Annual Report • Jun 30, 2010
Annual Report
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Annual Report and Accounts 30 June 2010
The Company is an authorised closed-ended Guernsey-registered investment company and its shares are listed on the Official List of the UK Listing Authority and on the Channel Islands Stock Exchange, and traded on the London Stock Exchange and the Channel Islands Stock Exchange. It was incorporated on 10 May 2004 and launched on 1 June 2004.
The Company has a wholly owned subsidiary, IRP Holdings Limited which holds and manages the investment properties.
At 30 June 2010 total assets less current liabilities were £162.1 million and shareholders' funds were £94.3 million.
The investment objective of the Company is to provide ordinary shareholders with an attractive level of income together with the potential for capital and income growth from investing in a diversified UK commercial property portfolio.
The Board has appointed F&C Investment Business Limited as the Company's investment managers and F&C REIT Property Asset Management plc as the Company's property managers. Both of these companies are part of F&C Asset Management plc group and, collectively, are referred to in this document as 'the Managers'. Further details of the management contract are provided in the Notes to the Accounts.
The Company's shares are eligible for Individual Savings Accounts ('ISAs').
The Company's internet address is: www.irppropertyinvestments.com
| Company Summary | |
|---|---|
| Financial Highlights | 1 |
| Performance Summary | 1 |
| Chairman's Statement | 2 |
| Investment Managers | 4 |
| Managers' Review | 5 |
| Portfolio Statistics | 8 |
| Property Portfolio | 10 |
| Board of Directors | 11 |
| Report of the Directors | 12 |
| Directors' Responsibility Statement | 18 |
| Independent Auditors' Report | 19 |
| Consolidated Statement of Comprehensive Income |
20 |
| Consolidated Balance Sheet | 21 |
| Consolidated Statement of Changes in Equity | 22 |
| Consolidated Cash Flow Statement | 23 |
| Notes to the Accounts | 24 |
| Notice of Annual General Meeting | 39 |
| Shareholder Information | 40 |
| Historic Record | 40 |
| Corporate Information |
This document is important and relates to certain matters on which voting action is required. Shareholders who are in any doubt as to what action to take should consult an appropriate independent adviser immediately.
If any shareholder has sold or transferred all their shares in the Company, he or she should pass this document and the accompanying form of proxy to the person through whom the transfer or sale was effected for onwards transmission to the transferee or purchaser.
| Year ended 30 June 2010 IRP Property Investments Trust NAV from Launch |
Year ended 30 June 2009 |
Cumulative since launch |
|
|---|---|---|---|
| Total Return Net asset value per share Ordinary Share price Portfolio ungeared return Investment Property Databank UK Quarterly and Monthly Funds Index FTSE All-Share Index* |
+27.8% +60.5% +23.2% +24.1% +21.1% |
(34.2)% (12.9)% (16.7)% (25.6)% (20.5)% |
+29.6% +33.1% +47.3% +27.7% +43.3% |
| 30 June 2010 |
30 June 2009 |
% Change | |
| Capital Values Total assets less current liabilities £000's Net asset value per share Ordinary Share price Investment Property Databank UK Quarterly and Monthly Funds Index FTSE All-Share Index Discount to net asset value per share Net gearing |
162,095 85.4p 84.3p 92.2 2,543.5 1.3% 33.6% |
146,844 72.9p 57.5p 79.3 2,172.1 21.1% 34.4% |
+10.4% +17.1% +46.6% +16.3% +17.1% |
| Year ended 30 June 2010 |
Year ended 30 June 2009 |
||
| Earnings and Dividends Earnings/(loss) per Ordinary Share Dividends paid per Ordinary Share‰ Dividend yield` |
23.6p 7.2p 8.5% |
(33.4)p 7.2p 12.5% |
|
| Total Expenses Ratio As a percentage of average total assets less current liabilities As a percentage of average shareholders' funds |
1.4% 2.5% |
1.5% 2.5% |
|
| 12 month Highs |
12 month Lows |
||
| Highs/Lows Net asset value per share Ordinary Share price Premium/(discount) |
85.8p 88.0p 18.1% |
72.9p 54.5p (25.2)% |
* Total return assuming gross dividends reinvested.
-(Bank debt less net current assets, excluding swap liability) … investment properties.
` Calculated on annualised dividends of 7.2p per share for 2010 and 7.2p for 2009. An analysis of dividend payments is contained in note 6 on page 29.
Calculated on an annualised basis and including non-recoverable property expenses.
‰ Calculated on an IFRS basis and therefore excludes the 4th interim dividend for 2009/10 and 2008/09.
Sources: F&C Investment Business, Investment Property Databank ('IPD') and Datastream.
The positive returns for UK commercial property witnessed in the second half of 2009 continued into the first half of 2010 although at a more modest pace, with total returns for the year ended 30 June 2010 of 24.1 per cent, as measured by the Investment Property Databank ('IPD') All Quarterly and Monthly Funds Index.
The Company's portfolio recorded a total return of 23.2 per cent for the year, slightly behind IPD. The benefit of gearing assisted in giving a net asset value total return for the year of 27.8 per cent with a net asset value as at 30 June 2010 of 85.4 pence per share. The movement in the interest rate swap valuation had a negative impact on the net asset value, with the liability increasing by £4.3 million during the year, reducing the net asset value per share by 3.9 pence.
The share price continued to perform strongly and the 21.1 per cent discount measured as at 30 June 2009 fell to 1.3 per cent as at 30 June 2010. The narrowing of the discount, combined with the recovery in the UK commercial property market, contributed to a share price total return for the Company for the year of 60.5 per cent. The share price has continued to trade close to net asset value up to the time of writing.
There has been increased investment activity in UK commercial property over the last year which has resulted in capital values increasing continuously since August 2009, and prices having risen by 16.3 per cent since 30 June 2009, according to IPD. The level of these increases decelerated as the year progressed as initial yields moved closer to the yield on gilts. At the year-end, the gap between initial property yields and gilt yields was still above the long-term average, although investors remain cautious and a higher risk premium for investing in property is apparent.
The occupier market showed signs of recovery towards the year-end with rental growth being witnessed in Central London and most other segments seeing the pace of rental decline easing. This was further evidenced by the level of voids, as measured by IPD, having fallen to 10.1 per cent at 30 June 2010, compared to 12.1 per cent just six months earlier.
During the year the Company's portfolio increased to £157.6 million, with capital values increasing by 14.9 per cent. The Company purchased a retail warehouse in Nelson for £5.2 million, a sector in which the portfolio was underweight. This purchase was at an initial yield of 7 per cent.
The Manager has entered into a number of asset management initiatives aimed at enhancing the longterm total returns of the Company. A transaction of note was Clifton Moor Gate, York where the existing tenant agreed to extend its lease for a further ten years in return for a twelve month rent-free period. This deal enhanced the market value of the property by 45.2 per cent or £2.6 million.
The Manager has been successful in re-letting vacant property, most significantly the premises at Bridge Street, Guildford which have been let to two tenants for a combined rent of £102,000, both on 15 year leases without break clauses. This and further new lettings have brought the void rate down to 2.1 per cent as at 30 June 2010 from 5.7 per cent as at 30 June 2009. This is significantly ahead of the IPD average of 10.1 per cent as mentioned above. These initiatives have served to protect the income stream during difficult times with the average lease length only down to 7.7 years as at 30 June 2010 from 7.9 years at the previous year-end. The arrears are also very small with 98 per cent of rent successfully collected at the year end and a bad debt provision of only £160,000.
Three interim dividends of 1.80 pence per share were paid during the year and a fourth interim dividend of 1.80 pence per share will be paid on 24 September 2010. This gives a total dividend for the year ended 30 June 2010 of 7.20 pence per share, consistent with the amount proposed in last year's annual report; reflecting a yield of 8.5 per cent on the year-end share price.
In the absence of a material change in circumstances, it is the intention of the Board to maintain the dividend at this rate for the year ending 30 June 2011.
The net gearing level as at 30 June 2010 was 33.6 per cent, which compares with 34.4 per cent as at 30 June 2009 and 40.0 per cent at launch on 1 June 2004. This is a level of borrowings that the Board is comfortable with at the current time with the property market having stabilised.
The Company has £8.8 million of cash available and, while it is earning a low rate of return, it helps to reduce the risk profile of the Company. This cash balance, combined with the undrawn loan facility of £15 million, provides the Company with the flexibility to make opportunistic purchases.
As the Company's financial year drew to a close there were signs that sentiment towards UK commercial property had become more cautious. There were indications of property yields stabilising and even increasing slightly in some areas.
A period of adjustment would appear to be in store for both property and the economy as a whole as the new government's economic policy tightens. There may be a wide divergence in performance at individual property level with more affluent areas with tight supply and quality stock outperforming.
The Managers are predicting a slight fall in capital values in the second half of 2010 and this is expected to continue into 2011. In this environment, and with minimal economic growth, protection of the income stream and keeping voids to a minimum is critical.
The Company remains focussed on maintaining the high occupancy levels which exist in the portfolio and enhancing the rental income stream where possible. The Manager continues to look at both buying and selling opportunities to increase total returns and has sufficient liquidity to ensure that it can take advantage of these when they arise.
Chairman 22 September 2010
The Board has appointed F&C Investment Business Limited (referred to throughout this document as 'FCIB' or 'the Investment Managers') as the Company's investment managers and F&C REIT Property Asset Management plc (referred to throughout this document as 'F&C REIT' or 'the Property Managers') as the Company's property managers. FCIB and F&C REIT are, collectively, referred to in this document as 'the Managers', and are both part of F&C.
F&C is a leading asset manager in both the UK and Europe and has £95.3 billion of funds under management (as at 30 June 2010). The shares of F&C are traded on the London Stock Exchange. F&C provides investment management and other services to a range of investment companies. In addition, it is one of the largest property managers in the UK, with property funds under management of £7.9 billion (as at 30 June 2010), and manages property investments on behalf of a wide range of clients including the Company, F&C Commercial Property Trust Limited and ISIS Property Trust Limited.
Ian McBryde Investment Manager joined F&C Asset Management plc in 1982 and is a director of F&C REIT Asset Management. He is a fellow of the Royal Institution of Chartered Surveyors.
The past year has seen a recovery in the property market following two years of weakness. Total returns first turned positive in July 2009 according to IPD quarterly data and over the year to June 2010 delivered 24.1 per cent.
Mercury House, Strathclyde Business Park, Bellshill
The recovery has been investment driven. In June 2009, the all property equivalent yield was 9.3 per cent, a 15 year high and more than 500bps above the risk free rate and well above the rate available on cash. However, with the economy in recession and the credit markets still in crisis, investors were highly risk averse and were only prepared to consider investments where income was secure, favouring prime property let on long leases to sound covenants. Such property was not widely available leading to growing competition for a limited amount of stock and leading to rapidly rising asset prices. By December 2009, the monthly total return had reached a record 3.6 per cent. Since then, the pace of capital growth has slackened with the competition for stock becoming less intense as prime yields moved lower and with more properties coming to the market. By the end of the period, IPD equivalent yields were 7.5 per cent with a 360bps yield gap against the risk free rate.
