to the market sentiment and lack of transactional evidence for Shopping Centres, albeit almost 50% of the income at Gosforth is payable by Sainsbury's.

 

DIFFERENTIATED INVESTMENT STRATEGY

 

In terms of investment focus the Company will continue to invest when funds are available in well located regional property where the basic fundamentals of supply and demand are favourable. The Company is stock selection driven, although the macro top down analysis will always be a feature of the investment process.

 

The Investment Adviser believes that income will remain a large component of market return over the next few years.

 

INVESTMENT STRATEGY

 

The strategy continues to remain focussed on constructing and managing a quality diversified portfolio of real estate assets which offer the opportunity to increase rental value, income security and capital value via the Investment Adviser's expertise in entrepreneurial asset management and risk-controlled development.  The Investment Adviser targets commercial real estate assets with the following characteristics:

 

·      sector agnostic - opportunity driven;

·      lot sizes of between £2 million and £15 million, in regional locations;

·      offer the opportunity to add value via the Investment Adviser's proactive asset management;

·      situated in significant regional conurbations that have scope for physical improvement or improved asset management; and

·      which the Investment Adviser considers to be mispriced and/or properties which are subject to substandard lease lengths and voids.

 

RISK MANAGEMENT AND SUSTAINABILITY

 

The Investment Adviser considers and monitors risk through all aspects of the investment process. Risks identified prior to the acquisition of an asset are highlighted to the Board and considered by the Directors prior to approval of the purchase. These risks are then monitored by the Investment Adviser and reviewed at each quarterly Board meeting of the Company.

 

Sustainable investment is relevant in considering suitable investments for the Company and is a factor considered by the Investment Adviser when analysing risk. The Investment Adviser seeks to avoid depreciation in valuation caused by external environmental factors and also seeks to be aware of the need for buildings to deliver the future requirements of occupiers.

 

 

 

Bryan Sherriff

Investment Manager

18 June 2020

 

Condensed Consolidated Statement of Comprehensive Income 

 

For the six months ended 31 March 2020                                                                                                        

Six months ended

Six months ended

Year ended

31 March 2020

31 March 2019

30 September 2019

(unaudited)

(unaudited)

(audited)

Revenue  Capital        Total

Revenue   Capital      Total

Revenue      Capital          Total

Notes              £'000       £'000   £'000

£'000       £'000       £'000

£'000          £'000        £'000

Capital gains/(losses) on investments

 

 

 

 

 

 

 

 

Held at fair value

(2,093)

(2,093)

-

(714)

(714)

-

(3,133)

(3,133)

Revenue

 

 

 

 

 

 

 

 

Rental income

-

2,088

2,205

-

2,205

4,249

-

4,249

Total Income/ expense                        2,088 

(2,093)

(5)

2,205

(714)

1,491

4,249

(3,133)

1,116

 

 

 

 

 

 

 

 

 

Expenditure

 

 

 

 

 

 

 

 

Investment

 

 

 

 

 

 

 

 

Adviser's fees                    2                  (114)

-

(114)

(192)

-

(192)

(335)

-

(335)

Property expenses                              (360)

-

(360)

-

-

-

-

-

-

Other expenses                                    (220)

-

(220)

(668)

-

(668)

(1,193)

-

(1,193)

Total expenditure                                 (694)

-

(694)

(860)

-

(860)

(1,528)

-

(1,528)

Profit / (loss) before finance

costs and taxation                               
                                                               1,394

 

 

(2,093)

 

 

(699)

 

 

1,345

 

 

(714)

 

 

631

 

 

2,721

 

 

(3,133)

 

 

(412)

Net finance costs

Interest receivable                                       -

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Interest payable                                   (335)

-

(335)

(298)

-

(298)

(657)

-

(657)

Profit / (loss) before taxation         1,059

(2,093)

(1,034)

1,047

(714)

333

2,064

(3,133)

(1,069)

Taxation                                                               -

-

-

-

-

-

-

-

-

Profit / (loss)

for the period                                                                                                                 1,059

(2,093)

(1,034)

1,047

(714)

333

2,064

(3,133)

(1,069)

Total comprehensive profit / (loss)

for the period                                                                                                                 1,059

(2,093)

(1,034)

1,047

(714)

333

2,064

(3,133)

(1,069)

Basic and diluted earnings per

ordinary share                               
                                                               2.77p

 

 

(5.48)p

 

(2.71)p

2.74p

(1.87)p

0.87p

5.40p

(8.02)p

(2.80)p

 

 

The total column of this statement represents the Group's Condensed Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS. There are no other gains or losses for the period other than the total comprehensive profit reported above.

