Final Results

RNS Number : 0810N

Ediston Property Inv Comp PLC

27 January 2016

 

27 January 2016

Ediston Property Investment Company plc 

(the "Company")

Report and Results Announcement

Ediston Property Investment Company plc (LSE: EPIC), which listed on the main market of the London Stock Exchange on 28 October 2014, raising an initial £95.0 million (gross), announces its maiden full year results for the year ended 30 September 2015.

·      EPRA NAV total return: 13.7%

·      Share Price total return: 14.3%

·      NAV per share: 106.49p (+8.6% from initial NAV at launch to 30 September 2015)

·      Share Price: 109.50p (+9.5% from the initial subscription price at launch to 30 September 2015)

·      Portfolio value:  £136.4 million

·      Acquired 11 properties during the period for £119.8 million

·      Weighted Average Unexpired Lease Term ('WAULT'): 8.6 years

·      Reduced vacant space from 25.0% to 7.4%

·      £40.0 million, 10-year credit facility with Aviva Commercial Finance Limited at an 'all-in' fixed interest rate of 3.09% per annum for the duration of the loan.

·      Raised additional gross proceeds of £35.9 million through issuance of 33.3 million ordinary shares, in July 2015

·      Profit before tax of £12.9 million

·      Total dividends paid of 5.09p per share

·      Dividend cover of 84.7%

·      Loan-to-Value of 29.3%

William Hill, Chairman of the Company, said: "The Board is pleased with the progress made in the Company's maiden year having delivered on the objectives set at flotation. Another step forward has been made since the year end with a positive movement of the NAV at 31 December 2015 to 107.92 pence per share, an increase of 1.3% despite incurring the costs of a further acquisition.  The Board believes a good platform has been established to move ahead with some optimism."

Enquiries:

Ediston Properties Limited (Investment Adviser) Danny O'Neill Calum Bruce	0131 225 5599
Canaccord Genuity Limited                     Will Barnett                   Neil Brierley                   Dominic Waters             David Yovichic	020 7523 8000
Tavistock                                                                                     Jeremy Carey ([e-mail]) James Whitmore ([e-mail])	020 7920 3150
R&H Fund Services Limited (Company Secretary) Martin Cassels	0131 550 3760

Chairman's Statement

INTRODUCTION

The prospectus published in October 2014 set out an ambitious programme for the Company. I am delighted to report that the management team has delivered on the objectives that were set.

Ratan Engineer, the Company's chairman at flotation in October 2014, very sadly did not live to see the considerable achievements the Company has made in its first full year as a real estate investment trust. He was instrumental in overseeing the successful start of the Company and it is important that this is properly acknowledged and recorded.

Following Ratan's death, the Board responsibilities were reorganised among the remaining three Directors. I would like to thank my fellow Directors for the considerable amount of time that they have expended during the year in helping oversee a busy programme of activity. During the next 12 months, we will look to add another Director to the Board.

INVESTMENT PERFORMANCE

At flotation gross proceeds of £95.0 million were raised from a broad spread of investors. This enabled the Company to complete the acquisition of the portfolio of five investments identified in the prospectus for £76.7 million.

This portfolio had some immediate asset management opportunities to exploit. The execution of these, with lettings achieved in Edinburgh, Birmingham and Reading and a value-enhancing restructuring of the lease to Capita on the Sheffield property, were important drivers of the EPRA NAV total return per share of 13.7% for the accounting period. They also impacted positively on the share price total return of 14.3%. These returns were achieved despite the Company incurring the purchase costs associated with the acquisition of 11 properties during the year.

ARRANGEMENT OF DEBT FACILITY

In accordance with the gearing intentions set out in the prospectus, the Investment Adviser and the Board considered various debt strategies and potential debt providers. A decision was taken to capitalise on the attractive long-term finance that was available from several insurance company lenders. As a result, a 10-year £40.0 million loan agreement was put in place with Aviva at a fixed interest cost of 3.09% per annum over the term of the loan. An important feature of the facility is the substitution arrangement, providing flexibility to replace properties sold with new assets. Locking into this rate for 10 years was not only helpful in protecting future distributions to shareholders from the risk of higher borrowing rates in the future, but also enabled the Company to develop its three to five-year strategy without having to face the distraction and potential risks of a bank refinance.

INVESTMENT PURCHASES AND STRATEGY

The investment strategy has been to acquire properties with an average yield during the hold period in excess of 6.5%, with potential for income growth and/or value-add opportunities that could play to the Investment Adviser's active asset management strengths.

Income is central to the investment philosophy of the Company: income protection through careful tenant selection and management of unexpired lease terms; income growth by investing in the right assets; and income creation by utilising management skills to create additional revenue streams.

Following the acquisition of the five properties identified in the initial prospectus, six further property purchases were made in the year, in a competitive market, at a total cost of £43.1 million. The properties comprised an office in Bath, a retail warehouse in Coatbridge, a retail warehouse park in Daventry and three leisure properties in Hartlepool, Telford and Liverpool. The rationale behind each purchase is explained in the Property Portfolio Review below. The total investments made in the year were £119.8 million.

Subsequent to the year end, an investment has been made in a retail warehouse park in Wrexham. This asset is also referred to in the Property Portfolio Review.

GROWTH OF EQUITY BASE

A stated objective in the initial prospectus was that the Company should seek to grow its equity base. The Board and its advisers considered that new equity could be raised on terms acceptable to shareholders and that additional assets could be acquired with the proceeds on attractive terms. Accordingly, shareholders were asked in June 2015 to approve a 12-month placing programme for up to 150 million new shares and to dis-apply pre-emption rights for an initial tranche of up to 40.0 million. An initial 33.3 million new shares, for a consideration of £35.9 million, were subsequently issued in July 2015 at a 3.3% premium to the prevailing NAV.

Including assets purchased after the year end or under offer, the Company has successfully committed its initial equity. Assuming the Board continues to believe that further investment opportunities are available and the capital can be raised on terms that enhance the interests of shareholders, there is a prospect of the Company returning to the market in the first half of 2016 using the existing placing programme authorities.

DIVIDENDS

The Board is committed to monthly dividend payments. A final dividend of 0.46 pence per share for the month of September was paid in October 2015. Together with dividends paid to September 2015 of 4.63 pence total dividends for the financial year were 5.09 pence per share, in line with the prospectus.