Capital values, as measured by IPD rose by 16.3 per cent in the year to June 2010 and had returned to the levels prevailing in January 2009. However, they were still more than 35 per cent below their 2007 peak.
Whilst the investment market witnessed a strong recovery, the occupational market has been more subdued. IPD Monthly data shows rental values in June 2010, 3.7 per cent lower than a year earlier and the market remains characterised by substantial incentive packages. The year witnessed some easing in pressure with void rates moving down from 11.8 per cent of income to 10.2 per cent and rental growth resuming in the Central London office market towards the end of the period. Tenant demand remains low, cost sensitive and focused on lease events and opportunistic deals.
The recovery has been apparent across all sectors of the market but there has been a wide disparity in annual total returns varying from 33.9 per cent for retail warehousing to a more modest but still substantial 15.9 per cent for South East offices.
The upturn has been focused on the prime part of the property market.
Whereas the property market has staged a marked recovery over the past 12 months, the improvement has largely been limited to the prime end of the market. Data from CBRE shows prime property delivering a 26.1 per cent rise in capital values in the year to June 2010 with secondary property seeing no uplift. There is still a substantial yield gap against the risk free rate but both investors and occupiers remain cautious and pace of advance has slowed substantially during the second half of the period.
During the year to 30th June 2010, the Company's portfolio achieved capital growth of 14.9 per cent, which together with an income return of 7.3 per cent,
Churchill Way, Nelson
produced a total return of 23.2 per cent. This was slightly under the IPD Quarterly Universe Benchmark which recorded 24.1 per cent. The Company's retail and industrial properties outperformed, but returns were held back by the Company's office holdings, particularly in the Rest of UK.
Over the longer term, the Company's portfolio has outperformed its benchmark over 3 and 5 year periods. The Company was awarded the IPD/IPF UK Property Investment Award 2009 for the ''Balanced Fund Highest Total Return annualised over 3 years to December 2009''.
Unit 3663, Echo Park, Banbury
In December 2009, the Company purchased a retail warehouse in Nelson, Lancashire for £5.2million, reflecting a net initial yield of 7.0 per cent. The unit of 31,788 sq ft is located in a prominent position adjacent to Junction 12 of the M65 motorway, and is let to B&Q plc for a further 13 years at a rent of £390,474 per annum, equating to £13.50 per square foot. The next rent review is in June 2013.
Significant capital gains were achieved from a number of properties in the portfolio. In particular Unit 3663, Echo Park, Banbury increased in value by £3.9million, or 27.9 per cent. The Company restructured the lease of the Motor Showroom complex at Clifton Moor Gate, York. With just over ten years remaining on the lease to Inchcape Estates Ltd, a reversionary lease for a further ten years has been granted to the tenant, herby extending the term certain until 30 September 2030. A rent free period of 12 months was given to the tenant and the annual rent of £554,000 will now be subject to RPI (cap and collar at 2.0-3.0 per cent) uplifts every five years. The valuation of the property increased over the period £2.6million, or 45.2 per cent, as a result of the lease restructuring and inward yield movement.
The Company has had some significant success in new lettings and lease renewals over the period, reducing the void rate from 5.7 per cent in June 2009 to 2.1 per cent in June 2010, significantly below the IPD void index of 10.1 per cent.
The Company has let the whole of the vacant property at 7/11 Bridge Street, Guildford during the period. The property, previously let to Yates Group Ltd who went into Administration, comprises 11,544 sq ft on basement, ground and two upper floors. The ground floor and part basement was let to Tesco Stores Ltd at a rent of £60,000 per annum. The first and second floors and part basement was let to the Academy for Contemporary Music at a stepped rent of £42,000 per annum. Both leases were granted for fifteen years without break.
At 30/40 The Parade, Leamington Spa, Paperchase Products Ltd took a new lease of a vacant shop at rent of £84,000 per annum for fifteen years. Morgan Samuel Ltd, trading as Pilot, took a lease at 67/ 69 King Street, South Shields, although the rent is on a turnover basis only.
As at 30th June 2010, the principle voids were an industrial unit, No 7 Lakeside Road, Colnbrook, which has a rental value £120,200 per annum; and Shop 2,
Lochside Way, Edinburgh Park, Edinburgh
7,11 Bridge Street, Guildford
Above Bar Church, Southampton which has a rental value of £80,500 per annum. [Both these premises are currently under offer to lease.]
As part of its asset management program to enhance and secure income streams the Company agreed with the tenant of No 1, Standard Hill, Nottingham to restructure the occupational lease The whole property is let until 28th November 2021, with tenant only break clauses without penalty in 2011 and 2016, at a rental of £438,100 per annum. The tenant has agreed to remove its break clause in November 2011 in return for a rent free period of 24 months (of which 12 months will be repayable as a penalty in the event that the tenant exercises the break clause in 2016).
100 Princes Street, Edinburgh
The year to June 2010 witnessed a sharp turnaround in the property market but with economic growth modest, fiscal policy tightening and credit availability remaining constrained, the coming year may be more challenging. The occupational market is still fragile and areas dependent on public sector spending and employment may be especially vulnerable as government spending is reduced. Investors are expected to remain risk adverse favouring prime property with a long secure income in core locations. Prospects for capital gains may be much reduced with the next twelve months seeing total returns driven by income. Over the medium-term, as economic growth recovers and spare capacity is eliminated; prospects for rental growth and enhanced returns will increase especially in areas of tight supply and in prime markets.
The Company is well positioned to take advantage of any re-pricing in the market to purchase properties with cash available and has the ability to draw down further borrowings. However the focus will continue to be on maintaining and enhancing the income steams and keeping voids at a low level.
Investment Manager 22 September 2010
| Property | Sector | Book Cost £'000 |
Fair Value £'000 |
% of Total Assets (less Current Liabilities) |
|---|---|---|---|---|
| Banbury, 3663 Unit, Echo Park | Industrial | 14,751 | 16,899` | 10.4% |
| Colnbrook, Units 1–8 Lakeside Road | Industrial | 10,845 | 11,900 | 7.3% |
| Eastleigh, Southampton International Park | Industrial | 11,375 | 11,350 | 7.0% |
| Leamington Spa, 30–40 The Parade & 47/59a Warwick Street | Retail | 9,340 | 10,470 | 6.5% |
| Bellshill, Mercury House, Strathclyde Business Park | Offices | 11,680 | 9,700 | 6.0% |
| Hemel Hempstead, Hemel Gateway | Industrial | 8,510 | 8,720 | 5.4% |
| York, Clifton Moor Gate * | Retail Warehouse | 8,550 | 8,450 | 5.2% |
| Edinburgh, 1–2 Lochside Way, Edinburgh Park | Offices | 15,166 | 8,150 | 5.0% |
| Rugby, Swift House, Cosford Lane * | Industrial | 6,700 | 6,190 | 3.8% |
| Nelson, Churchill Way | Retail Warehouse | 5,566 | 5,680 | 3.5% |
| Ten largest property holdings | 102,483 | 97,509 | 60.1% | |
| Winchester, 7–8 High St. & 50 Colebrook Street | Retail | 4,720 | 5,490 | 3.4% |
| Guildford, 51–53 High Street | Retail | 3,940 | 4,750 | 2.9% |
| Brookwood, The Clock Tower | Offices | 5,160 | 4,575 | 2.8% |
| Sutton Coldfield, 63–67 The Parade | Retail | 4,330 | 4,430 | 2.7% |
| Nottingham, Standard Hill | Offices | 4,710 | 4,400 | 2.7% |
| London SW1, 24 Haymarket & 1/2 Panton Street * | Retail | 2,974 | 3,550 | 2.2% |
| Leamington Spa, 88/90 The Parade | Retail | 2,890 | 3,390 | 2.1% |
| Milton Keynes, Site E Chippenham Drive | Industrial | 4,730 | 3,370 | 2.1% |
| Southampton, Units 1 & 2, Above Bar Church * | Retail | 4,161 | 3,015 | 1.9% |
| Sunningdale, 53/79 Chobham Road, Berkshire | Retail | 1,912 | 2,920 | 1.8% |
| Twenty largest property holdings | 142,010 | 137,399 | 84.7% | |
| Croydon, 17, 19 & 21 George Street | Retail | 2,980 | 2,865 | 1.8% |
| Edinburgh, 100A Princes Street | Retail | 2,395 | 2,440 | 1.5% |
| Rayleigh, 81/87 High Street. | Retail | 1,770 | 2,315 | 1.4% |
| Nuneaton, 1–2 Church Street | Retail | 1,890 | 2,260 | 1.4% |
| Marlow, Globe Park, Unit GP9 | Offices | 3,780 | 2,040 | 1.3% |
| Wickford, 12/20 High Street | Retail | 1,310 | 1,910 | 1.2% |
| Guildford, 7/11 Bridge Street | Retail | 2,449 | 1,740 | 1.1% |
| Brighton, 2–3 Pavilion Buildings * | Retail | 1,760 | 1,485 | 0.9% |
| Swindon, Unit 5, Newcombe Drive | Industrial | 1,280 | 1,125 | 0.7% |
| Newbury, 25 Northbrook Street * | Retail | 630 | 640 | 0.4% |
| Thirty largest property holdings | 162,254 | 156,219 | 96.4% | |
| South Shields, 67/69 King Street | Retail | 1,120 | 625 | 0.4% |
| Rochdale, 40 Yorkshire Street | Retail | 730 | 405 | 0.2% |
| Rochdale, 42 Yorkshire Street | Retail | 570 | 360 | 0.2% |
| Total property portfolio | 164,674 | 157,609 | 97.2% | |
| Net current assets | 4,486 | 2.8% | ||
| Total assets less current liabilities | 162,095 | 100.0% |
*Leasehold property
-Based on market value (see note 8 on page 30)
`The market value of Banbury is £17,800,000 (2009: £13,910,000). The difference between the market value and the fair value is the reverse lease surrender premium of £901,000 (2009: £959,000) which is recorded in the accounts as a current asset.
is a resident of Guernsey and chairman of a number of companies including the Guernsey Housing Association LBG, RAB Special Situations Company
Limited and Quintain (Guernsey) Limited. He is a non executive director of O Twelve Estates Limited, Develica Deutschland Limited, Squarestone Brasil Limited and a number of other property investment funds.
is a resident of Guernsey. He is a chartered accountant and was managing director of Pannell Kerr Forster (Guernsey) Limited until May 2000. He is a non-executive director
of a number of listed companies, including JP Morgan Private Equity Limited, Henderson Far East Income Limited, Tamar European Industrial Fund Limited, Real Estate Credit Investments Limited, Dexion Trading Limited and Ruffer Investment Company Limited.
is a UK resident. He is a chartered surveyor and was, until 1 January 2006, deputy senior partner of Cushman & Wakefield Healey & Baker. He joined one of its predecessor firms in 1972
and was head of the firm's investment group for twelve years until the end of 2002. He advises a number of institutions on property matters and is also a non-executive director of Helical Bar plc and McKay Securities plc, which are UK listed property companies.
is a UK resident. He is a chartered accountant and was, until 2000, managing director and chairman of Murray Johnstone Limited. He has over 25 years' experience as a fund
manager. He is chairman of Charter Pan-European Trust plc, Helical Bar plc, Tamar European Industrial Fund Limited and is a non-executive director of Aberdeen Asset Management plc and a number of other investment companies.
is a resident of Guernsey. He worked with the Financial Times for thirteen years before becoming a Far East Regional Strategist for Smith New Court Securities in 1990. In 1993 he joined
Schroders in the Channel Islands as investment director of Schroders (C.I.) Limited and was managing director from April 2000 to January 2004. He continued as a non-executive director of Schroders (C.I.) Limited before standing down at the end of 2008. He is non-executive chairman of Goldman Sachs Dynamic Opportunities, a London listed company and he is also a non-executive director of various other investment companies.
