FULL YEAR RESULTS AND NOTICE OF AGM

RNS Number : 7784I

Ediston Property Inv Comp PLC

16 December 2020

 

Ediston Property Investment Company plc

(the 'Company')

(LEI: 213800JRL87EGX9TUI28)

FULL YEAR RESULTS AND NOTICE OF AGM

Ediston Property Investment Company plc (LSE: EPIC), a UK-listed Real Estate Investment Trust (REIT) investing in commercial property throughout the UK, announces its full year results for the year ended 30 September 2020.

The Company also announces that its 2021 Annual General Meeting will be held on Tuesday, 23 February 2021 at 2.00 p.m. at the offices of Ediston Investment Services Limited at 1 St Andrew Square, Edinburgh, EH2 2BD .

The Company's Annual Report and Financial Statements for the year ended 30 September 2020 and the formal Notice of the Annual General Meeting will be posted to shareholders and in accordance with Listing Rule 9.6.1 copies of the documents have been submitted to the UK Listing Authority and will shortly be available to view on the Company's corporate website at   https://www.epic-reit.com/literature/ and have also been submitted to the UK Listing Authority and will be shortly available for inspection from the National Storage Mechanism at: https://data.fca.org.uk/#/nationalstoragemechanism  

The Company is required by law to hold an AGM within six months of its financial year end. Given the unprecedented circumstances, the Board will host the AGM but with contingency arrangements that mean that the AGM will not follow its usual format.  Only the statutory, formal business (consisting of voting on the resolutions proposed in the Notice of AGM) to meet the minimum legal requirements will be conducted and the AGM.

Given the social distancing measures currently in force and in light of the latest published government guidance and pursuant to the Corporate Insolvency and Governance Act 2020, proceeding with a "technical" AGM is in the best interests not only of the Company, but also of each of its individual shareholders. If circumstances change and if social distancing measures are relaxed before the AGM, the Company will notify shareholders of any changes to the proposed format for the AGM via RIS and its website https://www.epic-reit.com Full details of the measures implemented by the Company to allow for the orderly conduct of the AGM can be found in the Notice of AGM.

Year to 30 September 2020:

Operational

· Dividend cover for the year was 118.9%.

· 12 lease transactions completed with a contracted rent of £1.6 million per annum.

· Asset management activity on 8 out of 10 retail warehouse sites.

· Started construction of the retail park at Haddington, which on completion in June 2021, will deliver £875,000 of additional rent per annum.

· Rent collection, which was affected by COVID-19, has improved as the year progressed, resulting in 89.3% of the rent billed for the year being collected, rising to 97.2% when deferred rent is paid back.

· Post-period end, two developments were completed securing £232,500 of additional rent per annum.

Financial

	2020	2019	2018
Total assets	£294.7m	£342.2m	£356.6m
NAV total return	-16.6%	-0.8%	8.9%
EPRA vacancy rate	5.1%	2.9%	5.7%
Weighted average unexpired lease term	5.7 years	6.1 years	6.6 years
EPRA NAV per share	86.01p	108.7p	115.3p
Annualised dividend per share	4.88p	5.75p	5.75p

Key Performance Indicators

	2020	2019	2018
NAV total return	-16.6%	-0.8%	8.9%
Annualised dividend per share	4.88p	5.75p	5.75p
Average discount of share price to NAV	-33.2%	-11.6%	1.6%
Share price total return	-35.3%	-17.0%	7.7%
EPRA vacancy rate	5.1%	2.9%	5.7%
Ongoing charges	1.4%	1.4%	1.3%

William Hill, Chairman of the Company, said:

"My report last year was headed 'challenges and opportunities'. The challenges are far from over. However, with bigger challenges come bigger opportunities. We remain confident that our Investment Manager's active portfolio management style and the positioning of our current portfolio will enable us to exploit these opportunities as they arise and will provide a strong investment platform on which to progress over the medium to longer term."

Calum Bruce, Investment Manager, said:

"Over the period, in the retail warehouse portfolio, 12 lease transactions with a contracted rent of £1.6 million have completed. The fact that tenants are still committing to new leases on the Company's retail warehouse assets, despite the challenges in the wider retail market, shows that the underlying fundamentals of the retail parks remain sound and are still attractive for tenants."

Enquiries
Will Barnett	Investec Bank plc	0207 597 5873
Calum Bruce	Ediston Properties Limited	0131 225 5599
Ruth Wright	JTC	0203 893 1011
Ben Robinson	Kaso Legg Communications	0203 995 6672
Stephanie Ross	Kaso Legg Communications	0203 995 6676

Chairman's Statement

OVERVIEW

This has been the most challenging year for the Company since its inception in late 2014. The NAV has declined, the discount to the NAV has widened and the dividend has been cut in response to the difficulties of collecting rent from tenants protected by COVID-19 legislation. The Company and its management have been fully tested. However, beneath the starkness of the financial headlines, the Company has demonstrated resilience and there are a number of positives which augur well for the future.

Within the portfolio the Investment Manager has continued to deliver asset management initiatives that show ongoing occupational demand for the assets we hold, manufactured new income from development activity, achieved rent collection levels above market averages and has taken significant steps forward with the sustainability strategy which resulted in the Company winning an EPRA award.

Good business continuity planning enabled the Company to maintain full operational integrity during the year. Various corporate initiatives have been taken forward including a refresh of the Board and director responsibilities, a review and change of Company Secretary and Administrator and the acceptance of an innovative proposal from our Investment Manager following our annual review of all of our agents. These initiatives are described more fully in this report.

My report last year was headed 'challenges and opportunities'. The challenges are far from over. However, with bigger challenges come bigger opportunities. We remain confident that our Investment Manager's active portfolio management style and the positioning of our current portfolio will enable us to exploit these opportunities as they arise and will provide a strong investment platform on which to progress over the medium to longer term.

INVESTMENT AND SHARE PRICE PERFORMANCE

Based on the headline numbers the Company's investment performance over the year can only be regarded as disappointing. The NAV per share has declined by 20.9%, the discount to NAV widened to 40.8% at the year end and the monthly dividend rate has been cut by 30.4%. Yet beneath the headlines a more complex and encouraging picture emerges.

Most of the value decline took place in the retail warehouse part of the portfolio. The main factor was a rise in retail investment yields with investors anticipating increases in vacancy levels and a permanent diminution in retail rents. Whilst this has indeed been the case for large parts of the retail market the Investment Manager has long argued that not all retail is the same. The evidence can be seen in the Company's portfolio by the strong trading performance of a number of tenants, for example B&Q, B&M, Tesco and Halfords, the low levels of vacancy, the encouraging number of lease transactions completed, the robustness of the Company's income collection and the strength of the contracted rent roll.

It is clear the pandemic has accelerated the rate of change in how and where people shop. Increasing numbers of consumers used on-line shopping during lockdown and have not returned in numbers to the high street and shopping centres. However, reinforcing the point that not all retail is the same, the exception is retail warehousing where footfall was within 10% of pre-crisis levels before the second lockdown was implemented. Retail warehousing is benefitting from the less congested layouts (which suit social distancing requirements) and is the best placed of all the retail sub-sectors to support retailers' omnichannel strategies through online sales and click and collect.

These nuances in the retail market were ignored when the Company's share price fell by 40.4% in the market turmoil at the onset of the COVID-19 crisis. The share price reached a low point of 40.0 pence per share on 14 May 2020. It recovered 27.3% by the financial year end, reflecting a discount to the 30 September NAV of 40.8% and an average discount through the year of 33.2%. The total return, taking into account dividends paid, was therefore -35.3% based on share price movement and -16.6% on NAV movements. Since the year end, the share price has continued to recover, closing at 71.0p on 11 December 2020.

PORTFOLIO ACTIVITY

12 leasing transactions were completed during the year and five shortly after the year end. Activity has been predominantly in the retail warehouse portfolio but did include an important office lease restructure. Perhaps counter intuitively, there was more activity in the second half of the year, after the COVID-19 pandemic had been declared, than the first. These transactions are discussed in more detail in the Investment Manager's review. However, I want to bring out some key points to illustrate the strength of the retail warehouses parks and other assets owned by the Company:

-  There was asset management activity on eight of the ten retail warehouse parks.

-  Six lease transactions were completed at Widnes Shopping Park, all during the pandemic.

-  CVAs can be an opportunity. At Widnes, the CVA of Arcadia led to a letting to JD Sports, through proactive asset management.

-  Two developments were completed on the parks generating £232,500 of new income per annum and a return on cost of around 8%.

-  The development of the retail park at Haddington commenced. On completion it will generate £875,000 of additional income per annum, with all except one small unit pre-let, and a projected return on cost of approximately 8%.

-  Jack's, the value fascia for Tesco, signed an Agreement for lease on a vacant 15,000 sq. ft. unit on Kingston Retail Park in Hull.

-  AXA regeared and restructured its leases at the office, St Philips Point, in Birmingham.

-  B&M has expanded its occupation at Sunderland by 10,000 sq. ft.

EPRA defined vacancy levels in the portfolio have risen from the exceptionally low base of 2.9% last year to 5.1% at the year end. Whilst this may rise further, this is still well below the typical reported vacancy rates in portfolios in the sector and encouragingly is lower than the reported vacancy at the June quarter.

RENT COLLECTION

The rent collection process has been more challenging following the onset of the pandemic. By the end of the year 89.3% of the rent billed had been collected compared to the 99.5% collected in the previous year. This is a strong result given the exceptional challenges faced by the Company and the inability to use normal legal proceedings to recover arrears. Once deferred rent is paid back via repayment plans, we expect to collect 97.2% of the billed rent for the year ended 30 September 2020. The Investment Manager devoted substantial effort and time to rent collection and arrears recovery, engaging regularly with the Company's tenants to ensure as much of the contracted rent as possible was collected. Where rent was not immediately forthcoming, repayment and deferment plans were agreed.

INVESTMENT STRATEGY

Throughout the year the Board has watched closely the continued disruption in the retail sector and the negative impact this was having on the Company's share rating and NAV. The Investment Manager has consistently argued that bricks and mortar retail is changing, not dying, and that the Company's retail assets are on the right side of the changes taking place. The Board remains supportive of the Investment Manager's strategy to continue investing in the convenience and bulky goods led part of the retail warehouse sector and believes that this will pay off in the longer term. The Board was supportive during the year of increasing the commitment to the sector by taking advantage of attractive income returns from undertaking development projects at Coatbridge, Barnsley and Haddington.

The longer-term investment strategy was reviewed in the Autumn. We took a step back and reviewed the market more generally and considered the ongoing impact of COVID-19 and its longer-term consequences on real estate markets. The Board and Investment Manager also considered the potential impact of global mega trends affecting the economy and society, including the growing importance of sustainability. Our conclusion was that the standout part of the market, based on current pricing, was the sector in which the Company is predominantly invested.

The Board also carried out a detailed assessment of the investment objectives and risk parameters of the Company and concluded that no changes were required.

GEARING AND CASH RESOURCES

The Company's total debt is unchanged at £111.1 million at a blended 'all-in' fixed rate of 2.86%. The loans do not mature until 2025 and 2027. Gearing at 30 September 2020 was 37.6% of total assets, a small increase due to the fall in NAV but within investment policy limits and covenants. Our borrowing covenants, on both income and capital, are still well covered. As at 30 September 2020, the Company held £20.5 million of cash on its balance sheet, including £8.2 million drawn under the debt facility.

The Company had total assets of £294.7million and net assets of £181.8 million, as at 30 September 2020. The Company is almost fully invested with identified uses for existing cash. The Board considers there are sufficient cash resources to complete the construction of Haddington, as well as to undertake further asset management initiatives and meet the operational needs of the Company.

DIVIDENDS

The first six of the monthly dividends were maintained at an annualised rate of 5.75 pence per share. The timing of the lockdown coincided with the start of the second half of the Company's financial year. From this point the financial impact of the pandemic on tenants and the suspension of the rights for landlords to recover arrears had an adverse effect on the Company's cash flow. The Board and Investment Manager reviewed cash projections and financial sensitivities in detail and concluded that it would be prudent to re-examine the dividend pay-out level.

It was decided to continue to pay monthly dividends, but at a rate which matched the level of cash received rather than due. The monthly dividend paid in May was reduced by 30.4% to an annualised rate of 4.00 pence per share. This rate has been maintained for the remainder of the financial year and for dividends paid since the year end.

The total dividends for the year equates to 4.88 pence per share. Rent collection has exceeded initial expectations with the dividend being well covered for the year at 118.9%. As at 30 September 2020, the cash dividend cover was 139%. The Board would like to re-build the dividend and will do so if rent collection remains at least at current levels and if it is prudent to do so. The Board will also factor in the REIT distribution requirements to maintain REIT status.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)

The sustainability agenda is moving from a narrative about minimising harm to one where stakeholders expect their capital to do good. In addressing the challenges relating to climate change, the erosion of planetary resources and social injustice, all of which lie at the heart of the UN Sustainable Development Goals, this can only be a good thing. In the foreseeable future returns may well be measured not just in financial terms but also taking into account environmental and social impact. By reporting against the GRESB benchmarking the Company is already moving in this direction.

