2nd Apr 2008 15:37
UK Commercial Property Trust Ltd02 April 2008 Final Results Announcement from 24 August 2006 (date of incorporation) to 31December 2007 Financial Highlights and Performance Summary • Annual dividend yield of 7.55 per cent based on the period end share price. • Total dividend paid to date per Ordinary Share of 6.70p for the period to 31 December 2007. • The average unexpired lease term of the property portfolio is ten years and eight months. • Voids are at 2.99 per cent. • Currently no borrowing/gearing to date. • Property portfolio ranked in top quartile for covenant strength in the independent IPD Rental Information Service. Chairman's Statement for the period from 24 August 2006 to 30 June 2007 I am pleased to present the first annual report of the Company for the periodfrom 24 August 2006 (date of incorporation) to 31 December 2007. Property Market This extended initial accounting period has seen radically contrasting fortunesfor the UK Commercial Property sector. The initial period was characterised by acontinuation of the optimism that had been seen in recent years. The "tippingpoint" seems to have come during the second half of 2007 when the general marketworries over inflation and increasing interest rates began to erode investorconfidence. The US sub-prime problems which made headlines in July and August2007 and the subsequent credit crunch fallout impacted investor confidence andtranslated to falls in value across all investment sectors. The FTSE All Shareindex fell 13% from its 2007 high in June and the IPD capital index was downalmost 12% over the same period to 31 December 2007. The falls afflicting thecommercial property sector and open end property funds in particular appeared todisregard the positive rental income and dividend aspects and the priceperformance of the latter failed to differentiate between funds with highlygeared and riskier profiles and those with no gearing. Corporate Activity The Company commenced activities on 22 September 2006 with a successful shareissue of 530 million Ordinary Shares of 25 pence each at an issue price of £1.00per Ordinary Share which allowed the Company to acquire an initial propertyportfolio of 20 properties. This initial portfolio had an aggregate market valueof £497.8 million at the time of acquisition. On the 1 March 2007 the Company had a further share issue of 350 millionOrdinary Shares of 25 pence each. These shares were issued at a price of £1.03per Ordinary Share. As a result of this share issue a further 10 properties wereacquired which had an aggregate market value of £350.4 million at that time.This allowed further diversification of the portfolio by adding more centralLondon offices and industrial assets, which had a positive impact on the incomeof the Company. In October 2007 the Company announced that it would be conveningan EGM to consider a Continuation Resolution in accordance with the terms of thelaunch prospectus due to the shares trading at a discount of greater than 5 percent for 90 continuous days. At the meeting in December the Continuation votewas approved with 99.76 per cent of shareholders voting in favour. Share Buy Backs Consistent with sentiment in the general UK commercial property market and thesector's closed end funds, the share price of the Company suffered in the secondhalf of 2007. In line with the Prospectus which states it was the intention ofthe Directors to buy back shares, (subject to the income and cash flow requirements of the Company), if the market price of a share was more than fiveper cent below the published net asset value per share for a continuous periodof 20 dealing days or more, the Company announced on 28 August 2007 that the Directors intended to start buyingback shares. At 31 December 2007 the cumulative number of shares bought back was12,873,713 at a total cost of £10.25 million. These shares are being held astreasury shares. The result of this buy back programme was to increase the netasset value per share by approximately 0.3 pence per share. No further shareshave been bought back since the period end. Your Board will continue to useshare buy backs in future where it believes that it will enhance shareholdervalue while giving careful consideration to the Company's cashflows anddevelopment and asset management opportunities as they arise and will carefullymonitor the effectiveness of the programme. Chairman's Statement (Continued) As at 31 December 2007 Resolution plc and its subsidiaries held 75.97 per centof the issued shares. The UK Listing Authority has agreed that the amount of theCompany's shares held in public hands must be a minimum of 20 per cent of theissued share capital. However it should be stressed that this minimum should notbe taken as an indication of any specific target level for share buy backs. NAV/Share Price Performance The unaudited Net Asset Value per Ordinary Share (calculated under InternationalFinancial Standards and adjusted for the provision of dividend declarations) forthe period to 31 December 2007 was as follows: +------------------------+----------+-------------+----------------+|Date | NAV (p)| Share Price| Premium/|| | | (p)| (Discount) %|+------------------------+----------+-------------+----------------+|22 September 2006 | 97.17| 100.00| 2.91||(launch) | | | |+------------------------+----------+-------------+----------------+|31 December 2006 | 100.11| 105.50| 5.38|+------------------------+----------+-------------+----------------+|30 March 2007 | 100.90| 102.00| 1.09|+------------------------+----------+-------------+----------------+|29 June 2007 | 102.10| 86.50| (15.27)|+------------------------+----------+-------------+----------------+|30 September 2007 | 98.63| 84.00| (14.83)|+------------------------+----------+-------------+----------------+|31 December 2007 | 90.79| 69.50| (23.45)|+------------------------+----------+-------------+----------------+ The share price performance over the period has been disappointing and reflectsthe falls across the sector more than the correction in capital values thatimpacted the NAV per share of the Company. The fall of 6.6 per cent in the NAVover the period against the fall in share price of 30 per cent highlights thedisconnection between individual company valuations and market wide pricerevisions that occurred in Q4 2007. Borrowing As at 31 December 2007 the Company had no borrowing in place. The Company is indiscussions with a number of lenders with a view to having borrowing facilitiesin place up to the maximum limit of 10 per cent of the Group's net assets asstated in the Prospectus issued in September 2006. Should the Board take the view that a level of gearing beyond 10 per cent is appropriate,shareholders would, of course, be consulted. It is the Board and Manager'sintention to monitor opportunities in the market carefully for investmentopportunities and to continue with the use of share buy backs through theutilisation of existing cash resources and any appropriate debt facility toenhance returns to shareholders. Dividends The Company has declared and paid the following dividends in respect of thefinancial period: +----------------+----------------+----------------+----------------+| |Ex Dividend Date| Pay Date | Dividend Rate || | | | (p) |+----------------+----------------+----------------+----------------+|1st Interim | 21 Feb 2007 | 9 Mar 2007 | 1.4500 |+----------------+----------------+----------------+----------------+|2nd Interim | 21 Feb 2007 | 31 May 2007 | 0.8604 |+----------------+----------------+----------------+----------------+|3rd Interim | 9 May 2007 | 31 May 2007 | 0.4521 |+----------------+----------------+----------------+----------------+|4th Interim | 15 Aug 2007 | 31 Aug 2007 | 1.3125 |+----------------+----------------+----------------+----------------+|5th Interim | 14 Nov 2007 | 30 Nov 2007 | 1.3125 |+----------------+----------------+----------------+----------------+|6th Interim | 15 Feb 2008 | 29 Feb 2008 | 1.3125 |+----------------+----------------+----------------+----------------+| | | | 6.7000 |+----------------+----------------+----------------+----------------+ On 6 February 2008 the Company declared a 6th Interim Dividend of 1.3125p perOrdinary Share with an ex-dividend date of 15 February 2008, payable on 29February 2008. It is pleasing to report that the Company was able to deliverdividends over the period in accordance with the aim stated in the prospectuspublished in September 2006. It is the Board's intention to look to maintainthis level of dividend. Chairman's Statement (Continued) Outlook As is now clear, the UK commercial property market turned sharply negative inthe later part of the summer of 2007 with reported prices now being achievedsome 10 to 15 per cent below summer 2007 valuations. There is however anecdotalevidence that the market is finding a new equilibrium level at which purchasersare willing to re-enter the market. Consequently, transaction activity levelsare beginning to pick up, albeit from a base level lower than 12 months ago.Your Board believes that those companies that have the flexibility through lowor nil gearing, with positive cash balances and the attendant potential to gearup, will be best placed to take advantage of any opportunities that presentthemselves over the coming months. Annual General Meeting The Company's first Annual General Meeting was held on 14 March 2008. At thatAnnual General Meeting, all your Directors offered themselves for re-electionand were re-elected by shareholders. In addition, shareholders voted to renewthe Company's share buy back authority and to approve the change to theCompany's investment policy to permit the Company and its subsidiaries to investup to 15 per cent of the Group's total assets in indirect property funds,including other listed investment companies. Full details of these resolutionswere set out in the circular to shareholders dated 22 February 2008 conveningthe AGM. Shareholders also approved at the AGM a resolution to adjourn the AGM to allowshareholders to consider and, if thought appropriate, vote to receive