The Directors present the report and accounts of IRP Property Investments Limited, ('the Company') for the year ended 30 June 2010.
The results for the year are set out in the attached accounts.
The Company has paid interim dividends in the year ended 30 June 2010 as follows:
| Payment date |
Rate per share |
|
|---|---|---|
| Fourth interim for | ||
| prior year | 25 September 2009 | 1.8p |
| First interim | 31 December 2009 | 1.8p |
| Second interim | 26 March 2010 | 1.8p |
| Third interim | 25 June 2010 | 1.8p |
It is the policy of the Directors to declare and pay dividends as interim dividends. The Directors do not therefore recommend a final dividend. A fourth interim dividend of 1.8p will be paid on 24 September 2010 to shareholders on the register on 10 September 2010.
The Company is an authorised closed ended Guernsey-registered company and during the year carried on business as a property investment company.
The Board of Directors is responsible for the overall stewardship of the Company, including investment and dividend policies, corporate strategy, corporate governance, and risk management. As set out in the Directors' Responsibility Statement on page 18 the Board is also responsible for the preparation of the Annual Report and financial statements for each financial period. Biographical details of the Directors, all of whom are non-executive, can be found on page 11.
The Company's investment objective is to provide Ordinary shareholders with an attractive level of income together with the potential for capital and income growth from investing in a diversified UK commercial property portfolio.
The Company holds a diversified portfolio of freehold and predominantly long leasehold (over 60 years remaining at the time of acquisition) UK commercial properties. It invests principally in three commercial property sectors: office, retail and industrial.
The Company invests predominantly in income producing investments. Investment decisions are based on analysis of, amongst other things, prospects for future income and capital growth, sector and geographic prospects, tenant covenant strength, lease length, and initial and equivalent yields and the potential for development or redevelopment of the property. The Company will not invest in other investment companies or funds.
Investment risks are spread through investing in a range of geographical areas and sectors, and through letting properties, where possible, to low risk tenants. The Company has not set any maximum geographic exposures, but the maximum weightings in the principal property sectors (stated as a percentage of total assets) are: office: 60 per cent; retail: 60 per cent; and industrial: 50 per cent. No single property may exceed 15 per cent of total assets* and the five largest properties may not exceed 45 per cent of total assets.* Income receivable from any one tenant, or tenants within the same group, in any one financial year shall not exceed 20 per cent of the total rental income of the Group in that financial year. At least 90 per cent by value of properties held shall be in the form of freehold, feuhold or long leasehold (over 60 years remaining at the time of acquisition) properties or the equivalent.
The Company uses gearing to enhance returns over the long term. Gearing, represented by borrowings as a percentage of investment properties, may not exceed 60 per cent. However, it is the Board's present intention that borrowings will be limited to a maximum of 40 per cent of total assets at the time of borrowing. The Board receives recommendations on gearing levels from the Managers and is responsible for setting the gearing range within which the Managers may operate. The Company's borrowings are represented by a £60 million bank loan, which is described in more detail in note 12 to the accounts. The net gearing level as at 30 June 2010 was 33.6 per cent of investment properties.
At each Board meeting, the Board receives a detailed presentation from the Managers together with a comprehensive analysis of the performance of the Company and compliance with investment restrictions during the reporting period. An analysis of how the portfolio was invested as at 30 June 2010 is contained within the Manager's Review on pages 5 to 7 and a full portfolio listing is provided on page 10.
*applicable only on acquisition or disposal of a property.
does not apply to lettings to the Government of the United Kingdom.
The Company's assets consist of direct investments in UK commercial property. Its principal risks are therefore related to the commercial property market in general, but also the particular circumstances of the properties in which it is invested and their tenants. More detailed explanations of these risks and the way in which they are managed are contained under the headings of Credit Risk, Liquidity Risk and Interest Rate Exposure and Market Price Risk in note 17 to the accounts. The Managers also seek to mitigate these risks through active asset management initiatives and carrying out due diligence work on potential tenants before entering into any new lease agreements. All of the properties in the portfolio are insured.
Other risks faced by the Company include the following:
The Board seeks to mitigate and manage these risks through continual review, policy-setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Company's property portfolio, and applies the principles detailed in the internal control guidance issued by the Financial Reporting Council. Details of the Company's internal controls are described in more detail on pages 16 and 17.
The Board and the Managers recognise the importance of the share price relative to net asset value in maintaining shareholder value. The Managers meet with current and potential new shareholders, and with stockbroking analysts who cover the investment trust sector, on a regular basis. In addition, communication of quarterly portfolio information is provided through the Company's website.
The Company's performance in meeting its objectives is measured against key performance indicators as set out below. A review of the Company's returns during the financial year, the position of the Company at the year-end, and the outlook for the coming year is contained in the Chairman's Statement and the Manager's Review.
The Board uses a number of performance measures to assess the Company's success in meeting its objectives. The key performance indicators are as follows:
Performance against these indicators is contained in the Financial Highlights on page 1, the Chairman's Statement on pages 2 and 3 and in the Historic Record on page 40.
The Directors who held office during the year and their interests in the shares of the Company as at 30 June 2010 (all of which were beneficial) were:
| 2010 Ordinary shares |
2009 Ordinary shares |
|
|---|---|---|
| Q Spicer | 220,000 | 220,000 |
| A E G Gulliford | 144,030 | 144,030 |
| C W Sherwell | 20,000 | 20,000 |
| C P Spencer | 38,000 | 38,000 |
| C G H Weaver | 50,000 | 50,000 |
Between 30 June 2010 and 22 September 2010 there were no changes to Directors shareholdings.
The Directors are also directors of IRP Holdings Limited, the Company's wholly-owned subsidiary undertaking.
Biographical details of each of the Directors are shown on page 11. A E G Gulliford retires from the Board by rotation and, being eligible, offers himself for re-election at the Annual General Meeting. The Board confirms that, following formal performance evaluations, their performance continues to be effective and demonstrates commitment, and believes that it is therefore in the interests of shareholders that they are re-elected.
During the year the Directors received the following emoluments in the form of fees:
| Year ended 30 June 2010 £ |
Year ended 30 June 2009 £ |
|
|---|---|---|
| Q Spicer | 25,000 | 25,000 |
| A E G Gulliford | 20,000 | 20,000 |
| C W Sherwell | 20,000 | 20,000 |
| C P Spencer | 20,000 | 20,000 |
| C G H Weaver | 20,000 | 20,000 |
| Total | 105,000 | 105,000 |
There are no service contracts in existence between the Company and any Director but each of the Directors was appointed by a letter of appointment which sets out the main terms of his appointment.
F&C Investment Business Limited provides investment management services to the Company. A summary of the agreement between the Company and F&C Investment Business Limited in respect of management services provided is given in Note 2 to the accounts.
The Board keeps under review the appropriateness of the Managers' appointments. In doing so the Committee considers the investment performance of the Company and the capability and resources of the Managers to deliver satisfactory investment performance. It also considers the length of the notice period of the investment management contract and the fees payable to the Managers, together with the standard of the other services provided.
The management fee payable is 0.70 per cent per annum of the total assets, including cash held provided that no fee shall be payable on any cash held in excess of 5 per cent of the net asset value of the Company.
The notice period in relation to the termination of the investment management agreement is six months by either party.
It is the Directors' opinion that the continuing appointment of the Managers on the terms agreed above is in the interests of shareholders as a whole.
At 22 September 2010 the following holdings representing more than 3 per cent of the Company's issued share capital had been notified to the Company.
| Number of | ||
|---|---|---|
| Ordinary Shares | Percentage | |
| Held | Held | |
| F&C Asset Management | 17,506,000 | 15.8 |
| Deutsche Bank AG* | 12,121,234 | 11.0 |
| Scottish Widows Investment | ||
| Partnership* | 10,000,000 | 9.0 |
| Rathbone Brothers plc | 5,490,325 | 5.0 |
* Included within these holdings are 5,000,000 shares owned by Abbey Life Assurance Company but managed by Scottish Widows Investment Partnership.
As an authorised closed-ended investment company registered in Guernsey, the Company has historically been eligible for exemption from the requirements of the Combined Code by the UK Listing Authority. As of 1 July 2010, the Company is obliged to comply with the UK Corporate Governance Code (which has replaced the Combined Code) or explain any non compliance. It has always been the Company's policy to comply with best practice on corporate governance and has put in place a framework for corporate governance which it believes is suitable for an investment company and which, save as explained below, enabled the Company to comply voluntarily with the Combined Code and enables the Company to comply with the UK Corporate Governance Code.
The Board has also considered the principles and recommendations of the AIC Code of Corporate Governance and follows the AIC Corporate Governance Guide for Investment Companies (the ''AIC Guide'') which complemented the Combined Code and continues to complement the UK Corporate Governance Code, and provides a framework of best practice for investment companies. During February 2009, the Financial Reporting Council confirmed that by following the AIC Guide investment company boards should fully meet their obligations in relation to the Combined Code.
The Board considers that it is appropriate to report against the principles and recommendations of the AIC Code and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code).
Except as disclosed below, the Company complied throughout the year with the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code. Since all the Directors are non-executive, the provisions of the Code in respect of Directors' remuneration are not relevant to the Company, except in so far as they relate to non-executive Directors.
In view of its non-executive nature and the requirement of the Articles of Association that all Directors retire by rotation at least every three years, the Board considers that it is not appropriate for the Directors to be appointed for a specified term as recommended by provision A.7.2 of the Code.