Dividend cover during the year was 84.7% due to the diluting effect of cash from un-invested capital at launch, debt drawdowns and the new equity raise. However, the current dividend expressed as a proportion of NAV per share attributed to property assets (that is, ignoring cash in the NAV) is fully covered going forward. On this basis, the Board is confident that the dividend is sustainable, assuming investments can continue to be made at the target yield level.

GOVERNANCE

The Board take its corporate governance responsibilities seriously and has worked throughout the year putting in place structures to ensure compliance with the various codes of practice. The approach taken is detailed in the governance section of the report and accounts.

OUTLOOK

Looking ahead, the Board believes that the fall in property yields that has characterised the market over the last two years may come to an end. A greater proportion of total return is therefore likely to come from income. With several parts of the UK property market undersupplied, the prospects for income growth are positive. Against this backdrop, there are still attractive parts of the market in which to invest. The Company's strategy for the coming months is therefore:

·      continuing to invest in assets with income returns above 6.5%;

·      targeting properties with the ability to grow income or the potential to add value from management initiatives;

·      if possible, raising further capital to enable the Company to continue to grow in a measured way;

·      actively managing the existing portfolio to improve value in the portfolio; and

·      using prudent levels of gearing to enhance opportunities for income distribution and capital growth.

The Board is pleased with the progress made in the Company's maiden year and further evidence is the positive movement of the NAV at 31 December 2015 to 107.92 pence per share, an increase of 1.3% from the year end. The Board believes a good platform has been established to move ahead with some optimism. However, caution must not be too far away, given uncertainties in the global economy and the consequent volatility in all markets.

William Hill

Chairman

26 January 2016

Investment Adviser's Review

A changing picture in the UK property market: The Company's portfolio offers an excellent combination of high-quality assets, with attractive lease lengths and numerous asset management opportunities to be exploited to improve income and add value. I believe we are well positioned for the next phase of the property cycle.

UK PROPERTY MARKET - WHERE WE OPERATE

As we start 2016 the economic fundamentals supporting the economy remain relatively positive. GDP growth, while fragile, remains around trend levels, providing a reasonable backdrop to a supply-constrained property market. The economy is experiencing a period of benign inflation, interest rates remain low and the country enjoys high employment. Household finances have improved as a result of the low inflation environment and an upturn in real wage growth and have resulted in improved levels of business and consumer confidence.

On the downside, there is increased uncertainty over the in/ out referendum on EU membership. Recent economic woes in China appear to have lessened the prospect of an immediate increase in interest rates but the resultant volatility in equity markets is a concern. Global oil price falls and Middle Eastern geopolitical issues also have potential to impact negatively and heighten investor concerns. The potential impact of a rise in UK interest rates has been subject to significant commentary, given the historic relationship of UK gilts to property yield. We are of the view that there is presently enough of a yield gap between gilts and property to provide an adequate buffer to cope with some upward movement in rates, whenever that may occur. There may, however, be some short-term volatility as investors take different positions when rates start to move.

One of the most encouraging dynamics of the current property cycle is the limited supply of new property throughout the UK. The lack of development since 2008, particularly in regional locations, has arisen as investors shied away from risk and banks withdrew funding for speculative projects. As a consequence we are witnessing historically low vacancy rates across the UK and the potential for rental growth is positive. As a result we are focused in purchasing assets which can benefit from this.

A CHANGING PICTURE

The combination of positive economic and supply-demand conditions, along with the sizeable weight of money that has flowed into the sector, may have created another record year for investment volumes in the sector in 2015. Prime yields in London have surpassed those at the peak of 2007 and, in many cases, this also applies to numerous regional locations with the phenomenon applying across all use classes. We are, however, now witnessing yield compression slowing and it appears we are moving into a different phase of the market where 'market' yield improvement ends and returns reduce to healthy positive single-digit territory, supported by a generous income yield relative to other asset classes.

As investors adapt to this new dynamic there should be reassurance that the market still offers prospects for healthy positive returns. UK institutions invested more money into UK regions in 2015 than they did in 2014 and, logically, this is in expectation of better returns in these areas than from London at current price levels. We too have witnessed more competition for assets in the regional markets, with some headline-grabbing yields being paid by UK institutions and US equity funds, supported by higher levels of gearing. This is, however, not reflective of the whole market, as we believe value can still be acquired in locations where rental growth should be achieved in the coming cycle.

Portfolio Capital Value Progression
Date	£m
October 2014	76.7
December 2014	84.1
March 2015	86.3
June 2015	123.7
September 2015	136.4
December 2015	161.8

INVESTMENT STRATEGY AND STYLE

Our strategy remains focused on building a good-quality, diversified portfolio of properties, which offer the opportunity to increase rental value, income security and capital value, by implementing the Ediston 'style' of asset management. The portfolio will remain regionally based until such time as we believe we can purchase higher-yielding, good-quality assets in central London and which can be accretive to the dividend yield of the Company.

Income will remain central to the Company's investment philosophy but the opportunity to add value to property assets is also one of the asset class's investment characteristics and, thus, we continue to seek assets where we have 'lots to do' and where various asset management initiatives can be pursued at the same time. We will also look to invest opportunistically, where we believe assets are simply mis-priced, in a less-than perfectly efficient market, or where information we have leads us to believe we have an entrepreneurial edge to the management of the property.

RISKS

Outside of the nervousness surrounding global markets and the negative impact this is having we believe the specific risks for the UK property market are limited. It is possible that negative sentiment or an external influence or shock could cause a period of volatility. The possible negative impact of investor weight of money also remains a threat in two respects. While we expect yields to stabilise, continued strong flows into a sector, offering attractive income returns, could continue to drive pricing up, albeit at a slower rate. At the moment investors appear to be exercising restraint and good investment discipline, only paying the keenest of yields for the most prime assets, leaving opportunities in higher-yielding assets. This still leaves the question of how 'sticky' this global capital actually is and the consequential impact, if sizeable sums were withdrawn.

PERFORMANCE

The Company achieved a property total return to 30 September 2015 of 17.3%. In a period of portfolio construction, where costs of purchase impact negatively, this has been achieved with a combination of good stock selection, in a forward moving marketplace, and the positive asset management of properties. There has been continued positive movement in the NAV at 31 December 2015 and we are confident we can add further value through entrepreneurial asset management of the portfolio in 2016 as the portfolio continues to offer opportunities to create value.