The supplementary revenue return and capital return columns are prepared under guidance published by the Association of Investment Companies.

No operations were acquired or discontinued during the period. All revenue and capital items in the above statement are derived from continuing operations.

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

 

Condensed Consolidated Statement of Financial Position

 

As at 31 March 2020

 

 

 

As at 31 March

 

As at 31 March

 

As at 30 September

 

 

 

Notes

2020

(unaudited)

£'000

2019

(unaudited)

£'000

2019

(audited)

£'000

Non-current assets

Investment properties

 

5

 

52,870

 

56,771

 

54,880

 

 

52,870

56,771

54,880

Current assets                                                                                                                                                                                                                                                          

Trade and other receivables

 

2,282

2,378

2,643

Cash and cash equivalents

 

542

1,060

510

 

 

2,824

3,438

3,153

Total assets

 

55,695

60,209

58,033

Non-current liabilities

Bank loan

 

6

 

(22,592)

 

-

 

(22,559)

 

 

(22,592)

-

(22,559)

Current liabilities                                                                                                                                                                                                                                                 

Trade and other payables

 

(2,822)

(2,463)

(3,014)

Bank loan

 

-

(22,731)

-

Total liabilities

 

(25,414)

(25,194)

(25,573)

Net assets

 

30,280

35,015

32,460

 

Equity and reserves

Called up equity share capital

 

 

8

 

 

3,820

 

 

3,820

 

 

3,820

Share premium

 

5,335

5,335

5,335

Special distributable reserve

 

21,840

21,840

21,840

Capital reserve

 

(7,806)

(3,294)

(5,713)

Revenue reserve

 

7,091

7,314

7,178

Equity shareholders' funds

 

30,280

35,015

32,460

 

Net asset value per ordinary share

 

7

 

79.26p

 

91.66p

 

84.97p

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

Company number: 9511797

 

The condensed consolidated interim financial statements on pages 12 to 21 were approved by the Board of Directors on 18 June 2020 and were signed on its behalf by:

 

 

Hugh Little

Chairman

 

 

 

 

 

 

Condensed Consolidated Statement of Changes in Equity 

 

 

For the six months to 31 March 2020 (unaudited)

 

 

 

Share capital account

 

 

 

Share premium

 

 

Special distributable

reserve

 

 

 

Capital reserve

 

 

 

Revenue reserve

 

 

 

Total equity

 

£'000

£'000

£'000

£'000

£'000

£'000

As at 30 September 2019

3,820

5,335

21,840

(5,713)

7,178

32,460

Profit and total comprehensive profit for the period:

 

 

-

 

 

-

 

 

-

 

 

(2,093)

1,059

(1,034)

Transactions with owners recognised in equity:

Issue of ordinary share capital

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Issue costs

-

-

-

-

-

-

Dividends paid

-

-

-

-

(1,146)

(1,146)

As at 31 March 2020

3,820

5,335

21,840

(7,806)

7,091

30,280

 

For the six months to 31 March 2019 (unaudited)

 

 

 

 

 

 

 

Share capital

 

Share

Special distributable

 

Capital

 

Revenue

 

Total

 

account

premium

reserve

reserve

reserve

equity

 

£'000

£'000

£'000

£'000

£'000

£'000

As at 30 September 2018

3,820

5,335

21,840

(2,580)

7,406

35,821

Profit and total comprehensive profit for the period:

 

 

-

 

 

-

 

 

-

 

 

(714)

 

 

1,047

 

 

333

Transactions with owners recognised in equity:

Issue of ordinary share capital

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Issue costs

-

-

-

-

-

-

Dividends paid

-

-

-

-

(1,139)

(1,139)

As at 31 March 2019

3,820

5,335

21,840

(3,294)

