Annual report and consolidated financial statements For the year ended 31 December 2013
2013
Contents 1 Highlights 2
Company summary and objectives
2
Financial highlights
3
Chairman’s statement
7
Investment Adviser and Manager’s report
13 Directors 15 Directors’ report 18 Corporate governance statement 21 Audit Committee report 22 Directors’ statement pursuant to the Disclosure and Transparency Rules 23 Independent auditor’s report 26 Consolidated statement of comprehensive income 27 Consolidated balance sheet 28 Consolidated and Company statement of changes in equity 29 Consolidated statement of cash flows 30 Company balance sheet 31 Company statement of cash flows 32 Notes to the financial statements 56 Directors and Advisers
www.alphaukmultipropertytrust.com
Alpha UK Multi Property Trust Plc : Annual report 2013
Alpha UK Multi Property Trust Plc primarily invests in higher-yielding UK commercial property. The key performance objectives for 2014 are to increase earnings and cash flow, enhance asset values, and strengthen the balance sheet.
Highlights
• Adjusted earnings per ordinary share increased – 12.6 pence for
12.6p
• Net asset value (“NAV”) per ordinary share – 224 pence as at
Adjusted earnings per share (“EPS”) of 12.6 pence
• Loans refinanced – on 5 December 2013 the Group refinanced its
84.6%
the year ending 31 December 2013 (6.8 pence for the year ending 31 December 2012). 31 December 2013 (248 pence at 31 December 2012). borrowings, entering into new five year loan facilities.
•
Five property sales completed above valuation – five properties were sold during the year at a total price of £3.82 million before sales costs; 17% above their most recent valuation.
• New lettings achieved – 81 new lettings and 25 lease renewals
achieved during 2013 (representing 13.7% of the estimated rental value (“ERV”) of the total portfolio, based on the final achievable annual rent including stepped rent).
• Additional contracted rent attained – £0.3 million per annum of additional passing rent is contracted to start during 2014, directly benefiting cash flow.
•
Occupancy improved – the occupancy level measured by ERV stood at 84.6% as at 31 December 2013 compared with 80.8% as at 31 December 2012.
Occupancy rate increased during the year
224p NAV of 224 pence per share
£3.8m Five properties sold at a total of 17% above their most recent valuation
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Alpha UK Multi Property Trust Plc : Annual report 2013
Company summary and objectives
Objectives
Listing
Alpha UK Multi Property Trust plc (“the Company”) was incorporated in the Isle of Man on 10 June 2002 as a closed-ended investment company. The Company and its subsidiaries (together “the Group”) invest in higher yielding UK commercial property. The key objectives are:
The Company is a closed-ended Isle of Man registered investment company which has been declared under the relevant legislation to be a closed-ended Collective Investment Scheme. Its shares are listed on the Official List of the UK Listing Authority and are traded on the London Stock Exchange.
●●
Increase earnings and cash flow – increase occupancy in the portfolio and reduce expenses.
●●
Protect and enhance asset values – prudent investment in selected portfolio properties.
●●
Strengthen the balance sheet – reduce bank borrowings progressively, consistent with the investment programme for the property portfolio.
Dividends The Company paid no dividends during the year and no dividend is currently proposed (2012: £nil).
Management The Company’s Investment Adviser and Manager is Alpha Real Capital LLP (“Alpha”). Control of the Company rests with the non-executive Isle of Man based Board of Directors.
ISA /SIPP status The Company’s shares are eligible for Individual Savings Accounts (ISAs) and Self Invested Personal Pensions (SIPPs).
Website www.alphaukmultipropertytrust.com
Financial highlights Year ended 31 December 2013
Year ended 31 December 2012
18,844
20,896
224.1
248.5
Consolidated loss for the year (£’000)
(2,052)
(4,414)
Earnings per ordinary share (pence)*
(24.4)
(52.5)
12.6
6.8
Net asset value (£’000) Net asset value per ordinary share (pence)
Adjusted earnings per ordinary share (pence)*
* T he adjusted earnings are presented to provide what the Board believes is a more appropriate assessment of the operational income accruing to the Group’s activities. Hence, the Board adjusts basic earnings for income and costs which are not of a recurrent nature or which may be more of a capital nature. Further detail can be seen in note 16.
Alpha UK Multi Property Trust Plc : Annual report 2013
Chairman’s statement
Jonathan Clague Chairman
I am pleased to present the Annual Report and the Consolidated Financial Statements of Alpha UK Multi Property Trust plc for the year ended 31 December 2013.
Property performance The active asset management initiatives within the portfolio have assisted in the retention of tenants and the letting of vacant units. The Group has achieved 81 new lettings and 25 lease renewals increasing the occupancy level across the Group by 3.8%, to 84.6% (by ERV) as at 31 December 2013 compared with 80.8% as at 31 December 2012, enhancing the Group’s income. Further detail on asset management progress appears in the Investment Adviser and Manager’s report. The Group has made a number of strategic sales during the year including the sale of the Group’s only retail asset. In total, properties were sold for a combined price of £3.82 million, which was 17% ahead of the properties’ valuation at the time of the sale. Excluding the properties sold during the year, on a like-for-like basis the valuation of the portfolio decreased by £3.4 million (4.1%) from £80.9 million at 31 December 2012 to £77.5 million at 31 December 2013.
Financial performance Adjusted earnings per share for the year are 12.4 pence (2012: 6.8 pence per share). This improvement in earnings is a result of the increased occupancy level within the Group, the continued active strategy to control expenditure and void costs and the reduction in financing costs during the year. The adjusted NAV per ordinary share at 31 December 2013 is 224.1 pence (2012: 248.5 pence). This fall is primarily attributable to the revaluation of investment properties during the year mitigated by positive adjusted earnings in the year.
Bank borrowings and financing On 5 December 2013 the Group entered into new financing arrangements with The Royal Bank of Scotland plc (“RBS”), Europa Mezzanine Finance Sárl (“Europa”) and Alpha Real Trust Limited (“ART”); repaying the Group’s borrowings with Bank of Scotland, Nationwide and ART’s short term loan. These new loan facilities are for a period of five years expiring in December 2018. During the year, the Group’s overall borrowings were reduced by £1.6 million to £64.5 million at 31 December 2013 (2012: £66.1 million). Further details on the Group’s long term borrowings are provided in note 26 and within the Investment Adviser and Manager’s report.
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Alpha UK Multi Property Trust Plc : Annual report 2013
Peartree Lane Industrial Estate Dudley
Description
The property comprises a terrace of three industrial /warehouse units within a self contained site
Tenants
Multi-let including Wolseley UK Ltd
Net lettable area
20,780 (Sq ft) 1,930 (Sq m)
Location
An established Industrial area to the South of Dudley town centre, 9 miles West of Birmingham City Centre and 4 miles West of Junction 2 of the M5
Alpha UK Multi Property Trust Plc : Annual report 2013
Chairman’s statement (continued)
Convertible Unsecured Loan Securities (“CULS”)
Outlook
In accordance with the subscription agreement with ART of 13 July 2010, the Company has fully redeemed all the outstanding CULS (together with any CULS issued in satisfaction of interest payments and premium) on the redemption date of 30 June 2013.
Alpha UK Multi Property Trust plc enters into a new financial year with continued focus on making further progress in preserving and improving the profile of income from its property portfolio.
The preference shares stapled to the CULS were automatically redeemed and the associated options expired without being exercised. In order to finance the redemption of the CULS the Company entered into a short term loan agreement by which ART provided an unsecured loan to the Company. This loan facility was repaid on 5 December 2013, and a new loan with ART was agreed as part of the Group’s refinancing. Further details on the CULS and the ART loan are provided in notes 25 and 26 to the consolidated financial statements.
Continuation vote A continuation vote was put to shareholders at the extraordinary general meeting, which was held on 18 November 2013. The shareholders voted for the continuation of the business for the next five years. In accordance with the articles of the Company, a continuation vote shall be put to shareholders at the annual general meeting to be held in 2019.
With the new long term financing arrangements in place the Board believes that the Group’s strategy provides a strong platform from which to rebuild shareholder value over the medium to long term, however the new financing arrangements shall result in increased finance costs. The Board is confident that the Group will be able to service its debt going forward and, with an improving secondary commercial property market, the Group and therefore the shareholders may eventually see an improvement in the net asset value in the medium to long term. The Board therefore has concluded that the Company and the Group is considered to be a going concern and as a result of this the consolidated financial statements for the year ended 31 December 2013 have been prepared on the going concern basis. Further detail on the basis of preparation of the consolidated financial statements is provided in note 2.
Jonathan Clague Chairman 6 March 2014
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Alpha UK Multi Property Trust Plc : Annual report 2013
St James Mill Business Park Northampton
Description
The park comprises a total of twenty five modern industrial units in a mixed detached and terraced development
Tenants
Multi-let including Eriks Industrial Services Ltd
Net lettable area
42,276 (Sq ft) 3,927 (Sq m)
Location
Central Northampton to the East of the M1 motorway with good access to Junctions 15, 15a, and 16
Alpha UK Multi Property Trust Plc : Annual report 2013
Investment Adviser and Manager’s report
Tom Pissarro Fund Manager
The Investment Adviser and Manager’s strategy to deliver shareholder value will continue to focus on the following objectives: ●●
●●
●●
Portfolio overview Portfolio by region
To enhance net rental income – the marketing strategy for vacant units will aim to meet tenant requirements for good quality affordable accommodation on flexible lease terms. To selectively deploy capital expenditure when ‘value add’ opportunities are identified – a rolling programme of maintenance will continue to be undertaken. However priority will be given to refurbishments where a property can be significantly enhanced to attract additional tenant demand. The Investment Adviser and Manager is also looking to identify opportunities to extend leases and or remove tenant breaks where appropriate value can be unlocked. To reduce borrowings through rental surplus and to reduce the LTV ratio through limited strategic sales – disposals may be considered where it is believed that the price net of costs, likely to be achieved, will benefit shareholder returns.
The strategy to concentrate on active asset management initiatives within the portfolio offers tangible opportunities to generate strong positive cash flow and enhanced NAV per share in the future.
Total as a percentage of Market Value
December 2013
December 2012
%
%
Midlands
30
29
East of England
18
21
North East
2
2
North West
9
9
South East
10
10
South West
20
18
Wales Yorkshire & Humberside Total
1
1
10
10
100
100
Total as a percentage of Market Value
Total as a percentage of Market Value
December 2013
December 2012
Portfolio by sector
%
%
Light Industrial Properties
84
79
Office Properties
16
20
Retail Properties
-
1
100
100
Total
The strategy to concentrate an active asset management initiative within the portfolio offers tangible opportunities to generate strong positive cash flow and enhanced NAV per share in the future.
Total as a percentage of Market Value
The portfolio predominantly comprises a well-diversified portfolio of fifty three multi let properties offering 507 leasable units with a total floor area of approximately 163,800 square metres (approximately 1.8 million square feet) all of which are located in the UK. The properties offer attractively priced accommodation for local and regional occupiers. Of the total portfolio, approximately 84% is invested in light industrial property and 16% is invested in offices. Tenants have continued to favour shorter term flexible leases and against this background the weighted average lease length is 3.5 years to expiry and 2.2 years to the earlier of the next tenant break or expiry.
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Alpha UK Multi Property Trust Plc : Annual report 2013
Webb Ellis Industrial Park Rugby
Description
The park comprises twenty eight light industrial /warehouse units built in four terraces
Tenants
Multi-let
Net lettable area
48,584 (Sq ft) 4,514 (Sq m)
Location
The estate is situated to the North of the Town Centre, close to Rugby railway station and has good access to Junction 1 of the M6 motorway
Alpha UK Multi Property Trust Plc : Annual report 2013
Investment Adviser and Manager’s report (continued)
Asset management review
Valuation
There are signs that the occupational market is beginning to improve, and the Group’s flexible approach to meeting tenant demand has been successful in reducing the number of vacant units: 81 new lettings and 25 lease renewals were completed during the period, with a further 6 units under offer as at 31 December 2013. Many of the leases incorporate stepped increases in rents and there is an additional £0.3 million per annum of contracted rent due to start during the next twelve months which will benefit the cash flow.
The Group’s property portfolio was valued at 31 December 2013 by DTZ Debenham Tie Leung Limited at £77.5 million. Properties were sold during the year (as per above) therefore, excluding the properties sold, on a like-for-like basis the valuation of the portfolio decreased by £3.4 million (4.2%) from £80.9 million at 31 December 2012 to £77.5 million at 31 December 2013. The decrease in value occurred during the first three quarters of the year and reflected the current market and occupational conditions. The average capital value of the portfolio is £473 per square metre (£44 per square foot). Following the refinancing, the overall LTV ratio on total borrowings was 83.2% as at 31 December 2013 (78.4 % on total borrowings as at 31 December 2012).
The number of new lettings and tenant retention is encouraging and accordingly notable progress has been made in increasing occupancy. Based on ERV, the occupancy level stood at 84.6% on 31 December 2013 compared to 80.8% as at 31 December 2012. Tenant insolvency has reduced with 8 tenants, accounting for 1.3% of ERV, becoming insolvent compared with 14 tenants (2.0% of ERV) in the same period last year. Activity
Number of Tenants
Rent £’000
As % of Estimate Rental Value
8
120
1.3
40
473
5.0
8
120
1.3
New letting completed
81
930*
9.9
Tenant leases renewed
25
359*
3.8
Tenant lease breaks exercised Tenant vacated at lease end Tenant insolvency
* Final achievable annual rent including stepped rents.
Based on the current total portfolio ERV, there is also the potential for additional rent of £2.0 million per annum assuming the portfolio were to become fully let and income producing.
Financing The Group entered into new financing agreements on the 5 December 2013 as follows: ●●
A £33.5 million senior loan facility with a five-year term expiring in December 2018 and an initial margin of 3% per annum over LIBOR, with RBS.
●●
A £20.0 million mezzanine loan facility with a five-year term expiring in December 2018 and a coupon of 11% per annum, with Europa.
●●
A new £11.5 million unsecured sub-ordinated loan facility with a five-year term expiring in December 2018 and a coupon of 15% per annum with ART.
The proceeds of the new senior, mezzanine and sub-ordinated loans have been applied to fully repay the facilities formerly provided by Bank of Scotland, Nationwide and ART, and to provide for the Company’s working capital requirements.
Property Sales In keeping with the Board’s strategy to undertake limited strategic sales, three light industrial units, which formed part of larger multi-let estates, a part vacant multi-let office and the only retail property owned by the Fund were sold during the year. The investments, with a combined sale price of £3.82 million, sold at 17% above their most recent valuation.
The occupancy level measured by ERV stood at 84.6% as at 31 December 2013 compared with 80.8% as at 31 December 2012.