The Company has made significant progress in its commitment to sustainability during the year. We established a working group alongside the Investment Manager, and the Company employed Savills to help us review and suggest improvements to our policies and to give us the confidence to 'raise the bar' on our objectives. We undertook a Materiality Assessment to help guide the setting of our priorities and an updated sustainability policy and set of objectives were published on 30 July. The progress that the Company has made on ESG issues during the period has been recognised externally, most notably by being awarded the EPRA Sustainability Best Practice Recommendations Gold Award and receiving its Most Improved Award for 2020.

CORPORATE MATTERS

Management Engagement Committee

Following the annual review, the Management Engagement Committee received an innovative and constructive proposal from the Investment Manager which the Board accepted. It falls into four parts:

-  future investment by the Investment Manager in the ordinary shares of the Company each quarter, for a period of three years, equating to 20% of the quarterly management fee;

-  a quarterly contribution of £10,000 (£40,000 per annum) towards the overall management costs of the Company through a reduction of the management fee;

-  a new tier to the management fee for net assets over £500 million, lowering the fee from the previous tiered fee of 0.75% to 0.65%; and

-  clarification of management resource to be applied to the Company, which has resulted in some minor amendments to the Company's management agreements.

These proposals help align interests, with the closing of the discount to NAV over the coming periods being a key objective for the Company, demonstrate ambition for growth and secure a contribution to the Company's operating costs.

Following a full review process, the Company appointed JTC (UK) Limited as Company Secretary and Administrator replacing Maitland Administration Services (Scotland) Limited from 29 January 2020.

I would like to thank our Investment Manager and all the agents to the Company for their committed efforts during this difficult year.

Marketing Committee

During the year, the Company reduced its marketing spend as part of its response to control costs after the onset of the pandemic. The overall marketing strategy is to continue to build awareness of the Company's activities and to improve communication with retail investors. Retail investors have increased during the year from 3.9% to 8.2% of the Company's register which is encouraging progress but still lower than we would like.

The Board believes that allocating resources to marketing is in the interests of shareholders and will resume marketing activities when efficient to do so. The main focus of activities has been on effective communication with our existing shareholders and other stakeholders in the Company. In the last month or so I have met with shareholders representing 58% of the register, and over the year the Investment Manager has met with most of the register it can reach. We will continue to communicate openly with our shareholders, who have proven loyal to the Company during this challenging time, and for which we are immensely grateful. We hope that we can repay this with a more positive total return and outlook in the future.

Long-term Growth Strategy

Despite the importance during the year of looking after the short term, the Board and the Investment Manager have not done so at the expense of planning for the future. We would like to be able to raise funds for new projects and the Investment Manager is confident of finding suitable opportunities were this to be the case. However, the significant reduction in the share rating during the year is currently a barrier for the Company to continue the growth in its equity base. Growth remains a strategic objective of the Company for the reasons of diluting the fixed costs, improving share liquidity and broadening the investment opportunity.

B oard

Board membership and individual director responsibilities underwent change during the year. Imogen Moss replaced Robert Dick, who stood down from the Board on 31 March. Imogen, the former global head of real estate at Allen & Overy LLP, brings substantial corporate real estate legal experience to the Board.

Imogen has become chair of the Management Engagement Committee and joins me on a newly established Sustainability Working Group, which is an important part of the Investment and Property Valuation Committee's activities. Jamie Skinner will continue as chair of the Marketing Committee and has taken on responsibility for the Remuneration and Nomination Committees. Robin Archibald, the Senior Independent Director, has taken on the Audit and Risk Committee chair, an area where he has considerable experience and expertise.

Board remuneration was due to be reviewed this year after a three year freeze. However, given the difficult year, the Remuneration Committee proposes to extend the freeze in base director remuneration into a fourth year. After discussions in the Remuneration Committee, excluding Robin Archibald, it was agreed that Robin should receive £10,000 additional remuneration per quarter starting in the new financial year. This additional remuneration, to be reviewed annually, reflects the valuable and considerable input Robin will continue to provide on all manner of the Company'scorporate affairs. This additional remuneration is fully supported by all the other Board members and the Investment Manager. By virtue of the change to the Investment Manager's fee to reduce the costs of managing the Company, the additional remuneration will be cost neutral to the Company. Supportive external advice was received on the remuneration and on Robin's ability to continue in his existing independent non-executive roles for the Company. A number of the major shareholders were consulted on the remuneration proposals generally and no objections were raised . The full rationale for this is detailed in the Remuneration Report.

Annual General Meeting

Due to the measures imposed by the UK Government to control the spread of COVID-19, this year's AGM will be held in a 'restricted format' on 23 February 2021. It will not be possible under the current restrictions for shareholders to physically attend the meeting. Shareholders will be able to submit questions in advance through the Company Secretary. This year there will be a presentation by the Investment Manager which can be viewed on the Company's website in advance of the AGM.

The Board believes that all of the resolutions being proposed are in the best interests of the Company and its shareholders and encourages shareholders to vote by proxy in favour of the resolutions, as the Board intends to do in respect of their own shareholdings.

OUTLOOK

"It is a bold and possibly foolish chairman that would make an unequivocal statement about the future direction of markets over the next 12 months." My words from last year seem just as appropriate this year given the uncertainties that lie ahead.

Some of the risks from last year remain but one that was not foreseen 12 months ago was the COVID-19 pandemic. The positive reporting about progress on vaccines is encouraging but it is likely that we are going to continue to live with measures to prevent the spread of the virus for some time to come.

What does this mean? For real estate it is much more than just economics. COVID-19 is making us rethink how we live, work, shop and play. Irrespective of whether the economy gets back to where it was, we will be using real estate in a different way to that pre-crisis. Some of the change was already in the pipeline. Mega trends relating to the climate crisis, demographics, digitalisation, disruption from new technologies (such as robotics), the emphasis on health and well-being and the circular economy were all there before. The post COVID-19 'reset' will accelerate the pace of many of these changes. Other changes will be new and reflect risk management against future pandemics. As owners of real estate we want to be on the right side of these changes by holding assets that are likely to both show resilience to short term economic volatility and the ability to generate attractive long term performance from current valuations.

The Board remains positive about the Company's exposure to its retail warehouse focussed portfolio. It has a high proportion of essential retail tenants, a defensive convenience led bias, rents at affordable levels and it fits well into the new retail economy, including retailers' omnichannel strategies. Our Investment Manager is a highly experienced and skilled operator who specialises in asset management and will continue to extract maximum value from the entire portfolio. I also believe our corporate changes are all positive and align with shareholder interests.

Despite its difficulties, UK real estate remains competitively priced on international comparisons, produces an attractive yield relative to other asset classes and clearly has a place in balanced portfolios. It has been a very difficult year; it may remain difficult for a while longer but there is light at the end of the tunnel.

William Hill

Chairman

Investment Manager's review

The first half of the financial year was influenced by the political uncertainty of Brexit and the general election, with the second half dominated by the COVID-19 pandemic.

At the start of the Company's financial year in October 2019, ongoing political events were causing concern. However, the decisive general election result in December 2019 and clarity over Brexit gave the market confidence. Investment volumes, which had been subdued during Q4 2019, increased.

The Company was also navigating a path through the evolution of the retail market as tenants grappled with the issues facing their businesses, particularly in town centre locations. As the wider retail market changed, it was becoming clear that retail warehousing, which accounts for 61% of the Company's portfolio, was emerging as a 'winning' sub-sector of the retail market. Valuation declines were starting to level off and there was renewed investor interest, driven by the attractive yields and perceived sustainable income streams on offer.

The onset of the COVID-19 pandemic halfway through the reporting period stopped that recovery. The national lockdown and restrictions on personal movement represented an unprecedented challenge to all parts of the UK commercial property market, as occupiers and users of property were forced to change how they used, or even could use, buildings. It also accelerated the structural changes that had started to slow in the retail market and introduced a new set of challenges for the Company, chiefly with regards to rent collection.

Rent collection

With an enforced national lockdown preventing tenants from trading, some chose to withhold rental payments from landlords. This resulted in a significant drop in rent collected by the due date each quarter. In the first week of the quarter ending 30 June, just 69% of the rent due had been collected. This figure increased to 74% for the quarter ending 30 September and, for the quarter ending 31 December, 88% had been collected. By the end of each quarter, the rent collection improved to 79% for the quarter ending 30 June and 91% for the quarter ending 30 September. If rent deferment and repayment plans are considered, the rent collection numbers will increase to 86% and 94% for the quarters ending on 30 June and 30 September, respectively. For the Company's financial year, 89.3% of the rent billed was collected.

Rent collection is forecast to reach 94% for the quarter ending 31 December (rising to 97% when deferments are factored in), the first quarter of the Company's new financial year. This is a positive, improving picture, but anticipated rent collection for each quarter is still below pre-COVID levels. The position for commercial property in the UK was not helped by the Government's moratorium on the use of rent arrears recovery methods which are usually available to landlords. This removed any 'teeth' landlords had to recover arrears.

There were tenants in financial distress and the Company has worked with them to find a way through the crisis. However, there were (and still are) several well-funded tenants who are using the situation to their advantage and are refusing to pay rent.

As a consequence of COVID-19, the second half of the reporting period was dominated by rent collection. Rent deferment and repayment plans were agreed with several tenants and regular contact was made with all tenants to ensure that as much rent as possible was collected.

Cash collection and cost management became key discussions with the Board, with the aim of preserving cash for operational purposes and ensuring any dividend was fully covered by rent collected. This resulted in the rate of monthly dividends being reduced by 30.4% in May 2020, to a sustainable annualised rate of 4.00 pence per share. The dividend, at the new annualised rate of 4.00 pence per share, has been paid monthly since this date and there is a growing margin of cover. The Company continues to monitor this closely. As at 30 September 2020, the cash dividend cover was 139%.

Property valuation

The Company's property portfolio is valued by Knight Frank on a quarterly basis. As at 30 September 2020 it was valued at £273m, a like-for-like decrease of 14.5% over the reporting period.

The decline in property value was principally driven by the market-wide negative sentiment towards the retail sector, which was magnified by the COVID-19 pandemic. Valuation declines seen over the first part of the reporting period were beginning to level off at the start of 2020 but concerns over rent collection and the economic impact of the pandemic took hold, resulting in further reductions in values.

The Company has no exposure to high street or shopping centre assets which have been the hardest hit. However, its retail warehouse assets have suffered from the contagion from the wider retail sector. This was despite retail warehousing demonstrating greater resilience during lockdown, with many tenants allowed to remain open for trade. The Company's two leisure assets (1.8% of the portfolio), which are let to bingo operators, have also seen valuation declines during the period as the leisure sector struggled during lockdown and fell out of favour with investors. As a result, over the year, the NAV per share, which includes the impact of gearing, has declined by 20.9%, as valuers hit both ERVs and yields in the retail warehouse and leisure sectors hard.

As the period progressed, the attributes of out-of-town retail parks, which the Company has been championing for some time, started to be recognised by the wider market.

The open space, ease of access and flexible units means out-of-town retail parks can more easily adapt to the requirements of social distancing and lockdown restrictions. During the first lockdown, 56% of the Company's retail warehouse income came from tenants who were classed as 'essential' by the Government, so could stay open for trade. Shortly after lockdown restrictions were eased, 97% of the Company's retail warehouse space was fully open for trade. During the second lockdown 89% of the Company's retail warehouse floorspace was either open or offered a click and collect service.

As the initial period of restrictions eased in the summer, footfall on retail warehouse parks recovered more quickly compared to the high street and shopping centres. Footfall on retail parks was approaching 90% of 2019 levels, compared to 65% for the high street and 68% for shopping centres, before the second lockdown in England and 'fire-break' in Wales were implemented. These new restrictions caused a short-term drop in footfall, but it did recover once restrictions were lifted. It should also be remembered that during lockdown, retailers deemed to be providing 'essential services' are permitted to stay open for trade and others are permitted to operate on a 'click & collect' basis. Many of these services are provided from out-of-town retail parks so it is likely that retail warehouse footfall will be more resilient than that on the high street and in shopping centres.

The Company remains confident that its assets are well-located and despite the severe tests put on them in the last year, should remain capable of providing attractive income and capital returns over the longer term.

Offices

The Company's office portfolio has provided reliable income during the year, including in the lockdown phase. Whilst this is positive, the prolonged period of enforced working from home will undoubtedly cause many office occupiers to question how much space they need, and where they need it. Unlike the retail sector where changes are more immediate, the changes in the office market will be more gradual and could drip feed into the market over the next few years. Office tenants are less likely to use insolvency proceedings to shed surplus space and reduce costs in the short term. They are more likely to review their occupational requirements when they have lease breaks or expiries. It is at this time space could be returned to landlords.

The Investment Manager believes that this is not the 'death of the office', but there will be changes, even when the impact of COVID-19 recedes. The challenges of commuting, an increase in agile working and the ability to work from home, will affect how office space is used in the future.

Going forward, flexibility, both in terms of the structure of leases offered to tenants and the floorplates of the buildings to accommodate them, will be key to securing deals. Buildings which have floorplates which can be split or have floors of different sizes which can meet changing size requirements will have an advantage. More than ever, buildings will need to be fit for purpose with wellness and sustainability factors higher up the list of occupiers' requirements.

The Investment Manager is confident that the Company's office assets will be able to accommodate the changing needs of occupiers.