theseannual reports and accounts at the date of the reconvened meeting. The notice atthe end of these annual reports and accounts gives notice reconvening the AGMfor 16 May 2008 to consider one resolution to receive the reports and accountsfor the financial period to 31 December 2007. As explained in the circularconvening the original AGM, it is not uncommon for a Company, incorporated inGuernsey, in its first financial period to be required by law to hold its firstAGM prior to the publication of the first period end reports and accounts and toconvene a subsequent meeting to consider the accounts. In respect of subsequentyears, it is expected that the Company's annual reports and accounts will bedispatched with the notice convening its AGM. Consolidated Income StatementFor the period 24 August 2006 to 31 December 2007 Notes £'000RevenueRental income 50,898Losses on investment properties 8 (70,351)Interest revenue receivable 2,358Total income (17,095)ExpenditureInvestment management fee 2 (7,240)Other expenses 3 (3,664)Total Expenditure (10,904)Net operating loss before finance costs (27,999)Net finance costsFinance costs 4 (107)Net loss from ordinary activities before (28,106)taxationTaxation on loss on ordinary activities 5 -Net loss for the period (28,106)(Earnings) per share 7 (28,106) The accompanying notes are an integral part of this statement. Consolidated Balance SheetAs at 31 December 2007 Notes £'000Non-current assetsInvestment properties 8 773,095 773,095Current assetsTrade and other receivables 10 6,465Cash and cash equivalents 33,593 40,058Total assets 813,153Current LiabilitiesTrade and other payables 11 (14,401)Total liabilities (14,401)Net assets 798,752Represented by:Share capital 12 220,000Share premium 12 267,952Treasury Shares 12 (10,249)Special distributable reserve 388,306Capital reserve (70,351)Revenue reserve 3,084Equity Shareholders' funds 798,742Minority interest 10 798,752Net asset value per share 13 92.1p The accompanying notes are an integral part of this statement. Consolidated Statement of Changes in EquityFor the period 24 August 2006 to 31 December 2007 Share Special Share Premium Treasury Distributable Capital Revenue Minority Capital Account Shares Reserve Reserve Reserve Interest Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Issue of 220,000 670,500 - - - - - 890,500OrdinarySharesIssue Costs - (12,733) - (1,509) - - - (14,242)Conversion of - (389,815) - 389,815 - - - -Share PremiumAccountShares bought - - (10,249) - - - - (10,249)back and heldin TreasuryMinority - - - - - - 10 10InterestNet loss for - - - - - (28,106) - (28,106)the periodDividends - - - - - (39,161) - (39,161)paidTransfer in - - - - (70,351) 70,351 - -respect oflosses oninvestmentpropertiesAt 31 220,000 267,952 (10,249) 388,306 (70,351) 3,084 10 798,752December 2007 The accompanying notes are an integral part of this statement. Consolidated Cash Flow StatementFor the period 24 August 2006 to 31 December 2007 £'000Cash flows from operating activitiesNet operating loss for the period before finance (27,999)costsAdjustments for:Losses on investment properties 70,351(Increase) in operating trade and other (6,465)receivablesIncrease in operating trade and other payables 14,401 50,288Loan interest paid (107)Net cash inflow from operating activities 50,181 Cash flows from investingPurchase of investment properties (859,657)Sale of investment properties 17,124Capital expenditure (913) (843,446)Net cash outflow from investing activitiesProceeds from issue of Ordinary Shares 890,500Issue costs of ordinary share capital (14,242)Share buyback (10,249)Minority interest 10Dividends paid (39,161)Net cash inflow from financing activities 826,858 Closing cash and cash equivalents 33,593 The accompanying notes are an integral part of this statement. Notes to the Accounts 1. Accounting Policies A summary of the principal accounting policies, all of which have been appliedconsistently throughout the period, is set out below. (a) Basis of Accounting The consolidated accounts have been prepared in accordance with InternationalFinancial Reporting Standards issued by, or adopted by, the InternationalAccounting Standards Board (the IASB), interpretations issued by the International Financial Reporting Standards Committee, applicable legal and regulatory requirements of Guernsey law and the Listing Rules of the UK Listing Authority. (b) Basis of Consolidation The consolidated accounts comprise the accounts of the Company and itssubsidiaries drawn up to 31 December each year. Subsidiaries are consolidatedfrom the date on which control is transferred to the group and cease to beconsolidated from the date on which control is transferred out of the Group. (c) Functional and Presentation currency Items included in the financial statements of the Group are measured using thecurrency of the primary economic environment in which the entity operates ("thefunctional currency"). The financial statements are presented in poundssterling, which is the Group's functional and presentational currency. Allfigures