Select a non-UK company and obtain its latest annual financial reporting documents.
Analyse those documents with respect to:
(a) the breakdown between mandatory and voluntary content and scope for impression management;
(b) the external influences on the company’s financial reporting (legal, taxation, corporate finance, the accounting profession, culture);
(c) a possible classification of the company’s accounting system within the major classifications that we have examined.
Refer to relevant regulation and research.
[You should choose a different company from those discussed in classes]
Up to about 2500 words. The submission must be word-processed.
JD January 2011
REG - ING UK Real EstateIT - Annual Financial Report
ING UK Real Estate Income Trust Ltd
05 April 2011
5 April 2011
ING UK Real Estate Income Trust Limited
("IRET" or the "Company")
IRET REPORTS STRONG OPERATIONAL AND FINANCIAL PERFORMANCE
Further progress achieved on internalisation - Company name to be changed to Picton Property Income Limited
ING UK Real Estate Income Trust Limited, a closed-ended, Guernsey registered investment company providing income biased exposure to the UK commercial property sector, today announces its results for the year ended 31 December 2010.
Financial Highlights
· Pre tax profit for the year of £31.9 million (2009: loss of £19.3 million).
· Increase in Net Asset Value to £206.9 million or 60 pence per share (2009: £181.1 million, 55 pence per share).
· Increase in EPRA adjusted NAV to £218.2 million or 63 pence per share (2009: £192.6 million, 58 pence per share).
· Income profit for the year, prior to payment of dividends and excluding investment gains, of £14.2 million.
· Dividends totalling £13.5 million, or 4 pence per share, paid in the year and dividend remained fully covered during the period.
Operational Highlights
· Successful and NAV accretive acquisition of Rugby Estates Investment Trust Plc ('Rugby REIT').
· Non dilutive equity issuance of 14.9 million shares.
· Issuance and subsequent listing of zero dividend preference shares ("ZDPs") to partially fund the acquisition of Rugby REIT.
· Debt capital structure has been further diversified to provide operational flexibility ahead of refinancing within the next 18 months.
· Debt management:
o Continuing disposal programme of non core assets, releasing capital to reduce borrowings further.
o Repurchase of securitised loan notes at a discount to par value and repurchase of ZDPs with cash resources.
· Decision to internalise investment management function with effect from 31 December 2011.
· The Company intends to change its name to Picton Property Income Limited, following the Company's Annual General Meeting in May.
Nick Thompson, Chairman of the Company, said:
"Against a backdrop of an improving property market, the Company has made excellent progress, delivering strong growth in Net Asset Value, reflecting the underlying improvement in the property market and the value accretive acquisition of Rugby REIT in the first half of the year.
"Our aim is to ensure that IRET is the vehicle of choice for those investors seeking income biased exposure to the UK commercial property market. At present we are focussed on a number of initiatives which will help to achieve this. The management of the existing portfolio and maintenance of cashflow remains paramount and we have delivered considerable success in this regard, restructuring a number of leases and maintaining income in a fragile occupier market. In addition, we are focussed on achieving an optimal solution to the refinancing of our lending facilities due in 2012/2013 and we are already progressing plans for this.
"Lastly, our decision to internalise the investment management function is expected to deliver a number of potential benefits to the Company including an aligned management team structure, significant cost savings and the potential to attract a wider group of investors.
"Given these significant strategic initiatives we have taken in enhancing the quality of our portfolio, financial position and the management structure, we believe we are in a strong position for the future."
For further information:
ING Real Estate Investment Management (UK) Limited- 020 7767 5648
Michael Morris
Helen Stott
Financial Dynamics - 020 7831 3113
Dido Laurimore
Laurence Jones
Northern Trust International Fund Administration Services (Guernsey) Limited -
David Sauvarin 01481 745 529
GROUP SUMMARY
ING UK Real Estate Income Trust Limited ("the Company") is a closed-ended, Guernsey registered investment company, launched on the London and Channel Islands' Stock Exchanges on the 25 October 2005. With approximately 900 investors, the Company, together with several subsidiaries including a Guernsey unit trust, four Jersey unit trusts and a UK group of companies, which beneficially hold title to the properties, comprise "the Group".