Engaging early with tenants, fully understanding their needs, and working with them to deliver a satisfactory solution will be crucial to successfully managing office assets in the future. This is an approach the Company has used to its advantage before and there is a recent example more fully described in the asset management section below.

Insolvency events

The prolonged period of lockdown accelerated the demise of several businesses, especially those who were struggling prior to the pandemic. A number of CVAs have been approved and many companies have been placed directly into administration.

The Company has not been immune to this. Over the year it has been negatively affected by six CVAs or administrations. The expected loss of rent from these insolvency events equates to 6.1% of the contracted rent roll. All the CVAs have given landlords the option to break the leases and the Company will seek to exercise these when suitable alternative tenants to occupy the space have been identified.

Tenant covenant profile

Dun and Bradstreet risk of business failure rating. Tenant income as a percentage of the portfolio income.

Property portfolio as at 30 September 2020

Location	Name	Sub-sector	Market value range (£m)	Tenure
Office
Birmingham	St Philips Point	Office - Rest of UK	30-35	Freehold
Newcastle	Citygate II	Office - Rest of UK	20-25	Leasehold
Edinburgh	145 Morrison Street	Office - Rest of UK	10-15	Heritable
Bath	Midland Bridge House	Office - Rest of UK	5-10	Freehold
Retail WAREHOUSE
Prestatyn	Prestatyn Shopping Park	Retail Warehouse (48%) Supermarket (52%)	50m+	Freehold
Widnes	Widnes Shopping Park	Retail Warehouse	30-35	Leasehold
Hull	Kingston Retail Park	Retail Warehouse	20-25	Freehold
Sunderland	Pallion Retail Park	Retail Warehouse	15-20	Freehold
Wrexham	Plas Coch Retail Park	Retail Warehouse	15-20	Freehold
Coatbridge	B&Q	Retail Warehouse	15-20	Heritable
Rhyl	Clwyd Retail Park	Retail Warehouse	10-15	Freehold
Barnsley	Barnsley East Retail Park	Retail Warehouse	5-10	Freehold
Daventry	Abbey Retail Park	Retail Warehouse	10-15	Leasehold
Leisure
Telford	Mecca Bingo	Leisure	0-5	Freehold
Hartlepool	Mecca Bingo	Leisure	0-5	Freehold
Development
Haddington	Haddington Retail Park	Development (pre-let)	0-5	Heritable

It has been an extremely challenging year, but this has not stopped the Company from delivering multiple asset management deals. Over the period, in the retail warehouse portfolio, 12 lease transactions with a contracted rent of £1.6 million have completed.

Interestingly, 75% of these deals completed during the COVID-19 pandemic. This underscores the solid fundamentals of the property portfolio and proves that the right assets in the right locations do have a future. As ever, affordability of rent is important for tenants and helps secure new deals. The average rent of the Company's retail warehouse portfolio is £15.17 per sq. ft., a level from which tenants, with business models relevant to today's market, can trade profitably. However, the average rent per sq. ft. of the deals completed in the year was £16.87 per sq. ft.

During the year, ten lease events where existing tenants recommitted to our retail parks were completed. This secured £1.3 million of income per annum across the retail parks at Hull, Rhyl, Prestatyn, Widnes and Wrexham. Deals were completed with national tenants Boots, Curry's (twice), Costa Coffee (twice), KFC, Mamas & Papas, Next, River Island and SportsDirect. This shows that demand is coming from all different types of retailer. The weighted average unexpired lease term (WAULT) of these deals is 5.6 years, which is in line with the WAULT of the Company.

Tenants for vacant units have also been secured. The Company completed a new letting to JD Sports at Widnes Shopping Park and signed an Agreement for Lease (AFL) with Jack's, Tesco's value fascia, at Kingston Retail Park in Hull. These secure £0.3 million of income per annum across 21,792 sq. ft. of vacant space.

Jack's will enter a 10-year lease with a five-year break option on the 15,000 sq. ft. unit which was vacated by Mothercare earlier this year. The AFL is conditional on Jack's obtaining a liquor licence and planning consent for minor works to the unit.

JD Sports signed a ten-year lease with a five-year break option on a newly created unit of 6,792 sq. ft. The Company exercised its break option in the lease to Arcadia and divided its unit in two, to facilitate the JD Sports letting. The construction works were completed during lockdown, ahead of schedule, allowing the lease to JD Sports to complete. The rent being received from this tenant is 75% of the rent which was being paid by Arcadia on the whole unit, meaning the combined rent roll of the two units, when the remaining 6,006 sq. ft. is let, will be greater than the rent being paid by Arcadia under the CVA. The Company is working to identify a suitable tenant who will enhance the tenant line up on the park.

The fact that tenants are still committing to new leases on the Company's retail warehouse assets, despite the challenges in the wider retail market, shows that the underlying fundamentals of the retail parks remain sound and are still attractive for tenants.

Post period end, at Pallion Retail Park in Sunderland, the Company completed a transaction with B&M. B&M has agreed to upsize from its current unit of 20,000 sq. ft. into a vacant unit of 30,000 sq. ft. B&M will pay an annual rent of £400,000 and the lease will expire in 2032. This is the third time the Company has been able to accommodate B&M's expansion on its retail parks, having completed similar deals at Hull and Barnsley in prior years.

In its office portfolio, at St Philips Point in Birmingham, the Company completed a lease restructure with existing tenant AXA Insurance UK plc. AXA has committed to 27,990 sq. ft. of space across three floors, including the refurbished first floor which extends to 14,208 sq. ft. AXA now occupies three floors instead of five and has reduced the amount of floorspace it leases by 5,005 sq. ft. One floor has a break option in 2022, one has a break option in 2023, but the largest floor is leased for a term certain of five years. The Company had to work with the tenant to identify a solution which offered flexibility to deal with the challenges posed by COVID-19. This transaction secures £687,696 of rental income per annum.

In addition to these deals, the Company has progressed its development programme, including the commencement of the construction of a retail park in Haddington.

Summary and outlook

This has been an extremely challenging year for the Company and the UK commercial property market. There will be further obstacles to navigate as the COVID-19 pandemic evolves, and other uncertainties to overcome, such as Brexit. It will be important to be on the right side of the structural changes that have been accelerated in both retail and office markets.

It is likely that localised restrictions and lockdowns will be in place for at least the short term, and it remains to be seen how tenants react to these and how it will affect rent collection, particularly in the retail sector. Offices will not be immune to change and it will be interesting to see how office occupiers interact with their space, and how that affects their size requirements when they have lease breaks or expiries. It will be as important as ever to maintain a regular dialogue with all tenants to ensure that solutions can be provided for their changing needs.

There are signs that the investment market, which shunned retail earlier in the period, is again looking at retail warehousing as an asset class worth investing in. The market is starting to appreciate the attributes of convenience led, out-of-town retail warehouse parks and the fact that it should not be lumped together with the high street and shopping centre sub-sectors. If this continues, there is a prospect of some recovery starting in 2021 for retail warehousing.

The focus remains on income, not just in terms of rent collection which has improved each quarter since its decline in quarter 2, but also through active asset management of the portfolio. The Company has again demonstrated that despite the challenges being faced by the property market it is still able to complete asset management initiatives which help to minimise vacancy, mitigate valuation declines, and importantly secure income for the Company. It is not the time to batten down the hatches and wait for the recovery to occur. COVID-19 has changed the perspective and every effort is being made to ensure the Company is on the front foot and able to move quickly to make things happen.

Calum Bruce

Investment Manager

Finance review

The past financial year was, as a result of COVID-19, split into two distinct halves, the latter half being a testing period for the Company. The focus on intensive asset and cash flow management has been crucial in these challenging circumstances. The majority of the Company's income has proved to be resilient which is demonstrated by the rent collection statistics for the year.

This report summarises the financial performance for the year and provides statistics which illustrate how the Company has performed during the year.

Income statement

The increased focus on asset management and letting activity in the year resulted in £1.6 million of rental income being secured. This contributed to rental income for the year of £19.8 million (2019: £20.8 million). This decrease of £1.0 million was largely as a result of lease expiries, tenant administrations and CVAs in the year. Revenue expenditure in the period was £4.0 million, including £0.5 million of property specific expenditure, £0.7 million of bad debts and £1.9 million relating to the Investment Manager's fee. Net interest costs were £3.2 million, all similar to the prior year. As a result, revenue profit decreased to £12.6 million (2019: £14.1 million), a fall of 10.6% from 2019.

The value of our investment properties decreased by £50.0 million in the year, which resulted in the Company reporting a total loss of £37.4 million. A decline in the valuation of the retail warehouse properties, as a result of negative sentiment towards the retail sector, was the principal reason for the valuation decline. Asset management over the period (which saw 12 lease transactions complete) helped to minimise the impact on the Company. Net financing costs remained at the same level for the year and the covenants on income and capital remained well-covered. There was a modest reduction in administration costs, and this was despite a change of administrative agents during the year and increased activity with all the external advisers.

	2020 (£m)	2019 (£m)
Rental income	19.8	20.8
Property expenditure	(1.2)	(0.4)
Net rental income	18.6	20.4
Administration expenses	(2.8)	(3.2)
Net financing costs	(3.2)	(3.1)
Revenue profit	12.6	14.1
(Loss)/Gain on revaluation of investment properties	(50.0)	(15.8)
Accounting (loss)/profit after tax	(37.4)	(1.7)
EPRA and diluted EPRA earnings per share	5.90p	6.66p
Dividends per share	4.88p	5.75p
Basic and diluted earnings per share	(17.70p)	(0.83p)

Rent

Contracted rent was £20.2 million (2019: £21.4 million) per annum at the year-end and was negatively impacted by a number of CVAs and administrations. The primary focus since the onset of COVID-19 has been on rent collection and providing assistance to tenants in financial difficulty.

During the year, 89.3% (2019: 99.5%) of rent billed in the year was collected. Of the 10.7% of rent outstanding at the year-end, 52.6% is expected to be collected shortly. Payment plans have been agreed for 21.6%, with the remaining 25.8% due from tenants in administration or CVAs, the majority of which has been provided for as bad debts at the year end. Once deferred and expected rent is paid, the rent collected for the year will rise to 97.2%.

Rent free periods as a percentage of contracted rent at the year-end was 1.6%. 85.5% of the Company's income was from tenants classed by Dun & Bradstreet as having a minimal or lower than average chance of business failure, highlighting further the strength of the portfolio's income.

The portfolio continues to provide long term stability to the Company's income. The EPRA vacancy rate has increased to 5.1% from 2.9% in 2019 due to the expiry of leases and the surrender of units from tenants in administration. The WAULT in the year was 5.7 years (2019: 6.1 years) and the decrease can be explained by the passing of another year, offset by the asset management activity.

COVID-19 has challenged rent collection this year. However, the diversification of tenants, the number of 'essential retailers', office tenants who managed to trade throughout lockdown measures, the relatively low vacancy levels and the cash collected from tenants, all provide comfort with regard to the resilience of the income.

EPRA performance measures

As a member of EPRA, we support EPRA's drive to bring consistency to the comparability and quality of information provided to investors and other key stakeholders of this report. We therefore continue to include a number of performance measures which are based on EPRA methodology.

It should be noted that there is no difference between the Company's IFRS and EPRA NAV in this year's accounts, or in any of our accounts to date.

	2020	2019
EPRA earnings	£12.5m	£14.1m
EPRA earnings per share	5.90p	6.66p
Diluted EPRA earnings per share	5.90p	6.66p
EPRA NAV per share	86.01p	108.72p
EPRA cost ratio (including direct vacancy costs)	20.8%	17.7%
EPRA cost ratio (excluding direct vacancy costs)	20.4%	17.3%
EPRA net initial yield	6.9%	6.0%
EPRA topped up net initial yield	7.0%	6.3%
EPRA vacancy rate	5.1%	2.9%

Net Asset Value (NAV)

At 30 September 2020 our net assets were £181.8 million, equating to net assets per share of 86.01 pence (2019: 108.72p) a fall of 20.9%. This is primarily due to a decrease in the valuation of the investment properties in the year.

The decrease in net assets to £181.8 million is summarised in the table below:

	£ million	Pence per share
NAV at 30 September 2019	229.76	108.72
Decrease in value of investment properties (net of capital expenditure and transaction costs)	(49.99)	(23.65)
Net earnings in the year	12.61	5.96
Less: dividends paid in the year	(10.61)	(5.02)
NAV at 30 September 2020	181.77	86.01

The NAV is predominantly represented by our investment properties, which have a fair value of £273.0 million at the year end. This is included in the financial statements as Investment Properties at £268.2 million with the difference relating to lease incentives. The remaining £86.5 million of net liabilities is made up of: i) (£110.1 million) of debt; ii) £12.3 million of cash and cash equivalents; and iii) £11.3 million of net current assets.

Debt

The Company has two debt facilities with Aviva Commercial Finance Limited for the sum of £111.1 million in aggregate. One facility of £56.9 million will mature in 2025 and the other of £54.2 million will mature in 2027. The facilities have an all-in blended interest rate of 2.86%. The Company is fully compliant with all debt covenants and has significant headroom against income and asset cover breach covenants. Property values in the two facilities would need to drop by more than 27% and 20% respectively, from the 30 September valuations, for the loan-to-value covenant to be breached.