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Alpha UK Multi Property Trust Plc : Annual report 2013
Priestly Court Stafford
Description
A modern three-story office building
Tenants
Ardentia Ltd
Net lettable area
10,000 (Sq ft) 930 (Sq m)
Location
Priestly Court is located on the Staffordshire Technology Park which lies to the East of Stafford and has good access to the A34 and Junction 14 of the M6 motorway
Alpha UK Multi Property Trust Plc : Annual report 2013
Investment Adviser and Manager’s report (continued)
UK Economy
Conclusion
The economic recovery maintained momentum throughout 2013 as the UK economy expanded consistently. Estimates from the Office for National Statistics report an increase in gross domestic product (“GDP”) of 0.7% in Q4 2013, taking GDP growth for the year to 2.8%. Compared with GDP growth of 0.3% in 2012, the 2.8% growth during 2013 was a significant improvement and indicates an increasing robustness in the UK economic recovery. The expansion during 2013 was largely driven by household spending however, improvements seen in business activity and exports suggest the emergence of a broader based recovery.
There are signs that valuations of secondary commercial property, similar to those owned by the Group, are beginning to improve. The increased occupancy across the portfolio and the improved adjusted earnings are also encouraging. The successful refinancing has provided the Group with the necessary loan stability to start rebuilding shareholder value. However the new mezzanine and sub-ordinated loan facilities carry a higher interest cost than the previous facilities. The Investment Adviser and Manager’s goal continues to be to increase the level of rent and occupancy throughout the Portfolio and to build on the asset management success delivered during 2013.
The labour market also continued to improve throughout the year with the unemployment rate falling to 7.1% in November, down from 7.7% at the same time twelve months earlier. The improved employment figures raised the possibility of an interest rate increase should the trend continue. However in January 2014 UK inflation fell below the Bank of England’s Monetary Policy Committee’s (“MPC”) 2% target for the first time in more than four years, supporting the MPC’s case for keeping interest rates low. The consumer prices index fell to 1.9% in January 2014 from 2.0% in December 2013, according to the Office for National Statistics.
Property Commentary High levels of transactions, particularly in the latter half of the year, helped to drive capital value growth in the UK commercial property market during 2013, however the main focus of investor appetite was concentrated at the prime end of the market with some overflow into good secondary stock. Robust investor appetite saw transaction levels increase significantly on an annual basis. Total investments in the UK were over £53.5 billion in 2013, an increase of 60% on the previous year, in which investments totalled £33.5 billion. The significant yield gap between prime and secondary properties which has emerged since 2008, began to narrow in the latter half of the year due to a clear contraction in secondary yields. The gap between prime and secondary yields has reduced marginally but still remains at historically wide levels. During the year ahead it is believed that the supply of good quality investment stock will remain constrained and continue to lead investors to purchase properties further up the risk curve. This trend and the anticipated volume of transactions could create further falls in yields for good quality secondary property.
Tom Pissarro Alpha Real Capital LLP Investment Adviser and Manager 6 March 2014
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Alpha UK Multi Property Trust Plc : Annual report 2013
Farthing Road Industrial Estate Ipswich
Description
Comprises three main blocks of nine industrial /warehouse units situated either side of the main estate road
Tenants
Multi-let
Net lettable area
105,900 (Sq ft) 9,838 (Sq m)
Location
The industrial estate lies approximately 1.5 miles to the West of the Town Centre with good access to the A14
Alpha UK Multi Property Trust Plc : Annual report 2013
Directors
Jonathan Clague
Geoffrey Black
Chairman
Director
Jonathan Clague is a resident of the Isle of Man. He is the non-executive chairman of Heron & Brearley, a leading Manx brewer and public house operator and previously, was a nonexecutive director of Diamond Circle Capital Plc, Isle of Man Bank, NatWest Offshore Limited, Sun Alliance (IOM) Limited and PFI Infrastructure Company.
Geoffrey Black is a resident of the Isle of Man. He is a Fellow of the Royal Institution of Chartered Surveyors and is a senior partner of Black Grace Cowley, a leading firm of commercial property agents on the Isle of Man. Geoffrey has more than 30 years experience in both the commercial and residential property markets and has acted for major UK institutions, such as Barclays Bank Plc, and for the Isle of Man government.
Donald Lake
Philip Scales
Director
Director Chairman of the Audit Committee
Donald Lake is a resident of the Isle of Man. He is a Fellow of the Royal Institution of Chartered Surveyors and has many years experience of the UK commercial property market both as an adviser to investment funds and as a principal. Donald is Chairman of Unitech Corporate Parks plc an AIM listed company engaged in large-scale projects in India, a director of its subsidiaries in Mauritius and a member of its Audit Committee. He is also a director of other companies active in the UK and elsewhere, and advises private clients on the Isle of Man and in the UK.
Mark Rattigan Director appointed as Director on 17 April 2013
Mark holds a Bachelor of Civil Engineering (Honours) from the University of Sydney and an Investment Management Certificate from the UK Society of Investment Professionals. He has previously been Chief Operating Officer and Director - Finance and Operations at RREEF (Deutsche Bank’s real estate funds management group) based in London. He has over 25 years’ experience in real estate, funds management and investment banking. His experience includes 13 years in real estate investment banking with Deutsche Bank, HSBC Investment Bank and Macquarie Bank in both London and Sydney and 5 years as a property development manager at Lend Lease. Mark is currently Chief Operating Officer of the Company’s Investment Adviser and Manager, Alpha Real Capital LLP.
Philip Scales is a resident of the Isle of Man. He is a Fellow of the Institute of Chartered Secretaries and Administrators and the managing director of the Company’s Administrator, IOMA Fund and Investment Management Limited. Philip was previously the managing director of Barings (Isle of Man) Limited, which was acquired by Northern Trust in 2005. Philip has more than 34 years’ experience in corporate and mutual fund administration and is currently on the boards of a number of listed companies.
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Alpha UK Multi Property Trust Plc : Annual report 2013
Delta Drive Tewkesbury
Description
Twenty two light industrial units built in three terraces
Tenants
Multi-let
Net lettable area
60,000 (Sq ft) 5,575 (Sq m)
Location
Within the established Tewkesbury Business Park which lies North East of the Town Centre and approximately 1 mile West of Junction 9 of the M5 motorway
Alpha UK Multi Property Trust Plc : Annual report 2013
Directors’ report
The Directors present herewith the Annual Report and Consolidated Financial Statements of the Group for the year ended 31 December 2013. The Corporate Governance Statement set out on pages 18 to 20 forms part of this Directors’ report by reference.
The Company The Company is an Isle of Man closed-ended investment company and was incorporated on 10 June 2002. Its principal activity is that of investment in UK commercial property. Its shares are listed on the Official List of the UK Listing Authority and have been traded on the London Stock Exchange since their listing on 4 April 2003.
Corporate governance The information fulfilling the requirements of the Corporate Governance Statement can be found in this Directors’ report and on pages 18 to 20, which are incorporated into this Directors’ report by reference.
Directors Biographical details of the Directors of the Company who served during the year are given on page 13. Their interests in the share capital of the Company are shown below: Directors Shareholding
In accordance with the Listing Rules of the UK Listing Authority, the Directors confirm that: ●●
●●
●●
No single property represents more than 15% of the gross assets of the Group; Income receivable from any one tenant, or tenants within the same group, in any one financial year does not exceed 20% of the total rental income of the Group; and The proportion of the Group’s property portfolio which is unoccupied or not producing income or which is in the course of substantial redevelopment or refurbishment does not exceed 25% of the value of the portfolio.
Business review A review of the business during the year is contained in the Chairman’s statement on pages 3 to 5.
Results and dividends The results for the year are set out in the financial statements. Commentary on the net asset value and performance is given in the Chairman’s Statement and Investment Adviser and Manager’s Report which are incorporated into this Directors’ report by reference. The Company paid no dividends during the year and no dividend is currently proposed. (2012: nil).
Jonathan David Clague Geoffrey Paul Raineri Black
31 December 2013
31 December 2012
Number of Ordinary shares held
Number of Ordinary shares held
15,500
15,500
7,000
7,000
32,900
32,900
Philip Peter Scales
-
-
Phillip Rose (resigned 16 April 2013)
-
-
Mark Rattigan
-
-
Donald Lake
Financial instruments Information about the use of financial instruments by the Group is given in note 22 to the consolidated financial statements.
Post balance sheet events Details of significant events since the balance sheet date are contained in note 31 to the consolidated financial statements.
Substantial shareholdings Shareholders holding 3% or more of the Ordinary Shares of the Company as at 31 December 2013
Number of Ordinary shares held
% of share capital held
’000
Alpha Real Trust Limited
1,573
18.7
During the period between 31 December 2013 and 6 March 2014 the Company did not receive any notifications under chapter 5 of the Disclosure and Transparency Rules.
Directors’ indemnities On 4 October 2013, a third party indemnity (Director and Officer insurance) was given by the Company to the Directors in terms which comply with Company law and remains in force at the date of this report.
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Alpha UK Multi Property Trust Plc : Annual report 2013
Falcon Business Park Burton-on-Trent
Description
A modern terrace of four light industrial /warehouse units
Tenants
Multi-let including Howden Joinery Properties Ltd
Net lettable area
29,400 (Sq ft) 2,730 (Sq m)
Location
The property is situated within an established industrial area which lies approximately 1.5 miles North East of Burton-on-Trent Town Centre
Alpha UK Multi Property Trust Plc : Annual report 2013
Directors’ report (continued)
Company Secretary Martin Katz served as Secretary throughout the year.
Going concern The Directors have concluded that the Company and the Group is considered to be a going concern and as a result of this the consolidated financial statements for the year ended 31 December 2013 have been prepared on the going concern basis. Further detail on the basis of preparation of the financial statements is provided in note 2.
Continuation vote Shareholders voted for the Group to continue in existence for the next five years as a closed ended investment company at an extraordinary general meeting (“EGM”) which was held on 18 November 2013. The continuation vote was proposed as a special resolution and accordingly a majority of 75% of the votes cast at the EGM was required.
Jonathan Clague Chairman 6 March 2014
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Alpha UK Multi Property Trust Plc : Annual report 2013
Corporate governance statement
The Board of Directors is accountable to the Company’s shareholders for the management and control of the Company’s activities and is committed to appropriate standards of corporate governance. The statement below explains how the Company applies the principles set out in the UK Corporate Governance code (‘’the Code’’) published by the Financial Reporting Council and contains the information required by chapter 7 of the Disclosure and Transparency Rules.
The Board has adopted a schedule of matters reserved for its decisions and a schedule of matters delegated to the Investment Adviser and Manager, both of which are reviewed at least annually. The Board reserves approval for all significant or strategic decisions including property acquisitions, disposals, significant capital expenditure and financing transactions. The Directors are entitled to take independent professional advice as and when necessary. The Board ensures that all strategic matters are considered and resolved at Board Meetings.
Statement of compliance The Company has, other than where stated below, complied fully with the provisions set out in the Code during the year ended 31 December 2013:●●
As matters relating to remuneration and nominations are dealt with at regular board meetings, no separate Remuneration and Nomination committees have been established.
The Directors consider this structure to be a practical solution bearing in mind the Company’s size and needs. Further explanation of how the principles and the supporting principles have been applied is set out below and in the Audit Committee report.
Role of the Board The Board has determined that its role is to consider and determine the following principal matters which it considers are of strategic importance to the Company:
Board Meetings The Board meets at least quarterly and as required from time to time to consider specific issues reserved for decisions by the Board including all potential acquisitions and disposals, significant capital expenditure and leasing matters and decisions relating to the Company’s financial gearing, the purpose of which is to ensure the long-term success of the Company for its shareholders. Certain matters relating to the implementation of the Company’s strategy are delegated either to the Investment Adviser and Manager or the Administrator but the performance of such delegation by these independent agents is regularly monitored by the Board. At the Board’s quarterly meetings, it considers papers circulated in advance including reports provided by the Investment Adviser and Manager. The Investment Adviser and Manager’s report comments on:
1) R eview the overall objectives for the Company and set the Company’s strategy for fulfilling those objectives within an appropriate risk framework;
●●
The UK property markets, including recommendations for any changes in strategy that the Investment Adviser and Manager considers may be appropriate.
2) C onsider any shifts in strategy that it considers may be appropriate in light of market conditions;
●●
Performance of the Group’s portfolio and key asset management initiatives.
3) R eview the capital structure of the Company including consideration of any appropriate use of gearing for the Company in which the Company may invest from time to time;
●●
Transactional activity undertaken over the previous quarter and being contemplated for the future.
●●
The Group’s financial position including relationships with bankers and lenders.
4) A ppoint the Investment Adviser and Manager, Administrator and other appropriately skilled service providers and monitor their effectiveness through regular reports and meetings; 5) R eview key elements of the Company’s performance including the net asset value, earnings per share, adjusted net asset value per share, adjusted earnings per share and payment of dividends.
The Administrator provides a quarterly compliance, company secretarial and regulatory report. The reports enable the Board to assess the success with which the Group’s property strategy and other associated matters are being implemented and also to consider any relevant risks as well as to consider how they should be properly managed. The Board also considers reports provided from time to time by its various service providers reviewing their internal controls. In between its regular quarterly meetings, the Board has also met on a number of occasions during the year to approve property transactions and for other matters.
Alpha UK Multi Property Trust Plc : Annual report 2013
Corporate governance statement (continued)
Statement of Directors’ responsibility
The table below shows the attendance at the Board and meetings during the year to 31 December 2013: Director
Jonathan David Clague
Board
20
Geoffrey Paul Raineri Black
17
Donald Lake
21
Philip Peter Scales
20
Mark Rattigan
10
Number of meetings during the year
23
Messrs Clague, Black, Lake and Scales are non-executive directors and are considered to be independent. Mr Rattigan is a non-executive director of the Company but is also Chief Operating Officer of Alpha Real Capital LLP, the Investment Adviser and Manager. The terms and conditions of appointment of non-executive Directors are available for inspection by any person at the Company’s registered office and at the Annual General Meeting. The Board has undertaken an annual evaluation of its own performance and that of its committees and Directors. All Directors are subject to an annual performance evaluation, which is an on-going exercise. Evaluation of the Board considers the balance of skills, experience, independence and knowledge of the company on the Board, its diversity, including gender, how the Board works together as a unit, and other factors relevant to its effectiveness. As part of this evaluation, the Chairman confirms that the retiring Directors continue to demonstrate commitment to their role and responsibly fulfil their functions on the Board and its committees.