OUTLOOK

With a limited supply pipeline and a low interest rate environment, we remain optimistic about the market's prospects in 2016 with the likely prospect of acquiring good-quality assets in a slightly less-crowded marketplace. However, we do continue to try and identify what the catalysts for change may be and whether the market is ignoring them or not. There is some aggressive pricing being paid for assets and there is a risk of that pricing getting ahead of itself and to a level for which rental growth will not sufficiently compensate. We have witnessed a number of real estate analysts calling the 'top of the market', which may in itself have a negative impact on sentiment. However, it does not follow that every peak has a sharp drop at the other side.

There are clearly positive attributes to the sector. There may well be a yield price correction at the prime end of the market, or in a particular sub-sector or location where things get 'too hot', but the market is generally well-placed to deliver returns closer to income levels. From the Company's perspective we believe the improvement in the Company's quality and security of income over the period, with 75% of our contracted rent having a D&B rating of 5A1 (see chart below), combined with Ediston's intensive approach to asset management, puts it in a good position to cope with uncertain short-term volatility, should it arise. We will seek to exploit market mispricing opportunities with further astute acquisitions. The Company's portfolio offers a good combination of defensive assets, above-average income security and asset management initiatives to improve both capital and income.

Tenant Covenant Profile: D&B risk ratings of tenant income as a percentage of the portfolio income
D&B Rating	%
5A1	75.0
4A1	6.1
4A2	7.1
2A1	8.7
Other	3.1

Finally, I would like to extend my thanks to the Board for its counsel and support over this busy initial period, particularly following the untimely death of Ratan Engineer, our previous Chairman.

Danny O'Neill

Chief Executive Officer, Ediston Real Estate

[e-mail] 

Property Portfolio Review

We have had an active period since launch, acquiring 11 properties across the UK and delivering a number of asset management initiatives.

PERFORMANCE

In a period of portfolio construction, performance will always be adversely affected by the significant costs of acquiring properties. Against this backdrop we are pleased to report that the Company has delivered a Property Total Return of 17.3% for the period. As we have made clear, we do not benchmark the Company against any particular index, given we are income-focused, do not currently invest in London and do not wish to be driven one way or another by an inefficient market place.

PORTFOLIO VALUATION

The Company's property portfolio is valued by Knight Frank on a quarterly basis throughout the year. At the year end it was valued at £136.4 million compared to £86.3 million in the interim accounts at March 2015.

Property Portfolio as at 30 September 2015
Location	Name	Sub-sector	Market Value Range (£)	Tenure	Area (sq. ft.)	Occupancy Rate
Birmingham	St Philips Point	Office - Rest of UK	20-25m	Freehold	97,469	87.8%*
Reading	Phoenix	Office - Rest of South East	20-25m	Freehold	50,853	79.0%*
Sheffield	Capita	Office - Rest of UK	15-20m	Freehold	61,638	100%
Coatbridge	B&Q	Retail Warehouse	15-20m	Heritable	102,680	100%
Rhyl	Clwyd Retail Park	Retail Warehouse	15-20m	Freehold	82,235	100%
Daventry	Abbey Retail Park	Retail Warehouse	10-15m	Leasehold	65,256	81.3%
Edinburgh	145 Morrison Street	Office - Rest of UK	10-15m	Heritable	26,894	100%
Bath	Midland Bridge House	Office - Rest of UK	0-5m	Freehold	18,656	100%
Telford	Mecca Bingo	Leisure	0-5m	Freehold	57,138	100%
Liverpool	Mecca Bingo	Leisure	0-5m	Freehold	31,763	100%
Hartlepool	Mecca Bingo	Leisure	0-5m	Freehold	31,284	100%

* Vacant space is partly subject to a rent guarantee.

Regional Exposure - Location at 30 September 2015

Region	%
North East	2
North West	2
West Midlands	21
South West	3
Scotland	21
South East	16
Yorkshire	14
East Midlands	9
Wales	12

Sector Exposure - Sector at 30 September 2015

Lease Expiry	%
Leisure	7
Office	59
Retail warehouse	34

SUMMARY OF PURCHASES IN THE PERIOD

Acquisition activity in the period was significant and included the purchase of the seed portfolio of five assets just after launch for £76.7 million, followed by a further six assets for £43.1 million in the months thereafter.

145 Morrison Street, Edinburgh:

Purchased for £6.3 million, reflecting an 8.1% net initial yield. A newly-developed 26,894 sq ft office property in the heart of the financial district of Edinburgh. The property was acquired vacant but subject to a two-year rent guarantee at £534,540 per annum. The entire property was let to Capita Business Services Limited in July 2015 at £676,136 per annum.

St Philips Point, Birmingham:

Purchased for £22.4 million, reflecting a 7.2% net initial yield. A 97,469 sq ft mixed-use office and retail property in a prime location in the city centre. Undergoing a major refurbishment at purchase, which was completed in January 2015.

Phoenix, Station Road, Reading:

Purchased for £19.5 million, reflecting a 6.6% net initial yield. A newly-refurbished grade A office building, comprising 50,853 sq ft located next to Reading train station. Multi-let with two vacant floors at the time of purchase, both subject to rental guarantees for two years at a rent equating to £26.50/ sq ft. One floor was let in February 2015 at £29.00/sq ft, with the top floor currently vacant.

Hartshead House, 2 Cutlers Gate, Sheffield:

Purchased for £13.5 million, reflecting a 7.3% net initial yield. A modern office building developed in 2011, comprising 61,638 sq ft of grade A accommodation. At purchase the property was let to Capita Business Services Limited for a further 11 years. In December 2014 the lease was re-geared to provide a full 25-year term from December 2014, subject to annual uplifts in rent linked to RPI, capped at 3% per annum. Capita plc now provides a full guarantee on the lease.

Clwyd Retail Park, Rhyl:

Purchased for £15.1 million, reflecting a 6.9% net initial yield. A well-located retail warehouse park, let to strong covenants and comprising five units and a restaurant in 82,235 sq ft, adjacent to a large Sainsbury's supermarket.

Midland Bridge House, Bath:

Purchased for £4.4 million, reflecting a 3.5% net initial yield (rising to 7.0% in March 2017). A recently-refurbished office building, extending to 18,656 sq ft over ground and three upper floors, occupying a prominent corner position on Lower Bristol Road, an area which is earmarked for significant investment and development. The building is let to Withy King LLP, a firm of solicitors, until March 2023.

Abbey Retail Park, Daventry:

Purchased for £12.0 million, reflecting a 5.9% net initial yield (after deduction of rental guarantees). A retail warehouse park extending to 65,256 sq ft, anchored by Homebase, with parking for 386 cars, on a five-acre site. The weighted average unexpired lease term is just less than 10 years. Two units totalling 11,666 sq ft are vacant.