Gearing (debt to total assets) was 37.6% at the year-end (2019: 32.5%). Whilst this is higher than the Board's target range of 30-35%, it does not breach the Company's Investment Policy as no new gearing has been taken on. As noted above, there is headroom against the loan-to-value breach covenants of the debt facilities.

Further details are included in Note 13 of the financial statements.

Cash

As at 30 September 2020 the Company had cash and cash equivalents of £12.3 million with a further £8.2 million drawn under the debt facility which will be drawn down to assist with future asset management or investment opportunities.

Dividends

The Board continued to pay a dividend at the annual rate of 5.75 pence for the first half of the financial year, which was fully covered at that time.

However, due to the impact of COVID-19 which resulted in some tenants withholding rent, the Board took the decision in April 2020 to reduce the monthly dividend payments to an annualised rate of 4.00 pence for the May payment onwards. This meant that the dividend would be fully covered from a cash and accounting perspective, in line with the rent collected from tenants. The Company has provided a fully covered dividend since early 2016 and dividend cover for the year was 118.9%.

The Board declared a dividend of 0.33 pence per share for the month of September which was paid in October 2020. Taking this last dividend with dividends paid to September 2020, dividends for the year amounted to 4.88 pence, equating to a dividend yield of 9.6%, based on a share price of 50.9 pence at the year end. The Company continues to monitor cash collection in reviewing the dividend level and also the aggregate distributions made to ensure compliance with REIT regulations, which, with some flexibility on timing, requires a REIT to distribute 90% of tax exempt rental income as Property Income Distributions (PIDs): a condition that the Company has met since inception.

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. The Company is able to recover all of its VAT.

We continue to pass all the REIT tests to ensure our REIT status is maintained and as mentioned above, the amount to be distributed as PIDs is kept under review.

Summary and outlook

The Company has faced extraordinary challenges in the year, principally around valuation declines (which negatively affected the NAV) and reduced rent collection. That said, positive progress was made with rent collection as the year progressed, with 89.3% of rent collected by the year-end, which is anticipated to rise to 97.2% once deferred and expected rents are paid.

In the short term it is difficult to predict how COVID-19 and any future lockdown restrictions will affect the Company, particularly on future rent collections. Notwithstanding this, the focus will again be on completing additional asset management initiatives to protect and secure income. The development at Haddington completes in June 2021 and will assist with this as it will deliver £875,000 of new income per annum.

The Board remains committed to fully covered monthly dividend payments and the Company's rental income receipts have been sufficient for the Company to hold the reduced dividend with a growing margin of cover. As we navigate our way through the COVID-19 pandemic, the Board is looking for an opportunity to start the process of building the dividend back up again as soon as it is prudent to do so, ensuring that it meets the REIT distribution requirements in the meantime.

Neelum Yousaf

Director of Finance, Ediston Investment Services Limited

Principal and emerging risks

The Board and its advisers have identified the following categories of risk:

-  investment strategy and performance;

-  premium/discount level and share price volatility;

-  financial, which includes the impact of gearing;

-  regulatory;

-  operational; and

-  economic, governmental and exogenous risks outside the Company's control.

During the year the final category has been heightened considerably with direct impact being felt of the COVID-19 pandemic, how the UK Government is responding to it, directly and indirectly, and the continuing uncertain risks over Brexit which has been overshadowed by the direct impact of COVID-19.

These categories of risk are broken into individual key risks with an assessment of potential impact controls and mitigation in place and changes in that environment since the previous year end and any other comments on the risk. Emerging risks have been identified as new.

Risk	Impact	Controls and mitigation in place	Change in the year
INVESTMENT STRATEGY & PERFORMANCE
Strategic direction of the Company and how and where it invests.	Deployment of the Company's capital in areas of the market which are poorer in their return prospects or more affected by structural changes and exogenous risks than other investment areas, with an adverse impact on income and capital values, as well as opportunity cost. Sustainability is a key part of the investment review process in making and retaining investments and how they are developed.	The Board formally reviews the Company's investment objectives and strategies for achieving them on an annual basis, or more regularly if appropriate. During its strategy sessions the Board considers how the assets are positioned and might be better positioned for the longer term. There has been increased focus on sustainability during the year as evidenced by the reports on this subject and the establishment of a specific working group as part of the investment committee.	Increased This increase is due to the current direct impact of the COVID-19 pandemic on UK commercial property and the accelerated impact on ongoing structural changes for particular commercial sectors.
	Impact if occurred: High	Probability of occurring: Medium
Significant exposure to a specific property, tenant, geographic location or to lease expiries in a given year. Heightened by recent exogenous events which have accelerated the impact on certain property sectors and how they are used.	Downturn in an area to which the Company has significant exposure resulting in a reduction in the capital value of investment properties. Significant tenant failure causing a material reduction in revenue profits, impacting on cash flow and dividends.	Although the Company is not invested in accordance with any property benchmark, the investment policy and its restrictions/limits are set by the Board and reviewed quarterly. The limits are monitored at all times by the Investment Manager. The Board and Investment Manager also review at least quarterly other key metrics, such as principal property sector weightings, to ensure these remain appropriate even where there may be no formal limits on exposure. Board approval memorandums state whether there are any concentration issues, which links in with overall strategic imperatives. The Company's AIFM and Depositary monitor compliance with the investment policy and will highlight any breaches of concentration limits.	Increased The Company's portfolio includes 60.6% investment in retail warehouse assets. The retail warehouse assets are in good locations, with strong covenants, at affordable rent levels, have low voids and a WAULT of 6.1 years. The Investment Manager is proactive in monitoring closely developments in the retail industry, anticipating issues, and where appropriate replacing struggling tenants with those with stronger covenants. 56% of the Company's tenants were deemed 'essential' retailers during the lockdown period. Share price performance has been impacted negatively by market sentiment affecting all retail property, but particularly high street shops and shopping centres to which the Company is not exposed.
	Impact if occurred: Medium	Probability of occurring: Medium
Lack of investment opportunities reducing the ability to acquire properties at the required return. Poor investment decisions, incomplete due diligence and mistimed investment of capital.	An inappropriate use of capital which hinders investors' long-term returns. Reduction in revenue profits, impacting on cash flow and dividends.	Thorough due diligence and investment process. Regular review of property performance against acquisition plan. Experienced Investment Manager who sources assets which meet agreed investment criteria. Linkage with overall strategic objectives for the Company. The Investment Committee scrutinises and approves all proposed acquisitions. The Board reviews the portfolio performance at each quarterly meeting and, through the Management Engagement Committee, conducts a formal annual review of the performance of the Investment Manager. Comprehensive profit and cash flow forecasting which models the impact of property transactions at Group level.	No Change All available cash resources are currently identified against asset management and development activities.
	Impact if occurred: Medium	Probability of occurring: Medium
Ineffective active asset management of properties.	High vacancy levels, low tenant retention, sub-optimal rental levels and break clauses exercised resulting in a deterioration of income earned and a fall in the capital value of investment properties. Reduction in revenue profits impacting on cash flow and dividends.	The Investment Manager is experienced in active asset management. Detailed asset management plans are maintained for all properties and details of asset management activities to be undertaken are presented to the Board on at least a quarterly basis. Asset management activity involving significant capital expenditure requires the approval of the Investment Committee. Proactive approach to key lease events. Third party letting and managing agents are employed. Management of unexpected events and proactive approach to maintaining and restoring income and capital values from any properties under threat of erosion of value.	Increased The Investment Manager has undertaken various active asset management activities on the portfolio during the year and has others identified for the short and medium term. These initiatives have helped maintain the income stream of the Company against a difficult climate for tenants, particularly in parts of the retail sector.
	Impact if occurred: High	Probability of occurring: Medium
Poor execution of development projects.	Poor management of development could result in delays and overrun of costs. If development is speculative (which the Company is unlikely to undertake) letting the space could be difficult which could impact on cash flow. Developments produce unsatisfactory total returns from the completed development, relative to the risk and capital deployed on the projects.	The Investment Manager has an experienced development team and has appropriate PI cover. The Investment Manager also uses several consultants to help execute the project. Experienced members of staff are allocated to each development project to ensure the process is monitored closely and forecasts adhered to. The Company engages experienced contractors/consultants. All development is subject to Board review and authorisation for major capital expenditure. The investment policy has restrictions on the amount of development that can be embarked on.	New The assessment of this risk takes into consideration that Haddington is the Group's only current development and that there are restrictions on the Group's total development exposure.
	Impact if occurred: Medium	Probability of occurring: Low
PREMIUM/DISCOUNT LEVEL
Share price volatility.	The Company's share price could be impacted by a range of factors causing it to be higher than (at a premium) or lower than (at a discount) the underlying net asset value per share. Fluctuations in the share price can cause volatility which may not be reflective of the underlying investment portfolio and depend on supply and demand for the shares, market conditions, general investor sentiment and other factors, including political and economic uncertainties. The Company does not have a significant free float of shares and as has been apparent in the last twelve months, relatively small sales or purchases of shares can produce volatile pricing. In common with many generalist UK property vehicles, the rating of the Company's shares has been dramatically impacted since the advent of the COVID-19 crisis in the second quarter of 2020.	The Board monitors closely the market in the Company's shares, including significant purchases and sales. Through the Investment Manager and the Company's stockbroker, institutional investors are kept in regular touch directly with developments in the Company, positive and negative. The Company announces portfolio and any other significant activity between its quarterly net asset value announcements and publication of its interim and final accounts. The Company has the ability to allot shares, and has done so, where there has been demand in the secondary market and issuance has not been dilutive to existing shareholders' interests. The Company also takes the annual authority to buy back shares. However, the Company's intention is to be fully invested and geared, so the use of share buybacks would require a change in the strategic direction of the Company, not least in having liquidity in the portfolio which could only be found through realising longer-term assets. The Board reviews the strategic direction of the Company regularly to ensure that application of the investment policy, the returns generated from it and the objectives of the shareholders are being met. The Company has a Marketing Committee that focuses on trade in the Company's shares and how the corporate message is being communicated to existing and prospective new investors.	Increased In common with other property investment companies, market sentiment towards the UK commercial property sector has deteriorated, resulting in a marked deterioration in the share price. This deterioration in rating has been accelerated by the advent of COVID-19, Government restrictions imposed and has not been helped by general political and economic uncertainty either. The Board and Investment Manager continue to work with shareholders to reinforce the value approach taken to investing in UK commercial properties and not least the resilience of the income from the portfolio.
	Impact if occurred: High	Probability of occurring: High
FINANCIAL
Gearing.	Gearing will accentuate returns if the cost of debt is less than the equity returns or the reverse effect if equity returns are less than the cost of debt.	The Board reviews the level of gearing on a regular basis. The borrowing facilities have prescribed covenants and the Board signs off quarterly returns to the debt provider on asset and income cover. The Investment Manager presents for Board review quarterly cash flow forecasts prepared from the level of detail of individual properties, tenants and future rental projections. The Company has its portfolio reviewed and reported on by an external valuer each quarter. The Board intends to maintain gearing at 30% of Company gross assets at drawdown but will not exceed 35%, at the time of drawdown. In the current circumstances, the level of gearing has exceeded 35% but the covenants, which are based on loan to value, remain well-covered.	Increased The Board will continue to monitor the level of gearing closely. Gearing has recently had a negative drag on performance whereas in the past it was a positive contributor to performance. The Board is closely appraised of the level of cover over debt covenants on net income and asset levels.
	Impact if occurred: Medium	Probability of occurring: Medium
Non-compliance with debt facilities.	A substantial fall in the property asset values or rental income levels could lead to a breach of financial covenants within the Group's debt funding arrangements. This could lead to a cancellation of debt funding, if the Company is unable to service the debt, leaving the Company without sufficient long-term resources to meet its commitments.	Covenants are reviewed on a regular basis. Compliance certificates and reports for the lender are prepared on a quarterly basis by the Investment Manager then reviewed and signed by a Director. It was stated in the Annual Report that the Board intends to maintain gearing at 30% but will not exceed 35% of Company gross assets at drawdown. In the current circumstances the level of gearing has exceeded 35% but the covenants, which are based on loan to value, remain well-covered.	Increased There was an increase in the Company's loan to value ratio at year end, as defined for the purpose of debt funding covenants, from 32.5% to 37.7%, compared with the covenant limit of 50%. The increase was due mainly to the fall in the valuation of the portfolio. Going forward further falls in the valuation would have a negative impact on the ratio although the headroom remains strong and the covenant is not considered to be at risk. The size and diversification of the property portfolio reduces the risk that an asset specific event would significantly impact on the Group's debt covenants.
	Impact if occurred: High	Probability of occurring: Low
Insufficient Working Capital.	Insufficient funds to meet liabilities, operating cash requirements and dividends.	The Investment Manager has a comprehensive 10-year cash flow 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. The forecast model allows the Investment Manager to monitor the cash position and plan in advance. It is reviewed by the Board quarterly. The cash flow model works to a minimum cash balance of £2 million and no lower. The Board monitors operating cash in connection with each monthly dividend announcement and quarterly when the NAV is announced. The Board monitors expense projections and with the Investment Manager, identifies areas of saving where cash can be preserved.	New In common with most property investment companies the resilience of cash receipts from tenants has been tested in the last financial year and the asset cover for covenants has also reduced.
	Impact if occurred: High	Probability of occurring: Medium
Protection of income and asset value in light of the COVID-19 crisis.	Loss of income and/or deterioration in capital values.	Focus on rent collection, protection of future income and reporting to the Board on a regular basis in connection with dividend payments, cash management and debt covenant review. Review on strategic allocation in the invested portfolio for development and divestment opportunities in light of significant changes to market conditions for UK commercial property.	Increased
	Impact if occurred: Medium	Probability of occurring: Medium
regulatory
Non-compliance with laws and regulations.	The Company is required to comply with REIT rules, the Listing Rules, Disclosure Guidance and Transparency Rules, the UK Code, IFRS accounting standards and UK legislation (including the UK Bribery Act, Modern Slavery Act, The Criminal Finances Act 2017, Market Abuse Regulations and GDPR).	The Company uses an experienced tax adviser, auditor, Investment Manager, broker, property managing agent, property valuation agent, Company Secretary, Administrator and firm of solicitors to provide advice and support throughout the year. Strong compliance culture with regular risk reviews undertaken by the Audit and Risk Committee. The resilience of the all of the Company agents was reviewed and tested during the year. No failings have arisen despite the more difficult operating conditions.	No Change Changes in the regulatory environment over the year have not had a significant impact on the risk profile of the Company.
	Impact if occurred: High	Probability of occurring: Low

