TIDMIPT
RNS Number : 1071A
ISIS Property Trust Limited
27 March 2012
To: RNS
Date: 27 March 2012
From: ISIS Property Trust Limited
Results in respect of the year ended 31 December 2011
-- Net asset value per share total return of 3.3 per cent in 2011
-- Net asset value per share total return since launch of 72.3 per cent
-- Share price decreased by 14.4 per cent to 90.6 pence in 2011
-- Dividend of 8.0 pence per share for the year
-- Dividend yield of 8.8 per cent based on year-end share price
includes gross dividends reinvested
The Chairman, Peter Crook, stated:
"In 2011, property returned to its more traditional role,
delivering a portfolio total return of 7.9 per cent, driven mainly
by an income return of 5.8 per cent according to the IPD UK
quarterly and monthly funds index ('IPD'). There was a moderation
of the pace of yield compression over the course of the year which
contributed to a gradual slowing in total returns when measured on
a quarterly basis. Property has remained in favour, helped by its
attractive income yield compared with other assets, including cash.
Investors are risk averse given wider economic and financial market
uncertainties and this has led to a strong focus on prime property
in established locations and the year again saw prime property
generally out-performing secondary stock.
Over the year total returns on the Company's portfolio were 6.7
per cent, made up of income returns of 7.1 per cent and a fall in
capital values of 0.4 per cent.
The Company's Net Asset Value ('NAV') total return for the year
was 3.3 per cent, with the NAV decreasing to 98.7 pence per share
from 103.4 pence per share at the end of 2010 after deducting
dividends paid out totalling 8.0 pence per share.
The level of return was impacted by the value of the swap
liability which increased by GBP2.0 million over the year, reducing
the NAV per share by 2.6 pence. The total liability of the swap
valuation was GBP7.9 million at the year end which accounted for
10.4 pence per share. This liability will reduce as the swap
contract gets closer to its expiry date in five years time.
The Company's share price decreased by 14.4 per cent during the
year to 90.6 pence per share, a discount to NAV of 8.2 per cent as
at 31 December 2011.
Property Market and Portfolio
Performance in the year was more subdued than in 2010 but UK
commercial property delivered positive total returns consistently
throughout the year and investment activity was only slightly below
the previous year's figure.
The market witnessed significant differences in performances at
the segment level in 2011. London tended to out-perform the
regions, as it did in the previous year but with total returns
moderating from 2010 levels. The problems in the regional markets
intensified as further public sector cutbacks were implemented and
the long-term structural nature of the adjustment was increasingly
recognised. Capital values turned negative for shops, offices and
industrials outside London and the South East at the benchmark
level. Town centre retailing outside London came under increasing
pressure from both structural and cyclical factors and this part of
the market saw a marked slowdown from the previous year, moving
performance below the long-run average.
The occupational market remained subdued with demand driven by
lease events rather than expansion and rental growth being limited,
patchy and largely confined to London and certain prime areas of
the market. Letting continues to be a difficult and protracted
process.
Investment activity has shown resilience, supported by interest
from overseas buyers and the marketing of some large portfolios and
assets towards year end. Sentiment has been helped by a widening
gap in yields versus the risk free rate but interest remains
focused on the prime end of the market with secondary out of
favour. The banks released more stock in 2011, particularly towards
year end but there remains a lack of prime assets being brought to
the market.
The Company's largest holding, 14 Berkeley Street London W1,
increased in value by 9.3 per cent, following asset management
initiatives. Two vacant floors were completely refurbished to a
higher standard and let on 5 year leases at between GBP73.50 and
GBP75.00 per square foot.
The difficult economic circumstances experienced in the UK have
meant that some of the Company's assets experienced capital
depreciation. Properties that have been particularly vulnerable
have been regional shops and offices where leases were short and
the properties over rented.
The Company completed the purchase of Halls Mill Retail Park,
Bury in June 2011 for GBP7.1 million, at an initial yield of 6.95
per cent. The property comprises a newly constructed terrace of
three units close to the town centre within an established retail
warehouse location.
The Company also sold a property during the year at Church
Street, Kingston-upon-Thames for GBP2.9 million, a gain of GBP0.8
million on the book cost of GBP2.1 million.