Tennent Street, Coatbridge, Strathclyde:

Purchased for £16.8 million, reflecting a 7.5% net initial yield. A B&Q Extra retail warehouse store, the property extends to 102,680 sq ft, plus a garden centre and builders' yard, with parking for 600 cars, on a site of 4.27 acres. It is let to B&Q plc until December 2022 with a rent review in 2017. The asset offers a solid income stream for the Company, which can be further improved through asset management and development.

Portfolio of three leisure units:

Purchased for £10.0 million, reflecting an 8.6% average net initial yield. The properties comprise two units in Liverpool and Hartlepool, which are let to Mecca Bingo, and a third unit in Telford, part of the Southwater Square leisure development, which is let to Rank Group Gaming Division. All three leases expire in September 2022, giving an unexpired term at completion of seven years. The passing rent of the properties is £910,085 per annum.

Since the period end the Company has also acquired:

Plas Coch Retail Park, Wrexham:

Purchased for £22.4 million, reflecting a 6.5% net initial yield, rising to 7.4% in March 2016 on expiry of a rent-free period. A well-located retail park, totalling 94,245 sq ft, adjacent to a Sainsbury's supermarket and an Aldi foodstore. It is let to seven national tenants and benefits from a WAULT in excess of 10 years. TK Maxx has recently relocated to the park from Wrexham town centre, reinforcing the attraction of the park to retailers.

LETTINGS AND ASSET MANAGEMENT INITIATIVES

During the period we completed a number of key transactions, notably the letting of 145 Morrison Street, property in Edinburgh, in its entirety, more fully described in the Annual Report. We also completed a lease restructuring at Cutlers Gate, Sheffield, described in the Annual Report and improved the income stream at St Philips Point, Birmingham, having completed the refurbishment of the property in January 2015.

In February 2015, the Company completed a lease agreement with Babcock Corporate Services Limited for the entire fourth floor at Phoenix, Station Hill, Reading, totalling 10,363 sq ft. The lease has been guaranteed by Babcock Southern Holdings Limited. The rent payable reflects a rate of £29.00/sq ft, a new headline rent for the property. The top floor remains vacant but is income-producing under a rental guarantee provided at purchase for approximately a further 12 months at the period end.

At St Philips Point in Birmingham, the ninth floor of the building was let to Accountancy Action Limited, leaving only two of the nine floors unoccupied. Accountancy Action Limited took the 1,800 sq ft floor at a rent of £24.00/sq ft on a five-year lease, a letting significantly above business plan expectations which set a new tone for the property. The lease to Baker Tilly of the 14,465 sq ft second floor was restructured just after the year end. The 'tenant-only' break clause at April 2017 has been removed with the lease now expiring in 2022, securing an excellent tenant for a certain further five years. The tenant will receive a 12-month rent-free period from April 2017, with the rent from that date increasing to £375,000 per annum.

VOIDS AND LEASE EXPIRY PROFILE

During the year substantial progress was made in reducing the portfolio void rate. At launch the void rate was 25.0%, albeit this was covered by rental guarantees, so the portfolio was 100% income-producing. At the year end the EPRA vacancy rate was 7.4%. This falls to 2.1%, if the vacant space covered by guarantees is excluded.

WAULT

At launch, the WAULT of the portfolio was 5.9 years. Through the execution of the letting and asset management strategy, this has increased to 8.6 years at the year end.

Tenant exposure - Tenant concentration

Region	%
B&Q plc	22
Capita Business Services Ltd	20
Weightmans LLP	7
Mecca Bingo Ltd	6
Xafinity Consulting Ltd	6
Tenants less than 5%	39

TENANT EXPOSURE

The chart above details our exposure to the top five tenants and those tenants below 5.0% of the rent roll, as at 30 September 2015. The exposure to B&Q plc is greater than the 20.0% income restriction detailed in the prospectus which is permitted whilst the Company is working towards being fully invested. Since the year end and the acquisition of Wrexham, this exposure has reduced below 18.0%.

Calum Bruce

Investment Adviser

Financial Review

Building a strong portfolio with secure income

It has been an active and successful first year, as the Company has sought to build a portfolio to deliver an attractive level of income together with the prospect of income and capital growth for shareholders.

This report summarises the financial performance for the year and provides a number of statistics, illustrating how the Company is delivering on its objectives.

INCOME STATEMENT AND EARNINGS PER SHARE

The Company has had a successful year both in terms of rental levels on properties acquired, but also on letting activity, helping to achieve a revenue profit before tax of £4.0 million. Rental income generated in the year was £5.9 million, inclusive of rent drawn under the rental guarantee agreement. Expenditure in the period was £1.5 million, of which £0.9 million related to the Investment Adviser's fee. Net interest costs were £0.4 million, in connection with a new £40.0 million debt facility dated May 2015.

The positive movement in the value of our investment properties was £8.9 million, which enabled the Company to report a total profit of £12.9 million.

	£m
Rental income	5.9
Property expenditure	(0.0)
Net rental income	5.9
Administration expenses	(1.5)
Net financing costs	(0.4)
Revenue profit	4.0
Gain on revaluation of investment properties	8.9
Accounting profit after tax	12.9
EPRA Earnings per share	4.15p
Basic total earnings per share	13.43p

The EPRA cost ratio (including direct vacancy costs) was 24.7% and, excluding direct vacancy costs, was 24.6% for the year. Cash drag, prior to investing the proceeds of capital raising, has negatively impacted on these two ratios and it is expected both of these will fall next year.

RENT

Contracted rent was £8.6 million per annum at the year end, with 18.2% of tenants currently enjoying a rent-free incentive. Rent-free periods as a percentage of contracted rent at the year end falls below 8.0% by June 2016. In any event, the Company has the benefit from the acquisition of the seed portfolio of rental guarantees for the vast majority of these rent-free incentives. 86.5% of rent for the year was collected within seven days, with most of the remainder being collected over a longer timeframe due to administrative matters that technically did not constitute late payment.

As a result of letting activity in the period, the WAULT has increased to 8.6 years from 5.9 years at launch. In addition the EPRA vacancy rate at the year end was 7.4% and falls to 2.1% allowing for contracted rental guarantees. All of this helps provide relatively long-term stability to the Company's income.

NET ASSET VALUE (NAV)

At 30 September 2015 our net assets were £136.6 million, equating to net assets per share of 106.49 pence, an increase of 8.6% from the opening NAV of the Company (after deduction of launch costs). This is particularly pleasing given the level of investment transaction costs and further equity-raising costs incurred in the year.