7,314

35,015

 

 

 

 

 

 

 

 

 

Condensed Consolidated Cash Flow Statement

 

For the six months ended 31 March 2020                                

 

 

Six months

ended 31 March

 

Six months

ended 31 March

 

Year ended

30 September

 

2020

2019

2019

 

(unaudited)

(unaudited)

(audited)

 

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

Profit/(Loss) before tax

(1,034)

333

(1,069)

Adjustments for:

 

 

 

Interest payable

291

306

657

Amortised loan costs

32

-

16

Unrealised revaluation (loss) / gain on property portfolio

2,053

714

3,133

Operating cash flows before working capital changes

1,342

1,353

2,737

Increase / (decrease) in trade and other receivables

361

320

6

Increase/ (decrease)  in trade and other payables

(192)

(155)

60

Net cash inflow from operating activities

1,511

1,518

2,803

 

Cash flows from investing activities

 

 

 

Rent free debtor movement

40

20

-

Property capitalised costs

(83)

(171)

(489)

Net cash outflow from investing activities

(43)

(151)

(489)

 

Cash flows from financing activities

 

 

 

Bank loan drawn down net of arrangement fees

-

-

-

Issue of ordinary share capital

-

-

-

Interest received

-

-

-

Interest paid

(291)

(306)

(651)

Equity dividends paid

(1,145)

(1,140)

(2,292)

Net cash (outflow) / inflow from financing activities

(1,436)

(1,446)

(2,943)

Net increase / (decrease) in cash and cash equivalents

32

(79)

(629)

Opening cash and cash equivalents

510

1,139

1,139

Closing cash and cash equivalents

542

1,060

510

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

 

1.   INTERIM RESULTS

 

The condensed consolidated financial  statements have been prepared in accordance with  International  Financial Reporting Standards ('IFRS') and IAS 34 'Interim Financial Reporting' as adopted by the European Union and the accounting policies set out in the statutory accounts of the Group for the year ended 30 September 2019. The condensed consolidated financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the financial statements of the Group for the year ended 30 September 2019, which were prepared under IFRS as adopted by the European Union. There have been no significant changes to management judgements and estimates.

 

The condensed consolidated financial statements have been prepared on the going concern basis. In assessing the going concern of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council. After making enquiries, and bearing in mind the nature of the Group's business and assets, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

 

2.   INVESTMENT ADVISER'S FEE

 

 

Six months

Six months

Year

 

 

ended

ended

ended

 

 

31 March

31 March

30 September

 

 

2020

2019

2019

 

 

£'000

£'000

£'000

 

Investment  Adviser's fee

114

 192

335

 

Total

114

192

335

 

 

 

The Investment Management fee is calculated as 0.7% per annum of the net assets of the Group. The Investment Management Agreement may be terminated by either party by giving not less than 12 months' notice.

 

3.   EARNINGS PER SHARE

 

 

 

Six months ended 31 March 2020

Pence per

 

Six months ended 31 March 2020

Pence per

 

Year ended 30 September 2019

Pence per

 

£'000

share

£'000

share

£'000

share

Revenue earnings

1,060

2.77

1,047

2.74

2,064

5.40

Capital earnings

(2,093)

(5.48)

(714)

(1.87)

(3,133)

(8.20)

Total earnings

(1,034)

(2.71)

333

0.87

(1,069)

(2.80)

Weighted average number of shares in issue

 

 

38,201,990

 

 

38,201,990

 

 

38,201,990

 

 

Earnings for the period to 31 March 2020 should not be taken as a guide to the results for the period to 30 September 2020.

 

 

 

4.   DIVIDENDS

 

A first interim dividend of 1.5p in respect of the quarter ended 31 December 2019 was paid on 18 February 2020 to shareholders on the register on 7 February 2020.

 

5.   INVESTMENT PROPERTIES

 

 

As at

 

As at

 

31 March

2020

30 September

2019

 

£'000

£'000

Opening fair value

54,880

57,351

Purchases

-

-

Capitalised  costs

129

 678

Amortisation of lease costs

(21)

(16)

Revaluation  movement

(2,118)

(3,133)

Closing fair value

52,870

54,880

 

Changes in the valuation of investment properties

 

 

As at

 

 

As at

 

31 March

2019

30 September

2019

 

£'000

£'000

Unrealised gain / (loss) on revaluation of investment properties

(2,093)

(3,133)

 

 

The properties were valued at £53,300,000 as at 31 March 2020 (31 March 2019: £57,300,000; 30 September 2019:

£55,350,000) by Savills (UK) Limited ('Savills'), in their capacity as external valuers.

