Financial Review

Stephen Silvester
Finance Director


This year we delivered a profit before tax of £11.8m, which reflects a basic earning per share of 43.9p. EPRA earnings is the industry measure of underlying profit stripping out revaluation gains and one-off acquisition costs. EPRA earnings for the year ended 31 March 2016 increased by 64% to £7.7m compared to £4.7m last year and as a result EPRA earnings per share improved to 31.3p from 27.7p.

The value of our portfolio increased by 69% at the year-end to £174.5m from £103.0m principally as a result of the opportunistic acquisitions made throughout the year and also due to £3.6m of revaluation gains. EPRA net assets per share increased by 10% to 414p taking into account the dilution from the £20 million equity raise and FY15 final dividend paid in July 2015. This 36p increase together with the total dividends of 16p paid in relation to FY16 represents a 14% total business return.

Our capital base grew during the year as a result of the £20.0m capital raising in June 2015 and also £80.0m of new debt facilities raised and this was utilised to fund £66.0m of new acquisitions in the year.


Rental income net of property costs totalled £13.0m in the year ended 31 March 2016 (2015: £7.4m), driven by the new acquisitions and also supported by the significant £3.0m surrender premium received from Gala Casinos at Sol Central, the Northampton leisure scheme acquired in June of last year. Administrative expenses increased to £2.0m from a low base in the prior year of £1.4m due to a strategic decision to increase resources and build a team capable of delivering results across a far larger portfolio. There was also a mid-year review into director remuneration to bring it closer in line with our peer group. Finance costs increased to £2.3m from £1.4m as a result of the increase in debt finance to help fund the acquisitions. Despite increasing the base costs of the business, underlying EPRA earnings grew 64% to £7.7m from £4.7m reflecting the increasing profitability of the business as a result of both scale and reliable stock selection.

Looking forward, the business is now capable of scalability, with the team and systems in place to support a significant growth in the portfolio. 249 Midsummer Boulevard, Milton Keynes and Broad Street Plaza, Halifax were acquired close to the year-end. Next year the impact of these on recurring earnings will be significant and at the time of writing the Group has a current gross rent roll of £13.5m per annum up from £8.9m per annum at 31 March 2015 and net of non-recoverable property costs of £11.8m per annum.


The movement in the values of our investment properties can make a significant impact on our profit before tax, as demonstrated last year when we saw £9.8m uplift on the portfolio. This year £3.6m gains were achieved, however this should be combined with the £3.0m surrender premium received from Gala Casinos due to the direct impact the loss of income has on the Sol Central property valuation in the short-term, results in a £6.6m overall gain.

The portfolio has almost doubled in the past year and therefore the impact of like for like uplift in values is diminished as the initial absorption of purchase costs and stamp duty are taken into account this year. The 1% increase in stamp duty for commercial properties valued over £250,000 to 5% has had a one-off impact on the net valuations performed by the Independent Valuers this year. Despite this, we continue to see the impact of our asset management and capex initiatives particularly at our strategic properties such as Hudson House, York where we received approvals in the year and we have seen a significant uplift in value with this property now valued at £14.9m.

We continue to recycle capital through disposals of individual units and small properties where we can realise profit that reflects good value from our investment and £0.3m profit on disposal was achieved from three disposals during the current year.


Basic earnings per share (EPS) were 43.9p compared to 82.4p last year, down primarily due to the significant valuation surplus last year. Similarly to the adjustments we make to profit before tax which remove unrealised capital profits and one-off items such as profits on disposal and costs on acquisition we report EPRA earnings per share. This improved to 31.3p from 27.7p due to the significant one-off impact of the Gala surrender premium. Finally, we also report an adjusted earnings per share to provide a basis for dividend cover which excludes the impact of the surrender premium and this was 18.9p for the year.




We are recommending a final dividend of 9p per share to be paid on 29 July 2016 to shareholders registered at the close of business on 8 July 2016. Taken with the interim dividend of 7p our full year dividend will be up 23% to 16p. The Company is very well placed to provide our shareholders with an increased dividend yield due to the growth in our portfolio and the core assets producing stable, long-term income. However, we continue to reinvest surplus funds into our strategic assets to provide investors with a two- pronged return through both income and capital growth.


At 31 March 2016 our net assets per share were 414p an increase of 18p since 31 March 2015. The increase in our net assets was driven by the increase in value of our investment properties, profits on disposal of investment properties and surplus profits remaining after dividends paid. We calculate an EPRA NAV consistent with standard practice in the property industry to adjust for any dilution of outstanding share options and fair value adjustments of financial instruments which we believe better reflects the underlying net assets attributable to shareholders. Our EPRA NAV was 414p at 31 March 2016 up from 396p at 31 March 2015. In fact, the growth was greater when the dilution of the £20.0m equity raise at 360p in June 2015 is taken into account along with the final dividend of 7p relating to FY15 resulting in an overall increase of 10% from 377p.


During the year our debt profile transformed. We entered into £80.0m of new debt facilities across the Group. The existing facility secured on the Signal portfolio was refinanced with a new five year £20.0m facility at a lower margin of 2.45% and due to the uplift in value since acquisition we were able to release six properties which became uncharged.

We also replaced the existing £16.0m NatWest facility on the PIH portfolio with a new combined £30.0m revolving credit facility secured across the existing portfolio and a number of new acquisitions. Lloyds and Santander also provided new facilities on the Bank House, Leeds and Sol Central, Northampton acquisitions made during the year and finally we took over the £15.2m Barclays facility secured on the Broad Street Plaza, Halifax property acquired in March 2016.

The Group debt profile is now spread across the majority of the UK clearing banks at an average margin of 2.5% over 3 month libor. We continue to take the decision not to put hedging in place as a result of the historically low interest rates and therefore enjoy an all in average cost of debt of 3.1% currently one of the lowest in the sector. The average debt maturity is 3.9 years which gives us security over income streams net of interest costs for a number of years before the need to refinance.


Each debt facility is secured at a SPV level and we assess the gearing mainly through interest cover ratios (ICR) and loan to value ratios (LTV). In normal market conditions we gear our assets at a SPV level within a range of 40-60% LTV. At a group level we measure both the debt to net asset value ratio (NAV gearing) and loan to value net of cash. NAV gearing at 31 March 2016 was 61% up from 31% last year and the net LTV ratio was 37% at 31 March 2016 up from 23% last year. The Group remains conservatively geared and at year-end had £8.0m of unutilised facilities available along with £18.0m of properties uncharged.


The Group has a tax charge of £0.95m for the year ended 31 March 2016. This includes a corporation tax charge of £0.71m to reflect the tax payable on taxable profit in the year, and an adjustment of £0.22m to reduce the deferred tax asset as a result of the utilisation of tax losses in the year. The effective tax rate for the year for tax payable remains low at 13% due to utilisation of brought forward losses and capital allowances.