As at 30 June 2010 the Board consists solely of non-executive Directors of which Mr Q Spicer is Chairman. All Directors are considered by the Board to be independent of the Company's Managers as at 30 June 2010 with the exception of Mr C P Spencer. On 1 September 2010, F&C Asset Management plc successfully completed its purchase of Thames River Capital LLP ('TRC'). Mr C P Spencer is a nonexecutive Director on the Boards of a number of TRC Funds listed in Dublin and from this date is no longer considered independent due to his involvement in other funds within the F&C Group. It is the Board's view that Mr Spencer's directorships with TRC funds will not affect his ability to act independently and it has therefore been decided that he should continue in his role as Chairman of the Audit Committee. He will, however, stand for reelection to the Board annually. New Directors receive an induction from the Managers and Secretary on joining the Board, and all Directors receive other relevant training as necessary.
The Company has no executive Directors or employees. A management agreement between the Company and its Managers sets out the matters over which the Managers have authority and the limits beyond which Board approval must be sought. All other matters, including strategy, investment and dividend policies, gearing and corporate governance procedures, are reserved for the approval of the Board of Directors. The Board currently meets at least quarterly and receives full information on the Company's investment performance, assets, liabilities and other relevant information in advance of Board meetings.
Throughout the year a number of committees have been in operation. The committees are the Property Valuation Committee, the Audit Committee, the Management Engagement and Remuneration Committee and the Nomination Committee.
The Property Valuation Committee, chaired by Mr A E G Gulliford, comprises the full Board and is convened for the purpose of reviewing the quarterly independent property valuation reports prior to their submission to the Board.
The Audit Committee, chaired by Mr C P Spencer, operates within clearly defined terms of reference and comprises all of the Directors. The terms of reference are available to shareholders on request to the Secretary. The duties of the Audit Committee in discharging its responsibilities include reviewing the Annual and Interim Accounts, the system of internal controls and the terms of appointment of the auditors together with their remuneration. It is also the forum through which the external auditors report to the Board of Directors and meets at least twice yearly. The objectivity of the auditors is reviewed by the Audit Committee which also reviews the terms under which the external auditors are appointed to perform non-audit services. The Committee reviews the scope and results of the audit, its costeffectiveness and the independence and objectivity of the external auditors, with particular regard to non-audit fees. Such fees amounted to £14,000 for the year ended 30 June 2010 (year ended 30 June 2009: £19,000) and related to the provision of taxation services and reviewing the interim report. Notwithstanding such services the Audit Committee considers Ernst & Young LLP to be independent of the Company.
The Management Engagement and Remuneration Committee, chaired by Mr Q Spicer, comprises the full Board and reviews the appropriateness of the Managers' continuing appointment together with the terms and conditions thereof on a regular basis.
The Nomination Committee, chaired by Mr Q Spicer, comprises the full Board and is convened for the purpose of considering the appointment of additional Directors as and when considered appropriate. There have been no Directors appointed during the year. During the year the performance of the Board, committees and individual Directors was evaluated through an assessment process, led by the Chairman. The performance of the Chairman was evaluated by the other Directors.
Individual Directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Company maintains appropriate Directors' and Officers' liability insurance.
The Company's investment policy, which is described on pages 11 and 12 and which is subject to regular Board monitoring processes, is designed to ensure that the Company is invested mainly in a diversified portfolio of UK commercial properties. The Company retains title to all assets held by its property lawyers, and has agreements relating to its borrowing facility with which it complied during the year.
Note 17 to the accounts sets out the financial risk profile of the Company and indicates the effect on its assets and liabilities of falls and rises in the values of its investments and market rates of interest.
The Directors believe, in light of the controls and review processes noted above and, bearing in mind the nature of the Company's business and assets that the Company 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 accounts.
The Managers acquire, develop and manage properties on behalf of the Company. It is recognised that these activities have both direct and indirect environmental impacts.
The Board has endorsed the Managers' own environmental policy which is to work in partnership with contractors, suppliers, tenants and consultants to minimise those impacts, seeking continuous improvements in environmental performance and conducting regular reviews.
The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. The Board has therefore established an ongoing process designed to meet the particular needs of the Company in managing the risks to which it is exposed, consistent with the Turnbull guidance, as issued by the Financial Reporting Council. The process is based principally on the Manager's existing risk-based approach to internal control whereby a test matrix is created that identifies the key functions carried out by the Managers and other service providers, the individual activities undertaken within those functions, the risks associated with each activity and the controls employed to minimise those risks. A residual risk rating is then applied. The risk matrix is regularly updated and the Board is provided with regular reports highlighting all material changes to the risk ratings and confirming the action which has been, or is being, taken. A formal annual review of these procedures is carried out by the Audit Committee and includes consideration of AAF (01/06) and similar reports issued by the Managers and other service providers.
Such review procedures have been in place throughout the year and up to the date of approval of the Annual Report, and the Board is satisfied with their effectiveness. These procedures are designed to manage rather than eliminate risk and, by their nature can only provide reasonable, but not absolute, assurance against material misstatement or loss. At each Board meeting the Board monitors the investment performance of the Company in comparison to its stated objective and against comparable companies. The Board also reviews the Company's activities since the last Board meeting to ensure that the Managers adhere to the agreed investment policy and approved investment guidelines and, if necessary, approves changes to such policy and guidelines. In addition, at each Board meeting, the Board receives reports from the Secretary in respect of compliance matters and duties performed on behalf of the Company.
The table below sets out the number of scheduled Board and Committee meetings held during the year and the number of meetings attended by each Director.
| Property | Management Engagement and Remuneration |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Board of Directors | Valuation Committee | Audit Committee | Committee | Nomination Committee | ||||||
| Held | Attended | Held | Attended | Held | Attended | Held | Attended | Held | Attended | |
| Q Spicer | 4 | 4 | 4 | 4 | 2 | 2 | 1 | 1 | 1 | 1 |
| A E G Gulliford | 4 | 4 | 4 | 4 | 2 | 2 | 1 | 1 | 1 | 1 |
| C W Sherwell | 4 | 4 | 4 | 4 | 2 | 2 | 1 | 1 | 1 | 1 |
| C P Spencer | 4 | 4 | 4 | 4 | 2 | 2 | 1 | 1 | 1 | 1 |
| C G H Weaver | 4 | 4 | 4 | 4 | 2 | 2 | 1 | 1 | 1 | 1 |
In addition to the scheduled quarterly meetings detailed above, there were a further 8 Board Committee meetings held in Guernsey during the year, attended by non UK resident Directors.
The Board has reviewed the need for an internal audit function. The Board has decided that the systems and procedures employed by the Managers and the Secretary, including their internal audit functions, provide sufficient assurance that a sound system of internal control, which safeguards the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.
The Company welcomes the views of shareholders and places great importance on communication with its shareholders. The Board receives regular reports on the views of shareholders and the Chairman and other Directors are available to meet shareholders if required. The Annual General Meeting of the Company provides a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors and Managers of the Company.
Changes to the listing regime came into force on 6 April 2010. These proposed changes mean that the listing regime is restructured into two segments, premium and standard. The Company, as a result of having equity shares in issue, is deemed to fall within the premium segment. In accordance with the new provisions of the Listing Rules, the directors of an overseas premium listed company will not be permitted from 5 April 2011 to allot new shares (or grant rights over shares) for cash without first offering them to existing shareholders in proportion to their existing holdings.
The Board therefore proposes a resolution at this year's Annual General Meeting to disapply preemption rights.
Resolution 6 therefore, gives the Directors, for the period until the conclusion of the Annual General Meeting in 2011 or, if earlier, on the expiry of 15 months from the passing of resolution 6, the necessary authority to either allot securities or sell shares held in treasury, otherwise than to existing shareholders on a pro-rata basis, up to an aggregate nominal amount of £110,500. This is equivalent to 10 per cent of the issued ordinary share capital of the Company as at 22 September 2010. It is expected that the Company will seek this authority on an annual basis.
The Company did not purchase any shares for cancellation during the period.
Resolution 7, as set out in the notice of the Annual General Meeting, seeks authority for the Company to make market purchases of up to 14.99 per cent of the issued Ordinary share capital, such authority to last until the earlier of 31 December 2011 and the Annual General Meeting in 2011. Any buy back of Ordinary shares will be made subject to Guernsey law and within any guidelines established from time to time by the Board and the making and timing of any buy backs will be at the absolute discretion of the Board. Purchases of Ordinary shares will only be made through the market for cash at prices below the prevailing net asset value of the Ordinary shares (as last calculated) where the Directors believe such purchases will enhance shareholder value. The price paid will not be less than the nominal value of 1p per share. Such purchases will also only be made in accordance with the rules of the UK Listing Authority which provide that the price to be paid must not be more than 5 per cent above the average of the middle market quotations for the Ordinary shares for the five business days before the shares are purchased. Any shares purchased under this authority will be cancelled or held in treasury. The Directors believe that Resolution 7 is in the best interests of shareholders as a whole and recommends that shareholders vote in favour of this resolution.
Ernst & Young LLP have expressed their willingness to continue in office as auditors and a resolution proposing their re-appointment will be submitted at the Annual General Meeting.
The Board considers that each of the Resolutions to be proposed at the Annual General Meeting are in the best interests of the shareholders as a whole. Accordingly, the Board unanimously recommends that shareholders vote in favour of each of the resolutions to be proposed at the Annual General Meeting.
On behalf of the Board
| Q Spicer | C P Spencer |
|---|---|
| Director | Director |
22 September 2010
The Directors are responsible for preparing the Financial Statements for each year which give a true and fair view, in accordance with applicable Guernsey law and International Financial Reporting Standards, of the state of affairs of the Group and of the profit or loss of the Group for that year. In preparing those Financial Statements, the Directors are required to:
The Directors confirm that they have complied with the above requirements in preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time, the financial position of the Group and to enable them to ensure that the Financial Statements comply with The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud, error and non compliance with law and regulations.
The maintenance and integrity of the Company's website is the responsibility of the Directors; the work carried out by the auditors does not involve considerations of these matters and, accordingly, the auditors accept no responsibility for any change that may have occurred to the Financial Statements since that were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.
The Directors each confirm to the best of their knowledge that:
On behalf of the Board Q Spicer Chairman
22 September 2010
We have audited the Group financial statements (the 'financial statements') of IRP Property Investments Limited for the year ended 30 June 2010 which comprise the Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and the related notes 1 to 20. These financial statements have been prepared under the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance with section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The Directors' responsibilities for preparing the financial statements in accordance with applicable Guernsey law and International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU') are set out in the Directors' Responsibility Statement.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with The Companies (Guernsey) Law, 2008. We also report to you if, in our opinion, the Company has not kept proper accounting records, if the Company's financial statements are not in agreement with the accounting records, or if we have not received all the information and explanations we require for our audit.
We read the other information contained in the annual report and consider whether it is consistent with the audited financial statements. This other information comprises the Company Summary, Financial Highlights, Performance Summary, Chairman's Statement, Investment Managers, Manager's Review, Portfolio Highlights, Property Portfolio, Board of Directors, Report of the Directors, Directors' Responsibility Statement, Notice of Annual General Meeting, Shareholder Information, Historic Record and Corporate Information. We consider the implications of our report if we become aware of any apparent mis-statements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material mis-statement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
In our opinion the financial statements give a true and fair view, in accordance with International Financial Reporting Standards as adopted by the EU, of the state of the Group's affairs as at 30 June 2010 and of the Group's profit for the year then ended, and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.