 

The valuation report was undertaken in accordance with the RICS Valuation - Professional Standards VPS4 (1.5) Fair   Value and VPGA1 Valuations for Inclusion in Financial Statements, which adopt the definition of Fair Value adopted by the  International  Accounting  Standards Board.

 

Fair value is based on an open market valuation (the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date), provided by Savills on a quarterly basis, using recognised valuation techniques as set out in the accounting policies and note 9 of the consolidated financial statements of the Group for the year ended 30 September 2019. There were no significant changes to the valuation process, assumptions or techniques used during the period.

 

In common with all valuations being carried out at this time, the quarterly valuation report is subject to a material uncertainty clause.

 

 

 

6.   BANK LOAN

 

As at

As at

As at

 

31 March

31 March

30 September

 

2020

£'000

2019

£'000

2019

£'000

Principal amount outstanding

22,760

22,760

22,760

Set  up costs

(168)

(29)

(201)

Total

22,592

22,731

22,559

 

 

On 30 September 2019 the Group entered into a £25 million secured 3 year revolving credit facility agreement with the Royal Bank of Scotland ("the Bank"). The interest rate on the facility is 1.75% plus LIBOR per annum.

 

As part of the loan agreement the Bank has a standard security over properties currently held by the Group, with an aggregate value of £53,300,000 at 31 March 2020. The fair value of investments held as security adjusted for lease incentives of £429,987 was £52,870,013.

 

Under the financial covenants related to this loan, the Group has to ensure that for Drum Income Plus Limited:

·      the interest cover, being the rental income as a percentage of finance costs, is at least 250%;

·      the loan to value ratio, being the value of the loan as a percentage of the aggregate market value of the relevant properties, must not exceed 50%.

 

Breach of the financial covenants, subject to various cure rights, may lead to the loans falling due to repayment earlier than the final maturity date stated above. The Group has complied with all the loan covenants during the period.

 

 

7.   NET ASSET VALUE

 

The Group's net unit value per ordinary share of 79.26 pence (31 March 2019 91.66 pence; 30 September 2019 84.97 pence) is based on equity shareholders' funds of £30,280,000 (31 March 2019 £35,015,000; 30 September 2019 £32,460,000) and on 38,201,990 ordinary shares being the number of shares in issue at the period end.

 

 

 

8.   SHARE CAPITAL

 

 

Six months to 31 March

2020

Year to 30 September

2019

Six months to 31 March

2020

Year to 30 September

2019

 

Shares

Shares

£'000

£'000

Issued and fully paid

 

 

 

 

Opening total issued

 

 

 

 

ordinary shares of 10p  each

38,201,990

38,201,990

3,820

3,820

Issued  during  the period

-

-

-

-

Closing total issued

 

 

 

 

ordinary  shares

38,201,990

38,201,990

3,820

3,820

 

 

There is one class of share.

 

9.   INVESTMENT IN SUBSIDIARY

 

The Group's results consolidate those of Drum Income Plus Limited, a wholly owned subsidiary of Drum Income Plus REIT plc, incorporated in England & Wales (Company Number: 09515513). Drum Income Plus Limited was incorporated on 28 March 2015, acquired on 19 August 2015 and began trading on 19 January 2016, when it transferred in the ownership of the entirety of the Group's property portfolio. Drum Income Plus Limited continues to hold all the investment properties owned by the Group and is also the party which holds the Group's borrowings.

 

 

 

10.  RELATED PARTY TRANSACTIONS AND FEES PAID TO DRUM REAL ESTATE INVESTMENT MANAGERS

 

The Directors are considered to be related parties. No Director had an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Group.

 

The Directors of the Group received fees for their services. Total fees for the six months ended 31 March 2020 were £35,000 (six months ended 31 March 2019: £42,000; twelve months ended 30 September 2019: £75,000) of which £nil (31 March 2019: £nil; 30 September 2019: £nil) remained payable at the period end.