GROUP OBJECTIVE
The Group aims to provide shareholders with an attractive level of income together with the potential for capital growth. It can invest both directly and indirectly in an investment portfolio comprising properties within the UK and Channel Islands. The Group's focus is on five principal commercial property sectors: office, retail, retail warehouse, industrial and leisure. Maximum borrowings are limited to 65% of gross assets. The investment portfolio is currently managed by ING Real Estate Investment Management (UK) Limited.
FINANCIAL HIGHLIGHTS
> Pre tax profit for the year of £31.9 million (2009: loss of £19.3 million).
> Increase in Net Asset Value to £206.9 million or 60 pence per share (2009: £181.1 million, 55 pence per share).
> Increase in EPRA adjusted NAV to £218.2 million or 63 pence per share (2009: £192.6 million, 58 pence per share).
> Income profit for the year, prior to payment of dividends and excluding investment gains, of £14.2 million.
> Dividends totalling £13.5 million, or 4 pence per share, were paid in the year and remained fully covered during the financial year.
OPERATIONAL HIGHLIGHTS
> Successful and NAV accretive acquisition of Rugby Estates Investment Trust Plc ('Rugby REIT').
> Non dilutive equity issuance of 14.9 million shares.
> Issuance and subsequent listing of zero dividend preference shares ("ZDPs") to partially fund the acquisition of Rugby REIT.
> Debt capital structure has been further diversified to provide operational flexibility ahead of refinancing within the next 18 months.
> Debt management:
· Continuing disposal programme of non core assets, releasing capital to reduce borrowings further.
· Repurchase of securitised loan notes at a discount to par value and repurchase of ZDPs with cash resources.
> Decision to internalise investment management function with effect from 31 December 2011.
> The Company intends to change its name to Picton Property Income Limited, following the Company's Annual General Meeting in May.
Facts and Figures
Year ended 31 December 2010 Year ended 31 December 2009
Net asset value £206.9 million £181.1 million
Net asset value per share 60 pence 55 pence
Dividends paid £13.5 million £9.9 million
Net income for the year £14.2 million £12.0 million
Pre-tax profit/(loss) (including unrealised gains/(losses)) £31.9 million £(19.3) million
Earnings/(loss) per share 9.3 pence (5.9) pence
(loss)/gain on interest rate swaps £(1.6) million £0.6 million
Gain/(loss) on revaluation of portfolio £10.2 million £(25.3) million
Gearing 1 46.6% 43.5%
Share price 53.5 pence 53.8 pence
Net asset value total return 17.2% (8.8)%
Shareholder total return 8.0% 162%
Total expense ratio 1.3% 1.2%
EPRA earnings per share 2 4 pence 4 pence
EPRA net asset value per share 3 63 pence 58 pence
EPRA net initial yield 4 6.9% 7.1%
EPRA topped up initial yield 5 7.2% 7.5%
EPRA vacancy rate 6 10% 7%
EPRA NNNAV 7 60 pence 55 pence
1 Calculated as total debt less cash deposits as a proportion of the property asset value.
2 EPRA (European Public Real Estate Association) earnings per share excludes capital gains/(losses) during the period.
3 EPRA NAV ignores mark to market swap liability or gains.
4 EPRA NIY deducts non-recoverable property operating expenses.
5 EPRA 'topped up' NIY deducts non-recoverable property operating expenses and includes annualised cash rents applied at the expiry of rent free periods.
6 EPRA Vacancy Rate calculated as ERV of vacant space over ERV of portfolio.
7 EPRA NNNAV includes mark to market swap liabilities or gains.
Share Price IRET
NAV IRET
Q4 2005
108.2
104
Q1 2006
120.2
110
Q2 2006
114.7
115.44
Q3 2006
122.5
123
Q4 2006
118
126
Q1 2007
121
129
Q2 2007
106.3
131.44
Q3 2007
101.5
124
Q4 2007
69.5
110.28
Q1 2008
69
102
Q2 2008
47.5
95.14
Q3 2008
46
82.8
Q4 2008
22.5
62.65
Q1 2009
19
52
Q2 2009
29.5
48
Q3 2009
42.5
48
Q4 2009
53.7
53.8
Q1 2010
48
55
Q2 2010
47.5
58
Q3 2010
45.5
58
Q4 2010
53.5
60
Chairman's Statement
2010 was a strong year for the Company which also marked its fifth anniversary since its launch on the London and Channel Islands' Stock Exchanges. It can be observed that against a backdrop of an improving property market, good progress has been made on a number of levels.