The increase in net assets to £136.6 million from launch in October 2014 can be summarised as follows:

Equity raised (net of costs)	£128.4m
Increase in value of investment properties (net of capital expenditure and transaction costs)	£8.9m
Net earnings in the year	£4.0m
Less dividends paid	(£4.7m)
Total	£136.6m

The NAV is primarily represented by our investment properties, which have a fair value of £136.4 million at the year end. This is included in the financial statements as Investment Properties at £133.0 million, with the remainder relating to the incentive payment at Sheffield. The remaining £0.2 million of net assets is made up of i) £1.5 million of cash less debt, and ii) (£1.3 million) of net current liabilities.

DEBT

In May the Company entered into a 10-year debt facility of £40.0 million with interest fixed at 3.09% per annum. Further details are included within Note 6 below. At the year end the Loan to Value (LTV) was 29.3%, based on debt of £40.0 million and the fair value of Investment Properties of £136.4 million. The Board intends that gearing should be no greater than 30% at the time of drawdown of borrowings, to a maximum of 35%. This represents significant headroom against the relevant debt covenants.

CASHFLOW AND LIQUIDITY

Of the £128.4 million of equity, net of costs, and £40.0 million of debt raised in the year, £119.8 million plus transaction costs was invested in 11 properties. A further £3.4 million of capital expenditure was incurred.

As a result, the Company had cash and cash equivalents of £41.0 million at the year end. Following the year end £22.4 million, excluding transaction costs, has been invested in Wrexham.

DIVIDENDS

In addition to the seed portfolio that was acquired shortly after the initial equity raise in October 2014, further assets have been acquired that are accretive to delivering the initial target level of dividend of 5.5p per share per annum.

The Company is committed to monthly dividend payments. The Board has declared a final dividend of 0.46 pence per share for the month of September which was paid in October 2015. Taking this final dividend with dividends paid to September 2015 of 4.63 pence, the total dividend for the year is 5.09 pence per share, calculated on the weighted average of shares in issue during the year, in line with the targeted dividend policy set out in the prospectus. Taking the current level of monthly dividend, this equates to a dividend yield of 5.5%, based on the launch price of 100.0 pence, or 5.0% on the share price at the year end.

Dividend cover for the year was 84.7%. As this is the Company's first financial year, cover has suffered due to cash drag arising from the equity raisings in October 2014 and July 2015. We expect dividend cover to improve as a result of current and future investment and letting activity.

TAX

Owing to the Company's REIT status, income and capital gains from our property rental business are exempt from corporation tax, therefore, the tax charge for the year is nil. We continue to pass all the REIT tests to ensure our REIT status is maintained.

OUTLOOK

Our first year has had many successes, not least delivering sound financial performance, whilst investing the proceeds of two new issues and a long term debt facility.

With our strengths in identifying properties with asset management potential, coupled with the strength and relatively long-term security of our income, we are confident that we will continue to generate attractive returns for our shareholders, underpinned by rental growth and the skill of our Investment Adviser in exploiting capital and income opportunities. We also expect to benefit from the acquisitions that occurred later in the financial year as well as those post the year end, which will reduce the cash drag impact on the Company.

Principal Risks

Risks: How we manage risk

The successful management of risk is essential to ensuring that the Company delivers on its strategic priorities and aligns the Company's interests with our shareholders.

The Audit and Risk Committee recognises that there are risks and uncertainties that could have a material effect on our results. The principal risks facing the business, with their likelihood and impact and how the Company mitigates these, are:

Risk	Impact	Controls and mitigation in place		Probability of occurring	Impact if occurred
INVESTMENT MANAGEMENT
Lack of investment opportunities reducing the ability to acquire properties at the required return. Poor investment decisions, incomplete due diligence and mis-timed investment of capital.	An inappropriate use of capital which hinders investor returns. Reduction in revenue profits impacting on cashflow and dividends.	Thorough due diligence and investment process with regular reviews of property performance against acquisition plan. Experienced Investment Adviser who sources assets which meet agreed investment criteria. Investment committee scrutinises and approves all proposed acquisitions. Comprehensive profit and cashflow forecasting which  models the impact of property transactions at Company level.		Low	Medium
Overexposure to a specific property, tenant, sector, geographic location or to lease expiries in a given year.	Reduced liquidity resulting in a reduction in the capital value of investment properties. Tenant failure causing a material reduction in revenue profits impacting on cashflow and dividends.	Concentration limits are set by the Board and reviewed quarterly. The limits are monitored at all times by the Investment Adviser. Board approval memorandums state whether there are any concentration issues.		Low	Medium
Ineffective active asset management of properties.	High vacancy levels, low tenant retention, sub-optimal rental levels and break clauses exercised. Reduction in revenue profits impacting on cashflow and dividends.		Investment Adviser is experienced in active asset management. Proactive approach to key lease events. Letting and managing agents are also employed.	Low	Medium
FINANCIAL
Non-Compliance with debt facilities.	A substantial fall in property asset values or rental income levels could lead to a breach of financial covenants within the debt funding arrangements. This could lead to a cancellation of debt funding which could leave the company without sufficient long-term resources to meet its commitments.	Covenants are reviewed on a regular basis. Compliance certificates and reports are prepared on a quarterly basis by the Investment Adviser then reviewed and signed by a director. The Board intends to maintain gearing at 30% but will not exceed 35% of Company gross assets at drawdown.		Low	High
ECONOMY/TAXATION/REGULATORY
Weak economic and/or political environment.	Lower occupational demand impacting on income, rental growth and capital performance.	To a large extent outwith our control. However, sensitivity analysis of the portfolio is undertaken via a comprehensive cashflow model.		Low	High
Non-compliance with laws and regulations.	The Company is required to comply with REIT rules, the Listing Rules, Disclosure and Transparency Rules, IFRS accounting standards, AIC SORP and UK legislation.	Use experienced tax advisers, auditors, Investment Adviser, Administrator and solicitors. Strong compliance culture with regular risk reviews undertaken by the Audit and Risk Committee.		Low	High
OPERATIONAL
Health and Safety.	Health and safety processes could fail leading to serious financial or reputational damage to the Company.	Insurance cover in place and insurers visit each property and undertake a risk assessment. The managing agent ensures all matters raised are dealt with promptly.		Low	High
Lack or failure of internal controls of the Investment Adviser or Administrator.	The possibility of self review, human error and even fraud can occur.	Significant segregation of duties within the Investment Adviser and Administrator as well as between them both.		Low	High