Company law requires the Directors to prepare the annual report and financial statements for each financial year which give a true and fair view of the state of affairs of the Company and 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: ●●
Select suitable accounting policies and then apply them consistently;
●●
Make judgements and estimates that are reasonable and prudent;
●●
State whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the Group’s financial statements; and
●●
Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and enable them to ensure that the financial statements comply with the Companies Acts 1931 to 2004. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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Alpha UK Multi Property Trust Plc : Annual report 2013
Corporate governance statement (continued)
Risk management and internal control
Investment Adviser’s and Management Agreement
The Board recognises its ultimate responsibility for the Company’s system of internal control. The Board understands its responsibility for ensuring that there are sufficient, appropriate and effective systems, procedures, policies and processes for internal control of financial, operational, compliance and risk management matters in place in order to manage the risks which are an inherent part of the business. The process for significant risks is in accordance with Turnbull Guidance.
The Company has an Investment Adviser’s and Management Agreement with the Investment Adviser and Manager. This sets out the Investment Adviser and Manager’s key responsibilities which include proposing a property investment strategy to the Board, The Investment Adviser and Manager is also accountable to the Board for all issues relating to property asset management.
The Board attaches considerable importance to the Group’s systems of internal control and risk management by establishing a continuous process for identifying, evaluating and managing the risks which the Group faces.
During the year the Directors received the following remuneration in the form of fees from the Company:
During 2013, the exposures to risk, including the changing environments with the property sector and potential adverse consequences of the global economic downturn, and refinancing risks were closely monitored by the Directors. The Audit Committee, along with the Board, has responsibility for monitoring the work carried out under contractual arrangements, and delegated authorities as appropriate, by the Investment Adviser and Manager, the Administrator, the Property Manager and Property Valuer. This, combined with frequent communication with the external auditors ensures that sufficient controls for managing risks are in place in line with the Code. Risk management covers operations, security, compliance, finance, legal and strategy. The Board monitors these areas closely and matters are reviewed at meetings of the Audit Committee. However, internal controls are designed to manage rather than eliminate the risk of failure to achieve business objectives, and the Board recognises that any system can only provide reasonable and not absolute assurance against material misstatement or loss.
Internal audit The Group has no employees and therefore the Board is reliant upon the systems and procedures employed by the Investment Adviser and Manager and the Administrator which are regularly reviewed and are considered to be sufficient to provide it with the required degree of comfort. Resulting from this, the Board continues to believe that there is no need for an internal audit function, although it continues to monitor such need on an annual basis.
Remuneration report
Directors Fees
31 December 2013
31 December 2012
£
£
20,000
20,000
Geoffrey Paul Raineri Black
15,000
15,000
Donald Lake
15.000
15,000
Philip Peter Scales
15,000
15,000
Mark Rattigan (appointed 16 April 2013)
10,582
-
4,408
15,000
Jonathan David Clague
Phillip Rose (resigned 16 April 2013)
Going concern The Directors have concluded that the Company and the Group is considered to be a going concern and as a result of this the consolidated financial statements for the year ended 31 December 2013 have been prepared on the going concern basis. Further detail on the basis of preparation of the consolidated financial statements is provided in note 2.
Jonathan Clague Chairman 6 March 2013
Alpha UK Multi Property Trust Plc : Annual report 2013
Audit Committee report
This report details the key activities of the Committee during the year, alongside our principal responsibilities.
●●
Develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm, and to report to the board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;
●●
Report to the board on how it has discharged its responsibilities; and
●●
Oversee the whistleblowing provisions of the Group and to ensure they are operating effectively.
Composition of the Committee The Committee consists of a Chairman (Philip Scales) and other Non-Executive Directors (Geoffrey Black and Donald Lake). All are independent directors with significant financial experience, as detailed in the biographies on page 13. Meetings of the Audit Committee are attended by members of the Investment Adviser and Manager’s finance team and the external auditors, Ernst & Young LLC. The Committee meets regularly during the year in alignment with the financial reporting timetable and during the financial year ended 31 December 2013 they met on four occasions as detailed below. Director
Audit Committee
Geoffrey Paul Raineri Black
4
Donald Lake
4
Philip Peter Scales
4
Number of meetings during the year
4
Activities of the committee Key areas formally discussed and reviewed by the Committee during 2013 include: ●●
Annual, half yearly and quarterly results, including the related formal announcements.
●●
Key accounting policies and issues, including property valuation.
●●
Impact of future financial reporting standards and changes to Corporate Governance Code, Disclosure and Transparency Rules and Listing Rules.
●●
Review of significant accounting, reporting and judgement matters.
●●
Internal controls and risk management process.
●●
Half yearly and annual auditor reports on planning and final opinion containing observations leading to recommendations for control or financial reporting improvement.
●●
Review the Group’s whistleblowing policy and satisfy themselves that this has met FCA rules and good standards of corporate governance.
Role and responsibilities The purpose of the Committee is to assist the Board in its responsibilities for monitoring the integrity of the Group’s financial statements, assessing the effectiveness of the Group’s system of internal controls and monitoring the effectiveness, independence, and objectivity of the external auditors. While the Board as a whole has a duty to act in the best interests of the Company, the Committee has a particular role, acting independently of management, to ensure that the interests of the shareholders are properly protected in relation to financial reporting and the effectiveness of the Group’s systems of financial internal controls. The key responsibilities of the Committee are to: ●●
Monitor the integrity of the Group’s financial statements and formal announcements on the Group’s financial performance;
●●
Report to the board on the appropriateness of accounting policies and practices;
●●
Assess the effectiveness of the Group’s system of internal controls and risk-management systems, including reviewing the process for identifying, assessing and reporting all key risks;
●●
Review the scope, effectiveness, independence and objectivity of the audit process;
●●
Make recommendations to the Board on the appointment, reappointment, remuneration and terms of engagement of the external auditor;
Significant areas The significant areas considered by the Committee and discussed with the external auditors during the year were:
Valuation of investment properties In conjunction with the Investment Adviser and Manager the Committee has reviewed the independent valuation report and underlying assumptions and is satisfied that the valuations are appropriate and in accordance with RICS Appraisal and Valuation Standards (8th Edition – March 2012).
Revenue Recognition The Committee considered the risk of fraud within revenue recognition and was satisfied that there were no issues arising.
21
22
Alpha UK Multi Property Trust Plc : Annual report 2013
Audit Committee report (continued)
Going concern – compliance with long term loan facilities The Group has entered into new long term loan facilities and the Committee has considered whether the Group could service this debt. The Committee alongside the external auditor has reviewed a five year forecast and is satisfied that the terms of the loan facilities can be satisfied.
Related party transactions outside the normal course of business The Group entered in a long term loan facility with Alpha Real Trust Limited during the year. The Committee has reviewed the agreement and the terms of the loan and is satisfied that the agreement has been properly documented, authorised and that the terms are commercially applicable.
The appointment of the external auditor is subject to shareholder approval each year at the Annual General Meeting, giving shareholders the opportunity to accept or reject the Board’s recommendation. The Committee has adopted a policy for the provision of non‑audit services and reviews and approves all material non‑audit related services in accordance with the need to ensure the independence and objectivity of the external auditors, at the regular Committee meetings As shown in note 8 to the financial statements, total fees payable to Ernst & Young LLC in the current financial year amounted to £111,000, of which £43,000 was for non-audit related services and £68,000 was for audit services.
External audit The Group’s external auditor is Ernst & Young LLC. The Committee is responsible for reviewing the independence and objectivity of the external auditors, and ensuring this is safeguarded notwithstanding any provision of any other services to the Group. The Board recognises the importance of safeguarding auditor objectivity and has taken the following steps to ensure that auditor independence is not compromised. ●●
The Committee annually evaluates the external auditor as to its complete independence from the Group and relevant officers of the Group in all material respects and that it is adequately resourced and technically capable to deliver an objective audit to shareholders. Based on this review the Committee recommends to the Board each year the continuation, or removal and replacement, of the external auditor;
●●
The external auditors provide audit related services such as regulatory and statutory reporting as well as formalities relating to shareholders and other circulars;
●●
The Committee regularly reviews all fees paid for audit, and all consultancy fees, with a view to assessing reasonableness of fees, value of delivery, and any independence issues that may have arisen or may potentially arise in the future;
●●
The external auditors’ report to the directors and the Committee confirming their independence in accordance with auditing standards. In addition to the steps taken by the Board to safeguard auditor objectivity, Ernst & Young LLC rotates audit partners every five years.
In addition, the Committee will oversee the tender of the external audit within the next year in line with The Code requirements. The successful firm shall perform the external audit for the year ending 31 December 2014.
Directors’ statement pursuant to the Disclosure and Transparency Rules Each of the Directors, whose names and functions are listed in the Directors’ Report confirm that, to the best of each person’s knowledge and belief: ●●
The Group financial statements, which have been prepared, in accordance with IFRSs, give a true and fair view of the assets, liabilities, financial position and loss of the Group and Company, and
●●
The Chairman’s Statement, Investment Adviser and Manager’s report and Director’s report includes a fair review of the development and performance of the business and the position of the Company and Group together with a description of the principal risks and uncertainties that they face.
By order of the Board,
Jonathan Clague Chairman
Phillip Scales Director
Alpha UK Multi Property Trust Plc : Annual report 2013
Independent auditor’s report
We have audited the Group financial statements of Alpha UK Multi Property Trust PLC for the year ended 31 December 2013 which comprise the consolidated statement of comprehensive income, consolidated balance sheet, consolidated and Company statement of changes in equity, consolidated statement of cash flows, Company balance sheet, Company statement of cash flows and the related notes 1 to 31. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards.
Opinion on financial statements
This report, including our opinions is made solely to the Company’s members, as a body, in accordance with Section 15 of the Companies Act 1982. 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 auditor’s 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.
Respective responsibilities of directors and auditor
In our opinion the financial statements: ●●
Give a true and fair view of the state of the Group’s and the Company’s affairs as at 31 December 2013 and of the Group’s loss for the year then end ended;
●●
Have been properly prepared in accordance with International Financial Reporting Standards; and
●●
Have been prepared in accordance with the requirements of the Companies Acts 1931-2004.
Our assessment of risks of material misstatement We identified the following risks of material misstatement which had the greatest effect on the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team: ●●
Valuation of investment properties;
●●
Revenue recognition;
●●
Going concern – compliance with terms and conditions of newly implemented loan facilities. In prior years the Group has had going concern issues due to the expiry of the long term loan facilities and the impending continuation votes. The Group has now implemented new long term loan facilities and the shareholders have voted to extend the life of the Company until at least December 2018. If the Group fails to adhere to the terms and conditions of these new loan facilities or breaches loan covenants, there is the risk that the Group may be forced to sell the properties to repay the loans or lose control of the properties.
●●
Related party transactions outside the normal course of business. The Company entered into a loan transaction with a related party during the year.
As explained more fully in the Statement of Directors’ responsibilities set out on page 19, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and nonfinancial information in the Annual Report and Consolidated Financial Statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
23
24
Alpha UK Multi Property Trust Plc : Annual report 2013
Independent auditor’s report (continued)
Our application of materiality
Revenue recognition
When establishing our overall audit strategy, we determined a magnitude of uncorrected misstatements that we judged would be material for the financial statements as a whole. We determined materiality for the Group to be £184,000, which is approximately 1% of net assets. This provided the basis for determining the nature, timing and extent of our audit procedures, and identifying and assessing the risk of material misstatement.
How the scope of our audit addressed this area of focus:
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that overall performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the Group should be 50% of materiality, namely £92,000. Our objective in adopting this approach was to ensure that the total uncorrected and undetected audit differences did not exceed our materiality of £184,000 for the financial statements as a whole. We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £9,000 as well as differences below that threshold that, in our view warranted reporting on qualitative grounds.
●●
We have read all the Directors’ meeting minutes which discuss rental income, carried out yield analysis on all properties owned, read all property manager meeting minutes and agreed rent receivable and rent received in advance to the property manager reports together with agreeing a sample of new rental amounts to underlying lease agreements;
●●
We have audited the recoverability of the year end debtors position and the impairment provisions made during the year together with carrying out cut off testing; and
●●
We have agreed the accounting treatment of lease incentives to ensure that all rental income has been recognised on an appropriate basis.
Going concern – compliance with terms and conditions of newly implemented loan facilities How the scope of our audit addressed this area of focus: ●●
We have agreed the drawdown of the new loan facilities to the signed loan agreements in place and the arrangement fees incurred, to supporting documentation;
●●
We have ensured the full repayment of the previous loans;
●●
We have identified the loan covenants in place as per the new loan agreements and then recalculated these covenants to ensure no breaches have occurred;
●●
We have obtained a copy of the cash flow forecasts and ensured that the directors’ assumptions used in their preparation are appropriate, valid and reasonable as well as to demonstrate that the Group can service the new loans and adhere to the terms and conditions there of (including sensitivity assessment of these cash flows on the loan covenants);
●●
We have obtained a copy of the directors’ assessment of the Group’s and the Company’s ability to continue as a going concern and reviewed the assumptions made in reaching the conclusion; and
●●
We have obtained confirmation that the shareholders have voted to extend the life of the Company to at least December 2018.
An overview of the scope of our audit In assessing the risk of material misstatement to the Group financial statements, our Group audit scope focused on parent Company as well as the active property holding subsidiaries which all operate from one location in the Isle of Man. Our response to the risks of material misstatement identified above included the following procedures:
Valuation of investment properties How the scope of our audit addressed this area of focus: ●●
●●
We have agreed all the year end property valuations to the valuation reports provided by the appointed external valuer. For a sample of properties we identified and challenged those assumptions that had the greatest impact on property valuations and re performed calculations made by the directors and external valuers in arriving at the year end valuations recorded in the financial statements. We assessed the competence and capability of the external experts engaged by the Company. We have ensured that the valuation disclosures regarding investment properties have been adequately made.
Alpha UK Multi Property Trust Plc : Annual report 2013
Independent auditor’s report (continued)
Related party transactions outside the normal course of business Our audit addressed the risk arising from the loan transaction with a related party as follows; ●●
We have obtained signed copies of the related party loans between the Company and the related party and have read correspondence between these entities;
●●
We have read correspondence between the related party and the directors/investment manager;
●●
We have obtained evidence that the loans received have been appropriately authorised by the Board of Directors; and
●●
We have ensured that these transactions have been adequately disclosed in the financial statements as related party transactions in accordance with IAS 24.
Matters on which we are required to report by exception
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the Audit Committee which we consider should have been disclosed. Under the Companies Act 1931-2004 we are required to report to you if, in our opinion: ●●
Adequate accounting records have not been kept or returns adequate for our audit have not been received from branches not visited by us, or
●●
The financial statements are not in agreement with the accounting records and returns; or
●●
Certain disclosures of directors’ remuneration specified by law are not made; or
●●
We have not received all the information and explanations we require for our audit.
We have nothing to report in respect of the following: Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: ●●
Materially inconsistent with the information in the audited financial statements; or
●●
Apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or
●●
Is otherwise misleading.
Under the Listing Rules we are required to review: ●●
The directors’ statement, set out on page 17, in relation to going concern; and
●●
The part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review.