in the financial statements are rounded to the nearest thousand. (d) Revenue Recognition Rental income, excluding VAT, arising on investment properties is accounted forin the Income Statement on a straight line basis over the lease term of ongoingleases. Surrender lease premiums paid are required to be recorded as a currentasset and amortised over the period from the date of the lease commencement tothe earliest termination date. Interest income is accounted on an accrualsbasis. (e) Expenses Expenses are accounted for on an accruals basis. The Group's investmentmanagement and administration fees, finance costs and all other expenses arecharged through the Income Statement. (f) Taxation The Company is exempt from Guernsey taxation on dividend income derived outsideGuernsey under the income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. Afixed annual fee of £600 is payable to the States of Guernsey in respect of thisexemption. No charge to Guernsey taxation will arise on capital gains. TheDirectors intend to conduct the Group's affairs such that the management andcontrol is not exercised in the United Kingdom and so neither the Company norany of its subsidiaries carries on any trade in the United Kingdom. Accordingly,the Company and its subsidiaries will not be liable for United Kingdom taxationon their income or gains other than certain income deriving from a UnitedKingdom source. The Company and its subsidiaries are subject to United Kingdomincome tax on income arising on the property portfolio after deduction of itsallowable debt financing costs and other allowable expenses. (g) Investment Properties at fair value through profit or loss Investment properties are initially recognised at cost, being the fair value ofconsideration given, including transaction costs associated with the investmentproperty. Any subsequent capital expenditure incurred in improving investmentproperties is capitalised in the period during which the expenditure is incurredand included within the book cost of the property. After initial recognition,investment properties are measured at fair value, with unrealised gains andlosses recognised in the Income Statement and transferred to the CapitalReserve. Fair value is based on the open market valuation provided by CB RichardEllis Limited, chartered surveyors, at the Balance Sheet date. On derecognition,realised gains and losses on disposals of investment properties are recognisedin the Income Statement and transferred to the Capital Reserve. Recognition and derecognition occurs on the exchange of signed contracts betweena willing buyer and a willing seller. Notes to the Accounts (Continued) (h) Share Issue Expenses Incremental external costs directly attributable to the issue of shares thatwould otherwise have been avoided are written off against the Share PremiumAccount and the Special Distributable Reserve. (i) Segmental Reporting The Directors are of the opinion that the Group is engaged in a single segmentof business being property investment business and in one geographical area, theUnited Kingdom. (j) Cash and Cash Equivalents Cash in banks and short term deposits that are held to maturity are carried atcost. Cash and cash equivalents consist of cash in hand and short term depositsin banks with an original maturity of three months or less. (k) Trade and Other Receivables Trade receivables, which are generally due for settlement at the relevantquarter end are recognised and carried at the original invoice amount less anallowance for any uncollectible amounts. An estimate for doubtful debts is madewhen collection of the full amount is no longer probable. Bad debts are writtenoff when identified. (l) Reserves Special Reserve The special reserve is a distributable reserve to be used for all purposespermitted under Guernsey law, including the buyback of shares and the payment ofdividends. Capital Reserve The following are accounted for in this reserve: - gains and losses on the disposal of investment properties - increases and decreases in the fair value of investment properties held at the year end Revenue Reserve Any surplus arising from the net profit on ordinary activities after taxationand payment of dividends is taken to this reserve, with any deficit charged tothe special reserve. Share Premium Any premium arising from the issue of Ordinary Shares of 25 pence each iscredited to this account. Treasury Share Reserve This represents the cost of shares bought back by the Company and held inTreasury. (m) New standards not applied The following new standards have been issued but they are not effective for thisaccounting period and have not been early adopted: In August 2005, the IASBissued IFRS 7 Financial Instruments: Disclosures which became effective forperiods commencing on or after 1 January 2007. The standard requires disclosuresabout the significance of financial instruments for an entity's financialposition and performance. These disclosures incorporate many of the requirementsof IAS 32 Financial Instruments: Disclosure and Presentation. IFRS 