Consolidated Statement of Comprehensive Income (audited)

For the year ended 30 September 2015                                                                                                          

		Year ended 30 September 2015			Period from incorporation to 30 September 2014
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
Rental income		5,901	-	5,901	-	-	-
Total revenue		5,901	-	5,901	-	-	-
Unrealised gain on revaluation of investment properties		-	8,907	8,907	-	-	-
Total income		5,901	8,907	14,808	-	-	-
Expenditure
Investment adviser fee	1	(942)	-	(942)	-	-	-
Other expenses		(520)	-	(520)	-	-	-
Total expenditure		(1,462)	-	(1,462)	-	-	-
Profit before finance costs and taxation		4,439	8,907	13,346	-	-	-
Net finance costs
Interest receivable		64	-	64	-	-	-
Interest payable		(517)	-	(517)	-	-	-
Profit before taxation		3,986	8,907	12,893	-	-	-
Taxation		-	-	-	-	-	-
Profit for the year		3,986	8,907	12,893	-	-	-
Total comprehensive profit for the year		3,986	8,907	12,893	-	-	-
Basic earnings per share	3	4.15p	9.28p	13.43p	-	-	-

The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement are derived from continuing operations.

No operations were acquired or discontinued in the period.

Consolidated Statement of Financial Position (audited)

As at 30 September 2015

		As at 30 September 2015	As at 30 September 2014
	Notes	£'000	£'000
Non-current assets
Investment properties	4	133,033	-
		133,033	-
Current assets
Trade and other receivables		3,584	50
Cash and cash equivalents		40,985	-
		44,569	50
Total assets		177,602	50
Non-current liabilities
Loan	6	(39,458)	-
		(39,458)	-
Current liabilities
Trade and other payables		(1,558)	-
Total liabilities		(41,016)	-
Net assets		136,586	50
Equity and reserves
Called up equity share capital	7	1,283	1
Share premium		34,898	49
Capital reserve - investments held		8,907	-
Capital reserve - investments sold		-	-
Special distributable reserve		89,035	-
Revenue reserve		2,463	-
Equity shareholders' funds		136,586	50
Net asset value per Ordinary Share	8	106.49p	100.00p

Consolidated Statement of Changes in Equity (audited)

For the year ended 30 September 2015                                                                                              

		Share capital account	Share premium	Capital reserve - investments held	Special distributable reserve	Revenue reserve	Total equity
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
As at 30 September 2014		1	49	-	-	-	50
Profit and total comprehensive profit  for the year:		-	-	8,907	-	3,986	12,893
Transactions with owners recognised in equity:
Issue of Ordinary Share capital	7	1,282	129,593	-	-	-	130,875
Issue costs	7	-	(2,523)	-	-	-	(2,523)
Cancellation of share premium		-	(92,221)	-	92,221	-	-
Dividends paid	2	-	-	-	(838)	(3,871)	(4,709)
Transfer from special reserve		-	-	-	(2,348)	2,348	-
As at 30 September 2015		1,283	34,898	8,907	89,035	2,463	136,586

For the period to 30 September 2014

		Share capital account	Share premium	Capital reserve - investments held	Special distributable reserve	Revenue reserve	Total equity
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
As at 17 June 2014		-	-	-	-	-	-
Profit and total comprehensive profit  for the period:		-	-	-	-	-	-
Transactions with owners recognised in equity:
Issue of Ordinary Share capital		1	49	-	-	-	50
As at 30 September 2014		1	49	-	-	-	50

Consolidated Statement of Cash Flow (audited)

For the year ended 30 September 2015                                  

		Year ended 30 September 2015	Period to 30 September 2014
	Notes	£'000	£'000
Cash flows from operating activities
Profit before tax		12,893	-
Adjustments for:
Interest receivable		(64)	-
Interest payable		517	-
Unrealised revaluation gains on property portfolio		(8,907)	-
Operating cash flows before working capital changes		4,439	-
Increase in trade and other receivables		(3,584)	-
Increase in trade and other payables		1,558	-
Net cash inflow from operating activities		2,413	-
Cash flows from investing activities
Purchase of investment properties	4	(124,126)	-
Net cash outflow from investing activities		(124,126)	-
Cash flows from financing activities
Loan drawn down, net of costs		39,439	-
Issue of Ordinary Share capital		130,925	-
Issue costs of Ordinary Share capital		(2,523)	-
Dividends paid	2	(4,709)	-
Interest received		64	-
Interest paid		(498)	-
Net cash inflow from financing activities		162,698	-
Net increase in cash and cash equivalents		40,985	-
Opening cash and cash equivalents		-	-
Closing cash and cash equivalents		40,985	-

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 30 September 2015, 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, Investment Adviser's Review, Property Portfolio Review and Financial 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' includes a description of the Company's principal risks and uncertainties; and

·      The Annual Report includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

William Hill

Chairman

26 January 2016

Notes to the Audited Consolidated Financial Statements

1. Investment Adviser Fee

	Year ended 30 September 2015	Period to 30 September 2014
	£'000	£'000
Investment Adviser fee	942	-
Total	942	-

The Investment Adviser fee is calculated as 0.95% per annum of the net assets of the Group up to £250 million and 0.75% per annum of the net assets of the Group over £250 million. The Investment Adviser agreement may be terminated by either party by giving not less than 12 months' notice which can be served at any time following the second anniversary of admission. The Company's shares were admitted to trading in October 2014.  The agreement may be terminated earlier by the Group provided that a payment in lieu of notice, equivalent to the amount the Investment Adviser would otherwise have received during the notice period, is made.

The Group's Alternative Investment Fund Manager ("AIFM") and Investment Manager, R&H Fund Services (Jersey) Limited, was appointed on 16 October 2014. The property management arrangements of the Group were delegated by R&H Fund Services (Jersey) Limited, with the approval of the Group, to Ediston Properties Limited ("the Investment Adviser") on 16 October 2014. The Investment Adviser is responsible for the day-to-day management of the portfolio.