Alan Thomas Lloyd-Jones (Responsible Individual) for and on behalf of Ernst & Young LLC Statutory Auditor, Isle of Man 6 March 2014
25
26
Alpha UK Multi Property Trust Plc : Annual report 2013
Consolidated statement of comprehensive income
For the year ended 31 December 2013
For the year ended 31 December 2012
Notes
£’000
£’000
Rental income from investment properties
7
7,871
7,834
Other income
7
26
22
7,897
7,856
Income
Expenditure Investment Adviser and Manager’s fee
8
(1,074)
(1,183)
Property expenses
8
(1,979)
(1,909)
Other expenses
8
(279)
(259)
(3,332)
(3,351)
(3,365)
(5,446)
327
-
1,527
(941)
(Losses)/gains from investments Unrealised loss on revaluation of investment properties
19
Realised gain on sale of investment properties Net operating profit /(loss) for the year before finance costs Finance income Finance costs
9
25
564
12
(3,604)
(4,057)
(2,052)
(4,434)
-
-
(2,052)
(4,434)
Net loss before taxation from continuing operations Taxation on ordinary activities
14
Loss for the year on continuing operations Discontinued operation Total comprehensive loss attributable to members from discontinued operations
21
-
(66)
Gain on deemed disposal of CHIP (Six) Limited
21
-
86
-
20
(2,052)
(4,414)
Net profit on discontinued operations Total comprehensive loss for the year attributable to members Earnings per share (pence) Loss for the year from continuing operations attributable to ordinary equity holders of the parent (pence per share) (basic and diluted)
16
(24.4)
(52.7)
Loss for the year attributable to ordinary equity holders of the parent (pence per share) (basic and diluted)
16
(24.4)
(52.5)
Adjusted earnings per share (pence) (basic and diluted)
16
12.6
6.8
There are no other items that require disclosure in the consolidated statement of comprehensive income. The accompanying notes on pages 32 to 55 are an integral part of this statement.
Alpha UK Multi Property Trust Plc : Annual report 2013
Consolidated balance sheet
As at 31 December 2013 Notes
2013
2012
£’000
£’000
These financial statements were approved by the Board of Directors on 6 March 2014 and signed on its behalf by:
Non-current assets Investment properties
19
77,525
84,305
77,525
84,305
3,657
2,711
Current assets Trade and other receivables
20
Cash and cash equivalents
Total assets
3,923
4,519
7,580
7,230
85,105
91,535
Jonathan Clague Chairman
Current liabilities Trade and other payables
23
3,997
4,596
Convertible unsecured loan stock
25
-
5,977
Bank borrowings
26
-
60,066
3,997
70,639
62,264
-
Total liabilities
66,261
70,639
Net assets
18,844
20,896
Non-current liabilities Long term borrowings
26
Equity Share capital
27
841
841
Distributable capital reserve
27
93,623
93,623
Capital redemption reserve
27
254
254
Other reserves
27
-
268
Revenue reserves
(75,874)
(74,090)
Total equity
18,844
20,896
Net asset value per ordinary share (pence)
17
224.1
248.5
Adjusted net asset value per ordinary share (pence)
17
224.1
248.5
The accompanying notes on pages 32 to 55 are an integral part of this statement.
Phillip Scales Director
27
28
Alpha UK Multi Property Trust Plc : Annual report 2013
Consolidated and Company statement of changes in equity
Share capital
Distributable capital reserve
Capital redemption on reserve
Other reserves
Retained profit
Total
£’000
£’000
£’000
£’000
£’000
£’000
1,055
93,623
40
268
(69,676)
25,310
-
-
-
-
(4,414)
(4,414)
(214)
-
214
-
-
-
As at 31 December 2012
841
93,623
254
268
(74,090)
20,896
As at 1 January 2013
As at 1 January 2012 Total comprehensive loss for the year Cancellation of deferred shares
841
93,623
254
268
(74,090)
20,896
Total comprehensive loss for the year
-
-
-
-
(2,052)
(2,052)
Redemption of CULS
-
-
-
(268)
268
-
841
93,623
254
-
(75,874)
18,844
As at 31 December 2013
The accompanying notes on pages 32 to 55 are an integral part of this statement.
Alpha UK Multi Property Trust Plc : Annual report 2013
Consolidated statement of cash flows
For the year ended 31 December 2013
For the year ended 31 December 2012
£’000
£’000
(2,052)
(4,414)
Operating activities Loss for the year Adjustment to reconcile profit before tax to net cash flows Realised gain on disposal of CHIP (Six) Limited Decrease in value of investment properties Profit on disposal of investment property Finance income Finance costs Unrealised gain on hedging instruments Operating cash flows before movements in working capital
-
(86)
3,365
5,446
(327)
-
(25)
(22)
3,604
4,033
-
(542)
4,565
4,415
Movements in working capital: Increase in trade and other receivables
(992)
(52)
Decrease in trade and other payables
(537)
(284)
47
(53)
3,083
4,026
25
22
-
(1)
Sale of investment property
3,742
-
Net cash flows from investing activities
3,767
21
Tax refund /(payment) Net cash flows from operating activities Investing activities Interest received Subsequent capital expenditure on investment properties
Financing activities Interest paid
(4,250)
(2,983)
(60,561)
(1,202)
Third party arrangements fee paid
(2,301)
(260)
Convertible Unsecured Loan Stock repaid
(4,750)
-
6,426
-
Short term Alpha Real Trust Limited loan repaid
(6,426)
-
Third party loans drawn down
53,500
-
Alpha Real Trust Limited loan
11,500
-
Third party loans repaid
Short term Alpha Real Trust Limited loan drawdown
Exit fee paid
(584)
-
-
48
(7,446)
(3,947)
(596)
100
-
(99)
Net (decrease)/increase in cash and cash equivalents
(596)
1
Cash and cash equivalents at 1 January
4,519
4,518
Cash and cash equivalents at 31 December
3,923
4,519
Sale proceeds from disposal of interest rate cap Net cash flows used in financing activities Net (decrease)/increase in cash and cash equivalents Less cash transferred on disposal of CHIP (Six) Limited
The accompanying notes on pages 32 to 55 are an integral part of this statement. * 31 December 2012 cash flow statement has been re-presented as if CHIP (Six) Ltd has been discontinued from the start of the comparative period.
29
30
Alpha UK Multi Property Trust Plc : Annual report 2013
Company balance sheet
As at 31 December 2013 Notes
2013
2012
£’000
£’000
These financial statements were approved by the Board of Directors on 6 March 2014 and signed on its behalf by:
Non-current assets Investments in subsidiaries
18
-
-
-
-
29,221
24,390
Current assets Trade and other receivables
20
Cash and cash equivalents
Total assets
2,366
2,957
31,587
27,347
31,587
27,347
Jonathan Clague Chairman
Current liabilities Trade and other payables
23
1,243
474
Convertible unsecured loan stock
25
-
5,977
1,243
6,451
Non-current liabilities Alpha Real Trust Limited loan
25
11,500
-
11,500
-
Total liabilities
12,743
6,451
Net assets
18,844
20,896
Equity Share capital
27
841
841
Distributable capital reserve
27
93,623
93,623
Capital redemption reserve
27
254
254
Other reserves
27
-
268
Revenue reserves
(75,874)
(74,090)
Total equity
18,844
20,896
Net asset value per ordinary share (pence)
17
224.1
248.5
Adjusted net asset value per ordinary share (pence)
17
224.1
248.5
The accompanying notes on pages 32 to 55 are an integral part of this statement.
Phillip Scales Director
Alpha UK Multi Property Trust Plc : Annual report 2013
Company statement of cash flows
For the year ended 31 December 2013
For the year ended 31 December 2012
£’000
£’000
(2,052)
(4,414)
Operating activities Loss for the year Adjustment to reconcile profit before tax to net cash flows Unrealised gains on investments
-
3,575
Realised gains on investments
-
(3,575)
Provision for intercompany loans Finance income Finance costs Operating cash flows before movements in working capital
2,650
4,952
(1,654)
(1,723)
1,001
842
(55)
(343)
Movements in working capital: (Increase)/decrease in trade and other receivables
(491)
10
138
28
(408)
(305)
Interest received
8,387
22
Net cash flows from investing activities
8,387
22
Interest paid
(2,095)
(1)
Convertible Unsecured Loan Stock repaid
(4,750)
-
6,426
-
Short term Alpha Real Trust Limited loan repaid
(6,426)
-
Alpha Real Trust Limited loan drawdown
11,500
-
Increase in trade and other payables Net cash flows used in operating activities Investing activities
Financing activities
Short term Alpha Real Trust Limited loan drawdown
Loans received from subsidiaries
268
-
Loans made to Group companies
(79,247)
-
Loans repaid from Group companies
65,754
-
Net cash flows used in financing activities
(8,570)
(1)
(591)
(284)
Cash at 1 January
2,957
3,241
Cash at 31 December
2,366
2,957
Net decrease in cash
The accompanying notes on pages 32 to 55 are an integral part of this statement.
31
32
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements For the year ended 31 December 2013
1. General information The Company The Company was incorporated in the Isle of Man on 10 June 2002. It is a closed-ended investment company and was formed primarily for investment in UK commercial property. The registered office of the Company is IOMA House, Hope Street, Douglas, Isle of Man, IM1 1AP. The aim of the Company and its subsidiaries (together “the Group”) is to seek to improve income, reduce debt and provide the prospect of long-term capital growth. The Group has no employees.
Balance sheet presentation The format of the consolidated balance sheet has continued to be presented on the same basis as the last annual consolidated financial statements.
Adjusted earnings per share and adjusted net asset value The adjusted earnings per share and adjusted net asset value are presented in the annual financial statements to provide what the Company believes is a more relevant assessment of the Group’s earnings and net asset value position.
2 Summary of significant accounting policies Basis of preparation The consolidated financial statements have been prepared on a historical cost basis, except for investment property and derivative financial instruments that have been measured at fair value. The consolidated financial statements are presented in pounds sterling and rounded to the nearest thousand unless otherwise stated. The functional and presentational currency of the Company is the pound sterling and there are no foreign exchange transactions. The Group’s financial performance does not suffer materially from seasonal fluctuations. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and also to comply with relevant Isle of Man law. The Company redeemed all the outstanding CULS (together with any CULS issued in satisfaction of interest payments) on the redemption date of 30 June 2013 in full at par plus the payment of the premium. In order to finance the redemption of the CULS the Company entered into a loan agreement in which Alpha Real Trust Limited (“ART”) provided an unsecured loan to the Company. This loan facility was repaid on 5 December 2013, and a new loan with ART was agreed as part of the Group’s refinancing. The Bank of Scotland and the Nationwide loan facilities were repaid on 5 December 2013. The Company and Group have entered into new financing agreements as follows: ●●
●●
●●
A £33.5 million senior loan facility with a five-year term expiring in December 2018 at an initial margin of 3% per annum over LIBOR, with Royal Bank of Scotland PLC (“RBS”). A £20.0 million mezzanine loan facility with a five-year term expiring in December 2018 at a coupon of 11% per annum, with Europa Mezzanine Finance SaRL (“Europa”). A £11.5 million unsecured loan facility with a five-year term expiring in December 2018 at a coupon of 15% per annum, with ART.
On 27 January 2014, the Group entered into an interest rate swap agreement whereby interest on £25.1 million of the debt would be fixed at 2.0225% until 5 December 2018. The Company believes this refinancing will establish the Group on a stable footing to continue the asset management initiatives. It is hoped this will lead to the commencement of the recovery of shareholder value in the Company. In forming their view on whether it is appropriate to adopt the going concern basis in preparing the consolidated financial statements, the Board have reviewed cash flow projections to December 2018 to assess whether they continue to be able to meet its liabilities as they fall due and also meet the covenant terms of its loans. The projections include the following key assumptions: ●●
Rental income based on contracted rental income from tenants secured as at 31 December 2013.
●●
Rental income from some of the void properties becoming occupied based on historic and anticipated vacancy periods.
●●
Void costs and non recoverable costs based on the expected occupancy rate.
●●
Default rates based on expected and historic patterns.
●●
Interest charges and arrangement fees have been based on new loan terms.
●●
Current property valuations apply, and there is no valuation change assumed from occupancy or market movement.
The assessment of the cash flow projections shows that the Group is able to meet its liabilities as they fall due and comply with the covenants of its loan facilities. Along with the above assessment of the cash flow projections, the refinancing of the loan facilities for five years, plus the approval by shareholders of the continuation of the Company for another five years, the Board considers it appropriate to prepare the Group and Company financial statements on a going concern basis.
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
2 Summary of significant accounting policies (continued) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December each year. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
Company statement of comprehensive income In accordance with section 3(5) (b) (ii) of the Companies Act 1982, the Company is exempt from the requirement to present its own statement of comprehensive income. Of the loss on ordinary activities after taxation, £2.1 million loss (2012: £4.4 million loss) has been made by the Company.
Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received, excluding discounts, rebates and sales taxes and duty. Specific income is recognised as follows: ●●
●●
●● ●●
●●
Rental income receivable under operating leases is recognised on a straight-line basis over the term of the lease, except for contingent rental income which is recognised when it arises. Lease incentives granted are recognised as an integral part of the net consideration for the use of the property and are therefore also recognised on the same straight line basis. Interest income is recognised as it accrues using the effective interest rate method. Income arising from expenses recharged to tenants is recognised in the period in which the expense can be contractually recovered. Service charges and other such receipts are included gross of the related costs in revenue as the directors consider that the Group acts as principal in this respect. A property is regarded as sold when the significant risks and returns have been transferred to the buyer, which is normally on unconditional exchange of contracts. For conditional exchanges, sales are recognised only when all the significant conditions are satisfied.
Expenses All expenses are calculated on an accruals basis. The Group’s policy is to expense all property investment advisory fees. All other expenses are charged to the consolidated statement of comprehensive income.
Taxation The Group is a resident in the Isle of Man for income tax purposes. The standard rate of tax on company profits in the Isle of Man is 0% except where profits are derived from Isle of Man land and property or banking business, where the standard rate is 10%. The Group is subject to Isle of Man Income Tax at a rate of 0% on its profits. CHIP (One) Limited, CHIP (Two) Limited, CHIP (Three) Limited, CHIP (Four) Limited and CHIP (Five) Limited are subject to UK non-resident landlord tax at a rate of 20% on their rental profits.
Investment properties Investment property is measured initially at cost including transaction costs. Transaction costs include stamp duty, professional fees and legal services incurred to bring the property to the condition necessary for it to be capable of operating. Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in fair values are included in the consolidated statement of comprehensive income in the year in which they arise. Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement of disposal of investment property are recognised in the consolidated statement of comprehensive income in the year of retirement or disposal. Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds received and the latest valuation of the investment property.