Michael Bane For and on behalf of Ernst & Young LLP Guernsey Channel Islands 22 September 2010
| for the year ended 30 June | 2010 | 2009 | |
|---|---|---|---|
| Notes | £'000 | £'000 | |
| Revenue | |||
| Rental income | 11,651 | 12,059 | |
| Total revenue | 11,651 | 12,059 | |
| Gains/(losses) on investment properties | 8 | 20,218 | (42,969) |
| 31,869 | (30,910) | ||
| Expenditure | |||
| Investment management fee | 2a | (1,064) | (1,337) |
| Other expenses | 3 | (1,164) | (1,142) |
| Total expenditure | (2,228) | (2,479) | |
| Net operating profit/(loss) before finance costs | 29,641 | (33,389) | |
| Net finance costs | |||
| Interest receivable | 120 | 84 | |
| Finance costs | 4 | (3,436) | (3,483) |
| (3,316) | (3,399) | ||
| Net profit/(loss) from ordinary activities before taxation | 26,325 | (36,788) | |
| Taxation on profit on ordinary activities | 5 | (241) | (92) |
| Profit/(loss) for the year | 26,084 | (36,880) | |
| Other comprehensive income | |||
| Net loss on cash flow hedges net of tax | (4,335) | (8,286) | |
| Net comprehensive profit/(loss) for the year, net of tax | 21,749 | (45,166) | |
| Basic and diluted earnings/(losses) per share | 7 | 23.6p | (33.4p) |
All items in the above statement derive from continuing operations.
All of the profit/(loss) for the year is attributable to the owners of the Company.
| as at 30 June | 2010 | 2009 £'000 |
|
|---|---|---|---|
| Notes | £'000 | ||
| Non-current assets | |||
| Investment properties | 8 | 157,609 | 131,886 |
| 157,609 | 131,886 | ||
| Current assets | |||
| Trade and other receivables | 10 | 2,478 | 2,238 |
| Cash and cash equivalents | 11 | 8,761 | 16,474 |
| 11,239 | 18,712 | ||
| Total assets | 168,848 | 150,598 | |
| Non-current liabilities | |||
| Interest-bearing bank loan | 12 | (60,335) | (60,292) |
| Interest rate swap | 12 | (7,432) | (4,337) |
| (67,767) | (64,629) | ||
| Current liabilities | |||
| Trade and other payables | 13 | (3,833) | (3,754) |
| Interest rate swap | 12 | (2,920) | (1,680) |
| (6,753) | (5,434) | ||
| Total liabilities | (74,520) | (70,063) | |
| Net assets | 94,328 | 80,535 | |
| Represented by: | |||
| Share capital | 14 | 1,105 | 1,105 |
| Special distributable reserve | 94,314 | 96,404 | |
| Capital reserve | 9,261 | (10,957) | |
| Other reserve | (10,352) | (6,017) | |
| Equity shareholders' funds | 94,328 | 80,535 | |
| Net asset value per share | 15 | 85.4p | 72.9p |
The accounts on pages 20 to 38 were approved and authorised for issue by the Board of Directors on 22 September 2010 and signed on its behalf by:
Q Spicer, Director C P Spencer, Director
for the year ended 30 June 2010
| At 30 June 2010 | 1,105 | 94,314 | 9,261 | (10,352) | – | 94,328 | |
|---|---|---|---|---|---|---|---|
| Transfer of net deficit for year | – | (2,090) | – | – | 2,090 | – | |
| Transfer in respect of gains on investment properties | – | – | 20,218 | – | (20,218) | – | |
| Dividends paid | 6 | – | – | – | – | (7,956) | (7,956) |
| Total comprehensive income for the year | – | – | – | (4,335) | 26,084 | 21,749 | |
| Other comprehensive losses | – | – | – | (4,335) | – | (4,335) | |
| Profit for the year | – | – | – | – | 26,084 | 26,084 | |
| At 1 July 2009 | 1,105 | 96,404 | (10,957) | (6,017) | – | 80,535 | |
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Capital | Reserve | Reserve | Reserve | Reserve | Total | ||
| Share Distributable | Capital | Other | Revenue | ||||
| Special |
| At 30 June 2009 | 1,105 | 96,404 | (10,957) | (6,017) | – | 80,535 | |
|---|---|---|---|---|---|---|---|
| Transfer of net deficit for year | – | (1,867) | – | – | 1,867 | – | |
| Transfer in respect of losses on investment properties | – | – | (42,969) | – | 42,969 | – | |
| Dividends paid | 6 | – | – | – | – | (7,956) | (7,956) |
| Total comprehensive losses for the year | – | – | – | (8,286) | (36,880) | (45,166) | |
| Other comprehensive losses | – | – | – | (8,286) | – | (8,286) | |
| Loss for the year | – | – | – | – | (36,880) | (36,880) | |
| At 1 July 2008 | 1,105 | 98,271 | 32,012 | 2,269 | – | 133,657 | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Notes | Capital | Reserve | Reserve | Reserve | Reserve | Total | |
| Share Distributable | Capital | Other | Revenue | ||||
| Special |
| for the year ended 30 June | 2010 | 2009 £'000 |
|
|---|---|---|---|
| Notes | £'000 | ||
| Cash flows from operating activities | |||
| Net operating profit/(loss) for the year before taxation | 26,325 | (36,788) | |
| Adjustments for: | |||
| (Gains)/losses on investment properties | 8 | (20,218) | 42,969 |
| (Increase)/decrease in operating trade and other receivables | (240) | 1,097 | |
| Decrease in operating trade and other payables | (120) | (878) | |
| Net finance costs | 3,316 | 3,399 | |
| 9,063 | 9,799 | ||
| Taxation | 5 | – | (70) |
| Net cash inflow from operating activities | 9,063 | 9,729 | |
| Cash flows from investing activities | |||
| Purchase of investment properties | 8 | (5,537) | – |
| Capital expenditure | 8 | (180) | (412) |
| Sale of investment properties | 8 | 212 | 16,000 |
| Interest received | 120 | 84 | |
| Net cash (outflow)/inflow from investing activities | (5,385) | 15,672 | |
| Cash flows from financing activities | |||
| Dividends paid | 6 | (7,956) | (7,956) |
| Bank loan interest paid | (706) | (3,645) | |
| (Payments)/receipts under interest rate swap arrangement | 4 | (2,729) | 206 |
| Net cash outflow from financing activities | (11,391) | (11,395) | |
| Net (decrease)/increase in cash and cash equivalents | (7,713) | 14,006 | |
| Opening cash and cash equivalents | 16,474 | 2,468 | |
| Closing cash and cash equivalents | 8,761 | 16,474 |
A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.
The consolidated accounts have been prepared and approved in accordance with International Financial Reporting Standards ('IFRS') issued by, or adopted by, the International Accounting Standards Board (the IASB), interpretations issued by the International Financial Reporting Standards Committee, as adopted by the EU, applicable legal and regulatory requirements of The Companies (Guernsey) Law, 2008 and the Listing Rules of the UK Listing Authority.
The financial statements have been prepared on the historical cost basis except for investment properties and the interest rate swap which are measured at fair value.
The notes and financial statements are presented in pounds sterling (functional and presentational currency) and are rounded to the nearest thousand except where otherwise indicated.
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenue and expenses during the period. The nature of the estimation means that actual outcomes could differ from those estimates. The valuation of investment properties requires the use of estimates and judgements and the methodology for doing this is detailed in note 1(f) and note 8.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 8.
There were no changes in accounting policies which had an impact on the Group's financial statements during the year.
In November 2006, the IASB issued IFRS 8 Operating Segments which is effective for periods commencing on or after 1 January 2009. This standard requires disclosure on the financial performance of the Group's operating segments (see note 20).
In March 2007, the IASB issued IAS 23 Borrowing Costs (revised), which is effective for accounting periods commencing on or after 1 January 2009. This standard requires that all borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of the asset.
In September 2007, the IASB issued IAS 1 Presentation of Financial Statements (amendment), which is effective for accounting periods commencing on or after 1 January 2009. This standard separates owner and non-owner changes in equity. The statement of changes in equity will include only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, there is the option to continue presenting a 'traditional' income statement complemented by a second statement, the statement of comprehensive income (SOCI), or to present a single statement, also named 'statement of comprehensive income', that includes both elements. The Group has taken the option of presenting a single statement.
On 5 March 2009, the IASB issued an amendment to IFRS 7 Financial Instruments: Disclosures, which became effective for periods commencing on or after 1 January 2009. The amendments are intended to enhance disclosures about fair value measurement. Details on the fair value measurement are included in note 17.
The IASB issued improvements to IFRS in May 2009. The improvements to IFRS cover amendments to 12 IFRS standards, none of which materially affect the Group.
In January 2008, the IASB issued IFRS 3 Business Combinations (revised) and IAS 27 Consolidated and Separate Financial Statements (amended) which became effective for accounting periods commencing on or after 1 July 2009. IFRS 3 introduces significant changes in the accounting for business combinations and IAS 27 requires that a change in the ownership interest of a subsidiary is accounted for as a transaction with owners in their capacity as owners. The revised standard no longer restricts the allocation to minority interest of losses incurred by a subsidiary to the amount of the
minority equity investment in the subsidiary. The Group structure has not changed and therefore these standards did not have an impact on the financial position or performance of the Group.
All other standards, amendments and interpretations that were issued and effective have no material impact on the financial position and performance of the Group.
There are a number of new standards, amendments to standards and interpretations that have been issued but are not effective for this accounting year and have not been adopted early.
In November 2009, the IASB issued IFRS 9 'Financial Instruments' which becomes effective for accounting periods commencing on or after 1 January 2013. This represents the first of a three-part project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. The objective of the standard is to enhance the ability of investors and other users of financial information to understand the accounting of financial assets and to reduce complexity.
A revised version of IAS 24 'Related Party Disclosures' was introduced in November 2009 and is effective for accounting periods beginning on 1 January 2011. The revisions provide for a partial exemption from the disclosure requirements for government-related entities and clarify the definition of a related party. These revisions will have no effect on the Group.
The IASB issued improvements for 2010 in May 2010, effective from 1 January 2011. These cover eleven amendments to six standards, none of which are expected to materially affect the Group.
The Group does not consider that the future adoption of International Financial Reporting Standards, in the form currently available, will have any significant impact on the financial statements as presented.
The consolidated accounts comprise the accounts of the Company and its subsidiary drawn up to 30 June each year. The financial statements of the subsidiary are prepared for the same accounting period as the parent company, using consistent accounting policies.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
Rental income, excluding VAT, arising on investment properties is accounted for in the Income Statement on a straightline basis over the lease term of ongoing leases. Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.