7 alsorequires information about the extent to which the entity is exposed to risksarising from financial instruments, and a description of management'sobjectives, policies and processes for managing those risks. The Group willapply IFRS 7 for its accounting period commencing 1 January 2008. In November2006, the IASB issued IFRS 8 Operating Segments which becomes effective forperiods commencing on or after 1 January 2009. This standard requires disclosureon the financial performance of the Group's operating segments. The Group willapply IFRS 8 for its accounting period commencing 1 January 2009. The group does not consider that the future adoption ofInternational Financial Reporting Standards, in the form currently available,will have any material impact on the financial statements presented. Notes to the Accounts (Continued) 2. Fees+-----------------------------------------------------+---------------+| | Period ended|+-----------------------------------------------------+---------------+| | 31 December|| | 2007|+-----------------------------------------------------+---------------+| | £'000's|+-----------------------------------------------------+---------------+|Investment management fee | 7,240|+-----------------------------------------------------+---------------+ Investment management fee The Company's Investment Managers, Resolution Investment Services Limited,receive a fee from the group at an annual rate of 0.75 per cent of the TotalAssets, plus an administration fee of £100,000 per annum which will increaseannually in line with inflation) (see note 3), payable quarterly in arrears. Thefees of any managing agents appointed by the Investment Managers will be payableout of the investment management fee. The investment management agreement is fora fixed initial period of two years from 22 September 2006 and, with effect fromthe first anniversary of that date, is terminable by any of the parties to it on12 months' notice. 3. Other expenses Period ended 31 December 2007 £ 000's Direct operating expenses of let property 1,259Valuation and other professional fees 1,556Bad debt provision 182Directors' fees 142Administration fee 128Administrator fees 70Regulatory fees 70Auditors' remuneration for:Statutory audit 50Tax services 20Other 187 3,664 4. Finance costs Period ended 31 December 2007 £ 000's Loan Interest 107 Notes to the Accounts (Continued) 5. Taxation UK Commercial Property Trust Limited owns two Guernsey tax exempt subsidiaries,UK Commercial Property GP Limited and UK Commercial Property Holdings Limited.The two subsidiaries are partners in a Guernsey Limited Partnership and own aJersey Property Unit Trust. Both the Partnership and UK Commercial PropertyHoldings Limited own a portfolio of UK properties and derived rental income fromthose properties. As both the Partnership and Trust property holding entitiesare considered tax transparent in the UK, their taxable results are taxed in thetwo subsidiaries. Both are liable to UK income tax at the rate of 22 per cent ontheir respective net rental income. A reconciliation of the income tax chargeapplicable to the results from ordinary activities at the statutory income taxrate to the charge for the period is as follows: Period ended 31 December 2007 £ 000's Current income tax charge -Deferred income tax relating to originating and reversal -of temporary differencesTotal tax charge - Period ended 31 December 2007 £ 000's Net loss before tax (28,106)UK income tax at a rate of 22 per cent (6,183)Effect of:Capital losses on revaluation of investment 15,175properties not taxableCapital losses realised not taxable 303Income not taxable (519)Inter company loan interest (11,065)Expenditure not allowed for income tax purposes 203(including set up costs)Deferred tax asset not provided for 2,086Total tax charge - 6. Dividends Period ended 31 December 2007 £ 000'sDividends on Ordinary Shares:First interim of 1.45p per share paid on 9 March 7,6852007Second interim of 0.8604p paid on 31 May 2007 4,560Third Interim of 0.4521p paid on 31 May 2007 3,978Fourth interim of 1.3125p paid on 31 August 2007 11,550Fifth interim of 1.3125p paid on 30 November 2007 11,388 39,161 A sixth interim dividend of 1.3125p was paid on 29 February 2008 to shareholderson the register on 15 February 2008. Although this payment relates to the periodended 31 December 2007, under International Financial Reporting Standards itwill be accounted for in the year ending 31 December 2008. Notes to the Accounts (Continued) 7. Earnings per Share The earnings per share are based on the net loss for the period of £28,106,000and on 757,825,984 Ordinary Shares, being the weighted average number of sharesin issue during the period. 