Convertible unsecured loan stock (“CULS”) Convertible unsecured loan stock was assessed in accordance with IAS 32 Financial Instruments: Presentation to determine whether the conversion element met the fixed-for-fixed criterion. Where this was met, the instrument was accounted for as a compound financial instrument with appropriate presentation of the liability and equity components. Where the fixed-for-fixed criterion was not met, the conversion element was accounted for separately as an embedded derivative which was measured at fair value through profit or loss. In the consolidated and Company balance sheets, this was presented separately as a derivative instrument. Fees incurred in relation to issuing convertible loan notes are initially capitalised and amortised over the term of the loan notes.
33
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Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
2 Summary of significant accounting policies (continued) Rent and other receivables Rent and other receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried at amortised cost. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.
Cash and cash equivalents Cash and short term deposits in the consolidated and Company balance sheets comprise cash at bank and short term deposits with an original maturity of three months or less. For the purposes of the consolidated and Company statements of cash flows, cash and cash equivalents consist of cash and short term deposits as defined above, net of outstanding bank overdrafts.
Interest bearing loans and borrowings All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Bank arrangement fees incurred are initially capitalised and are then amortised over the term of the loan.
Tenant deposits Tenant deposit liabilities are initially recognised at fair value and subsequently measured at amortised cost where material. Any difference between the initial fair value and the nominal amount is included as a component of operating lease income and recognised on a straight line basis over the lease term.
Investment in subsidiaries The Company’s investments in its subsidiaries are designated at fair value through profit or loss. These investments are stated at fair value, derived from the net assets of the subsidiary companies at the reporting date, with any surplus or deficit arising on revaluation being recognised in the statement of comprehensive income of the company.
Segmental reporting The Directors are of the opinion that the Group is engaged in three operating segments which are carried out in eight geographical locations, as detailed in note 6.
Derivatives and hedging The Group may use interest rate hedging instruments to hedge its risks associated with interest rates. It is not the Group’s policy to trade in derivative financial instruments. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. The Directors have elected not to apply hedge accounting rules under IAS 39 on the hedging arrangements. Any gains or losses in the value of these derivatives are recognised immediately in the consolidated statement of comprehensive income.
Deferred taxation Deferred tax is provided for using the liability method on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductable temporary differences, carried forward tax credits or tax losses can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the balance sheet date.
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
3 Significant accounting judgements, estimates and assumptions The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected. The key assumptions concerning the future and other key sources of estimation or uncertainty at the date of the Balance Sheet, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Valuation of investment property Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group ensures the use of suitable qualified external valuers to value the investment properties and determine their fair value. Investment property is initially recognised at purchase cost plus directly attributable acquisition expenses. Investment properties are carried at a revalued amount which is stated at its fair value as determined on an open market basis as at the reporting date. The fair value of investment property is based on valuation by an independent valuer who holds a recognised and relevant professional qualification and who has recent experience of the location and category of the investment property being valued. The fair value of investment property generally involves consideration of: ●●
Market evidence on comparable transactions for similar properties;
●●
The actual current market for that type of property in that type of location at the reporting date and current market expectations;
●●
Rental income from leases and market expectations regarding possible future lease terms;
●●
●●
Hypothetical sellers and buyers, who are reasonably informed about the current market and who are motivated, but not compelled, to transact in that market on an arm’s length basis; and Investor expectations on matters such as future enhancement of rental income or market conditions.
Incentive fees Incentive fees are provided for when it is deemed likely a fee will become payable based on the likelihood of the Company achieving the target level of return. Further details can be found in note 24.
Operating leases The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangement, that it retains all of the risks and rewards of ownership of these properties and accounts for the contracts as operating leases.
Convertible unsecured loan stock (“CULS”) The liability element of the CULS was measured by determining the net present value of all the future cash flows under the instrument, discounted at the market rate at the time of issue. The discount rate of 13% was determined by reference to similar mezzanine lending transactions at that time.
4. Changes and future changes in accounting standards a) New standards, interpretations and amendments thereof, adopted by the Group The accounting policies adopted are consistent with those of the previous year, except that the Group has adopted the following new and amended IFRS and IFRIC as of 1 January 2013. The nature and the impact of each new standards and amendments are described below. Other amendments to certain standards apply for the first time in 2013. However, they do not impact the annual consolidated financial statements of the Group.
IFRS 10 Consolidated Financial statements IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 require management to exercise significant judgement to determine which entities are controlled, and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013.
IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, joint arrangements that meet the definition of a Joint Venture are now accounted for using the equity method. Otherwise joint arrangements are accounted for by recognizing the group’s share of the arrangements assets and liabilities.
35
36
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
4. Changes and future changes in accounting standards (continued) IFRS 12 Disclosure of Interests in Other Entities IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required including: ●●
A requirement to disclose judgements made in determining if the Group controls, has joint control or significant influence over an entity
●●
A requirement to disclose judgements made in determining the type of joint arrangement in which the Group has an interest
These standards become effective for annual periods beginning on or after 1 January 2013. As expected the adoption of IFRS 10, IFS 11 & IFRS 12 did not have material impact on the Group’s financial statements in the year.
IFRS 13 – Fair Value Measurement The standard requires additional disclosures about the definition of fair value. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. IFRS 13 seeks to increase consistency and comparability in fair value measurements and related disclosures through a ‘fair value hierarchy’. The hierarchy categorises the inputs used in valuation techniques into three levels. The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure fair value are categorised into different levels of the fair value hierarchy, the fair value measurement is categorised in its entirety in the level of the lowest level input that is significant to the entire measurement (based on the application of judgement). The adoption of IFRS 13 did have an impact on the disclosures of investment properties as noted in note 19. The Group has considered the specific requirements relating to highest and best use, valuation premise, and principal (or most advantageous) market. The resulting calculation under IFRS13 affected the principles that the Group uses to assess the fair value, but the assessment of fair value under IFRS13 has not materially changed the fair values recognised but has increased the disclosure of assumptions used in the valuation process as set out in note 19.
(b) Standards issued but not yet effective Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing is of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective.
IFRS 9 Financial Instruments: Classification and Measurement IFRS 9, as issued, reflects the IASB’s work on the replacement of IAS 39 and applies to the classification and measurement of financial assets and liabilities as defined in IAS 39 and the application of hedge accounting. The standard was initially effective for annual periods beginning on or after 1 January 2013 but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January 2015. This date has now been removed to provide sufficient time for preparers of financial statements to make the transition to the new requirements and a new effective date will be announced upon completion of the IFRS 9 project. During 2013 the IASB issued an updated version of IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (IFRS 9 (2013)), which includes new hedge accounting requirements and some related amendments to IFRS 7 Financial Instruments: Disclosures. The IASB still has to complete the impairment phase of the project. The Group will assess the impact of IFRS 9 when the final standard including all phases is issued.
5. Discontinued operations A discontinued operation is a component of the entity that either has been disposed of, or is classified as held for sale and: ●●
Represents a separate major line of business or geographical area of operations; or
●●
Is a part of a single-coordinated plan to dispose of a separate major line of business or geographical area of operations.
Prior year profit or loss from discontinued operations is presented in a single amount in the consolidated of comprehensive income. This amount comprises the post tax profit or loss of discontinued operations (see note 21). The relevant notes for the prior period have been re-stated to assist comparison. The gain on deemed disposal is calculated as the difference between proceeds received (£nil) and the net liabilities of CHIP (Six) Limited at the date of the deemed disposal.
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
6. Segmental analysis Rental income – segmental analysis* Sector
2013
2012
£’000
£’000
Industrial properties
6,063
5,821
Office properties
1,250
1,476
Retail properties
-
48
558
489
7,871
7,834
Adjustments* Total rental income
Region
2013
2012
£’000
£’000
Midlands
2,207
2,105
East of England
1,211
1,400
North East
175
139
North West
720
691
South East
757
760
South West
1,471
1,483
Wales Yorkshire & Humberside Adjustments* Total
55
73
717
693
558
489
7,871
7,834
* T he rental information presented to the Board is in the form of the annual rent passing at the year end rather than being the rent spread on a straight line basis over the term of the lease in the way prescribed by IAS 17. Consequently the rent passing information presented to the Board is adjusted here to agree with the rental income in the consolidated statement of comprehensive income.
Property valuation – segmental analysis Sector
2013
2012
£’000
£’000
Industrial properties
64,860
67,065
Office properties
12,665
16,705
Retail properties Total property valuation
Region
-
535
77,525
84,305
2013
2012
£’000
£’000
Midlands
22,975
24,300
East of England
14,215
17,520
North East
1,640
1,675
North West
7,170
7,565
South East
7,740
8,470
South West
15,500
15,775
Wales Yorkshire & Humberside Total
710
800
7,575
8,200
77,525
84,305
The Board considers the sector and region analysis above to be the significant segmental basis for the Group. The Board believes that the information is presented more clearly to investors in respect of the key segmental information. Expenses are reviewed on a total basis split between property expenses and other expenses. The Board of Directors do not believe it is cost beneficial for the Group to consider the allocation of these costs between the operating segments mentioned above. Trade and other receivables and trade and other payables are reviewed on a total basis. Long term borrowings are reviewed on a facility basis as per note 26. The Board of Directors do not believe it is cost effective for the Group to consider the allocation of these assets and liabilities between the operating segments mentioned above.
37
38
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
7. Income Rental Income The Group leases out all of its investment property under operating leases. Leases are typically for terms of 3 to 5 years. At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: 2013
2012
Within one year
5,877
5,153
In the second to fifth years inclusive
9,592
10,174
After five years
2,910
846
18,379
16,173
Total
Other income Other income relates to insurance commission rebates negotiated by the Investment Adviser and Manager on behalf of the Group. These commission rebates continue to be shared between the Group, the Investment Adviser and Manager and the rent collection agent.
8. Expenditure
Investment Adviser and Manager’s fee
2013
2012
£’000
£’000
1,074
1,183
The Group pays a fee of 1.25% of gross asset value to the Investment Adviser and Manager. The total fee paid for the year to 31 December 2013 was £1.1 million (31 December 2012 £1.2 million). 2013
2012
£’000
£’000
Property expenses Void rates and void service charges
702
716
Repairs, maintenance and utilities
640
438
Property insurance costs Bad debt expense Lease renewal costs & Other
69
71
129
78
439
606
1,979
1,909
Administration fees
87
96
Audit fees
68
65
Directors' fees
80
84
Total property expenses Other expenses
Other Total other expenses
44
14
279
259
9. Finance income
Bank interest income (note 10 & note 13) Net gains on financial assets and liabilities held at fair value through profit or loss (note 11) Total
2013
2012
£’000
£’000
25
22
-
542
25
564
The above interest income arises from financial assets classified as loans and receivables (including cash and cash equivalents) and has been calculated using the effective interest rate method.
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
10. Net gains and losses on loans and receivables
Bank interest income (note 9)
2013
2012
£’000
£’000
25
22
Impairment of trade and other receivables
(129)
(78)
Total
(104)
(56)
11. Net gains and losses on financial assets and liabilities at fair value through profit and loss 2013
2012
£’000
£’000
Net change in unrealised gains and losses on financial assets and liabilities held at fair value through profit or loss Interest rate swaps (note 22) CULS present value movement (note 25)
-
542
(72)
(105)
Net realised gains and losses on financial assets and liabilities held at fair value through profit or loss Interest rate swaps – interest receivable
-
373
Interest rate swaps – interest payable
-
(887)
Net expense of interest rate swaps
-
(514)
(72)
(77)
(72)
(619)
Net loss on financial assets and liabilities held at fair value through profit or loss Disclosed as: Finance costs (note 12) Finance income (note 9) Net loss on financial assets and liabilities held at fair value through profit or loss
-
542
(72)
(77)
12. Finance costs
Interest on long term borrowings
2013
2012
£’000
£’000
(2,035)
(2,250)
Alpha Real Trust Limited loan interest
(552)
-
CULS interest (note 25)
(307)
(592)
CULS fee amortisation (note 25)
(70)
(144)
Loan fee amortisation (note 26)
(567)
(450)
(72)
(619)
Net losses on financial liabilities held at fair value through profit or loss (note 11) Other charges Total
(1)
(2)
(3,604)
(4,057)
The above interest costs on borrowings arise on financial liabilities measured at amortised cost using the effective interest rate method. No other losses have been recognised in respect of financial liabilities at amortised cost other than those disclosed above.
39
40
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
13. Total interest income and total interest expense on financial assets and financial liabilities not at fair value through profit and loss
Bank interest income (note 9) Interest on long term borrowings (note 12) Alpha Real Trust Limited loan interest (note 12)
2013
2012
£’000
£’000
25
22
(2,035)
(2,250)
(552)
-
SWAP interest (note 11)
-
(514)
CULS interest (note 12)
(307)
(592)
CULS amortisation (note 12) Loan fee amortisation (note 12) Total interest expense
(70)
(144)
(567)
(450)
(3,506)
(3,928)
14. Taxation The Group’s tax expense for the year comprises: Current taxation
2013
2012
£’000
£’000
Isle of Man tax at standard rate of 0%
-
-
UK non resident landlord tax for the year at 20%
-
-
Tax charge
-
-
Current taxation The Group is resident in the Isle of Man for income tax purposes. The standard rate of tax on company profits in the Isle of Man is 0% except where profits are derived from Isle of Man land and property or banking business, where the standard rate is 10%. The Group is subject to Isle of Man income tax at a rate of 0% on its profits. The Group’s subsidiary companies are subject to UK non-resident landlord tax at a rate of 20% on their rental profits from UK property. The Group calculates its tax in respect of UK non resident landlord tax on a subsidiary by subsidiary basis; no group reliefs are available for nonresident landlords.
Deferred taxation The Company has not recognised a deferred tax asset in relation to the losses carried forward due to the uncertain nature of future taxable profits. As at 31 December 2013, the Group had unused tax losses and capital allowances of £8.9 million (31 December 2012: £9.5 million). As reported in the annual report and consolidated financial statements for the year ended 31 December 2012, the Group was in discussion with HMRC over certain claims of intergroup interest as deductible expense. HMRC has completed its enquiries into the Group subsidiaries for the tax years ending 5 April 2011. These years are now closed with no amendments.