2. Dividends

Dividends paid as distributions to equity shareholders during the year were:

	Year ended 30 September 2015		Period to 30 September 2014
	Pence per share	£'000	Pence per share	£'000
First interim dividend paid 6 February 2015	0.9685	923	-	-
Second interim dividend paid 27 February 2015	0.4583	435	-	-
Third interim dividend paid 27 March 2015	0.4583	435	-	-
Fourth interim dividend paid 30 April 2015	0.4583	435	-	-
Fifth interim dividend paid 29 May 2015	0.4583	435	-	-
Sixth interim dividend paid 30 June 2015	0.4583	435	-	-
Seventh interim dividend paid 31 July 2015	0.4583	435	-	-
Eighth interim dividend paid 28 August 2015	0.4583	588	-	-
Ninth interim dividend paid 30 September 2015	0.4583	588	-	-
Total	4.6349	4,709	-	-

A tenth interim dividend for the year to 30 September 2015, of 0.4583 pence per share, was paid on 30 October 2015 to shareholders on the register on 23 October 2015.

A first interim dividend for the year to 30 September 2016, of 0.4583 pence per share, was paid on 30 November 2015 to shareholders on the register on 13 November 2015, a second interim dividend for the year to 30 September 2016 of 0.4583 pence per share, was paid on 31 December 2015 to shareholders on the register on 11 December 2015. A third interim dividend for the year to 30 September 2016 of 0.4583 pence per share will be paid on 29 January 2016 to shareholders on the register on 22 January 2016.

3. Total Earnings per Share

The Group's basic and diluted revenue earnings per Ordinary Share of 4.15 pence per share (2014: nil) is based on the net income for the period of £3,986,000 (2014: £nil) and 95,982,833 ordinary shares (2014: 50,000), being the weighted average number of shares in issue during the year.

The Group's basic and diluted capital gain per Ordinary Share of 9.28 pence per share (2014: nil) is based on the capital gain for the period of £8,907,000 (2014: £nil) and on 95,982,833 ordinary shares (2014: 50,000), being the weighted average number of shares in issue during the year.

The Group's basic and diluted total earnings per Ordinary Share of 13.43 pence per share (2014: nil) is based on the profit for the period of £12,893,000 (2014: £nil) and on 95,982,833 (2014: 50,000) ordinary shares, being the weighted average number of shares in issue during the year.

4. Investment Properties

Freehold and leasehold properties

	As at 30 September 2015	As at 30 September 2014
	£'000	£'000
Opening fair value	-	-
Purchases	119,658	-
Capitalised costs	4,468	-
Revaluation movement	8,907	-
Closing fair value	133,033	-

Changes in the valuation of investment properties

	Year ended 30 September 2015 £'000	Period to 30 September 2014 £'000
Unrealised gain on revaluation of investment properties	8,907	-

The properties were valued at £136,400,000 as at 30 September 2015 by Knight Frank LLP ("Knight Frank"), in their capacity as external valuers. Of the £136,400,000 Knight Frank valuation, £133,033,000 is reflected in the market value of freehold and leasehold properties and £3,367,000 is recorded as unamortised lease incentives in Trade and other receivables. The valuation was undertaken in accordance with the RICS Valuation - Professional Standards VPS4 (1.5) Fair Value and VPGA1 Valuations for Inclusion in Financial Statements, which adopt the definition of Fair Value adopted by the International Accounting Standards Board.

Fair value is based on an open market valuation ("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"), provided by Knight Frank on a quarterly basis, using recognised valuation techniques as set out in the Group's accounting policies in the Annual Report.

5. Investment in subsidiaries

EPIC (No.1) Limited is a wholly owned subsidiary of Ediston Property Investment Company plc and is incorporated in England and Wales (Company Number: 09106328). EPIC (No.1) Limited was incorporated on 27 June 2014 and began trading on 5 May 2015. On 5 May 2015, the ownership of the property portfolio held by the Company at that date was transferred to EPIC (No.1) Limited. The net asset value of EPIC (No.1) Limited as at 30 September 2015 was £95.9 million (30 September 2014: £1) and the book cost was £91.2 million. The profit of EPIC (No.1) Limited for the year to 30 September 2015 was £6.7 million (30 September 2014: £nil).

6. Loan

	As at 30 September 2015	As at 30 September 2014
	£'000	£'000
Principal amount outstanding	40,000	-
Set-up costs	(561)	-
Amortisation of loan set-up costs	19	-
Total	39,458	-

In May 2015, the Group entered into a £40 million secured 10-year term loan arrangement with Aviva Commercial Finance Limited. The loan has been fixed at an interest rate of 3.09% for the period of the loan as long as the loan-to-value ratio is maintained below 40%, increasing to 3.19% if the loan-to-value ratio is 40% or higher. The final maturity date of the loan is May 2025. The loan is secured over EPIC (No.1) Limited's current property portfolio.

Under the financial covenants relating to the loan the Group has to ensure that for EPIC (No.1) Limited:

·      The Historic Interest Cover and Projected Interest Cover, each being the passing rental income as a percentage of finance costs and generally calculated over a period of 12 months to/from the calculation date, is at least 300%.

·      The Loan-to-Value Ratio, being the adjusted value of the loan as a percentage of the aggregate market value of the relevant properties, must not exceed 50%.

Breach of the financial covenants, subject to various cure rights, may lead to the loan falling due for repayment earlier than the final maturity date stated above. The Group has complied with all the loan covenants during the year.

The fair value of the loan based on a marked-to-market basis, being the yield on the Treasury 5% 2025 plus the appropriate margin, was £40,817,000 as at 30 September 2015.

Under the terms of early repayment relating to the loan, the cost of repaying the loan on 30 September 2015 would have been approximately £42,561,000, including repayment of the principal.

7. Called-up Equity Share Capital

Allotted, called-up and fully paid ordinary shares of 1 pence par value	Number of shares	£'000
Opening balance as at 30 September 2014	50,000	1
Issue of 94,950,000 Ordinary Shares of 1 pence par value on 27 October 2014	94,950,000	949
Issue of 33,263,931 Ordinary Shares of 1 pence par value on 8 July 2015	33,263,931	333
Closing balance as at 30 September 2015	128,263,931	1,283

On 27 October 2014, the Company issued 94,950,000 Ordinary Shares at a price of 100 pence per Ordinary Share raising gross proceeds of £94,950,000. On 8 July 2015, the Company issued 33,263,931 Ordinary Shares at 108 pence per Ordinary Share raising gross proceeds of £35,925,000.

The consideration received in excess of the par value of shares issued, net of total expenses of issue of £2,523,000 (being £1,829,000 relating to the original issue and £694,000 to the further issue in July 2015), has been credited to the share premium account.

Ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the Company. All Ordinary Shares carry equal voting rights.