OPERATIONAL
Health and Safety.	Serious incident occurring at one of the Company's properties resulting in material financial or reputational damage to the Company and/or criminal prosecution.	The Board receives and reviews a quarterly report from the managing agent detailing any relevant matters. The managing agent ensures all matters raised are dealt with promptly. Appropriate insurance cover is in place. Insurers visit each property at least every two years and undertake a risk assessment. The Company ensured its managing agent implemented suitable processes and procedures, in accordance with available guidelines for dealing with COVID-19, in all the Company's retail parks and offices, where it had responsibility for shared or public areas.	No Change No significant changes have occurred in relation to Health and Safety matters over the year.
	Impact if occurred: Medium	Probability of occurring: Low
Lack or failure of internal controls of the Investment Manager or Administrator.	Inadequate segregation of duties or other internal controls could result in a higher probability of error, or fraud not being prevented, resulting in financial loss to the Company.	Significant segregation of duties within the Investment Manager and Administrator as well as between them both, with oversight from the Depositary. Constancy of review and periodic reporting on compliance controls being met.	No change No significant changes have occurred in the internal control environment over the year. However, distanced working does put increased strain over internal controls which has required greater testing of resilience of reporting and controls more generally.
	Impact if occurred: Medium	Probability of occurring: Low
Failure to manage ESG issues.	ESG is becoming increasingly important for investors and featuring in their decision-making processes. If the Company has not adequately addressed ESG matters, new investors may choose to not invest and existing investors could disinvest if the Company does not meet their required ESG standards. At a property level, if ESG matters are not addressed, it could lead to properties being unlettable or unsellable, or could impact on their rental value. Failure to manage climate-related risks including both physical and transition risks, could lead to increased operational costs, business disruption, reduced occupier demand and asset value impairment.	Sustainability Policy has been implemented along with targets and objectives following the completion of a materiality assessment which involved engagement with the Company's key stakeholders to identify issues which were important to them. A Sustainability Working Group has been formed to monitor performance against objectives and Savills has been appointed to provide guidance to the Company on Sustainability matters. At property level suitable due diligence is undertaken when assets are acquired and when refurbishment, asset management or development take place. The Company is better placed to address shifting consumer and investor preferences, which could lead to increased revenues and capital availability. The Company's Sustainability Policy and its annual ESG objectives includes implementation of energy efficiency measures, which is in turn expected to reduce the energy demand and operating costs at property level.	New Sustainability has always been part of the Company's operating review, however, due to the escalation of market sensitivity, it has been introduced as a principal risk this year.
	Impact if occurred: Medium	Probability of occurring: Low
Resilience of sub-agents.	Failure of the sub-agents could result in financial loss, reputational damage or potentially litigation.	The Investment Manager and Board are in regular contact with each sub-agent, with most of them reporting to the Board directly in some capacity. Performance is monitored on an ongoing basis and an annual review is completed and shared with the Board. This includes a recommendation from the Investment Manager if the sub-agent should be retained or not. This regular contact will help to identify any issues with the service being provided. The services of each sub agent are secured via an appointment document with suitable termination provisions included.	New Since the first quarter of 2020 and the introduction of Government restrictions on movement, the Board has worked closely with all the agents to the Company to ensure that they can function under the social distancing conditions.
	Impact if occurred: Medium	Probability of occurring: Low
ECONOMIC, GOVERNMENTAL & EXOGENOUS
Weak economic and/or political environment, including the potential impacts of Brexit.	Lower occupational demand impacting on income, cash flow, rental growth and capital performance.	To a large extent out of the Company's control. Brexit is nearing its conclusions which may be a disorderly exit from the EU, the impact of which is impossible to factor into the Company's direct situation. Asset management remains a high priority and cash control continues to be a strong focus. Sensitivity analysis of the portfolio is undertaken regularly via a comprehensive cash flow model which includes stress testing of cash flows and capital values against loan covenants and the operational requirements of the business, including the payment of monthly dividends.	Increased As last year, the economic and political environment in the UK remains uncertain. This may result in lower occupational demand and, although partially mitigated by the Company's good-quality assets, low vacancy rate, long WAULT and strong covenants, the continuing uncertainty arising from Brexit increases the risk to returns from the UK Commercial property market as a whole.
	Impact if occurred: High	Probability of occurring: High
Exogenous factors outside the Company's control, including the impact of the COVID-19 pandemic.	Reduced rent collection and impact on capital values, as well as overall economic impact. A number of the Company's retail and leisure tenants could be prohibited from operating from their premises and office occupiers encouraged to implement home working for their employees. Tenants should remain liable to pay their rent but not all will be able to and some will choose to not pay. As lockdown restrictions are eased nationally, there could be local restrictions put in place which could impact specific properties.	To a large extent this is out with the control of the Company as Government guidance on restrictions and social distancing will dictate the pace of recovery. The COVID-19 health crisis has plunged the UK into economic and social crisis which has had a dramatic impact on the use of commercial property in all sectors and the operation of all commercial concerns in the UK, with no immediate prospect of an improved situation. The Coronavirus Act 2020, also inhibits landlords from taking action to recover rent arrears. The Investment Manager has been in contact with all tenants who have not paid rent to understand why and, where practical, to agree deferments and repayment plans where it can. Proactive asset management will ensure that lease and investment transactions are undertaken when appropriate to do so. However, challenges will persist until the Government legislation on rent arrears recovery reverts to pre-pandemic methods.	New The impact of COVID-19 first emerged in the UK towards the end of March 2020.
	Impact if occurred: High	Probability of occurring: High

Directors' Responsibilities Statement

The Directors are responsible for preparing the Strategic Report, the Directors' Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 101 'Reduced Disclosure Framework' (UK Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these Financial Statements, the Directors are required to:

-  select suitable accounting policies and then apply them consistently;

-  make judgements and accounting estimates that are reasonable and prudent;

-  state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

-  prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

DIRECTORS' RESPONSIBILITY STATEMENT IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. The Directors consider the Annual Report and the Financial Statements, taken as a whole, provide the information necessary to assess the Company's performance, business model and strategy and are fair, balanced and understandable.

DIRECTORS' RESPONSIBILITY STATEMENT UNDER THE DISCLOSURE GUIDANCE AND TRANSPARENCY RULES

To the best of our knowledge:

-  the Group Financial Statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

-  the Annual Report, including the Strategic Report and the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

DISCLOSURE OF INFORMATION TO THE AUDITOR

The Directors confirm that:

-  so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and

-  the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

William Hill

Chairman

15 December 2020

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2020

		Year ended 30 September 2020			Year ended 30 September 2019
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total£'000
Revenue
Rental income		19,857	-	19,857	20,847	-	20,847
Total revenue		19,857	-	19,857	20,847	-	20,847
Unrealised loss on revaluation of investment properties	9	-	(49,991)	(49,991)	-	(15,732)	(15,732)
Loss on sale of investment properties realised	9	-	-	-	-	(94)	(94)
Total income		19,857	(49,991)	(30,134)	20,847	(15,826)	5,021
Expenditure
Investment management fee	2	(1,882)	-	(1,882)	(2,239)	-	(2,239)
Other expenses	3	(2,160)	-	(2,160)	(1,377)	-	(1,377)
Total expenditure		(4,042)	-	(4,042)	(3,616)	-	(3,616)
Profit/(loss) before finance costs and taxation		15,815	(49,991)	(34,176)	17,231	(15,826)	1,405
Net finance costs
Interest receivable	4	58	-	58	101	-	101
Interest payable	5	(3,258)	-	(3,258)	(3,263)	-	(3,263)
Profit/(loss) before taxation		12,615	(49,991)	(37,376)	14,069	(15,826)	(1,757)
Taxation	6	-	-	-	-	-	-
Profit/(loss) and total comprehensive income for the year		12,615	(49,991)	(37,376)	14,069	(15,826)	(1,757)
Basic and diluted earnings per share	8	5.97p	(23.66)p	(17.69)p	6.66p	(7.49)p	(0.83)p

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 year.

The accompanying notes are an integral part of these Financial Statements.  

Consolidated Statement of Financial Position

As at 30 September 2020

	Notes	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Non-current assets
Investment properties	9	268,246	315,143
		268,246	315,143
Current assets
Trade and other receivables	11	14,164	15,091
Cash and cash equivalents	12	12,308	11,976
		26,472	27,067
Total assets		294,718	342,210
Non-current liabilities
Loans	13	(110,112)	(109,946)
		(110,112)	(109,946)
Current liabilities
Trade and other payables	14	(2,833)	(2,504)
Total liabilities		(112,945)	(112,450)
Net assets		181,773	229,760
Equity and reserves
Called-up equity share capital	16	2,113	2,113
Share premium		125,559	125,559
Capital reserve - investments held		(47,365)	2,626
Capital reserve - investments sold		2,382	2,382
Special distributable reserve		83,162	83,639
Revenue reserve		15,922	13,441
Equity shareholders' funds		181,773	229,760
Net asset value per Ordinary Share	15	86.01p	108.72p

The accompanying notes are an integral part of these Financial Statements.

Company number: 09090446.

The Financial Statements were approved by the Board of Directors on 15 December 2020 and signed on its behalf by:

William Hill

Chairman

Consolidated Statement of Changes in Equity

For the year ended 30 September 2020

	Notes	Share capital account £'000	Share premium £'000	Capital reserve - investments held £'000	Capital reserve - investments sold £'000	Special distributable reserve £'000	Revenue reserve £'000	Total equity £'000
As at 30 September 2019		2,113	125,559	2,626	2,382	83,639	13,441	229,760
Loss and total comprehensive income for the year		-	-	(49,991)	-	-	12,615	(37,376)
Transactions with owners recognised in equity:
Dividends paid	7	-	-	-	-	-	(10,611)	(10,611)
Transfer from special reserve		-	-	-	-	(477)	477	-
As at 30 September 2020		2,113	125,559	(47,365)	2,382	83,162	15,922	181,773

For the year ended 30 September 2019

	Notes	Share capital account £'000	Share premium £'000	Capital reserve - investments held £'000	Capital reserve - investments sold £'000	Special distributable reserve £'000	Revenue reserve £'000	Total equity £'000
As at 30 September 2018		2,113	125,559	18,149	2,685	84,158	11,006	243,670
Loss and total comprehensive income for the year		-	-	(15,732)	(94)	-	14,069	(1,757)
Transfer of prior year's revaluations to realised reserve		-	-	209	(209)	-	-	-
Transactions with owners recognised in equity:
Dividends paid	7	-	-	-	-	-	(12,153)	(12,153)
Transfer from special reserve		-	-	-	-	(519)	519	-
As at 30 September 2019		2,113	125,559	2,626	2,382	83,639	13,441	229,760

The accompanying notes are an integral part of these Financial Statements.

Consolidated Statement of Cash Flow

For the year ended 30 September 2020

	Notes	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Cash flows from operating activities
Loss before tax		(37,376)	(1,757)
Adjustments for:
Interest receivable		(58)	(101)
Interest payable		3,258	3,263
Unrealised revaluation loss on property portfolio		49,991	15,732
Loss on sale of investment property realised		-	94
Operating cash flows before working capital changes		15,815	17,231
Decrease/(increase) in trade and other receivables		620	(731)
Increase/(decrease) in trade and other payables		1,169	(592)
Net cash inflow from operating activities		17,604	15,908
Cash flows from investing activities
Capital expenditure		(3,355)	(3,413)
Sale of investment properties		-	2,906
Net cash outflow from investing activities		(3,355)	(507)
Cash flows from financing activities
Dividends paid		(10,803)	(12,147)
Interest received		58	101
Interest paid		(3,172)	(3,114)
Net cash outflow from financing activities		(13,917)	(15,160)
Net increase in cash and cash equivalents		332	241
Opening cash and cash equivalents		11,976	11,735
Closing cash and cash equivalents	12	12,308	11,976

The accompanying notes are an integral part of these Financial Statements.