8. Investment Properties Period ended 31 December 2007 £ 000'sFreehold and leasehold propertiesOpening valuation -Purchases at cost 859,657Capital expenditure 913Loss on revaluation to fair value (68,975)Disposals at cost (18,500)Closing valuation 773,095 Losses on investment properties disposed Period ended 31 December 2007 £ 000's Original cost of investment properties sold (18,500)Sale proceeds 17,124Losses on investment properties sold (1,376) CB Richard Ellis Limited completed a valuation of Group investment properties at31 December 2007 on an open market basis in accordance with the requirements ofthe Appraisal and Valuation Manual published by the Royal Institution ofChartered Surveyors, which is deemed to equate to fair value. Fair value isdetermined by reference to market based evidence, which is the amounts for whichthe assets could be exchanged between a knowledgeable, willing buyer and aknowledgeable, willing seller in an arms length transaction as at the valuationdate. The market value of these investment properties amounted to £773,095,000which is also the fair value. The property valuer is independent and external to the Group. The propertyvaluer takes account of deleterious materials included in the construction ofthe investment properties in arriving at its estimate of open market valuationwhen the Investment Managers advise of the presence of such materials. The Grouphas entered into leases on its property portfolio as lessor (See note 17 forfurther information). No one property accounts for more than 15 per cent of thegross assets of the Group. All leasehold properties have more than 60 yearsremaining on the lease term. There are no restrictions on the realisability ofthe Group's investment properties or on the remittance of income or proceeds ofdisposal. However, the Group's investments comprise UK commercial property,which may be difficult to realise. Property and property related assets areinherently difficult to value due to the individual nature of such property. Asa result, valuations are subject to substantial uncertainty. There is noassurance that the estimates resulting from the valuation process will reflectthe actual sales price even where the actual sales occur shortly after thevaluation date. The Group is under no contractual obligations to purchase, construct or developany investment property. The majority of the leases are on a full repairingbasis and as such the Group is not liable for costs in respect of repairs,maintenance or enhancements to its investment properties. Included within the total market value of the property portfolio, are units inthe Jersey Property Unit Trust which holds the property at Kensington HighStreet, London. 99.5 per cent of the units in this Unit Trust are held by UKCPTLimited Partnership and 0.5 per cent is held by UK Commercial Property HoldingsLimited. Notes to the Accounts (Continued) 9. Investment in Subsidiary Undertakings The Company owns 100 per cent of the issued ordinary share capital of UKCommercial Property Holdings Limited (UKCPH), a Company incorporated in Guernseywhose principal business is that of an investment and property company. In addition to its investment in the shares of UKCPH, the Company had lent£277.8 million on 28 February 2007 to UKCPH, all of which remains outstanding asat 31 December 2007. These loans are repayable in 2016 and are unsecured.Interest is payable in quarterly in arrears at a fixed rate of 6.7 per cent perannum, compounded on a quarterly basis. Total interest on these loans for theperiod amounted to £15.7 million, of which £6.6 million remained payable as at31 December 2007. The Company owns 100 per cent of the issued share capital of UK CommercialProperty GP Limited, (GP), a Company incorporated in Guernsey whose principalbusiness is that of an investment and property company. UKCPT Limited Partnership, (GLP), is a Guernsey limited partnership, and itholds the properties comprised in the initial property portfolio. UKCPH and GP,have a partnership interest of 98.99 and 1 per cent respectively in the GLP. Theremaining 0.01 per cent partnership interest is held by The Droit Purpose Trust,which is a Jersey purpose trust. The GP is the general partner and UKCPH is alimited partner of the GLP. The Company had lent £406 million to the GLP on 22 September 2006, all of whichremains outstanding as at 31 December 2007. This loan is repayable in 2016 andis unsecured. Interest is payable quarterly in arrears as at fixed rate of 6.5per cent per annum, compounded on a quarterly basis. Total interest on this loanfor the period amounted to £34.6 million, of which £10.5 million remainedpayable as at 31 December 2007. 10. Trade and Other Receivables 31 December 2007 £ 000's Rents receivable (net of provision for bad debts) 6,415Other debtors and prepayments 50 6,465 Rents receivable, which are generally due for settlement at the relevant quarterend are recognised and carried at the original invoice amount less an allowancefor any uncollectable amounts. An estimate for doubtful debts is made whencollection of the full amount is no longer probable. Bad debts are written offwhen identified. 