Over the year, the Company saw growth in Net Asset Value of 14% from £181.1 million to £206.9 million, reflecting the underlying improvement in asset values, equity issuance and the value accretive acquisition of Rugby Estates Investment Trust Plc ('Rugby REIT') in the first half of the year. The underlying EPRA adjusted Net Asset Value rose 13% from £192.6 million to £218.2 million.
The Company successfully issued 14.9 million shares over the course of the year on a non dilutive basis, despite continuing to trade at a discount to Net Asset Value.
The zero dividend preference shares, issued to part finance the Rugby REIT acquisition, achieved a listing on the London Stock Exchange at the end of 2010 and have the IREZ ticker. The accounts for IRET Securities Limited have also been issued as of today's date.
The Company's assets have continued to outperform the IPD benchmark over a three and five year time horizon as at 31 December 2010 and deliver an income return some 20% ahead of the market. The Company's share price total return performance has also outperformed the UK EPRA index since inception.
Our aim is to ensure that the Company is the vehicle of choice for those investors seeking income biased exposure to the UK commercial property market. At present the Company is focused on three key initiatives which will help to achieve this.
Firstly, the management of the existing portfolio and maintenance of cashflow remains paramount. In 2010 the Company has delivered considerable success in this regard, restructuring a number of leases and maintaining income in a fragile occupier market.
Secondly, the Company is focused on achieving an optimal solution to the refinancing of its securitised facility that is due for renewal within the next 18 months. The Company is already progressing plans for this in conjunction with its advisors. The Company has a good track record of debt management having ensured that its securitised loan notes remained AAA rated during one of the most severe downturns on record. Whilst there is an overall desire to deleverage the structure, this is likely to occur as we move through the real estate cycle.
Thirdly, following a review during 2010, and after much consideration, the Board has made a decision to internalise the investment management function with effect from 1 January 2012. The internalisation is expected to deliver a number of potential benefits to the Company, including: an aligned management team structure focused solely on the Company's interests, a significant cost saving over the short to medium term, anticipated to be in the region of £400,000 per annum which will further enhance the Company's dividend cover, and the potential to attract a wider group of investors than it currently does as many major institutional investors will only invest in internally managed structures. Moreover, it is anticipated that the internalised structure will achieve one of the most efficient cost bases in the Guernsey registered real estate investment company sector. During 2011 the portfolio will continue to be managed by ING Real Estate Investment Management (UK) Limited in accordance with the existing contract.
Furthermore, we are pleased to have secured the services of Michael Morris, the current Fund Manager, who will lead the internalisation process and become Chief Executive of the Company's Investment Management subsidiary in due course. This will ensure uninterrupted continuity of his involvement with the Company throughout 2011. He will be joined by Andrew Dewhirst who will become the Finance Director and be responsible for the Company's financial control and reporting. The Investment Management subsidiary will be located in part of 28 Austin Friars, one of the Company's smaller, multi let, City of London assets.
As a result of these changes, the Company intends to change its name to Picton Property Income Limited and create a wholly owned Investment Management subsidiary called Picton Capital Limited. The Company will ask for shareholder approval for the name change at the forthcoming AGM in May. We will continue to regularly update shareholders throughout the course of this year on any important matters as the internalisation progresses.
Finally there remains 'fall out' from the worst recorded property downturn in over 30 years. Whilst there has been a strengthening in asset values, this is in no way uniform across the market and, whilst scarce, there are still opportunities available to exploit well capitalised companies with a proven track record.
The Company remains alive to such opportunities and is continually looking at ways to enhance shareholder returns and improve both underlying Net Asset Value and Market Capitalisation.
The past year has been an extremely active year for the Company and significant strategic decisions have been taken both in enhancing the quality of its portfolio, financial position and the management of its affairs which places it in a strong position for the future.
Nicholas Thompson
4 April 2011
Responsibility Statement
We confirm to the best of our knowledge:
(a) the Financial Statements, prepared in accordance with International Financial Reporting Standards, 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 as required by Disclosure and Transparency Rules ('DTR') 4.1.12 R; and
(b) the Investment Manager's Report includes a fair review of 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 they face as required by DTR 4.1.12 R.
By order of the Board
Nicholas Thompson
4 April 2011