Notes to the Consolidated Financial Statements

1. ACCOUNTING POLICIES

(A) BASIS OF PREPARATION

BASIS OF ACCOUNTING

These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, applicable legal and regulatory requirements of the Companies Act 2006 and the Disclosure Guidance and Transparency Rules and Article 4 of the IAS Regulation. The accounts have been prepared on a historical cost basis, except for investment property valuations that have been measured at fair value.

The Notes and Financial Statements are presented in pounds sterling (being the functional currency and presentational currency for the Company) and are rounded to the nearest thousand except where otherwise indicated.

GOING CONCERN

Under the AIC Code, the Board needs to report whether the business is a going concern. In considering this requirement, the Directors have taken the following into account:

-  the Group's projections for the next three years, in particular the cash flows, borrowings and occupancy rate;

-  the ongoing ability to comply comfortably with the Group's financial covenants (details of the loan covenants are included in Note 13);

-  the risks included on the Group's risk register that could impact on the Group's liquidity and solvency over the next 12 months (details of risks are included in the Strategic Report); and

-  the risks on the Group's risk register that could be a potential threat to the Group's business model (details of risks are included in the Strategic Report).

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The Strategic Report also includes the Group's risks and risk management processes.

The Directors made an assessment of Going Concern, under the guidelines of the AIC. Details of this assessment is included in the Directors' Report.

SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of Financial Statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the year end date and the amounts reported for revenue and expenses during the period. The nature of the estimation means that actual outcomes could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.

KEY ESTIMATES

The only significant source of estimation uncertainty relates to the investment property valuations. The fair value of investment properties is determined by independent real estate valuation experts using recognised valuation techniques. The properties have been valued on the basis of 'Fair Value' in accordance with the current editions of RICS Valuation - Global Standards, which incorporate the International Valuation Standards, and the RICS UK National Supplement. Investment property under construction is subject to a higher estimation uncertainty than that of investment property due to the estimation required for future expenditure, which is factored into the valuation models for these properties. In line with the recommendation of the European Public Real Estate Association, all properties have been deemed to be Level 3 under the fair value hierarchy classification set out below. This is described in more detail in Note 9. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. During the period, the external valuers reported on the March and June portfolio values with a material uncertainty provision, in common with most of the UK commercial property sector. This reporting provision was removed for the 30 September valuations.

The fair value measurement for the assets and liabilities are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: unobservable inputs for the asset or liability. Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or a similar instrument. As explained in more detail in Note 9, all investment properties are included in Level 3.

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred.

KEY JUDGEMENTS

Key judgements relate to property acquisitions where different accounting policies could be applied and operating lease contracts. These are described in more detail below, or in the relevant notes to the financial statements.

PROPERTY ACQUISITIONS AND BUSINESS COMBINATIONS

The Group acquires real estate either as individual properties or as the acquisition of a portfolio of properties either directly or through the acquisition of a corporate entity. At the time of acquisition, judgement is applied in determining whether the acquisition represents the acquisition of a business or a property. Where an integrated set of activities, capable of being independently conducted and managed for the purpose of generating a return, is acquired in addition to the property, the Group accounts for the acquisition as a business combination.

Goodwill on business combinations is measured as the fair value of the consideration transferred less the net recognised amount (fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, this is recognised immediately in the Consolidated Statement of Comprehensive Income. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

When the acquisition of a property portfolio, or subsidiary, does not represent a business, it is accounted for as an acquisition of an investment property.

OPERATING LEASE CONTRACTS - THE GROUP AS LESSOR

The Group has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the duration of the lease terms and minimum lease payments, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases. Management has applied judgement in determining that the terms and conditions of the arrangements do not result in a transfer of significant risks and rewards of ownership of these properties and that these should therefore be accounted for as operating leases.

The leases when signed, are for between 5 and 15 years. At the inception of the lease, management do not consider any extension of the leases to be reasonably certain and, as such do not factor any lease extensions into their considerations of lease incentives and the treatment of rental income.

BASIS OF CONSOLIDATION

The Consolidated Financial Statements comprise the financial statements of the Company and its two subsidiaries drawn up to 30 September 2020. Subsidiaries are those entities, including special purpose entities, controlled by the Company and are detailed in Note 10. Control exists when the Company is exposed, or has rights, to variable returns from its investment with the investee and has the ability to affect those returns through its power over the investee. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases.

In preparing the Consolidated Financial Statements, intra-Group balances, transactions and unrealised gains or losses have been eliminated in full. Uniform accounting policies are adopted for all companies within the Group.

(B) REVENUE RECOGNITION

RENTAL INCOME

Rental income, excluding VAT, arising on investment properties is accounted for in the Statement of Comprehensive Income on a straight-line basis over the terms of the individual leases.

Lease incentives including rent-free periods and payments to tenants, are allocated to the Statement of Comprehensive Income on a straight-line basis over the lease term or on another systematic basis, if applicable. Where income is recognised in advance of the related cash flows, an adjustment is made to ensure that the carrying value of the relevant property, including accrued rent disclosed separately within 'trade and other receivables', does not exceed the external valuation.

The Group may from time to time receive surrender premiums from tenants who break their leases early. To the extent they are deemed capital receipts to compensate the Group for loss in value of property to which they relate, they are credited through the capital column of the Statement of Comprehensive Income to capital reserves. All other surrender premiums are recognised within rental income in the Statement of Comprehensive Income.

Amounts drawn down from escrow which arise from rent-free periods are accounted for on an accruals basis and recognised as rental income within the Statement of Comprehensive Income over the length of the time that the rental guarantee exists as it pertains to vacant space and/or rent-free periods.

INTEREST INCOME

Interest income is accounted for on an accruals basis.

SERVICE CHARGES AND EXPENSES RECOVERABLE FROM TENANTS

Where service charges and other expenses are recharged to tenants, the expense and the income received in reimbursement are offset within the Statement of Comprehensive Income and are not separately disclosed, as the Directors consider that the Group acts as agent in this respect. Service charges and other property-related expenses that are not recoverable from tenants are recognised in expenses on an accruals' basis.

(C) OTHER EXPENSES

Expenses are accounted for on an accruals' basis. The Group's investment management and administration fees, finance costs and all other expenses are charged to revenue through the Statement of Comprehensive Income.

Amounts drawn down from escrow which arise from non-recoverable expenses relating to vacant space are recognised as a deduction from expenses.

(D) DIVIDENDS PAYABLE

Dividends are accounted for in the period in which they are paid. All of the dividends are paid as interim dividends and the dividend policy is put to shareholders for approval.

1. ACCOUNTING POLICIES continued

(E) TAXATION

The Group is a REIT and is thereby exempt from tax on both rental profits and chargeable gains. In order to retain REIT status, certain ongoing criteria must be maintained. The main criteria are as follows:

-  at the start of each accounting period, the assets of the tax-exempt business must be at least 75% of the total value of the Group's assets;

-  at least 75% of the Group's total profits must arise from the tax-exempt business;

-  at least 90% of the tax-exempt rental business profits must be distributed in the form of a Property Income Distribution; and

-  the Group must hold a minimum of three properties with no single property exceeding 40% of the portfolio value.

The Directors intend that the Group should continue as a REIT for the foreseeable future, with the result that deferred tax is not recognised on temporary differences relating to the property rental business which is within the REIT structure.

Taxation on any profit or loss for the period not exempt under UK-REIT regulations comprises current and deferred tax. Taxation is recognised in the Statement of Comprehensive Income except to the extent that it relates to items recognised as direct movements in equity, in which case it is also recognised as a direct movement in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates and laws enacted or substantively enacted at the year-end date.

Deferred tax is provided using the liability method on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes calculated using rates and laws enacted or substantively enacted by the end of the period expected to apply. Deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. In determining the expected manner of realisation of an asset the Directors consider that the Group will recover the value of investment property through sale. Deferred tax relating to items recognised directly in equity is recognised in equity and not in profit or loss.

(F) INVESTMENT PROPERTIES

Investment properties consist of land and buildings which are not occupied for use by or in the operations of the Group or for sale in the ordinary course of business but are held to earn rental income together with the potential for capital and income growth.

Investment properties are initially recognised at the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period incurred and included within the book cost of the property.

After initial recognition, investment properties are measured at fair value, with gains and losses recognised in the Statement of Comprehensive Income. Fair value is based on an open market valuation provided by Knight Frank LLP, Chartered Surveyors at the year-end date using recognised valuation techniques appropriately adjusted for unamortised lease incentives, lease surrender premiums and rental adjustments.

The determination of the fair value of investment properties requires the use of estimates such as future cash flows from assets (including lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. These estimates are based on local market conditions existing at the reporting date.

In terms of IAS 40, investments property under construction is measured at fair value, with gains and losses recognised in the Statement of Comprehensive Income. Fair value is based on an open market valuation provided by Knight Frank LLP, Chartered Surveyors at the year-end date. The determination of the fair value of investment property under construction requires the use of estimates such as future cash flows from assets (including lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. These estimates are based on local market conditions existing at the reporting date.

Investment property is derecognised when it has been disposed of or permanently withdrawn from use and no future economic benefit is expected from its disposal. On derecognition, gains and losses on disposals of investment properties are recognised in the Statement of Comprehensive Income and transferred to the capital reserve - investments sold. Recognition and derecognition occurs on the completion of a sale.

(G) CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity of three months or less.

(H) TRADE AND OTHER RECEIVABLES

Rents receivable, which are generally due for settlement at the relevant quarter end, are recognised and carried at the original invoice amount less an allowance for any uncollectable amounts. An expected credit loss methodology is applied to applicable trade and other receivables. Expected credit losses are recognised in the Statement of Comprehensive Income as part of the ongoing assessment. Any incurred losses are written off when identified.

The Group applies the IFRS 9 simplified approach to measuring the expected credit losses ('ECLs') for trade receivables whereby the allowance or provision for all trade receivables are based on the lifetime ECLs. The key estimation techniques including key inputs and assumptions regarding the Group's ECL provision for trade and other receivables are included as part of the Group's assessment of credit risk as set out in Note 19.

(I) INTEREST-BEARING LOANS AND BORROWINGS

All loans and borrowings are initially recognised at the fair value of the consideration received net of arrangement costs associated with the borrowing. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost; any difference is recognised in the Statement of Comprehensive Income over the period of the borrowing using the effective interest method. Amortised cost is calculated by taking into account any loan arrangement costs and any discount or premium on settlement.

The Company discloses the bases and impact of early repayment of debt and also the fair value of the loans but includes the creditor amounts on the accounting policy above.

(J) PROPERTY ACQUISITIONS

Where property is acquired, via corporate acquisitions or otherwise, management considers the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business or the acquisition of an asset.

Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based on their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred taxation arises. Otherwise, acquisitions are accounted for as business combinations.

(K) RESERVES

SHARE PREMIUM

The surplus of net proceeds received from the issuance of new shares over their par value is credited to this account and the related issue costs are deducted from this account. The reserve is non-distributable. The initial share premium account, on the launch of the Company in 2014, was transferred to the special distributable reserve, following shareholder approval and successful application to court.

CAPITAL RESERVES

The following are accounted for in the capital reserve - investments sold:

-  realised gains and losses arising on the disposal of investment properties.

The following are accounted for in the capital reserve - investments held:

-  increases and decreases in the fair value of investment properties held at the period end.

REVENUE RESERVE

The net profit arising in the revenue column of the Statement of Comprehensive Income is added to or deducted from this reserve which is available for paying dividends. Where the Company's revenue reserve is insufficient to fund the dividends paid, a transfer can be made to this reserve from the special distributable reserve.

SPECIAL DISTRIBUTABLE RESERVE

Shortly after the launch of the Company, an application to Court was successfully made for the cancellation of the initial share premium account which allowed the balance of the share premium account at that date to be transferred to the special distributable reserve. This reserve is available for paying dividends and buying back the Company's shares.

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 buy back 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.

(L) CHANGES IN ACCOUNTING POLICIES

The accounting policies adopted are consistent with those of the previous financial year, except that the following new standards have become effective in the current year:

-  IFRS 16 'Leases'

In January 2016, the IASB published the final version of IFRS 16 'Leases' and it was endorsed by the EU on 31 October 2017. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leasing arrangements. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

This standard has not had any impact on the Group's Financial Statements as presented for the current year as there has been no change in the accounting principles applicable to the lessor.

STANDARDS ISSUED BUT NOT YET EFFECTIVE

The following standard has been issued but is not effective for this accounting period and has not been adopted early:

-  IFRS 16 'Leases'

  IFRS 16 'Leases' - COVID-19 related rent concessions.

As a result of the coronavirus (COVID-19) pandemic, rent concessions have been granted to lessees. Such concessions might take a variety of forms, including payment holidays and deferral of lease payments. Lessees can elect to account for such rent concessions in the same way as they would if they were not lease modifications. In many cases, this will result in accounting for the concession as variable lease payments in the period(s) in which the event or condition that triggers the reduced payment occurs.

The standard is not expected to have a material impact on the financial statements or performance of the Group as it is applicable to lessees. The effective date is for annual periods beginning on or after June 2020.

The standard is not expected to have a material impact on the financial statements or performance of the Group and was endorsed by the EU in October 2020.