The vacancy rate on the portfolio still remains relatively low
at 4.8 per cent at 31 December 2011, which compares favourably with
the industry average of 9.7 per cent, according to IPD. However,
the vacant unit at Bracknell and the fifth floor at Berkeley Street
have been let since the year end, and vacancy rate at the time of
writing is 1.6 per cent. The lease expiry on the portfolio also
remains attractive with an average weighted unexpired lease term
(including breaks) at 8.8 years.
Dividends
The Company is currently paying an annual dividend of 8.0 pence
per share in the form of quarterly interim dividends of 2.0 pence
per share with the fourth interim dividend for the year ended 31
December 2011 paid in February 2012. The Company is still in a
comfortable position as regards its banking covenants and its level
of income collection. It is therefore pleased to confirm that, in
the absence of unforeseen circumstances, it intends to continue to
pay quarterly dividends at this rate.
Borrowings
The Company has a revolving credit facility of GBP50 million
available until 2017. GBP47 million of this facility has been drawn
down to date and, as at 31 December 2011, the loan to value ratio
('LTV'), net of current assets and liabilities was 36.1 per cent.
This is comfortably within the LTV restriction of 60 per cent. The
other principal covenant is the amount by which rental income
covers interest. As at 31 December 2011 the interest cover was 232
per cent, comfortably above the minimum requirement of 150 per
cent.
The interest rate on GBP40 million of the loan has been fixed
with an interest rate swap at 5.555 per cent. The additional GBP7
million drawn down has not been fixed with a swap and pays interest
at one month LIBOR plus a margin of 45 bps.
Board Composition
After serving as a non-executive Director since the Company's
launch in 2003, David Evans has taken the decision to retire from
the Board, effective 30 September 2012. As part of a broader review
on Board succession, giving consideration to the skill sets and
diversity of the Board moving forward, we expect to appoint a new
Director later in the year. I would like to thank David for his
substantial and valuable contribution to the Board over the
years.
Outlook
The slow pace of UK economic growth and problems in the global
economic and financial markets may affect the outlook for UK
commercial property in the short-term. There may be a further
moderation in total returns in 2012 with both capital values and
rental growth coming under pressure. The outlook over the
medium-term is uncertain and clouded by these issues. In this
environment, the need to secure a long and secure income stream
will be critical and a major driver behind performance both in the
near-term and over a longer time horizon."
All enquiries to:
The Company Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Tel: 01481 745001
Fax: 01481 745051
Ian McBryde, Scott Macrae
F&C Investment Business Limited
Tel: 0207 628 8000
ISIS Property Trust Limited
Consolidated Statement of Comprehensive Income
for the year ended 31 December
Note 2011 2010
audited audited
GBP'000 GBP'000
Revenue
Rental income 9,252 8,988
--------- ---------
Total revenue 9,252 8,988
(Losses)/gains on investment properties (258) 6,562
8,994 15,550
Expenditure
Investment management fee 5 (764) (482)
Other expenses (979) (780)
Total expenditure (1,743) (1,262)
Net operating profit before finance
costs 7,251 14,288
Net finance costs
Interest receivable 16 30
Finance costs (2,313) (2,292)
(2,297) (2,262)
Net profit from ordinary activities
before taxation 4,954 12,026
Taxation on profit on ordinary activities (479) (231)
Profit for the year 4,475 11,795
========= =========
Other comprehensive income:
Net loss on cash flow hedges net of
tax (1,957) (1,359)
--------- ---------
Total comprehensive income for the
year 2,518 10,436
--------- ---------
Basic and diluted earnings per share 5.92p 15.59p
ISIS Property Trust Limited
Consolidated Balance Sheet
as at 31 December 2011 2010
Note audited audited
GBP000 GBP'000
Non-current assets
Investment properties 126,580 121,935
126,580 121,935
Current assets
Trade and other receivables 3,087 3,595
Cash and cash equivalents 3,456 1,907
---------
6,543 5,502
Total assets 133,123 127,437
Non-current liabilities
Interest-bearing bank loan (47,259) (40,224)
Interest rate swap (6,225) (4,194)
(53,484) (44,418)
Current liabilities
Trade and other payables (3,291) (3,062)
Interest rate swap (1,666) (1,741)
--------- ---------
(4,957) (4,803)
Total liabilities (58,441) (49,221)
Net assets 74,682 78,216
========= =========
Represented by:
Share capital 756 756
Special reserve 66,345 67,664
Capital reserve 15,359 15,617