 

Under the terms of the agreements amongst the Group, R&H Fund Services (Jersey) Limited (the "AIFM"), Drum Real Estate Investment Management Limited (the "Investment Adviser"), the Group paid to the AIFM a fixed fee of £15,000 per annum plus annual portfolio management fee of 0.7% per annum of the net assets of the Group. The AIFM agreed that the annual portfolio management fee would be paid to the Investment Adviser, in accordance with the terms of the agreements.

 

The AIFM and the Investment Advisors are considered to be related parties.

 

The management agreements are terminable by any party on 12 months' written notice, provided that such notice shall expire no earlier than the fourth anniversary of Admission.

 

As per the prospectus published in April 2015, the Investment Adviser agreed to reduce its portfolio management fee under the AIRM agreement to the extent necessary to ensure that the core annual expenses of the Group did not exceed 2.0% of the Group's net assets. Certain expenses (in particular marketing, broking and some loan related costs) fall outwith the ongoing charges calculation, resulting in the ongoing charges ration being 2.0% of net assets.

 

R&H Fund Services (Jersey) Limited received £8,000 in relation to the six months ended 31 March 2020 (six months ended 31 March 2019: £8,000; twelve months ended 30 September 2019: £15,000) of which £32,000 (31 March 2019: £24,000; 30 September 2019: £32,000) remained payable at the period end.

 

 

11.  COMMITMENTS

 

The Group did not have any contractual commitments to refurbish, construct or develop any investment property, or for repair, maintenance or enhancements as at 31 March 2020 (31 March 2019: nil, 30 September 2019: nil).

 

12.  OPERATING SEGMENTS

 

The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single unified business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Group has no segments. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group's performance is the total return on the Group's net asset value. As the total return on the Group's net asset value is calculated based on the IFRS net asset value per share as shown at the foot of the Consolidated Statement of Financial Position, the key performance measure is that prepared under IFRS. Therefore, no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

 

 

13.  FAIR VALUE MEASUREMENTS

 

The fair value measurements for assets and liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. These different levels have been defined as follows:

 

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement  date.

Level 2 - inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly  or indirectly.

Level 3  - unobservable inputs for the asset or liability.

 

Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instrument. All investment properties are included in Level 3.

 

There were no transfers between levels of the fair value hierarchy during the six months ended 31 March 2020.

 

14.  INTERIM REPORT STATEMENT

 

The Company's auditor has not audited or reviewed the Interim Report to 31 March 2020 pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information'. These are not full statutory accounts in terms of Section 434 of the Companies Act 2006 and are unaudited. Statutory accounts for the year ended 30 September 2019, which received an unqualified audit report and which did not contain a statement under Section 498 of the Companies     Act 2006, have been lodged with the Registrar of Companies. No full statutory accounts in respect of any period after         30 September 2019 have been reported on by the Company's auditor or delivered to the Registrar of Companies.

 

 

 

Statement of Principal Risks and Uncertainties

 

The risks, and the way in which they are managed, are described in more detail under the heading 'Principal risks' within the Strategic Report in the Group's Annual Report and Accounts for the year ended 30 September 2019. The Group's principal risks and uncertainties have changed materially since the date of that report as a direct result of the global health crisis and the attendant economic, social, financial and market crises and are expected to remain heightened for a considerable period, including the rest of the Group's financial year.  This is having a significant impact on capital values and income from the portfolio, as well as an impact on the regulatory environment in which the Company operates. The operational risks of the Company have also been exacerbated by the health crisis and resilience is being examined on an ongoing basis but has been sound to date both in the management of the portfolio and of the Company.

 

 

Statement of Directors' Responsibilities in Respect of the Interim Report

 

We confirm that to the best of our knowledge:

 

·      the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union and gives a true and fair view of the assets, liabilities, financial position and profit of the Group;

 

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

 

·      the Statement of Principal Risks and Uncertainties above is a fair review of the information required by DTR 4.2.7R; and

 

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

 

On behalf of the Board

 

 

Hugh Little

Chairman

18 June 2020

 


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