15. Dividends The Company paid no dividends during the year. (2012: £nil).
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
16. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: 2013
2012
£’000
£’000
(2,052)
(4,434)
(24.4)
(52.7)
-
20
Continuing operations Loss after tax continuing operations Loss per share (pence) (basic and diluted) Discontinued operations Profit /(loss) after tax discontinued operations Earnings /(loss) per share (pence) (basic and diluted) Loss for the year Basic and diluted loss per share (pence)
-
0.2
(2,052)
(4,414)
(24.4)
(52.5)
Adjusted earnings Loss after tax continuing operations
(2,052)
(4,434)
Unrealised loss on revaluation of investment property
3,365
5,446
Net gain on interest rate hedging instruments (note 9)
-
(542)
72
105
CULS present value movement (note 11) Realised gain on sale Total adjusted earnings Total adjusted earnings per share pence (basic and diluted) Weighted average number of ordinary shares (‘000)
(327)
-
1,058
575
12.6
6.8
8,410
8,410
The adjusted earnings are presented to provide what the Board believes is a more appropriate assessment of the operational income accruing to the Group’s activities. Hence, the Board adjusts basic earnings for income and costs which are not of a recurrent nature or which may be more of a capital nature. The market to market movement of the interest rate hedging instruments are adjusted where the hedged facilities are currently in compliance of their banking covenants and are therefore unlikely to break prior to the expiry of the instrument. The Group had issued CULS (see note 25) that could have potentially diluted the earnings per share in the future, but were not included in the calculation of diluted earnings per share because they are anti-dilutive for the period presented. The preference shares attached with the CULS have automatically been redeemed. The CULS matured on 30 June 2013 and were repaid in full on that date.
17. Net asset value per share 2013
2012
18,844
20,896
224.1
248.5
18,844
20,896
Mark to market of interest rate swaps (note 22)
-
-
Mark to market of interest rate cap (note 22)
-
-
Net asset value (£’000) Net asset value per share (pence) Net asset value (£’000)
Adjusted net asset value (£’000)
18,844
20,896
Net asset value per share (adjusted) (pence)
224.1
248.5
Number of ordinary shares (‘000)
8,410
8,410
The adjusted net assets are presented to provide what the Board believes is a more relevant assessment of the Group’s net asset position. The Board has determined that certain fair value and accounting adjustments may not be realisable in the longer term.
41
42
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
18. Investments in subsidiaries All of the subsidiary companies are incorporated in the Isle of Man, are wholly owned by Alpha UK Multi Property Trust PLC and are all property holding companies. 2013
2012
£’000
£’000
Cost of subsidiaries at start of the year
14,829
18,404
Deemed disposal of CHIP (Six) Limited
-
(3,575)
14,829
14,829
(14,829)
(14,829)
-
-
Cost of subsidiaries at end of the year Unrealised loss on revaluation of subsidiaries Fair value of subsidiaries at year end
All the subsidiary companies as at 31 December 2013 and 2012 had net liabilities, therefore the original cost of the investment held in the parent company has been fully impaired. As at 31 December 2013, the Company’s subsidiaries are CHIP (one) Limited, CHIP (Two) Limited, CHIP (Three) Limited, CHIP (Four) Limited and CHIP (Five) Limited.
19. Investment properties
Fair value of properties at 1 January Cost of properties purchased, acquisition costs and capital additions during the year Disposal of properties Disposal of deconsolidation CHIP (Six) Limited (note 21)
2013
2012
£’000
£’000
84,305
109,340
-
1
(3,415)
-
-
(19,590)
Net valuation losses for continued operations
(3,365)
(5,446)
Fair value of properties at 31 December
77,525
84,305
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of the Group’s investment property at 31 December 2013 and 31 December 2012 has been arrived at on the basis of valuation carried out at that date by DTZ Debenham Tie Leung, independent valuers not connected with the Group. The valuation, which was carried out in accordance with the Royal Institution of Chartered Surveyors (“The Red Book”) Appraisal and Valuation Standards (8th Edition 31 March 2012), was arrived at by reference to market evidence of transaction prices for similar properties, together with valuation techniques consistent with those used in the 31 December 2012 valuation. The valuation model is based on comparable market evidence derived from observable market data, derived from an active and transparent market adjusted with certain unobservable inputs as disclosed below. The properties were valued individually. These valuation models are consistent with the principles in IFRS 13. Valuations are based on what is determined to be the highest and best use. When considering the highest and best use a valuer will consider, on a property by property basis, the highest value which will include its actual and potential uses given current market conditions. Where the highest and best use differs from the existing use, the valuer will consider the cost and the likelihood of achieving and implementing this change in arriving at its valuation.
Fair value methodology Under IFRS 13, companies now must disclose fair values according to a “fair value hierarchy,” which categorises the inputs used in valuation techniques into three levels. The hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs. The different levels of the fair value hierarchy are explained below: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at measurement date. Level 2 – Use of a model with inputs (other than quoted prices included within Level 1) that are directly or indirectly observable market data. Level 3 – Use of a model with inputs that are not based on observable data. £’000
Total investment property
There are no transfers between the hierarchy levels during the year.
Level 1
Level 2
Level 3
-
-
77,525
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
19. Investment properties (continued) The Group has pledged investment properties valued at £77.5 million at 31 December 2013 to secure borrowings (note 26). The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation on completed investment properties: 2013
2012
£’000
£’000
Increase in underlying property yield of 25bps
(1,863)
(2,208)
Decrease in rental rates of 5%
(3,876)
(4,215)
Market value is based on active market information, adjusted for any difference related to the nature, location and condition of the specific asset. Where information is not available, alternative valuation methods are used, such as recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices, or discounted cash flow projections. The principal assumptions underlying the estimation of market value are those related to the receipt of contracted rental income, expected future market rental income, void periods, lease incentives, maintenance requirements and appropriate yields/discount rates of previous quarters. These valuations are regularly compared to actual market yield data and actual transactions by the Group and those reported by the market. The valuer looks at each individual property on its merits. The valuation reports produced by the valuers are based on information provided by the Group such as current rents, terms and conditions of lease agreements, service charges and capital expenditure. In addition, the valuation reports are based on assumptions and valuation models used by the valuers. The assumptions are typically market related, such as yields and discount rates, and are based on their professional judgment and market observation.
Valuation process The Investment Adviser and Manager verifies all major inputs to the valuation reports, assesses the individual property valuation changes from the prior valuation report and hold discussions with the valuers. When this process is complete, the valuation report is communicated to the Board, which considers it as part of its overall responsibilities. The valuers hold meetings with the Committee to discuss the valuation processes and outcome at each year end and half year end. In categorising which level of the fair value hierarchy applies to the Group’s investment properties, consideration is given to the inputs used by the Group’s valuer in determining the fair value. As mentioned above observable market data such as transactions involving similar properties and the information provided by the Group is used in determining the fair value. In addition there are also a number of unobservable inputs including the estimated rental value, net initial yield, net reversionary yield, state and condition, void periods and the related void rate charges, letting incentives and related letting charges such as marketing and legal costs which are considered by the valuer.
Impact on fair value to changes in significant unobservable inputs The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of the Group’s property portfolio, together with the impact of significant movements in these inputs on the fair value measurement, are shown below: Unobservable input
Impact on fair value of increase in input
Estimated rental value
Increase
Net initial yield
Decrease
Net reversionary yield
Decrease
The table below shows the observable inputs of weighted average passing rent per square foot and weighted average lease length plus the quantifiable unobservable inputs of weighted average estimated rental value per square foot, weighted average net initial yield and weighted average reversionary yield which have been split based on the appropriate sector and region: Weighted average passing rent per sq ft
Weighted average estimated rental value market rent per sq ft
Weighted average net initial yield
Weighted average net reversionary yield
Weighted average lease length
(£)
(£)
(%)
(%)
(years)
Light industrial
3.7
4.8
8.8
11.4
3.4
Office
7.5
9.7
9.3
12.0
3.6
Retail
-
-
-
-
-
2013 (by sector)
2012 (by sector) Light industrial
3.6
4.7
8.2
10.9
3.7
Office
7.2
10.3
8.2
11.9
4.0
Retail
19.3
19.3
8.2
8.6
0.9
43
44
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
19. Investment properties (continued) Weighted average passing rent per sq ft
Weighted average estimated rental value market rent per sq ft
Weighted average net initial yield
Weighted average net reversionary yield
Weighted average lease length
(£)
(£)
(%)
(%)
(years)
1.6
2013 (by region) Midlands
4.4
5.6
9.1
11.6
East of England
3.2
4.7
8.1
12.0
1.7
North East
4.4
4.6
10.1
10.7
2.2
North West
4.1
5.4
9.5
13.0
1.8
South East
5.8
6.4
9.8
11.3
1.5
South West
4.3
5.4
9.0
11.5
1.7
Wales
2.4
4.0
7.4
11.9
1.9
Yorkshire & Humberside
4.2
5.3
9.0
11.2
1.7
2012 (by region) Midlands
4.2
5.7
8.2
11.2
3.9
East of England
3.2
5.0
7.6
11.8
3.9
North East
3.5
4.5
7.9
10.3
4.9
North West
3.9
5.3
8.6
11.7
2.8
South East
5.5
6.7
8.5
10.4
5.3
South West
4.5
5.6
8.9
11.0
3.2
Wales
3.3
4.0
8.7
10.6
4.6
Yorkshire & Humberside
4.1
5.2
8.0
10.2
2.7
20. Trade and other receivables Group
2013
2012
£’000
£’000
Rental income receivable
2,570
1,886
Other debtors receivable
1,087
825
3,657
2,711
Payment terms for rental debtors are typically quarterly in advance. As at 31 December 2013 receivables of £0.1 million (2012 £0.1 million) were impaired and fully provided. During 2013, £0.1 million was written off in the year (2012: £0.08 million). The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. Note 28 provides an ageing of trade receivables along with details of the provision against receivables during the year. Company
Inter-company balances receivable Other debtors receivable
2013
2012
£’000
£’000
29,072
24,259
149
131
29,221
24,390
The Company impairs its intercompany balances receivable where its subsidiaries have net liabilities. As at the 31 December 2013, intercompany balances receivable with a value of £52.4 million (2012: £49.7 million) were impaired and fully provided for. During 2013, £2.7 million was written back and £2.7 million of provisions were written back to the consolidated income statement (2012: £19.5 million written back). There is no fixed date for the repayment of inter-company loans and interest arising.
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
21. Discontinued operations & net gain on disposal of CHIP (Six) Limited As previously announced, CHIP (Six) Limited is no longer controlled by the Group and was deconsolidated as a consequence with effect from 28 February 2012. The results of CHIP (Six) Limited for the period to 28 February 2012 are included in discontinued operations in the Group’s comparative consolidated statement of comprehensive income. A single amount is shown on the face of the consolidated statement of comprehensive income comprising the post-tax result of discontinued operations. As a result, the income and expenses of CHIP (Six) Limited are reported separately from the continuing operations of the Group. The table below provides further details of the amount shown on the consolidated statement of comprehensive income for the year ended 31 December 2012 in accordance with IFRS 5. Period to 28 February 2012 £’000
Revenue
258
Investment Adviser & Manager’s fee
(42)
Property expenses
(68)
Other expenses
(21)
Unrealised loss on revaluation of investment properties
-
Unrealised gain on interest rate swaps
24
Interest payable and similar charges
(217)
Total loss arising from discontinued operation
(66)
During the year ended 31 December 2012, discontinued operations to the 28 February 2012 contributed to a net outflow of £0.07 million to the Group’s net operating cash flows and zero to the Group’s net financing and investing activities. Those cash flows, together with the deconsolidation of the cash held by CHIP (Six) Limited at 28 February 2012 (below) are shown as a single cash flow on the consolidated cash flow.
Net gain on disposal of CHIP (Six) Limited The difference between proceeds received (£nil) and the negative net asset value of CHIP (Six) Limited of £86,000 at 28 February 2012 is reflected as a gain on the deemed disposal of CHIP (Six) Limited in the consolidated statement of comprehensive income. As at 28 February 2012 £’000
Assets associated with discontinued operations Investment properties CHIP (Six) Limited Cash & restricted cash Service charge, business rates & other debtors
£’000 19,590 99 164
Liabilities associated with discontinued operations Trade creditors & other creditors
(771)
Interest rate swap
(338)
Bank borrowings
(18,830)
Net asset value
(86)
45
46
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
22. Interest rate hedging instruments The Group used interest rate hedging arrangements to mitigate its exposure to interest rate changes. As at 31 December 2013, there was no interest rate swap or other hedging arrangement in place. The Directors have elected not to apply hedge accounting rules under IAS 39 on the hedging arrangements. Any gains or losses in the fair value of these derivatives are recognised immediately in the consolidated statement of comprehensive income. Interest rate cap agreement
31 December 2013
31 December 2012
£’000
£’000
Fair value at 1 January
-
80
Realised proceeds from the termination of the interest rate cap
-
(48)
Realised loss on interest rate cap
-
(32)
Fair value at 31 December
-
-
31 December 2013
31 December 2012
£’000
£’000
Fair value at 1 January
-
(937)
Unrealised gains on interest rate swaps
-
574
Deconsolidation of CHIP (Six) Limited swap
-
363
Fair value at 31 December
-
-
Interest rate swap agreements
The exposure of the Group to movements in interest rates was mitigated by the Group’s subsidiaries entering into interest rate swaps and an interest rate cap as detailed below.
The Royal Bank of Scotland On 27 Jan 2014, CHIP (One) Limited (on behalf of CHIP (Two) Limited, CHIP (Three) Limited, CHIP (Four) Limited and CHIP (Five) Limited) has entered into an interest rate swap for the amount of £25.1 million with The Royal Bank of Scotland. The interest rate swap has the effect of fixing the Group’s exposure on these borrowings from 27 January 2014 until 5 December 2018 at 2.0225%.
Bank of Scotland The interest rate swap for the amount of £47.0 million entered into by CHIP (Four) Limited (on behalf of itself, CHIP (One) Limited, CHIP (Three) Limited and CHIP (Five) Limited) had the effect of fixing the Group’s exposure on these borrowings from 29 December 2010. The interest rate swap fixed the rate at 2.25% (before the margin and mandatory costs). The interest rate swap expired on 31 October 2012.
Nationwide The interest rate swap for the amount of £8.0 million entered into by CHIP (Two) Limited had the effect of fixing the Group’s exposure on these borrowings from 15 October 2009. The interest rate swap fixed the rate at 2.79% before margin and mandatory costs. The interest rate swap expired on 23 October 2012.
23. Trade and other payables Group
2013
2012
£’000
£’000
Rental income in advance
1,493
1,491
Creditors and accruals
2,504
3,105
3,997
4,596
Company
Creditors and accruals
Trade payables are non-interest bearing and are settled within normal business terms.
2013
2012
£’000
£’000
1,243
474
1,243
474
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
24. Investment Adviser and Manager’s incentive fee An incentive arrangement whereby if the annual rate of return was 15% or more for the period from 10 August 2010 until 30 June 2013, entitling the Investment Adviser and Manager to 20% of the excess above that target level of return expired on 30 June 2013. No incentive arrangement is currently in place and therefore no incentive fee is provided for at 31 December 2013 (31 December 2012: £nil).