The Group does not consider the adoption of any new standards or amendments, other than those noted above to be applicable to the Group.

2. INVESTMENT MANAGEMENT FEE

	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Investment management fee	1,882	2,239
Total	1,882	2,239

Ediston Investment Services Limited has been appointed as the Company's alternative investment fund manager (AIFM) and investment manager, with the property management arrangements of the Group being delegated to Ediston Properties Limited. Ediston Investment Services Limited is entitled to a fee 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 management fee on any cash available for investment (being all cash held by the Group except cash required for working capital and capital expenditure) is reduced to 0.475% per annum while such cash remains uninvested.

The Management Agreement may be terminated by either party by giving not less than 12 months' notice. The agreement may be terminated earlier by the Group provided that a payment in lieu of notice, equivalent to the amount the Manager would otherwise have received during the notice period, is made. The Management Agreement may be terminated immediately without compensation if the Manager: is in material breach of the agreement; is guilty of negligence, wilful default or fraud; is the subject of insolvency proceedings; or with a restricted notice period if there occurs a change of the key manager contact to which the Board has not given its prior consent.

3. OTHER EXPENSES

	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Direct operating expenses for investment properties:
- from which income is received	512	356
- from which income is not received	-	-
Administration fee	231	193
Valuation and other professional fees	235	220
Directors' fees	175	176
Public relations and marketing	111	199
Auditor's remuneration for:
Audit services:
- fees payable for the audit of the consolidation and the parent company accounts	39	36
- fees payable for the audit of subsidiaries, pursuant to legislation	38	35
Listing and registrar fees	47	46
Other	72	116
	1,460	1,377
Allowance for expected credit losses	700	-
Total	2,160	1,377

4. INTEREST RECEIVABLE

	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Deposit interest	58	101
Total	58	101

5. INTEREST PAYABLE

	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Loan interest	3,092	3,097
Amortisation of loan set-up costs	166	166
Total	3,258	3,263

6. TAXATION

	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Total tax charge	-	-

A reconciliation of the corporation tax charge applicable to the results at the statutory corporation tax rate to the charge for the year is as follows:

	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Loss before taxation	(37,376)	(1,757)
UK tax at a rate of 19.0% (2019: 19.0%)	(7,101)	(334)
Effects of:
REIT exempt profits	(2,488)	(2,771)
REIT exempt losses	9,498	3,007
Excess management expenses of residual business	91	98
Total tax charge	-	-

The Company served notice to HM Revenue & Customs that the Company, and its subsidiaries, qualified as a Real Estate Investment Trust with effect from 31 October 2014. Subject to continuing relevant UK-REIT criteria being met, the profits from the Group's property rental business, arising from both income and capital gains, are exempt from corporation tax.

The Group has unutilised tax losses carried forward in its residual business of £2,044,000 at 30 September 2020 (2019: £1,693,000). No deferred tax asset has been recognised on this amount as the Group cannot be certain that there will be taxable revenue profits arising within its residual business from which the future reversal of the deferred tax asset could be deducted. Although the Group anticipates sufficient capital profits, these cannot be offset against losses which are revenue in nature.

7. DIVIDENDS

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

	Year ended 30 September 2020		Year ended 30 September 2019
	Pence per share	£'000	Pence per share	£'000
In respect of the prior year:
Twelfth interim dividend	0.4792	1,013	0.4792	1,012
In respect of the current year:
First interim dividend	0.4792	1,013	0.4792	1,012
Second interim dividend	0.4792	1,013	0.4792	1,013
Third interim dividend	0.4792	1,013	0.4792	1,013
Fourth interim dividend	0.4792	1,013	0.4792	1,013
Fifth interim dividend	0.4792	1,013	0.4792	1,013
Sixth interim dividend	0.4792	1,013	0.4792	1,012
Seventh interim dividend	0.3333	704	0.4792	1,013
Eighth interim dividend	0.3333	704	0.4792	1,013
Ninth interim dividend	0.3333	704	0.4792	1,013
Tenth interim dividend	0.3333	704	0.4792	1,013
Eleventh interim dividend	0.3333	704	0.4792	1,013
Total	5.0209	10,611	5.7504	12,153

Since the year end, interim dividends, each of 0.3333 pence per share, have been paid on 30 October 2020 and 27 November 2020. A further interim dividend, of 0.3333 pence per share, will be paid on 31 December 2020.

It is the policy of the Directors to declare and pay dividends as interim dividends. A non-binding resolution to approve the Company's dividend policy will be proposed at the Annual General Meeting (see resolution 9).

In light of the exceptional circumstances affecting global economies and markets, the Board will continue to monitor the Company's cash receipts and net income each month, as well as its ongoing expenses and cash commitments and consider the future payment of monthly dividends accordingly.

8. EARNINGS PER SHARE

Basic and diluted earnings per share.

	Year ended 30 September 2020		Year ended 30 September 2019
	£'000	Pence per share	£'000	Pence per share
Revenue earnings	12,615	5.97	14,069	6.66
Capital earnings	(49,991)	(23.66)	(15,826)	(7.49)
Total earnings	(37,376)	(17.69)	(1,757)	(0.83)
Average number of shares in issue		211,333,737		211,333,737

9. INVESTMENT PROPERTIES

Freehold and leasehold properties	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Opening book cost	312,517	312,676
Opening unrealised appreciation	2,626	18,149
Opening fair value	315,143	330,825
Movements for the period
Purchases	-	-
Sales  - proceeds	-	(2,906)
- loss on sales	-	(303)
Capital expenditure	3,094	3,050
Movement in book cost	3,094	(159)
Unrealised loss realised during the year	-	209
Unrealised gains on investment properties	-	1,400
Unrealised losses on investment properties	(49,991)	(17,132)
Movement in fair value	(49,991)	(15,682)
Closing book cost	315,611	312,517
Closing unrealised (depreciation)/appreciation	(47,365)	2,626
Closing fair value	268,246	315,143

No investments were sold during the year under review.

The Group received £2,906,000 from investments sold in the prior year, the book cost of this investment was £3,080,200 at date of purchase. This investment has been revalued over time and until it was sold any unrealised gains/losses were included in the fair value of the investments.

During the period, expenditure totalling £3,094,000 (2019: £3,050,000), incurred in improving investment properties, has been capitalised to the book cost of the property.

The fair value of the investment properties reconciled to the appraised value as follows:

	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Closing fair value	268,246	315,143
Lease incentives held as debtors (Note 11)	4,729	4,032
Appraised market value per Knight Frank	272,975	319,175

Changes in the valuation of investment properties:

	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Loss on sale of investment properties	-	(303)
Unrealised profit realised during the year	-	209
Loss on sale of investment properties realised*	-	(94)
Unrealised gains on investment properties	-	1,400
Unrealised losses on investment properties	(49,991)	(17,132)
Total loss on revaluation of investment properties	(49,991)	(15,826)

*  Represents the difference between the sales proceeds, net of costs, and the property valuation at the end of the prior year.

The loss on revaluation of investment properties reconciles to the movement in appraised market value as follows:

	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Total loss on revaluation of investment properties	(49,991)	(15,826)
Purchases	-	-
Capital expenditure	3,094	3,050
Sales - proceeds	-	(2,906)
Movement in fair value	(46,897)	(15,682)
Movement in lease incentives held as debtors	697	1,007
Movement in appraised market value	(46,200)	(14,675)

At 30 September 2020, the investment properties were valued at £272,975,000 (2019: £319,175,000, 2018: £333,850,000) by Knight Frank LLP (Knight Frank), in their capacity as external valuers. This includes investment property under construction valued at £3,150,000 (2019: £2,750,000). The valuation was undertaken in accordance with the current editions of RICS Valuation - Global Standards, which incorporate the International Valuation Standards, and the RICS UK National Supplement. 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.

The Group is required to classify fair value measurements of its investment properties using a fair value hierarchy, in accordance with IFRS 13 'Fair Value Measurement'. In determining what level of the fair value hierarchy to classify the Group's investments within, the Directors have considered the content and conclusion of the position paper on IFRS 13 prepared by the European Public Real Estate Association (EPRA), the representative body of the publicly listed real estate industry in Europe. This paper concludes that, even in the most transparent and liquid markets, it is likely that valuers of investment property will use one or more significant unobservable inputs or make at least one significant adjustment to an observable input, resulting in the vast majority of investment properties being classified as Level 3.

Observable market data is considered to be that which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market. In arriving at the valuation Knight Frank will have to make adjustments to observable data of similar properties and transactions to determine the fair value of a property and this will involve the use of considerable judgement.

Considering the Group's specific valuation process, industry guidance, and the level of judgement required in the valuation process, the Directors believe it appropriate to classify the Group's assets within Level 3 of the fair value hierarchy.

All leasehold properties are carried at fair value rather than amortised over the term of the lease. The same valuation criteria are therefore applied to leasehold as freehold properties. All leasehold properties have more than 100 years remaining on the lease term. The Group is not currently a lessee of any of its properties.

The Group's investment properties, which are all commercial properties, are considered to be a single class of assets. There have been no changes to the valuation technique used through the period, nor have there been any transfers between levels.

The key unobservable inputs made in determining the fair values are:

-  estimated rental value (ERV): the rent at which space could be let in the market conditions prevailing at the date of valuation; and

-  net equivalent yield: the equivalent yield is defined as the internal rate of return of the cash flow from the property, assuming a rise to ERV at the next review, but with no further rental growth.

Information on these significant unobservable inputs is disclosed below:

	30 September 2020		30 September 2019
Significant unobservable input	Range	Weighted average	Range	Weighted average
Estimated rental value per sq. ft. per annum	£5 - £43	£13	£5 - £38	£16
Net equivalent yield	5.1% - 9.5%	6.8%	5.0% - 9.0%	6.3%

The Estimated Rental Value (ERV) for the total portfolio is not materially different from the contracted rent which is disclosed.

A decrease in the net equivalent yield applied to the portfolio by 0.25% will increase the fair value of the portfolio by £10,400,000 (2019: £13,100,000), and consequently increase the Group's reported income from unrealised gains on investments. An increase in yield by 0.25% will decrease the fair value of the portfolio by £9,700,000 (2019: £12,100,000) and reduce the Group's income.

10. 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 2020 was £103,379,000 (2019: £127,100,000). The loss of EPIC (No.1) Limited for the year to 30 September 2020 was £17,852,000 (2019: profit of £3,400,000).

EPIC (No.2) Limited is a wholly-owned subsidiary of Ediston Property Investment Company plc and is incorporated in England and Wales (Company number: 10978359). EPIC (No.2) Limited was incorporated on 23 September 2017, having been established to hold the five properties acquired by the Group during the prior year and to enter into the Group's additional loan facility. The net asset value of EPIC (No.2) Limited as at 30 September 2020 was £72,576,000 (2019: £96,400,000). The loss of EPIC (No.2) Limited for the period to 30 September 2020 was £19,046,000 (2019: £4,600,000).

11. TRADE AND OTHER RECEIVABLES

	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Secured balance held with loan provider	8,297	10,767
Capital and rental lease incentives	4,729	4,032
Rent receivable (net of allowance for expected credit losses)	1,121	281
Other debtors and prepayments	17	11
Total	14,164	15,091

The secured balance held with the loan provider represents monies that have been drawn under the Group's loan facilities, which are not currently invested in properties and which have been placed in a secured account with Aviva until required. These monies are available for reinvestment in the Group's investment property portfolio or, if necessary, could be used to partially repay the Group's borrowings. In August 2020, the Company utilised £2,500,000 from the secured account.

Capital and rental lease incentives consist of £3,434,000 (2019: £3,132,000) being the prepayments for rent-free periods recognised over the life of the lease and £1,295,000 (2019: £900,000) relating to capital incentives paid to tenants. As set out in the accounting policy for rental income, an adjustment is made for these amounts to the fair value of the investment properties (see Note 9) to prevent double counting.

Rent receivable is shown net of an allowance for expected credit losses of £700,000 (2019: £nil). Refer to Note 19 for further detail.

12. CASH AND CASH EQUIVALENTS

All cash balances at the year end were held in cash, current accounts or deposit accounts.

	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Cash and cash equivalents	12,308	11,976
Total	12,308	11,976

13. LOANS

	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Principal amount outstanding	111,076	111,076
Set-up costs	(1,612)	(1,612)
Amortisation of loan set-up costs	648	482
Total	110,112	109,946

The Group's loan arrangements are with Aviva Commercial Finance Limited.

The Group has loans totalling £56,920,000 which carry a blended fixed interest rate of 2.99% and mature in May 2025. This rate is fixed for the period of the loan as long as the loan-to-value is maintained below 40%, increasing by ten basis points if the loan-to-value is 40% or higher. These loans are secured over EPIC (No.1) Limited's property portfolio.

The Group also has a loan totalling £54,156,000 which carries a fixed interest rate of 2.73% and matures in December 2027. This rate is fixed for the period of the loan as long as the loan-to-value is maintained below 40%, increasing by ten basis points if the loan-to-value is 40% or higher. This loan is secured over EPIC (No.2) Limited's property portfolio. At year end the covenants were both below 40 per cent LTV.

The Group's weighted average cost of borrowings was 2.86% at 30 September 2020 (2019: 2.86%).