11. Trade and Other Payables 31 December 2007 £ 000's Rental income received in advance 11,192Investment Managers' fees payable 1,500VAT payable 1,253Other payables 456 14,401 The Group's payment policy is to ensure settlement of supplier invoices inaccordance with stated terms. Notes to the Accounts (Continued) 12. Share capital and share premium accounts 31 December 2007 £ 000'sAuthorised share capital1,400,000,000 Ordinary Shares of 25 pence each 350,000Issued share capital2 Ordinary Shares of 25 pence each issued on 24 August 2006 -(date of incorporation)529,999,998 Ordinary Shares of 25 pence each issued on22 September 2006(date of admission to the London Stock Exchange) 132,500350,000,000 Ordinary Shares of 25 pence each issued 87,500on 1 March 2007Issued share capital as at 31 December 2007 220,000Treasury shares12,873,713 Ordinary Shares of 25 pence each (10,249)Share premium accountReceived on the 22 September 2006 placing of 397,500Ordinary SharesLess: issue costs for 22 September 2006 placing (7,685)charged to share premiumConversion to special distributable reserve (389,815)Received on 1 March 2007 placing of Ordinary Shares 273,000Less: issue costs for the 1 March 2007 placing (5,048)charged to share premiumBalance as at 31 December 2007 267,952 On 1 December 2006 the Royal Court of Guernsey confirmed the reduction ofcapital by way of a cancellation of the Company's Share Premium Account. Theamount cancelled, being £389,815,000, has been credited as a distributablereserve established in the Company's books of account and shall be available asdistributable profits to be used for all purposes permitted under Guernsey law,including the buy back of shares and the payment of dividends. £1,509,000 ofissue costs were charged to the special distributable reserve. Total issue costscharged against the share premium and special distributable reserve for the 22September 2006 placing totalled £9,194,000, representing 1.74 per cent of theinitial gross assets, in line with what was stated in the prospectus. Total issue costs, including stamp duty land tax of £14 million, for the 1 March2007 placing amounted to £19.1 million, which is in line with what is stated inthe prospectus. Except for the stamp duty land tax, this has been charged infull against the Share Premium Account. The Share Premium created on the 1 March2007 placing was 78 pence per share on 350 million Ordinary Shares issue, being£273 million. During quarter four in 2007 the Company commenced share buy back activities,with the view of placing the shares bought back into Treasury. As at 31 December2007 12,873,713 Ordinary Shares were bought back at a cost of £10.3 million. 13. Net Asset Value per Share The net asset value per Ordinary Share is based on net assets of £798,752,000and 867,126,287 Ordinary Shares, being the number of Ordinary Shares in issue atthe period end. Notes to the Accounts (Continued) 14. Related Party Transactions No director has an interest in any transactions which are or were unusual intheir nature or significant to the nature of the group. Resolution InvestmentServices Limited received fees for its services as investment managers. Furtherdetails are provided in notes 2 and 3. The total management fee charge to theincome statement during the period was £7,240,000 of which £1,500,000 remainedpayable at the period end. The investment manager also receives anadministration fee of £100,000 per annum, of which £50,000 remained payable atthe period end. The Directors of the Company received fees for their services. Total fees forthe period were £167,000, (£25,000 of which were included in the 1 March 2007share issue launch costs), and none of which remained payable at the period end. Prior to its launch, the Company entered into a costs commission agreement,dated 8 September 2006, with Resolution Investment Services Limited. Under the agreement, if the costs andexpenses in respect of the issue of Ordinary Shares pursuant to the placing andoffer, and the acquisition of the initial property portfolio were less than 1.45per cent of the initial gross assets, the Company would pay to ResolutionInvestment Services Limited a commission equal to the difference. If the amountof such costs and commissions exceeded 1.45 per cent of the initial grossassets, Resolution Investment Services would pay to the Company such excess. Theoutcome of this agreement was a payment by the Company to Resolution InvestmentServices Limited of £2,774,000. For the 1 March 2007 placing, the Company entered into a costs commissionagreement, dated 8 February 2007, with Resolution Investment Services Limited.Under this agreement, if the costs and expenses in respect of Ordinary Sharespursuant to the placing and offer, and the acquisition of the second portfolioof properties, excluding the stamp duty land tax, were less than 1.5 per cent ofthe aggregate issue price of the new Ordinary Shares, the Company would pay toResolution Investment Services Limited a commission equal to the difference. Ifthe amount of such costs and commissions exceeded 1.5 per cent of the aggregateissue price of the new Ordinary Shares, Resolution Investment Services would payto the Company such excess. The outcome of this agreement was a payment by theCompany to Resolution Investment Services