Other reserve (7,778) (5,821)
Equity shareholders' funds 74,682 78,216
========= =========
Net asset value per share 8 98.72p 103.39p
ISIS Property Trust Limited
Consolidated Statement of Changes in Equity
for the year ended 31 December 2011 (audited)
Share Special Capital Other Revenue
Capital Reserve Reserve Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- --------- --------- ---------
At 1 January 2011 756 67,664 15,617 (5,821) - 78,216
Profit for the year - - - - 4,475 4,475
Other comprehensive
losses - - - (1,957) - (1,957)
--------- --------- --------- --------- --------- ---------
Total comprehensive
income for the year - - - (1,957) 4,475 2,518
Dividends paid - - - - (6,052) (6,052)
Transfer in respect
of losses on investment
properties - - (258) - 258 -
Transfer of net deficit
for the year - (1,319) - - 1,319 -
At 31 December 2011 756 66,345 15,359 (7,778) - 74,682
========= ========= ========= ========= ========= =========
for the year ended 31 December 2010 (audited)
Share Special Capital Other Revenue
Capital Reserve Reserve Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- --------- --------- ---------
At 1 January 2010 756 68,483 9,055 (4,462) - 73,832
Profit for the year - - - - 11,795 11,795
Other comprehensive
losses - - - (1,359) - (1,359)
--------- --------- --------- --------- --------- ---------
Total comprehensive
income for the year - - - (1,359) 11,795 10,436
Dividends paid - - - - (6,052) (6,052)
Transfer in respect
of gains on investment
properties - - 6,562 - (6,562) -
Transfer of net deficit
for the year - (819) - - 819 -
At 31 December 2010 756 67,664 15,617 (5,821) - 78,216
========= ========= ========= ========= ========= =========
ISIS Property Trust Limited
Consolidated Cash Flow Statement
for the year ended 31 December 2011 2010
(audited) (audited)
GBP'000 GBP'000
Cash flow from operating activities
Net operating profit for the year before
taxation 4,955 12,026
Adjustments for:
Losses/(gains) on investment properties 258 (6,562)
Decrease/(increase) in operating trade and
other receivables 507 (107)
Increase/(decrease) in operating trade and
other payables 379 (559)
Net finance costs 2,296 2,262
8,395 7,060
Taxation paid (597) (117)
----------- -----------
Net cash inflow from operating activities 7,798 6,943
Cash flow from investing activities
Purchase of investment properties (7,459) (8,442)
Sale of investment properties 2,960 -
Capital expenditure (404) (11)
Interest received 16 30
Net cash outflow from investing activities (4,887) (8,423)
Cash flow from financing activities
Dividends paid (6,052) (6,052)
Bank loan drawn down 7,000 -
Bank loan interest paid (523) (419)
Payments under interest swap arrangement (1,787) (1,873)
Net cash outflow from financing activities (1,362) (8,344)
Net Increase/(decrease) in cash and cash
equivalents 1,549 (9,824)
Opening cash and cash equivalents 1,907 11,731
----------- -----------
Closing cash and cash equivalents 3,456 1,907
=========== ===========
ISIS Property Trust Limited
Notes to the Consolidated Financial Statements
for the year ended 31 December 2011
Principal Risks and Risk Uncertainties
The Group's assets consist of direct investments in UK
commercial property. Its principal risks are therefore related to
the commercial property market in general, but also the particular
circumstances of the properties in which it is invested and their
tenants. More detailed explanations of these risks and the way in
which they are managed are contained under the heading of Credit
Risk, Liquidity Risk, Interest Rate Exposure and Market Price Risk.
The Managers also seek to mitigate these risks through active asset
management initiatives, and carrying out due diligence work on
potential tenants before entering into any new lease agreements.
All of the properties in the portfolio are insured.
Other risks faced by the Group include the following:
-- Economic - inflation or deflation, economic recessions and movements in interest rates could affect property valuations.
-- Investment and Strategic - incorrect strategy, including
sector and property allocation and use of gearing, could all lead
to poor returns for shareholders.
-- Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
-- Management and Control - changes that cause the management and control of the Company to be exercised in the United Kingdom could lead to the Company becoming liable to United Kingdom taxation on income and capital gains.
-- Financial - inadequate controls by the Managers or third
party service providers could lead to misappropriation of assets.
Inappropriate accounting policies or failure to comply with
accounting standards could lead to misreporting or breaches of
regulations.