Interest income is accounted for on an accruals basis.
Expenses are accounted for on an accruals basis. The Group's investment management and administration fees, finance costs and all other expenses are charged through the Statement of Comprehensive Income.
With effect from 1 January 2008 exempt status for category D companies has been abolished and the standard rate of income tax for Guernsey companies reduced to zero per cent. However the Company will be able to continue to apply for tax exemption under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 as a category B collective investment vehicle, as will its subsidiary. A fixed annual fee of £600 per company is payable to the states of Guernsey in respect of this exemption. Capital gains are not taxable in Guernsey.
The Directors intend to conduct the Group's affairs such that the management and control is not exercised in the United Kingdom and so that neither the Company nor any of its subsidiaries carries on any trade in the United Kingdom. Accordingly, the Company and its subsidiaries are not intended to be liable for United Kingdom taxation on their income or gains other than certain income deriving from a United Kingdom source.
The Company and its subsidiaries are subject to United Kingdom income tax on income arising on the property portfolio after deduction of its allowable debt financing costs and other allowable expenses.
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are measured at the tax rates that are expected to apply to the period when the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred income tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. As the Directors consider that the value of the property portfolio is likely to be realised by sale rather than use over time, no provision has been made for deferred tax on valuation uplifts.
Investment properties consist of land and buildings (principally offices, commercial warehouses and retail property) which are not occupied substantially for use by, or in the operations of, the Group, nor for sale in the ordinary course of business, but are held to earn rental income together with the potential for capital and income growth.
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 included within the book cost of the property.
After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in the Statement of Comprehensive Income. Fair value is based on the open market valuation provided by DTZ Debenham Tie Leung Limited, chartered surveyors, at the balance sheet date using recognised valuation techniques. These techniques comprise both the Yield Method and the Discounted Cash Flow Method. In some cases, the fair values are determined based on recent real estate transactions with similar characteristics and location to those of the Company's assets.
The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. In addition, development risks (such as construction and letting risks) are also taken into consideration when determining the fair value of investment properties under construction. These estimates are based on local market conditions existing at the balance sheet date.
The Traditional Method converts anticipated future cash flow benefits in the form of rental income into present value. This approach requires careful estimation of future benefits and application of investor yield or return requirements. One approach to value the property on this basis is to capitalise net rental income on the basis of an Initial Yield, generally referred to as the 'All Risks Yield' approach or 'Net Initial Yield' approach.
The Discounted Cash Flow Method involves the projection of a series of periodic cash flows either to an operating property or a development property. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish an indication of the present value of the income stream associated with the property. The calculated periodic cash flow is typically estimated as gross income less vacancy and collection losses and less operating expenses/ outgoings. A series of periodic net operating incomes, along with an estimate of the reversion/terminal/exit value (which uses the traditional valuation approach) anticipated at the end of the projection period, are discounted to present value. The aggregate of the net present values equals the market value of the property.
Investment properties held under finance leases and leased out under operating leases are classified as investment property and stated at fair value.
On derecognition, realised gains and losses on disposals of investment properties are recognised in the Statement of Comprehensive Income and transferred to the Capital Reserve.
Recognition and derecognition occurs on the exchange of signed contracts between a willing buyer and a willing seller.
The Group uses derivative financial instruments to hedge its risk associated with interest rate fluctuations. The Group's policy is not to trade in derivative instruments.
Derivative instruments are initially recognised in the Balance Sheet at their fair value. Fair value is determined by reference to market values for similar instruments. Transaction costs are expensed immediately.
Gains or losses arising on the fair value of cash flow hedges in the form of derivative instruments are taken directly to the Statement of Changes in Equity. Such gains and losses are taken to a reserve created specifically for that purpose, described as the Other Reserve in the Balance Sheet.
26 IRP Property Investments Limited
On maturity or early redemption the unrealised gains or losses arising from cash flow hedges in the form of derivative instruments, initially recognised in the Statement of Changes in Equity, are reclassified to the Statement of Comprehensive Income.
The Group considers its interest rate swap qualifies for hedge accounting when the following criteria are satisfied:
Incremental external costs directly attributable to an equity transaction that would have otherwise been avoided are offset against issue proceeds and special reserves.
Cash in banks and short-term deposits that are held to maturity are carried at cost. Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity of three months or less.
Trade receivables, which are generally due for settlement at the relevant quarter end are recognised and carried at the original invoice amount less an allowance for any uncollectable amounts. A provision for doubtful debts is made when amounts are more than three months old. Bad debts are written off when identified.
Reverse lease surrender premiums are recognised as an asset and amortised over the period from the date of lease commencement to the earliest termination date.
All bank loans and borrowings are initially recognised at cost, being fair value of the consideration received net of arrangement costs associated with the borrowing. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any loan arrangement costs and any discount or premium on settlement.
On maturity bank loans are recognised at par, which is equivalent to amortised cost. Bank loans redeemed before maturity are recognised at amortised cost with any charges associated with early redemption being taken to the Statement of Comprehensive Income.
The special reserve is a distributable reserve to be used for all purposes permitted under Guernsey law, including the buy back of shares and the payment of dividends.
The following are accounted for in this reserve:
The following are accounted for in this reserve:
– movements relating to the interest rate swap arrangement accounted for as a cash flow hedge.
Any surplus arising from the net profit on ordinary activities after taxation, after adding back capital gains or losses and after payment of dividends, is taken to this reserve, with any deficit charged to the special reserve.
| 2. Fees | 2010 | 2009 |
|---|---|---|
| £'000 | £'000 | |
| (a) Investment management fee |
1,064 | 1,337 |
The fees of any managing agents appointed by the Managers are payable out of the investment management fee. The Company's Managers receive a fee of 0.7 per cent per annum of the Total Assets, including cash held provided that no fee is payable on any cash held in excess of 5 per cent of the net assets of the Company. They also receive an administration fee (see note 3), payable quarterly in arrears.
The notice period in relation to the termination of the investment management agreement is six months by either party.
The investment management agreement may be terminated earlier provided that a payment in lieu of notice, equivalent to the amount the Managers would otherwise have received during the notice period, is made.
The valuers, DTZ Debenham Tie Leung Limited provide valuation services in respect of the property portfolio. An annual fee equal to 0.0225 per cent of the aggregate value of the property portfolio was paid quarterly.
| Year ended | Year ended | |
|---|---|---|
| 30 June | 30 June | |
| 2010 | 2009 | |
| £'000 | £'000 | |
| Direct operating expenses of let rental property | 526 | 347 |
| Bad debts | 99 | 218 |
| Valuation and other professional fees | 136 | 152 |
| Directors' fees | 105 | 105 |
| Administration fee | 61 | 70 |
| Auditors' remuneration for: | ||
| – statutory audit | 35 | 34 |
| – interim review | 3 | 3 |
| – tax services | 11 | 16 |
| Other | 188 | 197 |
| 1,164 | 1,142 |
| Year ended | Year ended | |
|---|---|---|
| 30 June | ||
| 2010 | 2009 | |
| £'000 | £'000 | |
| Interest on principal loan amount | 634 | 3,205 |
| Interest in respect of rate swap arrangement | 2,729 | 188 |
| Amortisation of loan set up costs | 43 | 43 |
| Other interest/fees | 30 | 47 |
| 3,436 | 3,483 |
| 5. Taxation | Year ended | Year ended | |
|---|---|---|---|
| 30 June | 30 June | ||
| 2010 | 2009 | ||
| £'000 | £'000 | ||
| Current income tax charge | 241 | 92 | |
| Total tax charge | 241 | 92 |
A reconciliation of the income tax charge applicable to the results from ordinary activities at the statutory income tax rate to the charge for the year is as follows:
| Net profit/(loss) before taxation | 26,325 | (36,788) |
|---|---|---|
| UK income tax at an effective rate of 20 per cent (2009: 20.0 per cent) | 5,265 | (7,358) |
| Effects of: | ||
| Capital (gains)/loss on revaluation of investment properties not taxable | (4,043) | 8,594 |
| Income not taxable, including interest receivable | (24) | (17) |
| Expenditure not allowed for income tax purposes (including set-up costs) | 776 | 750 |
| Inter company loan interest | (1,664) | (1,981) |
| Utilisation of tax losses from prior periods | (52) | – |
| Deferred tax asset not provided for | (17) | 12 |
| Current year income tax charge | 241 | – |
| Tax relating to prior periods | – | 92 |
| Total tax charge | 241 | 92 |
Under IAS 12, the Group is required to provide at the balance sheet date for deferred income tax on all temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, regardless of whether or not those temporary differences are expected to reverse. Tax computations from tax years 2004/05 onwards have been agreed with HMRC. The Company is in the process of concluding the enquiries and the effect of these have been fully provided for in the accounts.
| 6. Dividends | Year ended | Year ended |
|---|---|---|
| 30 June | 30 June | |
| 2010 | 2009 | |
| £'000 | £'000 | |
| Dividends on Ordinary Shares: | ||
| Fourth interim for the prior year of 1.80 pence per share paid on | ||
| 25 September 2009 (2009: 1.80 pence) | 1,989 | 1,989 |
| First interim of 1.80 pence per share paid on 31 December 2009 (2009: 1.80 pence) | 1,989 | 1,989 |
| Second interim of 1.80 pence per share paid on 26 March 2010 (2009: 1.80 pence) | 1,989 | 1,989 |
| Third interim of 1.80 pence per share paid on 25 June 2010 (2009: 1.80 pence) | 1,989 | 1,989 |
| 7,956 | 7,956 |
A fourth interim dividend of 1.80 pence per share will be paid on 24 September 2010 to shareholders on the register on 10 September 2010. Although this payment of £1,989,000 relates to the year ended 30 June 2010, under International Financial Reporting Standards it will be accounted for in the year ending 30 June 2011.