Under the financial covenants relating to the loans the Group has to ensure that for each of EPIC (No.1) Limited and EPIC (No.2) 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%; and

-  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 loans falling due for repayment earlier than the final maturity dates stated above. The Group has complied with all the loan covenants during the year. Under the terms of early repayment relating to the loans, the cost of repaying the loans on 30 September 2020, based on the yield on the Treasury 5% 2025 and Treasury 4.25% 2027 plus a margin of 0.5%, would have been approximately £126,362,000 (2019: £122,890,000), including repayment of the principal of £111,076,000 (2019: £111,076,000).

The fair value of the loans based on a marked-to-market basis, being the yield on the relevant Treasury plus the appropriate margin, was £119,668,000 as at 30 September 2020 (2019: £115,445,000). This includes the principal amount borrowed. Analysis of net debt:

	Cash and cash equivalents 2020 £'000	Borrowing 2020 £'000	Net debt 2020 £'000	Cash and cash equivalents 2019 £'000	Borrowing 2019 £'000	Net debt 2019 £'000
Opening balance	11,976	(109,946)	(97,970)	11,735	(109,780)	(98,045)
Cash flows	332	-	332	241	-	241
Non-cash flows	-	(166)	(166)	-	(166)	(166)
Closing balance	12,308	(110,112)	(97,804)	11,976	(109,946)	(97,970)

14. TRADE AND OTHER PAYABLES

	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Rental income received in advance	1,441	944
VAT payable to HMRC	224	37
Investment management fee payable	430	547
Loan interest payable	444	427
Capital expenditure payable	59	88
Other payables	235	461
Total	2,833	2,504

The Group's payment policy is to ensure settlement of supplier invoices in accordance with stated terms. 

15. NET ASSET VALUE

The Group's net asset value per Ordinary Share of 86.01 pence (2019: 108.72 pence) is based on equity shareholders' funds of £181,773,000 (2019: £229,770,000) and on 211,333,737 (2019: 211,333,737) 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 2020 and 30 September 2019.

16. 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 2019	211,333,737	2,113
Issue of Ordinary Shares	-	-
Closing balance as at 30 September 2020	211,333,737	2,113

The Company did not issue any Ordinary Shares in the last two financial years. The Company did not hold any shares in treasury during the previous two years. Under the Company's Articles of Association, the Company may issue an unlimited number of Ordinary Shares but issuance is subject to shareholder approval.

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.

17. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM

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 year were £175,000 (2019: £176,000) of which £nil (2019: £nil) remained payable at the year end.

Ediston Investment Services Limited, being the AIFM, received investment management fees of £1,882,000 in relation to the year (2019: £2,239,000) of which £430,000 (2019: £547,000) remained payable at the year end. Ediston Properties Limited, being Investment Manager received development management fees of £44,000 in relation to the year (2019: £92,000) of which £nil (2019: £nil) remained payable at the year end.

18. OPERATING SEGMENTS

The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single unified business, being property investment, and in one geographical area, the United Kingdom, and that therefore the Group has no segments. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group's performance is the total return on the Group's net asset value. As the total return on the Group's net asset value is calculated based on the net asset value per share calculated under IFRSs as shown at the foot of the Consolidated Statement of Financial Position, the key performance measure is that prepared under IFRSs. Therefore, no reconciliation is required between the measure of profit or loss used by the Board and that contained in the Financial Statements.

The view that the Group is engaged in a single unified business is based on the following considerations:

-  one of the key financial indicators received and reviewed by the Board is the total return from the property portfolio taken as a whole;

-  there is no active allocation of resources to particular types or groups of properties in order to try to match the asset allocation of an index or benchmark; and

-  the management of the portfolio is ultimately delegated to a single property manager, Ediston Properties Limited.

19. 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 IFRSs, are considered by the Board to be integral to the Group's overall risk exposure.

SECURITIES FINANCING TRANSACTIONS (SFT)

The Company has not, during the year to 30 September 2020 (2019: same), participated in any: repurchase transactions; securities lending or borrowing; buy-sell back transactions; margin lending transactions; or total return swap transactions (collectively called SFT). As such, it has no disclosure to make in satisfaction of the EU regulations on transparency of SFT.

The following table summarises the Group's financial assets and liabilities into the categories required by IFRS 7 'Financial Instruments: Disclosures':

	As at 30 September 2020		As at 30 September 2019
	Held at fair value through profit or loss £'000	Financial assets and liabilities at amortised cost £'000	Held at fair value through profit or loss £'000	Financial assets and liabilities at amortised cost £'000
Financial assets
Trade and other receivables	-	9,418	-	11,048
Cash and cash equivalents	-	12,308	-	11,976
	-	21,726	-	23,024
Financial liabilities
Loan	-	(110,112)	-	(109,946)
Trade and other payables	-	(1,168)	-	(1,523)
	-	(111,280)	-	(111,469)

Apart from the Aviva loans, as disclosed in Note 13, the fair value of financial assets and liabilities is not materially different from their carrying value in the financial statements.

CREDIT RISK

Credit risk is the risk that a counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. At the reporting date, the Group's financial assets exposed to credit risk amounted to £21,726,000 (2019: £23,024,000), consisting of cash of £12,308,000 (2019: £11,976,000), the secured balance held with the loan provider of £8,297,000 (2019: £10,767,000) and rent receivable of £1,121,000 (2019: £281,000).

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 re-letting, maintenance costs, insurances, rates and marketing costs and may have an adverse impact on the financial condition and performance of the Group. The Board receives regular reports on concentrations of risk and any tenants in arrears. The Investment Manager monitors such reports in order to anticipate, and minimise the impact of, defaults by occupational tenants. In assessing the probability of default of the individual debtor. The directors have considered a number of factors including history of default, past experience, future expectations as well as the support the debtor receives from its parent company and the ability to settle the amount receivable when due.

Where there are concerns over the recoverability of rental income, the Group monitors creditworthiness of the tenants and makes provision for potential bad debts based on the ECL model. As at 30 September 2020, collection plans are in place to recover any outstanding amounts. A provision of £700,000 (2019: £nil) was made in respect of doubtful debts. There were no other financial assets which were either past due or considered impaired at 30 September 2020 or at 30 September 2019.

At 30 September 2020, the Group held £8,239,000 (2019: £6,400,000) with RBS and £4,069,000 (2019: £5,500,000) with Bank of Scotland plc. 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. Both RBS and Bank of Scotland plc are 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 2020, Standard & Poor's credit rating for RBS was A-1 and Moody's was P-1. The equivalent credit ratings for Bank of Scotland plc were A-1 and P-1, respectively. 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 are relatively illiquid assets, requiring individual attention to sell in an orderly way. 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 Manager and monitored on a quarterly basis by the Board. In order to mitigate liquidity risk the Group has a comprehensive ten-year cash flow 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. At the reporting date, the maturity of the financial assets was:

FINANCIAL ASSETS AS AT 30 SEPTEMBER 2020

	Three months or less £'000	More than three months but less than one year £'000	More than one year but less than three years £'000	More than three years £'000	Total £'000
Cash and cash equivalents	12,308	-	-	-	12,308
Secured balance held with loan provider	8,297	-	-	-	8,297
Rent receivable	1,121	-	-	-	1,121
Total	21,726	-	-	-	21,726

FINANCIAL ASSETS AS AT 30 SEPTEMBER 2019

	Three months or less £'000	More than three months but less than one year £'000	More than one year but less thanthree years £'000	More than three years £'000	Total £'000
Cash and cash equivalents	11,976	-	-	-	11,976
Secured balance held with loan provider	10,767	-	-	-	10,767
Rent receivable	281	-	-	-	281
Total	23,024	-	-	-	23,024

At the reporting date, the financial liabilities on a contractual maturity basis were:

FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2020

	Three months or less £'000	More than three months but less than one year £'000	More than one year but less than three years £'000	More than three years £'000	Total £'000
Loan	-	-	-	111,076	111,076
Interest payable on loan	802	2,379	6,361	9,367	18,909
Other payables	724	-	-	-	724
Total	1,526	2,379	6,361	120,443	130,709

FINANCIAL LIABILITIES AS AT 30 SEPTEMBER 2019

	Three months or less £'000	More than three months but less than one year £'000	More than one year but less than three years £'000	More than three years £'000	Total £'000
Loan	-	-	-	111,076	111,076
Interest payable on loan	793	2,379	6,361	12,548	22,081
Other payables	1,096	-	-	-	1,096
Total	1,889	2,379	6,361	123,624	134,253

Included in the tables above are payments due to Aviva, including interest payable, in connection with the loans as detailed in Note 13.

INTEREST RATE RISK

Some of the Group's financial instruments will be interest-bearing. They are a mix of both fixed and variable rate instruments with differing maturities. As a consequence, the Group is exposed to interest rate risk due to fluctuations in the prevailing market rate. The Group's exposure to floating interest rates gives cash flow interest rate risk and its exposure to fixed interest rates gives fair value interest rate risk.

The following table sets out the carrying amount of the Group's financial instruments that are exposed to interest rate risk:

	As at 30 September 2020		As at 30 September 2019
	Fixed rate £'000	Variable rate £'000	Fixed rate £'000	Variable rate £'000
Cash and cash equivalents	-	12,038	-	11,976
Secured balance held with loan provider	-	8,297	-	10,767
Loan	(110,112)	-	(109,946)	-

VARIABLE RATE

An increase of 0.50% in interest rates would have decreased the reported loss for the year and decreased the net assets at 30 September 2020 by £102,000 (2019: £114,000), a decrease of 0.50% in interest rates would have had an equal and opposite effect. These calculations are based on the variable rate balances at the respective balance sheet date and are not representative of the year as a whole, nor reflective of actual future conditions.

FIXED RATE

Considering the effect on the loan balance, it is estimated that an increase of 0.50% in interest rates as at the balance sheet date would have decreased its fair value by approximately £3,200,000 (2019: £3,500,000) and a decrease of 0.50% would have increased its fair value by approximately £3,600,000 (2019: £3,300,000). As the loan balance is recognised in the Consolidated Financial Statements at amortised cost, this change in fair value would not have resulted in a change in the reported loss for the year, nor the net assets of the Group at the year end.

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.

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 9. A 10% increase in the value of the investment properties held as at 30 September 2020 would have increased net assets available to shareholders and increased the net income for the year by £27,000,000 (2019: £31,500,000); an equal and opposite movement would have decreased net assets and decreased the net income by an equivalent amount.

The calculations are based on the investment property valuations at the respective balance sheet date and are not representative of the year as a whole, nor reflective of future market conditions.

20. CAPITAL COMMITMENTS

The Group had contractual commitments totalling £4,666,000 in relation to capital works at Coatbridge Pods, Barnsley and Haddington, as at 30 September 2020 (30 September 2019: £nil). The Group did not have any material contractual commitments to refurbish, construct or develop any investment property, or for repair, maintenance or enhancements as at 30 September 2020 (2019: nil).

21. OPERATING LEASES

The Group leases out its investment properties under operating leases. These properties are measured under the fair value model as the properties are held to earn rentals. All leases are non-cancellable with a weighted average unexpired lease term of 5.7 years (2019: 6.1 years).

The Group's investment properties are leased to tenants under the terms of property leases that include rent reviews as determined at the inception of the lease. These reviews can be linked to RPI, fixed rate or stepped rent increases

The following table sets out the maturity analysis of leases receivables, showing the undiscounted lease payments under non-cancellable operating leases receivable by the Group:

	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Year 1	18,646	20,146
Year 2	17,210	19,294
Year 3	13,727	17,605
Year 4	12,111	13,910
Year 5	11,033	11,908
Year 6 and onwards	39,881	48,835
Total	112,608	131,698

The largest single tenant at the year end accounted for 6.59% (2019: 8.6%) of the contracted rent.

22. ALTERNATIVE INVESTMENT FUND MANAGERS (AIFM) DIRECTIVE

Ediston Investment Services Limited (EISL) has been authorised as an AIFM by the FCA under the AIFMD regulations and became the Group's AIFM with effect from 24 February 2016. In accordance with the AIFM Directive, information in relation to the Group's leverage and the remuneration of the Company's AIFM is required to be made available to investors. EISL has provided disclosures on its website, https://www.ediston.com/about-us-ediston-investment-services-limited/ incorporating the requirements of the AIFMD regulations regarding remuneration.

The Group's maximum and actual leverage levels at 30 September 2020 are shown below:

Leverage exposure	Gross method	Commitment method
Maximum limit	3.00	3.00
Actual	1.58	1.60

For the purposes of the AIFM Directive, leverage is any method which increases the Group's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a percentage of the Group's exposure to its net asset value and is calculated on both a gross and commitment method.

Under the gross method, exposure represents the sum of the Group's positions after deduction of cash balances, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and after certain hedging and netting positions are offset against each other.

The leverage limits are set by the AIFM and approved by the Board and are in line with the maximum leverage levels permitted in the Company's Articles of Association. The AIFM is also required to comply with the gearing parameters set by the Board in relation to borrowings.

Detailed regulatory disclosures to investors in accordance with the AIFM Directive are contained on the Company's website.

23. SUBSEQUENT EVENTS

No significant events have occurred between the statement of financial position date and the date when the financial statements have been approved, which would require adjustments to, or disclosure in the financial statements.

 

END

 

 

FR UVUURRVUUAUA