25. Convertible unsecured loan stock
As at 1 January 2013
Liability
Equity
Total
£’000
£’000
£’000
6,343
6,047
296
Convertible unsecured loan stock issued during the year
127
-
127
Accrual for 18% premium during the year
180
-
180
Net present value movement convertible unsecured loan stock Redemption of the CULS As at 31 December 2013
72
-
72
(6,426)
(296)
(6,722)
-
-
-
Costs relating to issue of convertible unsecured loan stock As at 1 January 2013 Redemption of CULS Amortisation of issue costs
70
28
98
-
(28)
(28)
(70)
-
(70)
As at 31 December 2013
-
-
-
Net amount as at 31 December 2013
-
-
5,646
As at 1 January 2012
5,350
296
Convertible unsecured loan stock issued during the year
246
-
246
Accrual for 18% premium during the year
346
-
346
Net present value movement convertible unsecured loan stock As at 31 December 2012
105
-
105
6,047
296
6,343
Costs relating to issue of convertible unsecured loan stock As at 1 January 2012 Amortisation of issue costs As at 31 December 2012 Net amount as at 31 December 2012
214
28
242
(144)
-
(144)
70
28
98
5,977
268
6,245
The Company accounted for CULS as a compound financial instrument, which comprises a liability and equity component. The liability component was presented within the current liabilities section and the equity component was included within the equity section of the consolidated and company balance sheets. The liability element of the CULS was measured by determining the net present value of all the future cash flows under the instrument, discounted at the market rate at the time of issue. The discount rate of 13% was determined by reference to similar mezzanine lending transactions at that time. The table above shows the opening position of the CULS including associated issue costs, followed by the subsequent issue of CULS in satisfaction of interest payments, the accrual for the 18% premium and the amortisation of the associated issue costs. The CULS accrued interest at the rate of 4.75% per annum payable quarterly, in arrears, on a compounded basis on 1 January, 1 April, 1 July and 1 October. The Company could, at its sole discretion, have chosen to satisfy any interest payment in cash or by the issue of further CULS. The CULS could have been converted to ordinary shares at any time on or before 30 June 2013 at a price of £3.10 per share. In accordance with the subscription agreement with Alpha Real Trust Limited of 13 July 2010, the Company redeemed all the outstanding CULS (together with any CULS issued in satisfaction of interest payments) on the redemption date of 30 June 2013 in full at par plus the payment of the premium of 18%. The preference shares stapled to the CULS have automatically been redeemed and the associated options have expired without being exercised.
47
48
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
26. Long term borrowing
Borrowings at 1 January Additional fees during the year Amortisation of fees during the year Repayment of bank loans during the year Deconsolidation of CHIP (Six) Limited bank borrowings, net of unamortised arrangement fees
2013
2012
£’000
£’000
60,066
79,728
(485)
(119)
485
449
(60,066)
(1,202)
-
(18,790)
65,000
-
(467)
-
(2,303)
-
34
-
Long term borrowings at 31 December
62,264
60,066
Long term borrowing
64,533
60,092
Unamortised arrangement fees
(2,269)
(26)
Long term borrowings at 31 December
62,264
60,066
-
60,066
Issue of long term borrowing Repayment of long term borrowing New financing fees Amortisation of new financing fees
Current Non-current
62,264
-
Long term borrowings at 31 December
62,264
60,066
Alpha Real Trust Limited
Total
Royal Bank of Scotland
Long term borrowing Long term financing fees during the year Amortisation of financing fees during the year Long term borrowing at 31 December 2013
Europa Mezzanine Finance SaRL
£’000
£’000
£’000
£’000
33,196
19,837
11,500
64,533
(745)
(731)
(827)
(2,303)
11
11
12
34
32,462
19,117
10,685
62,264
a) The Royal Bank of Scotland loans The facility is between the bank and subsidiaries, CHIP (One) Limited, CHIP (Two) Limited, CHIP (Three) Limited (and its subsidiaries), CHIP (Four) Limited and CHIP (Five) Limited for an amount of £33.5 million. Following the sale of one of CHIP (Two) Limited’s properties, £0.3 million was repaid to Royal Bank of Scotland, leaving £33.2 million owed at 31 December 2013. Interest is payable at a rate equal to LIBOR plus a margin of 3.00% per annum. The facility is repayable on 5 December 2018. An event of default (as defined in the facility agreement) is triggered, if, inter alia, the amount of the loan facility exceeds 65% before 5 December 2016 and 60% thereafter of the value of the properties over with Royal Bank of Scotland has security by reference to the bank’s own valuation, performed at the time of financing. For the purpose of the test the valuation, which at the bank’s discretion can be requested annually at the Group’s cost or at any time at the bank’s expense and will explicitly exclude the Wareham property and any properties subsequently sold. As at 31 December 2013 the Group’s LTV tested as per above and based on the bank’s valuation was 48.1%. In addition, the minimum net rent should not be less than £4.5 million per annum and the net rental income of the secured properties shall not be lower than 225% of the interest for any test period, net rental income from any single tenant shall not exceed 12.5% of the total net rental income of all properties and at no time shall a single property constitute more than 20% of the aggregate market value of the properties. During the year and at 31 December 2013 the Group was compliant with these covenants. The facility is secured by a debenture over all the assets and legal charge over the property assets of CHIP (One) Limited, CHIP (Two) Limited, CHIP (Three) Limited (and its subsidiaries), CHIP (Four) Limited and CHIP (Five) Limited. Should any of the covenants be breached then the default margin would increase by a further 2.0% per annum and will remain at this rate until such time that the breach is remedied.
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
26. Long term borrowing (continued) b) Europa Mezzanine Finance Sàrl (“Europa”) The facility is between Europa and subsidiaries, CHIP (One) Limited, CHIP (Two) Limited, CHIP (Three) Limited (and its subsidiaries), CHIP (Four) Limited and CHIP (Five) Limited for an amount of £20.0 million. Following the sale of one of CHIP (Two) Limited properties, £0.2 million was repaid to Europa, leaving £19.8 million owed at 31 December 2013. Interest is payable at a rate equal to 10.0% interest plus 1.0% PIK interest. The facility is repayable on 5 December 2018. An event of default (as defined in the facility agreement) is triggered, if, inter alia, the amount of The Royal Bank of Scotland and Europa loan facilities exceeds 85% of the value of the properties (based currently on same the valuation used by the bank in the covenant referred to above). For the purpose of the test Europa, at their discretion, can request a valuation annually at the Group’s cost or at any time at Europa’s expense. At the time of finance Europa and The Royal Bank of Scotland used the same valuer. As at 31 December 2013 the Group’s LTV test as per above and based on Europa’s valuation was 76.8%. Other financial covenants require that the net rental income of the secured properties shall not be lower than 110% of the interest (being the total interest charged by Royal Bank of Scotland and Europa Mezzanine Finance Sárl) for any test period. In addition, net rental income from any single tenant shall not exceed 12.5% of the total net rental income of all properties and at no time shall a single property constitute more than 20% of the aggregate market value of the properties. During the year and at 31 December 2013 the Group was compliant with these covenants.
c) Alpha Real Trust Limited loan On 1 July 2013, the Company entered into a loan agreement in which Alpha Real Trust Limited provided an unsecured loan to the Company for £6.43 million. The proceeds of the loan were applied to finance the redemption of the CULS. The term of the loan agreement was six months to 31 December 2013. On 5 December 2013, the Company entered into a new loan agreement in which Alpha Real Trust Limited provided an unsecured loan to the Company for £11.5 million for a period of five years to 4 December 2018. The proceeds of the loan have been applied to finance the redemption of the earlier £6.43 million loan from Alpha Real Trust Limited plus interest. The coupon of the loan agreement is 15% per annum, compounded quarterly. No covenant tests apply and Alpha Real Trust Limited has no security over the assets of the Company or the Group.
d) Nationwide Building Society loans A facility agreement was entered into between the Nationwide Building Society (“Nationwide”) and CHIP (Two) Limited whereby Nationwide made available a term loan facility for up to £9.8 million. Of this total loan £8.0 million was fixed at the rate of 2.79% plus a margin of 2.5% per annum; the balance was subject to interest at LIBOR plus a margin of 2.5% per annum. The facility was repayable on 23 October 2012. An event of default (as defined in the facility agreement) is triggered if, inter alia, the amount of the loan facility exceeds 75% before 31 March 2011 and 65% thereafter of the value of the properties over which Nationwide has security. In addition, the ratio of gross rental income to interest shall not be less than 160%. On 22 October 2012, the Company announced that CHIP (Two) Limited has entered into an agreement with Nationwide whereby the loan facility agreement is amended such that the term of the facility is extended to 23 January 2013 and then subsequently to 4 December 2013. During the year, all terms remained the same except the margin which was increased to 4.00% per annum. The facility was secured by a legal charge and debenture over the property assets of CHIP (Two) Limited. As at 31 December 2012, the LTV stood at 64.8% but during the year it was breached which was recognised by Nationwide on 12 June 2013. The gross rental income to interest ratio was compliant. The facility required CHIP (Two) Limited to use surplus rents to reduce the outstanding debt on a quarterly basis. Surplus rent of £0.14 million has been used to repay the facility during the year. On 5 December 2013, loan of £8.5 million was repaid.
e) Bank of Scotland loans The facility was between the Bank and the Company and its subsidiaries, CHIP (One) Limited, CHIP (Three) Limited, CHIP (Four) Limited and CHIP (Five) Limited for an amount up to £54.1 million. Interest was payable at a rate equal to LIBOR, plus the mandatory costs of Bank of Scotland, plus a margin of 2.6% per annum. The facility was repayable on 31 October 2012 although, if an event of default (as defined in the facility agreement) were triggered, it would be repayable on first demand by Bank of Scotland. The loan facility provided by Bank of Scotland in respect of the Company’s wholly owned subsidiaries, CHIP (One) Limited, CHIP (Three) Limited, CHIP (Four) Limited and CHIP (Five) Limited, expired on 31 October 2012. The loan was subsequently extended to 31 January 2013 and then to 31 July 2013. On 12 August 2013, the Company announced that CHIP (One) Limited, CHIP (Three) Limited, CHIP (Four) Limited and CHIP (Five) Limited have agreed with Bank of Scotland to amend the loan facility agreement such that the term of the facility was extended to 4 December 2013. The facility agreement contained standard events of default and covenants for bank facilities of this nature. An event of default (as defined in the facility agreement) will be triggered if, inter alia, the amount of the loan facility exceeds 90% of the value of the underlying security. The facility was secured by a legal charge and debenture over the property assets of the relevant subsidiaries. There was no breach of the LTV covenant during the year. Other financial covenants required that the net rental income of the secured properties should not be lower than 125% of interest for any test period. During the year the net rental income to interest ratio covenant was adhered to. The facility also required quarterly loan repayments of £0.2 million of which all were made in the year. If any of these covenants were breached, the margin of the new funding would have been increased by a further 2.6% per annum and would remain at this rate until such a time as the breach was remedied. On 5 December 2013, the loan of £47.5 million was repaid.
49
50
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
27. Share capital and related reserves Authorised share capital:
13,400,000 Ordinary Shares of £0.10 each
2013
2012
£’000
£’000
1,340
1,340
660
660
66,000,000,000 Deferred Shares of £0.00001 each 20,000,000 Preference Shares of £0.00001 each
-
-
2,000
2,000
Issued share capital:
2013
2012
£’000
£’000
8,409,520 Ordinary Shares of £0.10 each fully paid
As at 1 January 2012
841
841
841
841
Ordinary shares of £0.10 each
Deferred shares of £0.00001 each
Preference shares of £0.00001 each
Total
Number of shares ’000
Number of shares ’000
Number of shares ’000
Number of shares ’000
21,419,498
8,410
21,409,546
1,617
Issue of Preference Shares
-
-
78
78
Cancellation of Deferred Shares
-
(21,409,546)
-
(21,409,546)
As at 31 December 2012
8,410
-
1,695
10,105
As at 1 January 2013
10,105
8,410
-
1,695
Issue of Preference Shares
-
-
41
41
Cancellation of Preference Shares
-
-
(1,736)
(1,736)
8,410
-
-
8,410
As at 31 December 2013
Deferred shares The deferred shares rank after ordinary and preference shares and carry no voting rights. In 2012, the deferred shares were cancelled due to capital reorganisation. Previously issued deferred shares have been cancelled and the related capital has been transferred to the capital redemption reserve.
Preference shares The preference shares rank pari passu with ordinary shares save that they shall not be entitled to receive a dividend. On return of capital their par value shall be repaid in priority to holders of the ordinary shares (but shall not be entitled to any other capital return) and shall carry one vote on all resolutions other than those relating to listing or prospectus rules. Based on this the preference shares do not meet the criteria under IAS 32 in order to be classified as equity and therefore have been classified as a financial liability and included with trade and other payables. Following the redemption of the CULS on 30 June 2013, the attached preference shares were automatically cancelled.
Voting and other rights Holders of Ordinary shares and Preference shares are entitled to one vote for each share held.
Dividends Holders of Ordinary shares are entitled to receive dividends as and when declared by the Company.
Winding up On a winding-up, the surplus assets remaining after payment of all creditors, including payment of bank borrowings and repayment of par value to Preference shareholders, shall be divided pari passu among the holders of Ordinary shares in proportion to the capital paid up on the shares held at the commencement of the winding-up.
Distributable capital reserve This is a distributable reserve out of which distributions can be made to the shareholders and arose on the cancellation of the share premium account.
Capital redemption reserve This is a non-distributable reserve that is required under Isle of Man Companies Act 1931 and arises on cancellation of issued share capital.
Other reserves This is the equity element of the convertible unsecured loan stock (see note 25).On 30 June 2013, the CULS have been repaid and the equity element of the CULS have been transferred to the revenue reserves. The CULS have been repaid on 30 June 2013 and the equity element associated with the CULS of £268,000 has been transferred to retained loss.