The basic and diluted earnings per Ordinary Share are based on the net profit for the year of £26,084,000 (year ended 30 June 2009: net loss of £36,880,000) and on 110,500,000 (year ended 30 June 2009: 110,500,000) Ordinary Shares, being the weighted average number of shares in issue during the year.
| 30 June | 30 June | ||
|---|---|---|---|
| 2010 | 2009 | ||
| £'000 | £'000 | ||
| Freehold and leasehold properties | |||
| Opening fair value | 131,886 | 190,443 | |
| Capital expenditure and purchase of investment properties | 5,717 | 412 | |
| Sales proceeds | (212) | (16,000) | |
| Gains/(losses) on investment properties | 20,218 | (42,969) | |
| Closing fair value | 157,609 | 131,886 | |
| Gains on investment properties disposed | Year ended | Year ended | |
| 30 June | 30 June | ||
| 2010 | 2009 | ||
| £'000 | £'000 | ||
| Original cost of investment properties sold | – | 10,486 | |
| Market value of investment properties sold as at 30 June 2009 (30 June 2008) | – | 17,850 | |
| Sale proceeds | 212* | 16,000 | |
| Gain/(loss) on disposal calculated with reference to | |||
| – original cost | 212 | 5,514 | |
| – 30 June 2009 (30 June 2008) valuation | 212 | (1,850) |
All the Group's investment properties were valued as at 30 June 2010 by qualified professional valuers working in the company of DTZ Debenham Tie Leung Limited ('DTZ'), Chartered Surveyors. All such valuers are chartered surveyors, being members of the Royal Institute of Chartered Surveyors ('RICS'). DTZ completed a valuation of Group investment properties at 30 June 2010 on an open market basis in accordance with the requirements of the Appraisal and Valuation Manual published by the Royal Institution of Chartered Surveyors. Fair value is determined on a market value basis in accordance with International Valuation Standards (IVS), as set out by the IVSC. The valuation is prepared on an aggregated ungeared basis. It is also determined using market based evidence, which is the amount for which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction as at the valuation date. The market value of these investment properties amounted to £158,510,000 (2009: £132,845,000). As noted on page 10, the property at Banbury is carried at fair value. The difference between market value and fair value is the unamortised value of the reverse lease surrender premium which totals £901,000 (2009: £959,000) and is separately recorded in the accounts in trade and other receivables.
The property valuer is independent and external to the Group and the Managers.
The property valuer takes account of deleterious materials included in the construction of the investment properties in arriving at its estimate of open market valuation, when the Investment Manager advises the presence of such materials. In arriving at their estimates of market values, the valuers have used their market knowledge and professional judgement and not only relied on historical transactional comparables.
*this relates to the sale of St James's Street in 2009 for which selling costs were over-accrued.
The Group has entered into leases on its property portfolio as lessor (See note 19 for further information). No one property accounts for more than 10.2 per cent of total assets less current liabilities of the Group. The fair values of the properties are shown on page 10. All leasehold investment properties have more than 60 years remaining on the lease term.
There are no restrictions on the realisability of the Group's investment properties or on the remittance of income or proceeds of disposal. However, the Group's investments comprise UK commercial property, which may be difficult to realise, as described in Liquidity risk, note 17. There is also uncertainty in respect of valuations as detailed in Market risk, note 17.
The Group is under no contractual obligations to purchase, construct or develop any investment property. The majority of leases are on a full repairing basis and as such the Group is not liable for costs in respect of repairs, maintenance or enhancements to its investment properties.
The Company owns 100 per cent of the issued ordinary share capital of IRP Holdings Limited ('IPH'), a company incorporated in Guernsey whose principal business is that of an investment and property company.
In addition to its investment in the shares of IPH, the Company had lent £140,870,000 to IPH as at 30 June 2010 (2009: £140,870,000). This is partly offset by a loan due to IPH of £12,540,000 (2009: £12,540,000). The principal loan is repayable on 30 May 2014 and is unsecured. Interest is payable in arrears at a fixed rate of 7.65 per cent per annum or such other interest rate that may be agreed from time to time between IPH and the Company.
| Class | % of | Country of | |
|---|---|---|---|
| Name of subsidiary undertaking | of share | class held | incorporation |
| IRP Holdings Limited | Ordinary | 100* | Guernsey |
*The Company's holding represents all the voting rights of the subsidiary undertaking.
| 10. Trade and other receivables | 2010 | 2009 |
|---|---|---|
| £'000 | £'000 | |
| Rents receivable (net of provision for bad debts) | 1,208 | 640 |
| Other debtors and prepayments | 1,270 | 1,598 |
| 2,478 | 2,238 |
Rents receivable, which are generally due for settlement at the relevant quarter end, are recognised and carried at the original invoice amount less an allowance for any uncollectable amounts. A provision for doubtful debts is made when the amounts are more than 3 months overdue.
Included within rent receivable is the prepayment for rent free periods recognised over the life of the lease. At 30 June 2010 this amounted to £847,000 (2009: £187,000).
Included within other debtors and prepayments is £901,000 (2009: £959,000) relating to the reverse lease surrender premium paid to Banbury.
All cash balances were held in cash, current accounts or in banks on short term deposits with an original maturity of three months or less at the year end.
| £'000 | £'000 | |
|---|---|---|
| Facility | 75,000 | 75,000 |
| Drawn down | 60,000 | 60,000 |
| Set up costs | (427) | (427) |
| Accumulated amortisation of set up costs | 150 | 107 |
| Accrued variable rate interest on bank loan | 612 | 612 |
| Total due | 60,335 | 60,292 |
The Company has a £75 million facility with Lloyds TSB Scotland plc ('LTSB'), of which £60 million is drawn down.
The bank loan is secured on the property portfolio of the Group. Under the bank covenants related to the loan the Company is to ensure that at all times:
The Company met the covenant tests during the year.
Interest rate exposure has been hedged by the purchase of an interest rate swap contract. The hedge has been achieved by matching the notional amount of the swap with the loan principal and matching the swap term to the loan term.
Interest on the swap is receivable at a variable rate calculated on the same LIBOR basis as for the bank loan (as detailed below but excluding margins) and payable at a fixed rate of 5.65 per cent per annum for the first three years and 5.60 per cent per annum thereafter.
The fair value of the liability in respect of the interest rate swap contract at 30 June 2010 is £10,921,000 of which £2,920,000 is treated as a current liability (2009: £6,017,000 of which £1,680,000 is treated as a current liability). This is based on the marked to market value.
Interest accrues on the bank loan at a variable rate, based on LIBOR plus margin and mandatory lending costs and is payable quarterly. The LIBOR rate used is the screen rate available for sterling at 11 am on the date of commencement of each investment period of one month. The margin is 0.50 per cent per annum for the first three years of the facility and 0.45 per cent per annum thereafter, save that if the loan to value percentage is more than 55 per cent, the margin shall be increased in each case by 0.10 per cent per annum. The amount payable by the Company in respect of the variable LIBOR part of the bank loan is fixed through an interest rate swap on the amount drawn down arranged with LTSB. Interest on the swap is payable quarterly. The interest rate swap expires on 10 January 2017. The loan is repayable on 10 January 2017.
| 13. Trade and other payables | 2010 | 2009 | |
|---|---|---|---|
| £'000 | £'000 | ||
| Rental income received in advance | 2,246 | 2,305 | |
| VAT payable | 409 | 368 | |
| Managers' fees payable | 301 | 328 | |
| Other payables | 614 | 731 | |
| Income tax payable | 263 | 22 | |
| 3,833 | 3,754 |
The Company's payment policy is to ensure settlement of supplier invoices in accordance with stated terms.
| 14. Share capital account and reserves | 2010 | 2009 |
|---|---|---|
| £'000 | £'000 | |
| Authorised share capital: | ||
| 200,000,000 Ordinary Shares of 1 pence each | 2,000 | 2,000 |
| Issued share capital: | ||
| 110,500,000 Ordinary Shares of 1 pence each, fully paid | 1,105 | 1,105 |
The capital of the Company is managed in accordance with its investment policy, in pursuit of its investment objective, both of which are detailed in the Report of the Directors on page 12 and in note 17.
The objective of the Company is to provide ordinary shareholders with an attractive level of income together with the potential for income and capital growth from investing in a diversified UK commercial property portfolio. In pursuing this objective, the Board has responsibility for ensuring the Company's ability to continue as a going concern. This involves the ability to issue and buy back share capital within limits set by shareholders in general meeting; borrow monies in the short and long term; and pay dividends out of reserves all of which are considered and approved by the Board on a regular basis. Dividends are set out in note 6 to the accounts and borrowings are set out in note 12.
To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 30 June 2010 or 30 June 2009.
The net asset value per ordinary share is based on net assets of £94,328,000 (2009: £80,535,000) and 110,500,000 (2009: 110,500,000) ordinary shares, being the number of ordinary shares in issue at the year end.
No Director has an interest in any transactions which are or were unusual in their nature or significant to the nature of the Group.
F&C Investment Business Limited received fees for its services as Investment Managers. Further details are provided in notes 2 and 3. The total charge to the Income Statement during the year was £1,064,000 (2009: £1,337,000) of which £301,000 (2009: £328,000) remained payable at the year end.
The Directors of the Company received fees for their services. Further details are provided in the Report of the Directors on page 14 and in note 3 on page 28. Total fees for the year were £105,000 (2009: £105,000) of which £nil (2009: £nil) remained payable at the year end.
The Group's investment objective is to provide ordinary shareholders with an attractive level of income together with the potential for income and capital growth from investing in a diversified UK commercial property portfolio.
Consistent with that objective, the Group holds UK commercial property investments. In addition, the Group's financial instruments comprise cash, receivables, a bank loan, an interest rate swap and payables.
The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk and market risk (those relating to interest rate changes and pricing movements).
There was no foreign currency risk as at 30 June 2010 or 30 June 2009 as assets and liabilities are maintained in Sterling.
The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Group are detailed below.
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.
At the reporting date, the maturity of the Group's financial assets was:
| Financial assets 2010 | More than | |||
|---|---|---|---|---|
| three months | ||||
| Three months | but less | More than | ||
| or less | than one year | one year | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Cash | 8,761 | – | – | 8,761 |
| Rent receivable | 401 | 120 | 687 | 1,208 |
| Other debtors and prepayments | 383 | 44 | 843 | 1,270 |
| 9,545 | 164 | 1,530 | 11,239 |
| Financial assets 2009 | More than | |||
|---|---|---|---|---|
| three months | ||||
| Three months | but less | More than | ||
| or less | than one year | one year | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Cash | 16,474 | – | – | 16,474 |
| Rent receivable | 456 | 8 | 176 | 640 |
| Other debtors and prepayments | 655 | 43 | 900 | 1,598 |
| 17,585 | 51 | 1,076 | 18,712 |
Included within rent receivable is the prepayment for rent free periods recognised over the life of the lease. As at 30 June 2010 this amounted to £847,000 (2009: £189,000).
Included within other debtors and prepayments at 30 June 2010 is £901,000 (2009: £959,000) relating to the reverse lease surrender premium paid to the tenants of Echo Park, Banbury.
In the event of default by an occupational tenant, the Group will suffer a rental shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property until it is re-let. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Managers monitor such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants.
The Group has a diversified tenant portfolio. The maximum credit risk from the rent receivables of the Group at 30 June 2010 is £1,208,000 (2009: £640,000). Rental deposits from tenants at 30 June 2010 were £242,000 (2009: £189,000).
As at 30 June 2010, £160,000 of rent receivable was greater than one month overdue. It is the practice of the Group to provide for rental debtors greater than three months overdue. At 30 June 2010 the provision was £160,000 (2009: £269,000). Of this amount £nil was subsequently written off and £26,000 was recovered.
All of the cash is placed with financial institutions with a credit rating of AA or above. Bankruptcy or insolvency may cause the Group's ability to access cash placed on deposit to be delayed or limited. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, the Manager would move the cash holdings to another financial institution.