-- Operational - failure of the Managers' accounting systems or disruption to the Managers' business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.
The Board seek to mitigate and manage these risks through
continual review, policy-setting and enforcement of contractual
obligations. It also regularly monitors the investment environment
and the management of the Group's property portfolio, and applies
the principles detailed in the internal control guidance issued by
the Financial Reporting Council.
The Board and the Managers recognise the importance of the share
price relative to net asset value in maintaining shareholder value.
The Managers meet with current and potential new shareholders, and
with stockbroking analysts who cover the investment trust sector,
on a regular basis. In addition, communication of quarterly
portfolio information is provided through the Group's website.
Financial Instruments and Investment Property
The Group's investment objective is to provide Ordinary
shareholders with an attractive level of income together with the
potential for income and capital growth from investing in a
diversified UK commercial property portfolio.
Consistent with that objective, the Group holds UK commercial
property investments (investment property). In addition, the Group
has financial instruments comprising cash, receivables, a bank
loan, an interest rate swap and payables.
The Group is exposed to various types of risk that are
associated with financial instruments and investment property. The
most important types are credit risk, liquidity risk and market
risk (those relating to interest rate changes and pricing
movements).
There was no foreign currency risk as at 31 December 2011 or 31
December 2010 as assets and liabilities are maintained in
Sterling.
The nature and extent of the financial instruments outstanding
at the balance sheet date and the risk management policies employed
by the Group are discussed below.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group.
In the event of default by an occupational tenant, the Group
will suffer a rental shortfall and incur additional costs,
including legal expenses, in maintaining, insuring and re-letting
the property until it is re-let. The Board receives regular reports
on concentrations of risk and any tenants in arrears. The Managers
monitor such reports in order to anticipate, and minimise the
impact of, defaults by occupational tenants.
The Group has a diversified tenant portfolio. The maximum credit
risk from the rent receivables of the Group at 31 December 2011 is
GBP315,000 (2010: GBP433,000). Rental deposits from tenants at 31
December 2011 were GBP222,000 (2010: GBP134,000). As at 31 December
2011 GBP1,000 of rent receivable was greater than three months
overdue. It is the practice of the Group to provide for rental
debtors greater than three months overdue. As at 31 December 2011
the provision was GBP1,000 (2010: GBP81,000). Since the year-end
GBPnil has been recovered.
All of the cash is placed with financial institutions with a
credit rating of A or above. Bankruptcy or insolvency may cause the
Group's ability to access cash placed on deposit to be delayed or
limited. Should the credit quality or the financial position of the
banks currently employed significantly deteriorate, the Managers
would move the cash holdings to another financial institution.
The Group can also spread counterparty risk by placing cash with
more than one financial institution.
Liquidity risk
Liquidity risk is the risk that the Group will encounter in
realising assets or otherwise raising funds to meet financial
commitments.
Property in which the Group invests is not traded in an
organised public market and may be illiquid. As a result, the Group
may not be able to liquidate quickly its investments in these
properties at an amount close to their fair value in order to meet
its liquidity requirements.
The Group's liquidity risk is managed on an ongoing basis by the
Managers and monitored on a quarterly basis by the Board.
In certain circumstances, the terms of the Group's bank loan
entitle the lender to require early repayment, and in such
circumstances the Group's ability to maintain dividend levels and
the net asset value attributable to the ordinary shares could be
adversely affected. As at 31 December 2011 the cash balance was
GBP3,456,000 (2010: GBP1,907,000).
Interest rate exposure
Some of the Group's financial instruments are interest-bearing.
These are a mix of both fixed and variable rate instruments with
differing maturities. As a consequence, the Group is exposed to
interest rate cash flow risk and fair value risk due to
fluctuations in the prevailing market rate.
Interest is receivable on cash at a variable rate. At the
year-end, rates receivable ranged from 0.375 per cent on current
account balances to 0.65 per cent for deposit account balances.
Interest is payable on the GBP47 million bank loan at a variable
rate of LIBOR plus a margin of 0.45 per cent. GBP40 million of the
loan is fixed with an interest rate swap, the effect of which is to
fix interest payable at 5.555 per cent. Interest on financial
instruments classified as floating rate is repriced at intervals of
less than one year.
Exposure varies throughout the year as a consequence of changes
in the composition of the net assets of the Group arising out of
the investment and risk management policies.