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
28. Financial risk management objectives and policies The Group’s principal financial instruments, other than derivatives, are loans and borrowings, the main purpose of which is to raise finance for the acquisition and development of the Group’s property portfolio. The Group has trade and other receivables, trade and other payables and cash and short-term deposits that arise directly from its operations. The Group is exposed to market risk, credit risk and liquidity risk. The Board of Directors reviews and agrees the policies for managing these risks to ensure that the Group’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with Group policies for risk. All derivative activities for risk management purposes are carried out by specialist third parties that have the appropriate skills, experience and supervision. Market risk includes market price risk, real estate risk, interest rate risk and foreign currency risk. The policies for managing each of these risks are summarised below:
Market risk i) Interest rate risk The Group’s exposure to interest rate risk relates primarily to the Group’s debt obligations. The Group’s policy was to manage its interest cost using interest rate swaps and interest rate cap instruments in which the Group had agreed to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. The swap was designed to fix the interest payable on part of the bank loans, while the cap was designed to set a ceiling on the interest rate paid on part of the loans. The interest rate swaps expired in October 2012 and the cap was sold. As at 31 December 2013 there was no interest rate hedging instrument in place. On 27 Jan 2014, CHIP (One) Limited (on behalf of CHIP (Two) Limited, CHIP (Three) Limited, CHIP (Four) Limited and CHIP (Five) Limited has entered into a swap for the amount of £25.1 million. The interest swap has the effect of fixing the Group’s exposure on these borrowings from 27 January 2014 to 5 December 2018 at a rate of 2.0225%. The interest rate profile of the Group at 31 December 2013 was as follows: Financial assets
Total as per consolidated balance sheet
Fixed rate
Variable rate
Non interest bearing
Weighted average interest rate
£’000
£’000
£’000
£’000
%
Cash & cash equivalents
3,923
-
3,923
-
0.65
Trade & other receivables
3,657
-
-
3,657
-
7,580
-
3,923
3,657
Total as per consolidated balance sheet
Fixed rate
Variable rate
Non interest bearing
Weighted average interest rate
£’000
£’000
£’000
£’000
%
Financial liabilities
Weighted period years
Trade & other payables
3,997
-
-
3,997
-
-
Long term borrowings
62,264
31,337
33,195
(2,268)
4.2
5.00
66,261
31,337
33,195
1,729
The interest rate profile of the Group at 31 December 2012 was as follows: Financial assets
Total as per consolidated balance sheet
Fixed rate
Variable rate
Non interest bearing
Weighted average interest rate
£’000
£’000
£’000
£’000
%
Cash & cash equivalents
4,519
-
4,519
-
0.55
Trade & other receivables
2,711
-
-
2,711
-
7,230
-
4,519
2,711
Total as per consolidated balance sheet
Fixed rate
Variable rate
Non interest bearing
Weighted average interest rate
£’000
£’000
£’000
£’000
%
Financial liabilities
Weighted period years
Trade & other payables
4,596
-
-
4,596
-
-
Convertible unsecured loan stock
5,977
5,977
-
-
9.91
0.5
3.71
0.08
Bank loans
60,066
-
60,092
(26)
70,639
5,977
60,092
4,570
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Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
28. Financial risk management objectives and policies (continued) The following table illustrates the sensitivity of the loss after taxation for the year and the net asset value to an increase or decrease of 100 basis points in interest rates in regards to the Group’s monetary financial assets and financial liabilities. This level of change is considered to be reasonably possible based on observation of current market conditions. The sensitivity analysis is based on the Group’s monetary financial instruments held at each Balance Sheet date, with all other variables held constant.
2013 Increase in rate
2013 Decrease in rate
2012 Increase in rate
2012 Decrease in rate
£’000
£’000
£’000
£’000
Total profit /(loss) after taxation for the year
(583)
583
(556)
556
Change in net asset value at 31 December
(583)
583
(556)
556
(3.1)
3.1
(2.7)
2.7
% change in net asset value
ii) Foreign currency risk There is no foreign currency risk as the assets and liabilities of the Group are maintained in sterling.
Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for rental income receivable and recoverable costs from occupational tenants) and from its financing activities, including deposits with banks and other financial institutions. Credit risks related to receivables: credit risk in relation to occupational tenants is managed by the Property Manager. Credit limits are established for all tenants based on internal rating criteria and outstanding customer receivables are regularly monitored. At 31 December 2013 the Group’s ten largest debtors totalled £0.14 million (2012 £0.15 million) and accounted for approximately 3.7% (2012: 5.4%) of all receivables owing. There were two (2012: zero) customers with balances greater than £20,000 accounting for 1.9% (2012: 0%) of total amounts receivable. The maximum exposure to credit risk at the reporting date is the carrying value of financial assets. The ageing of rental income receivables is as follows: 2013
2012
£’000
£’000
0 to 90 days
1,002
814
Over 90 days
1,568
1,072
2,570
1,886
The movement in impairments to trade receivables is provided in note 20 to the accounts. In the event of a 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 monitors credit risk by reviewing regular reports it receives from the Investment Adviser and Manager on the concentration of risk and any tenants in arrears. The Group does not hold collateral as security. Credit risks related to financial instruments and cash deposits: credit risk from balances with banks and financial institutions are reviewed by the Investment Adviser and Manager in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counter party. The Group has bank accounts with Bank of Scotland, The Royal Bank of Scotland and Nationwide. Counterparty credit limits are reviewed by the Board on an annual basis, and may be updated throughout the year. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure. In summary, compared to the amounts included in the consolidated balance sheet, the maximum exposure to credit risk at 31 December 2013 was as follows: 2013 Balance sheet
2013 Maximum exposure
2012 Balance sheet
2012 Maximum exposure
£’000
£’000
£’000
£’000
Cash & cash equivalents
3,923
3,923
4,519
4,519
Trade & other receivables
3,657
3,657
2,711
2,711
7,580
7,580
7,230
7,230
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
28. Financial risk management objectives and policies (continued) Liquidity risk Liquidity risk is the risk that the Group will be unable to meet financial commitments as they fall due. External funding is of limited maturity. Such concern exposes firms to liquidity risk and costs associated with the necessity to refinance and rollover the existing debt at a time when credit is tight. In certain circumstances, the terms of the Group’s bank facility agreement entitle the lender to demand early repayment (note 26 Long term borrowing) and in such circumstances the Group’s ability to maintain the net asset value attributable to the ordinary shares could be adversely affected. The Directors and Investment Adviser and Manager continue to monitor the financial covenants of each of the loan facilities to manage the sensitivity of the Group debt obligations. If financial covenants are breached, the Group could correct these through negotiation with the lending bank or by use of other assets. The Group’s bank borrowings with Nationwide and Bank of Scotland were redeemed on 5 December 2013. New loan facilities have been taken with Royal Bank of Scotland, Europa Mezzanine Finance SaRL and Alpha Real Trust Limited. The following table illustrates the sensitivity of the loan to value ratio for the year end to an increase or decrease of 10% in the market value of the investment properties. This level of change is considered reasonably possible based on observation of current market conditions The loan to value ratio on total borrowings as at 31 December 2013 is 83.2% compared to 78.4%* at 31 December 2012.
Loan to property valuation (“LTV”)
2013 Increase in fair value
2013 Decrease in fair value
2012 Increase in fair value
2012 Decrease in fair value
75.7%
92.5%
64.8%
79.2%
The remaining contractual maturities of the financial liabilities at 31 December 2013, based on the earliest date on which payment of interest and principal can be required were as follows: As at 31 December 2013 Financial liabilities
Due within 3 months
Due between 3 and 12 months
Due between 1 and 5 years
Due > 5 years
Total
£’000
£’000
£’000
£’000
£’000
Trade & other payables
3,997
-
-
-
3,997
Long term borrowings & related costs
1,250
3,896
87,362
-
92,508
Total liabilities
5,247
3,896
87,362
-
96,505
Due within 3 months
Due between 3 and 12 months
Due between 1 and 5 years
Due > 5 years
Total
£’000
£’000
£’000
£’000
£’000
As at 31 December 2012 Financial Liabilities
Trade & other payables
4,596
-
-
-
4,596
Convertible unsecured loan stock
-
5,977
-
-
5,977
Interest rate swaps
-
-
-
-
-
60,450
-
-
-
60,450
Bank borrowings * 31 December 2012 LTV includes CULS of £6.0 million
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Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
28. Financial risk management objectives and policies (continued) Real estate risk The Group’s exposure to market risk is comprised mainly of movements in the value of the Group’s investments in property. The Group’s investment portfolio is managed within the investment parameters disclosed in its prospectus. The Group has identified the following risks associated with the real estate portfolio: ●●
●●
A major tenant may become insolvent causing a significant loss of rental income and a reduction in the value of the associated property (see also credit risk). To reduce this risk, the Group reviews the financial status of all prospective tenants and decides on the appropriate level of security required via rental deposits or guarantees. The exposure of the fair values of the portfolio to investment and occupier markets.
The following table illustrates the sensitivity of the profit/loss after taxation for the year end and the net asset value to an increase or decrease of 10% in the market value of the investment properties. This level of change is considered reasonably possible based on observation of current market conditions. 2013 Increase in fair value
2013 Decrease in fair value
2012 Increase in fair value
2012 Decrease in fair value
£’000
£’000
£’000
£’000
Total profit /(loss) after taxation for the year
7,752
(7,752)
8,430
(8,430)
Net asset value at 31 December
41.1%
(41.1%)
40.3%
(40.3%)
Fair values The carrying amount of the financial assets and liabilities in the financial statements are equal to their fair values. The fair value of the financial assets and liabilities are included at an estimate of the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: ●●
●●
●●
●●
Cash and short-term deposits, trade receivables, trade payables, and other current liabilities approximate their carrying amounts due to the short-term maturities of these instruments. The fair value of the derivative interest rate swap contracts are estimated by discounting expected future cash flows using current market interest rates and yield curve over the remaining term of the instrument. The fair value of tenant deposits is estimated by discounting the nominal amount received to the expected date of repayment based on prevailing market interest rates. The carrying value of the loans is considered to be approximately the same as the fair value given the short time frame between drawdown and the year end.
The borrowings would be considered to be within level 3 of the fair value hierarchy.
Fair value hierarchy The following table shows an analysis of the fair values of financial instruments recognised in the statement of financial position by level of the fair value hierarchy. As at 31 December 2013, the Group held no financial instruments measured at fair value. As at 31 December 2012, the Group held no financial instruments measured at fair value. As at 31 December 2013, the Company held the following financial instruments measured at fair value: Level 1
Level 2
Level 3
Total fair value
-
3
-
3
Investment in subsidiaries (£)
As at 31 December 2012, the Company held the following financial instruments measured at fair value: Level 1
Level 2
Level 3
Total fair value
-
3
-
3
Investment in subsidiaries (£)
The different levels of the fair value hierarchy are explained below: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at measurement date. Level 2 – Use of a model with inputs (other than quoted prices included within Level 1) that are directly or indirectly observable market data. Level 3 – Use of a model with inputs that are not based on observable data.
Alpha UK Multi Property Trust Plc : Annual report 2013
Notes to the financial statements (continued) For the year ended 31 December 2013
29. Capital management The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares. The Group monitors the loan to value ratio of its loan facilities in line with its underlying banking covenants. The Group’s policy is to ensure that the banking covenants (including the loan to value ratios) are adhered to and not breached. The following gearing ratios are calculated as net debt divided by total capital plus net debt:
Interest bearing loans and borrowings Trade and other payables
2013
2012
£’000
£’000
62,264
66,043
3,997
4,596
Less cash and short term deposits
(3,923)
(4,519)
Net debt
62,338
66,120
Total capital
18,844
20,896
Capital and net debt
81,182
87,016
Gearing ratio
76.8%
76.0%
The Group includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents. Capital includes equity attributable to the equity holders of the parent.
30. Related party transactions Mr Philip Scales, a director of the Company, is also a director and an employee of IOMA Fund and Investment Management Limited (the administrator and registrar). During the year fees of £0.068 million (31 December 2012: £0.1 million) were payable to IOMA Fund and Investment Management Limited. As at 31 December 2013 a total amount of £22,120 (31 December 2012: £23,246) was outstanding. Mr Mark Rattigan, a director of the Company, is also chief operating officer and member of Alpha Real Capital LLP (the Investment Adviser and Manager). During the year fees of £1.1 million (31 December 2012: £1.2 million) were payable to Alpha Real Capital LLP. As at 31 December 2013 a total amount of £0.3 million (31 December 2012: £0.7 million) was outstanding. Alpha Real Capital LLP is also a major investor in Alpha Real Trust. During the year the Company issued a further £0.13 million (accumulated to 31 December 2012: £5.0 million) of CULS and attached preference shares to Alpha Real Trust as detailed in note 27. Under IAS 24, Alpha Real Trust Limited is considered a related party. Alpha Real Capital LLP (the Investment Adviser and Manager of the Group) is also the Investment Adviser and Manager of Alpha Real Trust Limited. On 1 July 2013, the Company entered into a short term loan agreement in which Alpha Real Trust Limited provided an unsecured loan to the Company for £6.43 million. The proceeds of the loan were applied to repay the CULS, which expired on 30 June 2013, plus interest. The term of the loan was six months to 31 December 2013. On 5 December 2013, the Group entered into a new related party loan facility agreement in which Alpha Real Trust Limited provided an unsecured loan to the Company for £11.5 million. The proceeds of the loan have been partially applied to repay the existing Alpha Real Trust loan plus interest up to 5 December 2013. During the year, interest costs of £0.6 million were charged. As at 31 December 2013, a total amount of £0.13 million was outstanding. The Company settled the outstanding interest in January 2014. Details of Directors’ fees and their shareholdings are provided in the Directors’ report.
31. Events after balance sheet date On 27 Jan 2014, CHIP (One) Limited (on behalf of CHIP (Two) Limited, CHIP (Three) Limited, CHIP (Four) Limited and CHIP (Five) Limited has entered into an interest rate swap on borrowings of £25.1 million. The interest rate swap has the effect of fixing the Group’s exposure on these borrowings from 27 January 2014 until 5 December 2018 at 2.0225%.
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Alpha UK Multi Property Trust Plc : Annual report 2013
Directors and Advisers
Directors
Administrator and Registrar
Taxation Advisers
Jonathan David Clague (Chairman)
Mazars LLP The Pinnacle 160 Midsummer Boulevard Milton Keynes MK9 1FF
Mark Rattigan
IOMA Fund and Investment Management Limited IOMA House Hope Street Douglas Isle of Man IM1 1AP
Company Secretary
Principal Bankers
Martin Katz Middleton Katz Chartered Secretaries LLC 12 Hope Street Douglas Isle of Man IM1 1AQ
Royal Bank of Scotland 3rd floor 5-10 Great Tower Street London EC3P 3HX
Geoffrey Paul Raineri Black Donald Lake Philip Peter Scales
Investment Adviser and Manager Alpha Real Capital LLP 1b Portland Place London W1B 1PN
Property Valuers DTZ Debenham Tie Leung 10 Colmore Row Birmingham B3 2QD
UK Transfer and Paying Agent Capita IRG PLC Northern House Woodhouse Park Fenay Bridge Huddersfield HD8 0LA
Property Solicitors to the Company Pinsent Masons 1 Park Row Leeds LS1 5AB
Property Manager
Europa Capital Mezzanine Limited 67/68 Grosvenor Street London W1K 3JN
Berkshire Asset Management 81 Piccadilly London W1J 8HY
Registered Office
Legal Advisers as to Isle of Man Law
IOMA House Hope Street Douglas Isle of Man IM1 1AP
Auditors Ernst & Young LLC Rose House, 51-59 Circular Road Douglas Isle of Man IM1 1AZ
Cains Advocates Limited Fort Anne Douglas Isle of Man IM1 5PD
Legal Advisers as to UK Law Osborne Clarke LLP 1 London Wall London EC2Y 5EB Fladgate LLP 16 Great Queen Street London WC2B 5DG
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