At the year end, counterparty risk has been spread by placing cash balances with more than one financial institution.
Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise UK commercial property.
Property in which the Group invests is not traded in an organised public market and may be illiquid. As a result, the Group may not be able to liquidate quickly its investments in these properties at an amount close to their fair value in order to meet its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the Managers and monitored on a quarterly basis by the Board.
In certain circumstances, the terms of the Group's bank loan entitles the lender to require early repayment, and in such circumstances the Group's ability to maintain dividend levels and the net asset value attributable to the ordinary shares could be adversely affected. As at 30 June 2010 the cash balance was £8,761,000 (2009: £16,474,000).
At the reporting date, the maturity of the Group's liabilities was:
| More than | ||||
|---|---|---|---|---|
| three months | ||||
| Three months | but less | More than | ||
| or less | than one year | one year | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Bank loan and interest rate swap | 1,441 | 2,488 | 78,337 | 82,266 |
| Current liabilities | ||||
| Other creditors | 3,105 | 56 | – | 3,161 |
| 4,546 | 2,544 | 78,337 | 85,427 |
| More than | ||||
|---|---|---|---|---|
| three months | ||||
| Three months | but less | More than | ||
| or less | than one year | one year | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Bank loan and interest rate swap | 1,441 | 2,488 | 81,654 | 85,583 |
| Current liabilities | ||||
| Other creditors | 3,233 | 56 | 75 | 3,364 |
| 4,674 | 2,544 | 81,729 | 88,947 |
Some of the Group's financial instruments are interest bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Group is exposed to interest rate risk due to fluctuations in the prevailing market rate.
The table below sets out the carrying amount of the Group's financial instruments that are exposed to interest rate risk.
| Within | More than | ||
|---|---|---|---|
| 1 year | 5 years | Total | |
| £'000 | £'000 | £'000 | |
| Floating rate | |||
| Cash | 8,761 | – | 8,761 |
| Bank loan | – | (60,000) | (60,000) |
| Fixed rate | |||
| Interest rate swap | (2,920) | (7,432) | (10,352) |
| 5,841 | (67,432) | (61,591) | |
| As at 30 June 2009 | Within | More than | |
| 1 year | 5 years | Total | |
| £'000 | £'000 | £'000 | |
| Floating rate | |||
| Cash | 16,474 | – | 16,474 |
| Bank loan | – | (60,000) | (60,000) |
| Fixed rate | |||
| Interest rate swap | (1,680) | (4,337) | (6,017) |
| 14,794 | (64,337) | (49,543) |
Interest is receivable on cash at a variable rate. At the year end rates receivable ranged from 0.375 per cent on current account balances to 0.53 per cent for deposit account balances. Interest is payable on the bank loan at a variable rate of LIBOR plus a margin of 0.45 per cent. The effect of the interest rate swap is to fix interest payable at 5.65 per cent per annum for the first three years and 5.60 per cent per annum thereafter. The effective rate of interest on the loan is 0.96 per cent. Interest on financial instruments classified as floating rate is repriced at intervals of less than one year.
Exposure varies throughout the year as a consequence of changes in the composition of the net assets of the Group arising out of the investment and risk management policies.
In addition, tenant deposits are held in interest bearing bank accounts. These accounts earn interest at base rate less 0.75 per cent and receive no interest at this time as the base rate is too low. Interest accrued on these accounts is paid to the tenant.
The Group's exposure to interest rate risk relates primarily to the Group's long term debt obligations. The Group's policy is to manage its interest rate risk using an interest rate swap, in which the Group has agreed to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. The swap is designed to fix the interest payable on the loan. The interest rate swap covers the exact amount of the loan and has the same duration. Interest fixing periods are identical and on this basis the swap contract complies with IAS 39's criteria for hedge accounting.
An increase of 1.5 per cent in interest rates as at the reporting date would have increased net assets by £5.0 million (2009: £5.2million) and increased the reported profit by £131,000 (2009: £247,000). A decrease of 1.5 per cent would have reduced net assets by £6.2 million (2009: £5.8 million) and decreased the reported profit by £131,000 (2009: £247,000). These movements are calculated as at 30 June 2010 which may not be reflective of actual future conditions.
As at 30 June 2010, all of the Company's financial instruments were included in the balance sheet at fair value, which in the opinion of the Directors is not materially different from their book value.
Details of the Group's investment property portfolio at the balance sheet date are disclosed on page 10. A 10 per cent increase in the value of the investment properties held as at 30 June 2010 would have increased net assets available to shareholders and increased the net income/(loss) for the year by £15.8 million (2009: £13.2 million); an equal change in the opposite direction would have decreased the net assets and increased the net income/(loss) by an equivalent amount.
The calculations above are based on investment property valuations at the respective balance sheet dates and are not representative of the year as a whole, nor reflective of future market conditions.
The assets and liabilities of the Group are, in the opinion of the Directors, reflected in the Balance Sheet at fair value. Borrowings under loan facilities do not have a value materially different from their capital repayment amount. The fair value of the interest rate swap is based on the marked to market value. In the Directors opinion, the fair value of the Group's assets and liabilities are not materially different from their book value.
The Directors and Managers regularly review the principles applied by the property valuers to ensure that they comply with the Group's accounting policies and with fair value principles.
The following table shows an analysis of the fair values of financial instruments recognised in the balance sheet by level of the fair value hierarchy*:
| Total | |||||
|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | fair value | ||
| £'000 | £'000 | £'000 | £'000 | ||
| 30 June 2010 | |||||
| Interest rate swap | – | (10,921) | – | (10,921) | |
| 30 June 2009 | |||||
| Interest rate swap | – | (6,017) | – | (6,017) |
*Explanation of fair value hierarchy:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 – The use of a model with inputs (other than quoted prices included in level 1) that are directly or indirectly observable market data.
Level 3 – The use of a model with inputs that are not based on observable market data.
The Group had no capital commitments as at 30 June 2010 (2009: £nil).
The Group leases out its investment properties under operating leases.
The future income based on the lessor lease length at the year-end was as follows (based on annual rentals):
| 2010 | 2009 | |
|---|---|---|
| £'000 | £'000 | |
| Less than one year | 10,990 | 11,210 |
| Between one and five years | 35,362 | 36,746 |
| Over five years | 45,743 | 43,675 |
| Total | 92,095 | 91,631 |
The largest single tenant at the year end accounted for 9.2 per cent of the current annual rental income (2009: 9.5 per cent).
The unoccupied property expressed as a percentage of estimated total rental value was 2.1 per cent at the year end (2009: 5.7 per cent).
The Group has entered into commercial property leases on its investment property portfolio. These properties, held under operating leases, are measured under the fair value model as the properties are held to earn rentals. The majority of these non-cancellable leases have remaining non-cancellable lease terms of between 5 and 15 years.
Analyses of the nature of investment properties and leases are provided in 'Portfolio Statistics' on pages 8 and 9.
The Board has considered the requirements of IFRS8 'Operating Segments'. The Board is of the opinion that this Group is engaged in a single segment of business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Group has only a single operating segment. 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 of the Group's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the condensed consolidated financial statements.
Notice is hereby given that the sixth Annual General Meeting of IRP Property Investments Limited will be held at Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL on 16 November 2010 at 12 noon for the following purposes.
(b) the minimum price which may be paid for an Ordinary Share shall be 1p;
(c) the maximum price (exclusive of expenses) which may be paid for an Ordinary Share shall be 105 per cent of the average of the middle market quotations (as derived from the Daily Official List) for the Ordinary Shares for the five business days immediately preceding the date of purchase; and
Northern Trust International Fund Administration Services (Guernsey) Limited Secretary
Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL
22 September 2010
Notes:
Share Price
Ordinary dividends are paid quarterly in March, June, September and December each year. Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can complete a mandate form for the purpose. Mandates may be obtained from Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL on request. Where dividends are paid directly to shareholders' bank accounts, dividend tax vouchers are sent directly to shareholders' registered addresses.
The Company's Ordinary Shares are listed on the London Stock Exchange and the Channel Islands Stock Exchange. Prices are given daily in the Financial Times under ''Investment Companies'' and in other newspapers.
Communications with shareholders are mailed to the address held on the share register. In the event of a change of address or other amendment this should be notified to Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL under the signature of the registered holder.
Contact Northern Trust International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 3QL. Additional information regarding the Company may also be found at its website address which is: www.irppropertyinvestments.com
| Financial Calendar 2010/11 | |
|---|---|
| 16 November 2010 | Annual General Meeting |
| December 2010 | Payment of first interim dividend |
| February 2011 | Announcement of interim results |
| February 2011 | Posting of Interim Report |
| March 2011 | Payment of second interim dividend |
| June 2011 | Payment of third interim dividend |
| September 2011 | Announcement of annual results |
| September 2011 | Posting of Annual Report |
| September 2011 | Payment of fourth interim dividend |
| liabilities funds Share price (discount) Share share £'000 £'000 p p % p p |
|
|---|---|
| 1 June 2004 (launch) 176,814 106,152 96.0 100.0 4.2 – – |
– |
| 30 June 2005 202,007 124,478 112.6 124.5 10.6 26.2 5.615 |
1.2 |
| 30 June 2006 231,118 157,136 142.2 142.5 0.2 33.1 6.750 |
1.3 |
| 30 June 2007 236,703 176,377 159.6 125.5 (21.4) 18.8 6.876 |
1.3 |
| 30 June 2008 191,773 133,657 121.0 75.0 (38.0) (30.4) 7.210 |
1.3 |
| 30 June 2009 146,844 80,535 72.9 57.5 (21.1) (33.4) 7.20 |
1.5 |
| 30 June 2010 162,095 94,328 85.4 84.3 (1.3) 23.6 7.20 |
1.4 |
*as a percentage of average total assets less current liabilities.
Quentin Spicer (Chairman)` Andrew E G Gulliford Christopher W Sherwell Christopher P Spencer* C Giles H Weaver
Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL
Northern Trust International Fund Administration Services (Guernsey) Limited Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL
F&C Investment Business Limited 80 George Street Edinburgh EH2 3BU
DTZ Debenham Tie Leung Limited 48 Warwick Street London W1B 5NL
Ernst & Young LLP 14 New Street St Peter Port Guernsey GY1 4LE
Mourant Ozannes 1 Le Marchant Street St Peter Port Guernsey GY1 4HP
Dickson Minto WS 22/25 Finsbury Square London EC2A 1DX
RBS International PO Box 62 1 Glategny Esplanade St Peter Port Guernsey GY1 4BQ
G&N Collective Funds Services Ltd 14 Alva Street Edinburgh EH2 4QG
`Chairman of the Nomination Committee and Management Engagement Committee *Chairman of the Audit Committee
Website: www.irppropertyinvestments.com
Trafalgar Court Les Banques St Peter Port Guernsey
Northern Trust International Fund Administration Services (Guernsey) Limited Trafalgar Court Les Banques St Peter Port Guernsey GY1 3QL
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