In addition, tenant deposits are held in interest-bearing bank
accounts. These accounts earn interest at base rate less 1 per cent
and received no interest at this time as the base rate is too low.
Interest accrued on these accounts is paid to the tenant.
The Group's exposure to interest rate risk relates primarily to
the Group's long-term debt obligations. The Group's policy is to
manage its interest rate risk using an interest rate swap, in which
the Group has agreed to exchange the difference between fixed and
variable interest amounts, calculated by reference to an agreed
upon notional principal amount. The swap is designed to fix the
interest payable on GBP40 million of the loan. The interest rate
swap covers GBP40 million of the loan and has the same duration.
Interest fixing periods are identical and on this basis the swap
contract complies with IAS 39's criteria for hedge accounting.
Market price risk
The Group's strategy for the management of market price risk is
driven by the investment policy. The management of market price
risk is part of the investment management process and is typical of
commercial property investment. The portfolio is managed with an
awareness of the effects of adverse valuation movements through
detailed and continuing analysis, with an objective of maximising
overall returns to shareholders. Investments in property are
inherently difficult to value due to the individual nature of each
property. As a result, valuations are subject to substantial
uncertainty. There is no assurance that the estimates resulting
from the valuation process will reflect the actual sales price even
where such sales occur shortly after the valuation date. Such risk
is minimised through the appointment of external property valuers.
The Directors and Managers regularly review the principles applied
by the property valuers to ensure that they comply with the Group's
accounting policies and fair value principles.
Any changes in market conditions will directly affect the profit
or loss reported through the Consolidated Statement of
Comprehensive Income.
Fair value hierarchy
The interest rate swap, valued at a liability of GBP7,891,000
(2010: GBP5,935,000) is considered to be Level 2 in the
hierarchy.
Explanation of the fair value hierarchy.
Level 1 - Quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity can access at the
measurement date.
Level 2 - The use of a model with inputs (other than quoted
prices included in level 1) that are directly or indirectly
observable market data.
Level 3 - The use of a model with inputs that are not based on
observable market data.
Statement of Directors' Responsibilities in Respect of the
Annual Financial Report
In accordance with Chapter 4 of the Disclosure and Transparency
Rules, we confirm that to the best of our knowledge:
-- The financial statements contained within the Annual Report for the year ended 31 December 2011, of which this statement of results is an extract, have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;
-- The Chairman's Statement and Manager's Review include a fair review of the important events that have occurred during the financial year and their impact on the financial statements;
-- 'Principal Risks and Risk Management' includes a description
of the Company's principal risks and uncertainties; and
-- The Chairman's Statement includes details of related party
transactions that have taken place during the financial year.
On behalf of the Board
P G Crook
Director
26 March 2012
Notes to the Accounts
1. The Group results consolidate those of IPT Property Holdings Limited, a wholly owned subsidiary which invests in properties.
2. These are not full statutory accounts. The full audited accounts for the year ended 31 December 2011 will be sent to shareholders in April 2012, and will be available for inspection at Trafalgar Court, Les Banques, St Peter Port, Guernsey, the registered office of the Company. The full annual report and accounts will be available on the Company's website: www.isispropertytrust.com
3. The Annual General Meeting will be held on 29 May 2012.
4. The audited results of the Group which were approved by the Board on 26 March 2012 have been prepared on the basis of International Financial Reporting Standards and the accounting policies set out in the statutory accounts of the Group for the year ended 31 December 2011.
5. A performance fee is payable in the event of outperformance
of the benchmark even if the total return is negative. The full
performance fee paid for 2009 of GBP255,000 was paid back during
the year ended 31 December 2010 under the three year rolling
arrangement.
6. The fourth interim dividend of 2.00p per share was paid on 24
February 2012 to shareholders on the register on 10 February
2012.
7. There were 75,650,000 ordinary shares in issue at 31 December
2011 (2010: 75,650,000). The basic and diluted earnings per
ordinary share are based on a total profit for the year of
GBP4,476,000 (2010: GBP11,795,000) and on 75,650,000 ordinary
shares (2010: 75,650,000), being the weighted average number of
shares in issue during the year.
8. The net asset value per ordinary share is based on net assets of GBP74,682,000 (2010: GBP78,216,000) and on 75,650,000 (2010: 75,650,000) ordinary shares being the number of ordinary share in issue at the year-end.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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