Limited of £2,770,000 of which £40,000remained payable at the period end. 15. Financial Instruments The Group's investment objective is to provide Ordinary Shareholders with anattractive level of income together with the potential for income and capitalgrowth from investing in a diversified UK commercial property portfolio. Consistent with that objective, the Group holds UK commercial propertyinvestments. In addition, the Group's financial instruments consist of cash,receivables and payables that arise directly from its operations. The Group hasno borrowings at the period end. The main risks arising from the Group's financial instruments are credit risk,liquidity risk and interest rate risk. The Board reviews and agrees policies formanaging its risk exposure. These policies are summarised below and remainedunchanged during the period. Fair values The fair value of financial assets and liabilities is not different from thecarrying value in the financial statements. Credit risk Credit risk is the risk that an issuer or counterparty will be unable orunwilling to meet a commitment that it has entered into with the Group. In theevent of default by an occupational tenant, the Group will suffer a rentalshortfall and incur additional costs, including legal expenses, in maintaining,insuring and re-letting the property until it is re-let. The Board receivesregular reports on concentrations of risk and any tenants in arrears. TheManagers monitor such reports in order to anticipate, and minimise the impactof, defaults by Notes to the Accounts (Continued) occupational tenants. The Company has a diversified tenant portfolio. Themaximum credit risk from the rent receivables of the Group at 31 December 2007is £6,415,000 The Group holds rental deposits of £473,000 held as collateralagainst tenant arrears/defaults. There is no credit risk associated with thefinancial liabilities of the Group. With respect to credit risk arising from other financial assets of the Group,which comprise cash and cash equivalents, the Group's exposure to credit riskarises from default of the counterparty with a maximum exposure equal to thecarrying value of these instruments. There are no significant concentrations ofcredit risk within the Group. Liquidity Risk Liquidity risk is the risk that the Group will encounter in realizing assets orotherwise raising funds to meet financial commitments. The Group's investments comprise UK commercial property. Property and propertyrelated assets are inherently difficult to value due to the individual nature ofeach property. As a result, valuations are subject to substantial uncertainty.There is no assurance that the estimates resulting from the valuation processwill reflect the actual sales price even where such sales occur shortly afterthe valuation date. Interest rate risk The cash asset balance as shown in the Balance Sheet, is its carrying amount andhas a maturity of less than 1 year. Interest is receivable on cash at a variablerate ranging between 5.2 per cent to 5.8 per cent at the period end and depositsare repriced at intervals of less than one year. The other financial assets andliabilities of Group are non-interest bearing and are therefore not subject tointerest rate risk. Foreign Currency Risk There was no foreign currency risk as at 31 December 2007 as assets andliabilities of the group are maintained in pounds sterling. 16. Capital Commitments The group has no capital commitments as at 31 December 2007. Notes to the Accounts (Continued) 17. Lease Length The Group leases out its investment properties under operating leases. The future income based on the unexpired lessor lease length at the period endwas as follows (based on total rentals): 31 December 2007 £ 000's Less than one year 2,236Between one and five years 8,759Over five years 34,871 45,866 The largest single tenant at the period ended accounted for 8.26 per cent of thecurrent annual rental income. The unoccupied property expressed as a percentage of estimated total rentalvalue was 2.99 per cent at the period end. The Group has entered into commercial property leases on its investment propertyportfolio. These properties, held under operating leases, are measured under thefair value model as the properties are held to earn rentals. The majority ofthese non-cancellable leases have remaining non-cancellable lease terms ofbetween 5 and 15 years. 18. Post Balance Sheet Events Since the period end the sale of a further property from the portfolio, 21/23High Street Uxbridge has occurred in March 2008. The sales proceeds raisedamounted to approximately £3.5 million. The period end Report and Accounts to 31 December 2007 will be mailed toshareholders by 21st April 2008 All enquiries: Nigel Russell/Graeme Caton/Graham Reaves, G&N Collective Funds Services Limited 0131 226 4411 The Company Secretary, Northern Trust International Fund Administration Services(Guernsey) Limited 01481 745529 Announcement Ends This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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