Capital management

The Group's capital is represented by the Ordinary Shares, Share Premium, Capital Reserves, Revenue Reserve and Special Distributable Reserve. The Group is not subject to any externally-imposed capital requirements.

The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objective. Capital management activities may include the allotment of new shares, the buyback or re-issuance of shares from treasury, the management of the Group's discount to net asset value and consideration of the Group's net gearing level.

There have been no changes in the capital management objectives and policies or the nature of the capital managed during the year.

8. Net Asset Value

The Group's net asset value per Ordinary Share of 106.49 pence (2014: 100.00 pence) is based on equity shareholders' funds of £136,586,000 (2014: £50,000) and on 128,263,931 (2014: 50,000) ordinary shares, being the number of shares in issue at the year end.

The net asset value calculated under IFRS above is the same as the EPRA net asset value at 30 September 2015.

9. Related Party Transactions and Fees Paid to Ediston Properties Limited and R&H Fund Services (Jersey) Limited

The Directors are considered to be related parties. No Director has an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Group. There are no other key management personnel, as the entity has no employees except for the Directors.

The Directors of the Group received fees for their services. Total fees for the period, including Employers' National Insurance Contributions, were £146,000 (for the period from incorporation to 30 September 2014: £nil) of which £23,000 (30 September 2014: £nil) remained payable at the year end.

Ediston Properties Limited, being the Investor Adviser, received £942,000 during the year (for the period from incorporation to 30 September 2014: £nil) of which £314,000 (30 September 2014: £nil) remained payable at the year end.

R&H Fund Services (Jersey) Limited, being the AIFM and Investment Manager, received £15,000 during the year (for the period from incorporation to 30 September 2014: £nil) of which £15,000 (30 September 2014: £nil) remained payable at the year end.

10. Contingent Assets and Liabilities

The Group acquired the units in a Jersey Property Unit Trust on 7 November 2014. Prior to the sale of the units to the Group, the seller transferred a property to another group entity by way of a distribution in specie for nil consideration. The Group has indemnified the seller should any SDLT arise as a result of that property transfer. Both the Seller's and the Group's tax advice is that there is a low probability of an SDLT liability on the transaction.

If the Group disposes of the property at Sheffield before 22 June 2016, an overage payment will be due to Capita Business Services Limited, the tenant of that property. The amount due would be 50% of the sale price of the property over £18,512,000. The valuation of the property at 30 September 2015 was £19,250,000.

11. Financial instruments

Consistent with its objective, the Group holds UK commercial property investments. In addition, the Group's financial instruments comprise cash and receivables and payables that arise directly from its operations. The Group does not have exposure to any derivative instruments.

The Group is exposed to various types of risk that are associated with financial instruments. The most important types are credit risk, liquidity risk, interest rate risk and market price risk. There is no foreign currency risk as all assets and liabilities of the Group are maintained in pounds sterling.

The Board reviews and agrees policies for managing the Group's risk exposure. These policies are summarised below and have remained unchanged for the period under review. These disclosures include, where appropriate, consideration of the Group's investment properties which, whilst not constituting financial instruments as defined by IFRS, are considered by the Board to be integral to the Group's overall risk exposure.

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 a tenant if it is in financial difficulty or otherwise unable to meet its obligations under the lease, the Group will suffer a rental shortfall and incur additional expenses until the property is re-let. These expenses could include legal and surveyor's costs in reletting, maintenance costs, insurances, rates and marketing costs and may have a material adverse impact on the financial condition and performance of the Group and/or the level of dividend cover. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Investment Adviser monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants.

Where there are concerns over the recoverability of rental income, the amounts outstanding will be fully provided for. There was no such provision recognised as there were no financial assets which were either past due or considered impaired at 30 September 2015 or at 30 September 2014.

All of the Group's cash was placed with The Royal Bank of Scotland plc ('RBS') as at 30 September 2015. Bankruptcy or insolvency of the bank holding cash balances may cause the Group's ability to access cash placed with them to be delayed, limited or lost. RBS is rated by all the main rating agencies. Should the credit quality or the financial position of the banks currently employed significantly deteriorate, cash holdings would be moved to another bank. As at 30 September 2015, Standard & Poor's credit rating for RBS was A-2 and Moody's was P-2. There has been no change in the fair values of cash or receivables as a result of changes in credit risk in the current or prior periods.

Liquidity Risk

Liquidity risk is the risk that the Group will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The Group's investments comprise commercial properties.

Property and property-related assets in which the Group invests are 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 Investment Adviser and monitored on a quarterly basis by the Board. In order to mitigate liquidity risk the Group has a comprehensive 10-year cashflow forecast that aims to have sufficient cash balances, taking into account projected receipts for rental income and property sales, to meet its obligations for a period of at least 12 months.

Interest Rate Risk

Some of the Group's financial instruments will be interest-bearing. As a consequence, the Group will be exposed to interest rate risk due to fluctuations in the prevailing market rate.

Apart from the Aviva loan as disclosed in note 6, the fair value of financial assets and liabilities is not materially different from their carrying value in the financial statements.

When the Group retains cash balances, they will ordinarily be held on interest-bearing deposit accounts. The Group's policy is to hold cash in variable rate or short term fixed rate bank accounts. 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.

Market Price Risk

The management of market price risk is part of the investment management process and is typical of a property investment company. 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 and property-related assets 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 basis of valuation of the property portfolio is set out in detail in the accounting policies in the Annual Report.

Any changes in market conditions will directly affect the profit and loss reported through the Statement of Comprehensive Income. Details of the Group's investment property portfolio held at the balance sheet date are disclosed in note 4.

12. Post balance sheet events

On 9 December 2015 the Group announced that it had exchanged contracts to acquire Plas Coch Retail Park in Wrexham for £22.4 million (net of acquisition costs). The net initial yield was 6.52%, rising to 7.35% in March 2016 on expiry of a rent-free period. The acquisition was funded from existing cash resources. The transaction completed during December 2015.

Plas Coch is a well-located retail park, totalling 94,000 sq ft, adjacent to a Sainsbury's supermarket and an Aldi foodstore. It is let to seven national tenants and benefits from a weighted average unexpired lease term (WAULT) in excess of 10 years.

13. Financial Statements

These are not full statutory accounts.  The report and financial statements for the year to 30 September 2015 will posted to shareholders and made available on the website: www.ediston-reit.com . Copies may also be obtained from the Company Secretary, R&H Fund Services Limited, 20 Forth Street, Edinburgh, EH1 3LH.

 

END

 

 

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